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
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: ________________________________________________________________
PREFERRED INCOME FUND INCORPORATED
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
To Be Held on April 25, 2003
To the Shareholders:
Notice is hereby given that the Annual Meetings of Shareholders of
Preferred Income Fund Incorporated and 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, 787
Seventh Avenue, 38th Floor, New York, New York 10019 at 8:30 a.m., on April 25,
2003, 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 Board of Directors of each Fund has fixed the close of business on
February 7, 2003 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,
Robert M. Ettinger
SECRETARY
February 21, 2003
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
PREFERRED INCOME FUND INCORPORATED
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
ANNUAL MEETINGS OF SHAREHOLDERS
April 25, 2003
JOINT PROXY STATEMENT
This document is a joint proxy statement ("Joint Proxy Statement") for
Preferred Income Fund Incorporated ("Preferred Income Fund" or "PFD") and
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 25,
2003, at 8:30 a.m., at the offices of Willkie Farr & Gallagher, 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 21, 2003, 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"), the investment adviser of each Fund, and PFPC Inc., the transfer
agent and administrator of each Fund and a majority-owned subsidiary 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 ANNUAL REPORT OF EACH FUND, INCLUDING AUDITED FINANCIAL STATEMENTS FOR
THE FISCAL YEAR ENDED NOVEMBER 30, 2002, 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, February 7, 2003,
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 10,081,681 800
Preferred Income Opportunity Fund 11,395,986 700
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 February 7, 2003*:
NAME AND ADDRESS OF BENEFICIAL/ AMOUNT AND NATURE
RECORD OWNER TITLE OF CLASS OF OWNERSHIP PERCENT OF CLASS
------------ -------------- ------------ ----------------
The Commerce Group, Inc.** Common PFD - 2,860,600 28.4%
211 Main Street Shares (beneficial)
Webster, MA PFO - 3,756,043 33.0%
01570 (beneficial)
Cede & Co.*** Common PFD - 9,546,346 94.7%
Depository Trust Company Shares (record)
55 Water Street, 25th Floor PFO - 10,833,642 95.1%
New York, NY (record)
10041
MMP(R) PFD - 800 (record) 100%
Shares PFO - 700 (record) 100%
<FN>
- ---------------
* As of February 7, 2003, the Directors and Officers, as a group, owned less than 1% of each class of
Shares.
** Considered to be a control person of the Fund, as such term is defined in Section 2(a)(9) of the
Investment Company Act of 1940, as amended (the "1940 Act"). Information as to beneficial ownership of
The Commerce Group, Inc. is based on reports filed with the Securities and Exchange Commission (the
"SEC") and state regulatory agencies by such holder of PFD and PFO on August 13, 2002 and September 19,
2002, respectively.
*** A nominee partnership of The Depository Trust Company.
</FN>
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 matters:
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:
2
CLASS I DIRECTORS CLASS II DIRECTORS CLASS III DIRECTORS
----------------- ------------------ -------------------
Martin Brody Donald F. Crumrine Robert M. Ettinger
David Gale Robert F. Wulf Morgan Gust
The Class II Directors of Preferred Income Fund and Class I Directors
of Preferred Income Opportunity Fund all have been nominated for a three-year
term to expire at each Fund's 2006 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 III
Directors of Preferred Income Fund and Class II Directors of Preferred Income
Opportunity Fund serve until each Fund's Annual Meeting of Shareholders in 2004.
Each Fund will also be asked to elect Robert M. Ettinger as a Class III
Director. Mr. Ettinger was elected to the Board on October 18, 2002 to fill the
vacancy created by the resignation of Mr. Robert T. Flaherty. 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 1940 Act, holders of Shares 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 Shares 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 Shares of MMP(R), would give the holders of
Shares of MMP(R) a majority of the Directors. Donald F. Crumrine and Morgan Gust
as Directors currently represent holders of Shares of MMP(R) of each Fund. A
quorum of the MMP(R) shareholders must be present at the Meeting of Preferred
Income Fund in order for the proposal to elect Mr. Crumrine to be considered.
FUND (CLASS) NOMINEE(S) FOR DIRECTOR
----------- -----------------------
PFO (Common Stock) Brody
Ettinger
Gale
PFD (Common Stock) Ettinger
Wulf
PFD(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
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUNDS TIME SERVED* FIVE YEARS BY DIRECTOR** HELD BY DIRECTOR
- -------- --------------- ------------- ----------- ------------- ----------------
NON-INTERESTED
DIRECTORS:
- ----------
MARTIN BRODY Director Class I Director Retired 3 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: 81 Funds (18 funds)
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
- -------- --------------- ------------- ----------- ------------- ----------
DAVID GALE Director Class I Director President and CEO 3 --
Delta Dividend Group, Inc. PFD - since 1997 of Delta Dividend
220 Montgomery Street, PFO - since 1997 Group, Inc.
Suite 426 (investments)
San Francisco, CA 94104
Age: 54
MORGAN GUST (1) Director Class III Director Since March 2002, 3 --
Giant Industries, Inc. PFD - since 1991 President and previously
23733 N. Scottsdale Road PFO - since 1992 held other officerships
Scottsdale, AZ 85255 of Giant Industries, Inc.
Age: 55 (petroleum refining
and marketing)
ROBERT F. WULF Director Class II Director Financial Consultant; 3 --
3560 Deerfield Drive South PFD - since 1991 Trustee, University of
Salem, OR 97302 PFO - since 1992 Oregon Foundation;
Age: 65 Trustee, San Francisco
Theological Seminary
INTERESTED
DIRECTORS:
- ----------
DONALD F. CRUMRINE (1)(2) Director, Class II Director Chairman of the Board 3 --
301 E. Colorado Boulevard Chairman of PFD - since 1991 and previously held other
Suite 720 the Board and PFO - since 1992 officerships of Flaherty &
Pasadena, CA 91101 Chief Executive Crumrine; Director of
Age: 55 Officer Flaherty & Crumrine
ROBERT M. ETTINGER (2) Director, Class III Director President and previously 2 --
301 E. Colorado Boulevard President and PFD - since 2002 held other officerships
Suite 720 Secretary PFO - since 2002 of Flaherty & Crumrine;
Pasadena, CA 91101 Director of Flaherty &
Age: 44 Crumrine
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
- -------- --------------- ------------- ----------- ------------- ----------
OTHER
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: 47 President,
Treasurer and
Assistant Secretary
ROBERT E. CHADWICK Assistant Officer Vice President of N/A N/A
301 E. Colorado Boulevard Treasurer PFD - since 2002 Flaherty & Crumrine
Suite 720 PFO - since 2002 since August 2001,
Pasadena, CA 91101 and previously (since
Age: 27 January 1999) portfolio
manager of Flaherty &
Crumrine. Prior to that,
portfolio manager of
Koch Industries, Inc.
<FN>
- -------------------
* The Class II Directors of Preferred Income Fund and Class I Directors of Preferred Income Opportunity
Fund all have been nominated for a three-year term to expire at each Fund's 2006 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 III Directors of Preferred Income Fund and Class II Directors
of Preferred Income Opportunity Fund serve until each Fund's Annual Meeting of Shareholders in 2004.
** The funds in the fund complex are: Preferred Income Fund Incorporated, Preferred Income Opportunity Fund
Incorporated and F&C/Claymore Preferred Securities Income Fund Incorporated.
(1) As a Director, represents holders of shares of the Funds' Money Market Cumulative Preferred(TM) Stock.
(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.
</FN>
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
Preferred Funds 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 B B B
David Gale C C C
Morgan Gust C C D
Robert F. Wulf C C C
INTERESTED DIRECTORS:
Donald F. Crumrine E E E
Robert M. Ettinger E E E
<FN>
- -----------------
* 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, 2002.
(1) No Director or officer of the Funds owned any shares of MMP(R)on February 7, 2003.
(2) This information has been furnished by each Director as of February 1,
2003. "Beneficial Ownership" is determined in accordance with Rule
16a-1(a)(2) of the 1934 Act.
(3) As a group, less than 1%.
</FN>
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 $100 for each telephone meeting.
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 seven meetings (three of which were
held by telephone conference call) during the fiscal year ended November 30,
2002, 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. The aggregate remuneration paid to the Directors and officers of
each Fund for the fiscal year ended November 30, 2002 amounted to $81,650 and
$81,148 for PFD and PFO, respectively (including reimbursement for travel and
out-of-pocket expenses for both "interested" and independent Directors).
AUDIT COMMITTEE REPORT
The role of each Fund's Audit Committee is to assist the Board of Directors
in its oversight of each Fund's financial reporting process. 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 14, 2002. As set
forth in the Charter, management is responsible for the preparation,
presentation and integrity of each Fund's financial statements, and for the
procedures designed to ensure 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.
6
In performing its oversight function, at a meeting held on January 16,
2003, the Audit Committee reviewed and discussed with management and the
independent accountants, KPMG LLP ("KPMG"), the audited financial statements of
each Fund as of and for the fiscal year ended November 30, 2002, 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
may have on the objectivity and independence of the independent accountants.
The members of the Audit Committee are not 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, 2002.
THIS REPORT WAS SUBMITTED BY THE AUDIT COMMITTEE OF EACH FUND'S BOARD OF
DIRECTORS
Martin Brody
David Gale
Morgan Gust
Robert Wulf
January 16, 2003
Each Audit Committee met two times during the fiscal year ended November
30, 2002. Each Board of Directors has an Audit Committee composed entirely of
each Fund's independent (as such term is defined by the New York Stock Exchange,
Inc.'s listing standards) Directors: Messrs. Brody, Gale, Gust and Wulf.
OTHER COMMITTEES
Each Board of Directors has a Nominating Committee composed entirely of
each Fund's independent Directors: Messrs. Brody, Gale, Gust and Wulf. The
Nominating Committee is responsible for considering candidates for election to
the Board of Directors of each Fund in the event a position is vacated or
created. The Nominating Committee will consider recommendations by shareholders
if a vacancy were to exist. Any such recommendations should be forwarded to the
Secretary of the relevant Fund. The Nominating Committee of each Fund met two
times during the fiscal year ended November 30, 2002.
COMPENSATION
The following table sets forth certain information regarding the
compensation of each Fund's Directors for the fiscal year ended November 30,
2002. No executive officer or person affiliated with the Fund received
compensation from the Fund during the fiscal year ended November 30, 2002 in
excess of $60,000. Directors and executive officers of the Funds do not receive
pension or retirement benefits from the Funds.
7
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 (2)
Director, Chairman of the Board
and Chief Executive Officer
ROBERT M. ETTINGER $0 $0 (2)
Director, President and Secretary
MARTIN BRODY $13,300 - PFD $26,500 (2)
Director $13,200 - PFO
DAVID GALE $13,600 - PFD $27,100 (2)
Director $13,500 - PFO
MORGAN GUST $13,700 - PFD $27,300 (2)
Director $13,600 - PFO
ROBERT F. WULF $13,800 - PFD $27,400 (2)
Director $13,600 - PFO
<FN>
- --------------
* Represents the total compensation paid to such persons by the Funds for the fiscal year ended
November 30, 2002, 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, 2002.
</FN>
REQUIRED VOTE
The election of Messrs. Ettinger and Wulf as Directors 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. Crumrine 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 Messrs. Brody, Ettinger and Gale as Directors 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.
EACH BOARD OF DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" EACH NOMINEE AS DIRECTOR.
8
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 2004
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
25, 2003.
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, 2003. 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 the representative so desires, and will be available to respond
to appropriate questions.
PricewaterhouseCoopers LLP ("PwC"), 160 Federal Street, Boston,
Massachusetts 02110, served as independent accountants for each Fund since each
Fund's respective commencement of operations until October 17, 2001 when PwC
resigned as each Fund's auditor. PwC's reports on each Fund's financial
statements for the previous two years contained no adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope, or
accounting principles.
Additionally, during the two fiscal years immediately preceding PwC's
resignation, and through October 17, 2001, there were no disagreements with PwC
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of PwC, would have caused them to make reference to the
subject matter of the disagreement in their report on the financial statements
for such years.
Set forth in the table below are audit fees and non-audit related fees
billed to each Fund by KPMG for professional services received for each Fund's
fiscal year ended November 30, 2002. No fees were billed by KPMG to the Funds'
adviser or its affiliates.
FINANCIAL INFORMATION SYSTEMS
FUND AUDIT FEES* DESIGN AND IMPLEMENTATION FEES ALL OTHER FEES
- ---- ----------- ------------------------------ --------------
PFD $41,300 $0 $5,500
PFO $41,300 $0 $5,500
- --------------
* Includes $8,800 which was 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 Investors Service, Inc. in connection
with maintaining public ratings for the Funds' MMP(R) shares.
The Audit Committee has considered and concluded that the provision of
non-audit services to each Fund and professional services to the Funds'
investment adviser and those affiliates thereof that provide services to the
Funds is compatible with maintaining the auditors' independence.
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 101
Federal Street, 6th Floor, Boston, Massachusetts 02110.
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 2002, all such
filing requirements applicable to such persons were met.
9
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 are they 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
PREFERRED INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Money Market Cumulative Preferred(TRADE
MARK) Stock ("MMP(REGISTER MARK)") of Preferred Income Fund Incorporated, a
Maryland corporation (the "Fund"), hereby appoints Donald F. Crumrine, Robert M.
Ettinger and Jocelyn Fulmor, 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(REGISTER MARK), 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, 787 Seventh Avenue,
38th Floor, New York, New York 10019 at 8:30 a.m., on April 25, 2003, 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
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) Donald F. Crumrine
[ ] [ ]
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:
------------------ ------- ----------------- -----
PREFERRED INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of Preferred Income Fund
Incorporated, a Maryland corporation (the "Fund"), hereby appoints Donald F.
Crumrine, Robert M. Ettinger and Jocelyn Fulmor, 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, 787 Seventh
Avenue, 38th Floor, New York, New York 10019 at 8:30 a.m., on April 25, 2003,
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
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 NOMINEES AS DIRECTORS.
PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSAL.
1. ELECTION OF DIRECTORS
NOMINEES: (01) Robert M. Ettinger and (02) Robert F. Wulf
[ ] [ ]
FOR AGAINST
THE BOARD OF DIRECTORS RECOMMENDS
THAT THE SHAREHOLDERS VOTE "FOR"
THE ELECTION OF THE NOMINEES AS
DIRECTORS.
[ ] --------------------------------------
For all nominees except as noted above
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:
------------------ ------- ----------------- -----