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| The Flaherty & Crumrine Preferred Income Fund and Preferred Income Opportunity
Fund are closed-end, diversified investment companies which invest primarily
in preferred stocks and related securities. Both pay monthly dividends and
are listed on the New York Stock Exchange. The NYSE symbols are PFD and
PFO, respectively. Both Funds are leveraged with Money Market Cumulative
Preferred (TM) Stock (“MMP®”). The investment objective of each Fund is high current income for holders of its common stock consistent with preservation of capital. What makes the Funds unusual, however, is the use of strategies that are expected to result in the Fund’s income increasing as interest rates rise significantly, while being relatively resistant to declines in interest rates. Since inception, the Funds have achieved superior total returns on net asset value when compared to a peer group of higher-quality closed-end bond funds. They are appropriate for investors who desire high current income but do not want to be locked into a fixed income security. The Funds are intended for both individual and corporate investors, and the latter may achieve additional advantages to the extent they are able to benefit under federal tax laws from the Dividends Received Deduction. |
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Preferred stocks and related securities are senior to common stocks and are generally considered to be a more conservative investment than common stocks. In each Fund, at least 75% of the preferred stocks held must be rated investment grade by either Moody’s or Standard & Poor's (or deemed to be of equivalent quality) at the time of purchase. All other preferred stocks and related securities owned must, at the time of purchase, be rated at least “ba” by Moody’s or “BB” by Standard & Poor's and be issued by a company whose senior debt is rated investment grade by at least one of the foregoing rating agencies. The Funds use hedging strategies designed to help achieve their investment objective. While such strategies entail ongoing costs, they have historically benefited the Funds overall. Hedging strategies, when they are implemented, tend to offset some of the interest rate exposure in a Fund’s portfolio. The success of these strategies will depend upon various market factors, particularly the relationship between the preferred stock and Treasury markets. The MMP® leverage issued by the Funds expands the amount of funds available for portfolio investments. The dividend rate of the MMP® is adjusted every 49 days through a market auction process which has caused the cost of this capital to follow movements in short term interest rates. Leveraging magnifies both the risks and opportunities for the common shares and will be successful only if the Fund is able to earn a return on the additional funds which exceeds the cost of these funds. So far, the MMP® has been a relatively inexpensive source of capital for the Funds. This is attributable to the low level of short term interest rates plus the particular tax appeal of the MMP® to corporate investors. Although PFD and PFO are similar in many ways, there are differences. The primary difference is in the concentrations of the Funds. PFD is concentrated in the banking and utility industries. This means that under normal market conditions, the portfolio will have a minimum of 25% invested in each of these industries and or more than 25% invested in any other industry. PFO is concentrated only in the utility industry. This means that under normal market conditions, the portfolio will have a minimum of 25% invested in the utility industry and no more than 25% invested in any other industry. More information on each Fund can be found by clicking the links below. Also, each Fund’s Annual, Semi-Annual, and Quarterly reports are available on the respective pages. Return to Top |
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