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 20, 2007
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, Conference Room 45A, New York,
New York 10019 at 8:30 a.m. ET, on April 20, 2007, 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
Annual Meetings or any adjournments thereof.
YOUR VOTE IS IMPORTANT!
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.
The Board of Directors of each Fund has fixed the close of business on
January 26, 2007 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,
CHAD C. CONWELL
SECRETARY
February 16, 2007
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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 20, 2007
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 20, 2007, at 8:30 a.m. ET, at the offices of
Willkie Farr & Gallagher LLP, 787 Seventh Avenue, Conference Room 45A, 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 16, 2007, primarily by mail, but proxy solicitations may also be made
by telephone, telefax 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
proportionally 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. This proxy statement and form of proxy are first being
sent to shareholders on or about February 16, 2007.
THE ANNUAL REPORT OF EACH FUND, INCLUDING AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2006, 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. EACH FUND'S ANNUAL REPORT IS ALSO AVAILABLE ON THE
FUNDS' WEBSITE (WWW.PREFERREDINCOME.COM) AND THE SECURITIES AND EXCHANGE
COMMISSION'S ("SEC") WEBSITE (WWW.SEC.GOV).
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 delivered at
the above address prior to the date of the Meeting.
In the event that a quorum is not present at a Meeting, or in the event
that a quorum is present but sufficient votes to approve any of the proposals
are not received, 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" a proposal in favor of such an adjournment with respect to that proposal
and will vote those proxies required to be voted "AGAINST" a proposal against
any such adjournment with respect to that proposal. A shareholder vote may be
taken on a proposal in the Joint Proxy Statement prior to any such adjournment
if sufficient votes have been received for approval of that proposal. Under the
Bylaws 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 respect to
matters to be voted on by the class to which such Share belongs, with pro rata
voting rights for any fractional Shares. On the record date, January 26, 2007,
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) 10,481,215 800
Preferred Income Opportunity Fund (PFO) 11,700,433 700
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, 2007*:
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL/RECORD OWNER TITLE OF CLASS OF OWNERSHIP PERCENT OF CLASS
----------------------- -------------- ------------ ----------------
Cede & Co.** Common PFD - 10,076,378 96.14%
Depository Trust Company Stock (record)
55 Water Street, 25th Floor PFD - 11,401,221 97.44%
New York, NY (record)
10041
MMP(R) PFD - 800 (record) 100%
PFO - 700 (record) 100%
---------------------
* As of January 26, 2007, the Directors and officers, as a group, owned
less than 1% of each class of Shares of each Fund.
** 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 for each of PFD and PFO 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 not approved 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
PROPOSALS PERTAINING TO THAT FUND.
In order that your Shares may be represented at the Meetings, you are
requested to vote on the following matter:
SUMMARY OF VOTING RIGHTS ON PROXY PROPOSALS
PREFERRED INCOME FUND (PFD)
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PROPOSAL COMMON STOCK SHAREHOLDERS MMP(R)SHAREHOLDERS
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1. Election of Directors Common Stock Shareholders as None
a single class elect
one Director: Morgan Gust
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2. Other Business Common Stock and MMP(R) Shareholders, voting together
as a single class
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2
PREFERRED INCOME OPPORTUNITY FUND (PFO)
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PROPOSAL COMMON STOCK SHAREHOLDERS MMP(R)SHAREHOLDERS
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1. Election of Directors Common Stock Shareholders as MMP(R) Shareholders as
a single class elect one a single class elect
Director: Robert F. Wulf one Director: Donald
F. Crumrine
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2. Other Business Common Stock and MMP(R) Shareholders, voting together
as a single class
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PROPOSAL 1: ELECTION OF DIRECTORS
At the Meetings, shareholders are being asked to consider the election
of Directors of each Fund. 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 and until their successors are duly elected and qualified.
NOMINEES FOR THE BOARD OF DIRECTORS
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.
Mr. Gust, a Class III Director of PFD, has been nominated for a
three-year term to expire at PFD's 2010 Annual Meeting of Shareholders and until
his successor is duly elected and qualified. Mr. Wulf and Mr. Crumrine, each a
Class II Director of PFO, have each been nominated for a three-year term to
expire at PFO's 2010 Annual Meeting of Shareholders and until their successors
are duly elected and qualified.
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, are entitled to elect two Directors, and
holders of the Common Stock are entitled to elect the remaining Directors.
However, subject to the provisions of the 1940 Act and each 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 Karen H.
Hogan, as Directors, currently represent holders of MMP(R) of each Fund. Mr.
Crumrine, as a Director of PFO, has been nominated by PFO's Board as a Director
to represent its holders of MMP(R). A quorum of the MMP(R) shareholders must be
present at the Meeting of PFO in order for the proposal to elect Mr. Crumrine to
be considered.
FUND (CLASS) NOMINEE FOR DIRECTOR
PFD (Common Stock) Gust
PFO (Common Stock) Wulf
PFO (MMP(R)) Crumrine
3
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.
NUMBER OF
PRINCIPAL FUNDS IN OTHER
CURRENT 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 Metromedia
Delta Dividend Group, Inc. PFD - since 1997 of Delta Dividend International Group, Inc.
220 Montgomery Street, PFO - since 1997 Group, Inc. (telecommunications);
Suite 426 (investments) Flaherty &
San Francisco, CA 94104 Crumrine/Claymore
Age: 57 P3referred Securities
Income Fund
Incorporated and
Flaherty & Crumrine/
Claymore Total
Return Fund
Incorporated
MORGAN GUST Director Class III Director President of Giant 4 CoBiz, Inc. (financial
301 E. Colorado Boulevard PFD - since inception Industries, Inc. services); Flaherty &
Suite 720 PFO - since inception (petroleum refining Crumrine/Claymore
Pasadena, CA 91101 and marketing) since Preferred Securities
Age: 59 March 2002, and for more Income Fund
than five years prior thereto, Incorporated
Executive Vice President, and and Flaherty &
various other Vice President Crumrine/Claymore
positions at Giant Total Return Fund
Industries, Inc. Incorporated
KAREN H. HOGAN (1) Director Class I Director Retired; 4 Flaherty &
301 E. Colorado Boulevard PFD - since 2005 Community Volunteer; Crumrine/Claymore
Suite 720 Class III Director From September 1985 Preferred Securities
Pasadena, CA 91101 PFO - since 2005 to January 1997, Income Fund
Age: 45 Senior Vice President Incorporated
of Preferred Stock and Flaherty &
Origination at Lehman Crumrine/Claymore
Brothers and, previously, Total Return Fund
Vice President of New Incorporated
Product Development
ROBERT F. WULF Director Class II Director Financial Consultant; 4 Flaherty &
P.O. Box 753 PFD - since inception Trustee, University of Crumrine/Claymore
Neskowin, OR 97149 PFO - since inception Oregon Foundation; Preferred Securities
Age: 69 Trustee, San Francisco Income Fund
Theological Seminary Incorporated
and Flaherty &
Crumrine/Claymore
Total Return Fund
Incorporated
4
NUMBER OF
PRINCIPAL FUNDS IN OTHER
CURRENT 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
------- --------------- ------------ ---------- ------------- --------
INTERESTED
DIRECTOR:
---------
DONALD F. CRUMRINE (2), (3) Director, Class II Director Chairman of the Board 4 Flaherty &
301 E. Colorado Boulevard Chairman of PFD - since inception and Director of Crumrine/Claymore
Suite 720 the Board and PFO - since inception Flaherty & Crumrine Preferred Securities
Pasadena, CA 91101 Chief Executive Incorporated Income Fund
Age: 59 Officer Incorporated
and Flaherty &
Crumrine/Claymore
Total Return Fund
Incorporated
OFFICERS:
ROBERT M. ETTINGER President PFD - since 2002 President and N/A N/A
301 E. Colorado Boulevard PFO - since 2002 Director of Flaherty &
Suite 720 Crumrine Incorporated
Pasadena, CA 91101
Age: 48
R. ERIC CHADWICK Chief Financial PFD - since 2002 Director of Flaherty & N/A N/A
301 E. Colorado Boulevard Officer, Vice PFO - since 2002 Crumrine Incorporated
Suite 720 President and since June 2006;
Pasadena, CA 91101 Treasurer Vice President of
Age: 31 Flaherty & Crumrine
Incorporated since
August 2001;
and previously (since
January 1999) portfolio
manager of Flaherty &
Crumrine Incorporated
CHAD C. CONWELL Chief Compliance PFD - since 2005 Chief Compliance Officer N/A N/A
301 E. Colorado Boulevard Officer, PFO - since 2005 of Flaherty & Crumrine
Suite 720 Vice President Incorporated since
Pasadena, CA 91101 and Secretary September 2005,
Age: 34 Vice President of
Flaherty & Crumrine
Incorporated since July 2005;
from September 1998
to June 2005, Attorney with
Paul, Hastings, Janofsky &
Walker LLP
BRADFORD S. STONE Vice President PFD - since 2003 Director of Flaherty & N/A N/A
392 Springfield Avenue and Assistant PFO - since 2003 Crumrine Incorporated
Mezzanine Suite Treasurer since June 2006;
Summit, NJ 07901 Vice President of
Age: 47 Flaherty & Crumrine
Incorporated since
May 2003; from June
2001 to April 2003,
Director of US Market
Strategy at Barclays
Capital
5
NUMBER OF
PRINCIPAL FUNDS IN OTHER
CURRENT 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:
---------
CHRISTOPHER D. RYAN Vice PFD - since 2005 Vice President of N/A N/A
301 E. Colorado Boulevard President PFO - since 2005 Flaherty & Crumrine
Suite 720 Incorporated since
Pasadena, CA 91101 February 2004; from
Age: 39 October 2002 to February
2004, Product Analyst of
Flaherty & Crumrine
Incorporated;
from 1999 to 2002,
graduate student
LAURIE C. LODOLO Assistant PFD - since 2004 Assistant Compliance N/A N/A
301 E. Colorado Boulevard Compliance PFO - since 2004 Officer of Flaherty &
Suite 720 Officer, Crumrine Incorporated
Pasadena, CA 91101 Assistant since August 2004;
Age: 43 Treasurer and since February 2004,
Assistant Secretary Secretary of Flaherty &
Crumrine Incorporated;
since January 1987,
Account Administrator
of Flaherty & Crumrine
Incorporated
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* The Class III Director of PFD and the Class II Directors of PFO have
each been nominated for a three-year term to expire at each Fund's 2010
Annual Meeting of Shareholders and until their successors are duly
elected and qualified. The Class I Directors of PFD and the Class III
Directors of PFO serve until each Fund's Annual Meeting of Shareholders
in 2008 and until their successors are duly elected and qualified. The
Class II Directors of PFD and Class I Director of PFO serve until each
Fund's Annual Meeting of Shareholders in 2009 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 the Funds' MMP(R).
(2) As a Director, currently represents holders of the Funds' MMP(R) and is
nominated to represent holders of PFO's MMP(R).
(3) "Interested person" of the Funds as defined in the 1940 Act. Mr.
Crumrine is considered an "interested person" because of his
affiliation with Flaherty & Crumrine, which acts as each Fund's
investment adviser.
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 OR NOMINEE SECURITIES HELD IN FUND* (1)(2) FAMILY OF INVESTMENT COMPANIES* (3)
PFD PFO TOTAL
NON-INTERESTED DIRECTORS:
David Gale C C E
Morgan Gust C C E
Karen H. Hogan A A A
6
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY DIRECTOR IN
NAME OF DIRECTOR OR NOMINEE SECURITIES HELD IN FUND* (1)(2) FAMILY OF INVESTMENT COMPANIES* (3)
PFD PFO TOTAL
NON-INTERESTED DIRECTORS:
Robert F. Wulf C C D
INTERESTED DIRECTORS:
Donald F. Crumrine 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 January 26, 2007.
(1) No Director or officer of the Funds owned any shares of MMP(R) on
January 26, 2007.
(2) This information has been furnished by each Director as of January 26,
2007. "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 Incorporated
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 Incorporated or any of their affiliates receives for each
Fund a fee of $9,000 per annum plus $500 for each in-person meeting attended,
and $150 for each telephone meeting attended. In addition, 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 eight meetings
(four of which were held by telephone conference call) and the Board of
Directors of PFO held eight meetings (four of which were held by telephone
conference call) during the fiscal year ended November 30, 2006, and each
Director of each Fund then serving in such capacity attended at least 75% of the
meetings of Directors and of any Committee of which he or she is a member. The
aggregate remuneration paid to the Directors of each Fund for the fiscal year
ended November 30, 2006 is set forth below:
--------------------------------------------------------------------------------
BOARD MEETING TRAVEL AND
ANNUAL AND OUT-OF-POCKET
DIRECTORS FEES COMMITTEE MEETING FEES EXPENSES*
--------------------------------------------------------------------------------
PFD $36,000 $26,250 $4,814
PFO $36,000 $26,250 $4,814
--------------------------------------------------------------------------------
--------------
* Includes reimbursement for travel and out-of-pocket expenses for both
"interested" and "non-interested" Directors ("Independent Directors").
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 thereof; (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 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 23, 2007
and which is available on the Funds' website (www.preferredincome.com). As set
forth in the Charter, management is responsible for (i) preparation,
presentation and integrity of each
7
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 Funds' independent registered
public accounting firm (the "independent accountants") is 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 22,
2007, 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, 2006,
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 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, 2006.
THIS REPORT WAS SUBMITTED BY THE AUDIT COMMITTEE OF EACH FUND'S BOARD OF
DIRECTORS
David Gale
Morgan Gust
Karen H. Hogan
Robert F. Wulf (Chairman)
January 22, 2007
Each Audit Committee was established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the "1934 Act").
Each Audit Committee met four times in connection with its Board of Directors
regularly scheduled meetings during the fiscal year ended November 30, 2006.
Each Audit Committee is composed entirely of each Fund's independent (as such
term is defined by the New York Stock Exchange, Inc.'s listing standards
applicable to closed-end funds, as may be modified or supplemented (the "NYSE
Listing Standards")) Directors, namely Ms. Hogan and Messrs. Gale, Gust and
Wulf.
8
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 Ms. Hogan and Messrs. Gale, Gust and Wulf. The Nominating
Committee of each Fund met twice during the fiscal year ended November 30, 2006.
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, all of the Directors of each
Fund attended the April 21, 2006 Annual Meetings 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,
2006. No executive officer or person affiliated with a Fund received
compensation from a Fund during the fiscal year ended November 30, 2006 in
excess of $120,000. 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
DAVID GALE $14,900 - PFD $59,600(4)
Director $14,900 - PFO
MORGAN GUST $14,750 - PFD $58,700(4)
Director $14,750 - PFO
KAREN H. HOGAN $14,900 - PFD $59,300(4)
Director $14,900 - PFO
ROBERT F. WULF $17,700 - PFD $70,500(4)
Director $17,700 - PFO
-------------
* Represents the total compensation paid for the fiscal year ended
November 30, 2006, to such persons by the Funds and the other funds in
the Flaherty & Crumrine Fund Family, 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, 2006.
9
REQUIRED VOTE
The election of Mr. Gust as a Director of PFD 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. Wulf as a Director of PFO 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 PFO
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 2008
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
19, 2007 and must satisfy the requirements of federal securities laws.
Each Fund's Bylaws 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 at the address set forth on the first page of this proxy statement 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 Bylaws with respect to each matter the shareholder
proposes to bring before the annual meeting.
ADDITIONAL INFORMATION
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2007. KPMG acted as the independent accountants for
each Fund for the fiscal year ended November 30, 2006. 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 to respond to appropriate questions and will have an opportunity to
make a statement, if asked.
Set forth in the table below are audit fees and non-audit related fees
billed to each Fund by KPMG for professional services performed for each Fund's
fiscal years ended November 30, 2005 and 2006, respectively.
FISCAL YEAR ENDED AUDIT-RELATED
FUND NOVEMBER 30 AUDIT FEES FEES TAX FEES* ALL OTHER FEES**
PFD 2005 $36,427 $0 $6,400 $12,100
2006 $38,700 $0 $6,800 $13,300
PFO 2005 $36,500 $0 $6,400 $12,100
2006 $38,700 $0 $6,800 $13,300
------------
* "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.
** "All Other Fees" are those fees billed to each Fund by KPMG in connection
with the preparation of a quarterly agreed-upon-procedures report. These
Agreed-Upon-Procedures ("AUP") are required pursuant to each Fund's
Articles Supplementary. Specifically, Moody's Investors Service and Fitch,
Inc. each require that such AUP be undertaken and a report be provided in
order to maintain their rating on the MMP(R).
10
Each Fund's Audit Committee Charter requires that the Audit Committee
pre-approve all audit and non-audit services to be provided by the independent
accountants to the Fund, and all non-audit services to be provided by the
independent accountants to the Fund's investment adviser and any entity
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 and non-audit
services described above for which KPMG billed each Fund fees for the fiscal
years ended November 30, 2005 and November 30, 2006 were pre-approved by the
Audit Committee.
For each Fund's fiscal year ended November 30, 2006, KPMG did 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 NYSE 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 2006, 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
at the meeting for purposes of determining the presence of a quorum. With
respect to Proposal 1, abstentions do not constitute a vote "for" or "against"
the proposal and will be disregarded in determining the "votes cast" on the
proposal.
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.
11
THIS PAGE LEFT BLANK INTENTIONALLY.
12
THIS PAGE LEFT BLANK INTENTIONALLY.
13
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN
THE ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
--------------------------------------------------------------------------------
PROXY -- FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
--------------------------------------------------------------------------------
PROXY SOLICITED BY 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 Robert M. Ettinger, Teresa M.R. Hamlin and Aaron Remorenko, attorneys
and proxies for the undersigned, each 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, Conference Room 45A, New York,
New York 10019 at 8:30 a.m. ET, on April 20, 2007, and any adjournments or
postponements 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 SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SIDE SIDE
----------- -----------
FLAHERTY & CRUMRINE PREFERRED
INCOME FUND INCORPORATED
Using a BLACK INK pen, mark your votes with an X as shown in this example.
Please do not write outside the designated areas. X
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
--------------------------------------------------------------------------------
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE. . [GRAPHIC OMITTED]
--------------------------------------------------------------------------------
A PROPOSAL -- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE LISTED.
PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSAL.
+
1. Election of Director: FOR WITHHELD
01 - Morgan Gust ---- ----
---- ----
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
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.
[GRAPHIC OMITTED]
B NON-VOTING ITEMS
CHANGE OF ADDRESS -- Please print new address below.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
C AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
Please sign exactly as name(s) appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, corporate officer, trustee,
guardian, or custodian, please give full title.
Date (mm/dd/yyyy) -- Please print date below.
--------------------------------------------
/ /
--------------------------------------------
Signature 1 -- Please keep signature within the box.
--------------------------------------------
--------------------------------------------
Signature 2 -- Please keep signature within the box.
--------------------------------------------
--------------------------------------------
[GRAPHIC OMITTED]
C 1234567890 J N T
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION
IN THE ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
--------------------------------------------------------------------------------
PROXY -- FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
--------------------------------------------------------------------------------
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned holder of shares of Money Market Cumulative Preferred(TM) Stock
("MMP(R)") of Flaherty & Crumrine Preferred Income Fund Incorporated,a Maryland
corporation (the "Fund"), hereby appoints Robert M. Ettinger, Teresa M. R.
Hamlin and Aaron Remorenko, attorneys and proxies for the undersigned, each 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, Conference Room
45A, New York, New York 10019 at 8:30 a.m. ET, on April 20, 2007, and any
adjournments or postponements 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 SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SIDE SIDE
----------- -----------
FLAHERTY & CRUMRINE PREFERRED
INCOME FUND INCORPORATED
Using a BLACK INK pen, mark your votes with an X as shown in this
example. Please do not write outside the designated areas. X
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
A NON-VOTING ITEMS
CHANGE OF ADDRESS -- Please print new address below.
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
B AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
Please sign exactly as name(s) appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, corporate officer, trustee,
guardian, or custodian, please give full title.
Date (mm/dd/yyyy) -- Please print date below.
------------------------------------------------
/ /
------------------------------------------------
Signature 1 -- Please keep signature within the box.
------------------------------------------------
------------------------------------------------
Signature 2 -- Please keep signature within the box.
------------------------------------------------
------------------------------------------------
[GRAPHIC OMITTED]
C 1234567890 J N T
00AV COY###1