NOTICE OF ANNUAL MEETINGS OF
SHAREHOLDERS
To Be Held on April 17, 2014
To the Shareholders:
Notice is hereby given that the
Annual Meetings of Shareholders of Flaherty & Crumrine Preferred Income Fund
Incorporated, Flaherty & Crumrine Preferred Income Opportunity Fund
Incorporated, Flaherty & Crumrine Preferred Securities Income Fund
Incorporated, Flaherty & Crumrine Total Return Fund Incorporated and
Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated (each, a
Fund and collectively, the Funds), each a Maryland corporation, will be held
at the offices of Flaherty & Crumrine Incorporated, 301 E. Colorado
Boulevard, Suite 720, Pasadena, California 91101 at 9:00 a.m. PT, on April 17,
2014, for the following purposes:
|
Each
Fund:
|
|
|
|
|
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 or
postponements thereof.
|
Your vote is
important!
The Board of Directors of each Fund has fixed the close of business on
January 17, 2014 as the record date for the determination of shareholders of
each Fund entitled to notice of and to vote at the Annual Meetings and any
adjournments or postponements thereof.
|
By Order of the Boards of
Directors,
|
|
|
March __, 2014
|
Chad C. Conwell
|
|
Secretary
|
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meetings to Be
Held on April
17, 2014
The notice of Annual Meetings, joint
proxy statement, proxy cards and each Funds annual report for the fiscal year
ended November 30, 2013 are available to you on the Funds website -
www.preferredincome.com. You are encouraged to review all of the information
contained in the proxy materials before voting.
To obtain directions to attend the
Annual Meetings and vote in person, please call 1-626-795-7300.
SEPARATE PROXY CARDS ARE ENCLOSED
FOR EACH FUND IN WHICH YOU OWN SHARES.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE ASK THAT YOU PLEASE VOTE
PROMPTLY. INSTRUCTIONS FOR THE PROPER VOTING AND/OR EXECUTION OF PROXIES ARE SET
FORTH ON THE INSIDE COVER. SHAREHOLDERS MAY SUBMIT VOTING INSTRUCTIONS BY
SIGNING AND DATING THE PROXY CARD OR VOTING INSTRUCTION FORM AND RETURNING IT IN
THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
FLAHERTY & CRUMRINE PREFERRED
INCOME FUND INCORPORATED (NYSE: PFD)
FLAHERTY & CRUMRINE PREFERRED INCOME
OPPORTUNITY FUND INCORPORATED (NYSE: PFO)
FLAHERTY & CRUMRINE PREFERRED
SECURITIES INCOME FUND INCORPORATED (NYSE: FFC)
FLAHERTY & CRUMRINE TOTAL
RETURN FUND INCORPORATED (NYSE: FLC)
301 E. Colorado Boulevard, Suite
720
Pasadena, California 91101
NOTICE OF SPECIAL MEETINGS OF
SHAREHOLDERS
To Be Held on April 17,
2014
To the Shareholders:
Notice is hereby given that the
Special Meetings of Shareholders of Flaherty & Crumrine Preferred Income
Fund Incorporated, Flaherty & Crumrine Preferred Income Opportunity Fund
Incorporated, Flaherty & Crumrine Preferred Securities Income Fund
Incorporated and Flaherty & Crumrine Total Return Fund Incorporated (each, a
Fund and collectively, the Funds), each a Maryland corporation, will be held
at the offices of Flaherty & Crumrine Incorporated, 301 E. Colorado
Boulevard, Suite 720, Pasadena, California 91101 at 9:30 a.m. PT, on April 17,
2014, for the following purposes:
|
Each
Fund:
|
|
|
|
|
1.
|
To approve a change to each Funds fundamental investment policy
regarding investments in commodities (Proposal 1).
|
|
|
|
|
2.
|
To transact such other business as
may properly come before the Special Meetings or any adjournments or
postponements thereof.
|
Your vote is
important!
The Board of Directors
of each Fund has fixed the close of business on January 17, 2014 as the record
date for the determination of shareholders of each Fund entitled to notice of
and to vote at the Special Meetings and any adjournments or postponements
thereof.
|
By Order of the Boards of
Directors,
|
|
|
March __, 2014
|
Chad C. Conwell
|
|
Secretary
|
Important Notice Regarding the
Availability of Proxy Materials for the Special Meetings to Be
Held on April
17, 2014
The notice of Special Meetings,
joint proxy statement, proxy cards and each Funds annual report for the fiscal
year ended November 30, 2013 are available to you on the Funds website -
www.preferredincome.com. You are encouraged to review all of the information
contained in the proxy materials before voting.
To obtain directions to attend the
Special Meetings and vote in person, please call 1-626-795-7300.
SEPARATE PROXY CARDS ARE ENCLOSED
FOR EACH FUND IN WHICH YOU OWN SHARES.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE ASK THAT YOU PLEASE VOTE
PROMPTLY. INSTRUCTIONS FOR THE PROPER VOTING AND/OR EXECUTION OF PROXIES ARE SET
FORTH ON THE INSIDE COVER. SHAREHOLDERS MAY SUBMIT VOTING INSTRUCTIONS BY
SIGNING AND DATING THE PROXY CARD OR VOTING INSTRUCTION FORM AND RETURNING IT IN
THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
- 2 -
FLAHERTY & CRUMRINE PREFERRED
INCOME FUND INCORPORATED (NYSE: PFD)
FLAHERTY & CRUMRINE PREFERRED INCOME
OPPORTUNITY FUND INCORPORATED (NYSE: PFO)
FLAHERTY & CRUMRINE PREFERRED
SECURITIES INCOME FUND INCORPORATED (NYSE: FFC)
FLAHERTY & CRUMRINE TOTAL
RETURN FUND INCORPORATED (NYSE: FLC)
FLAHERTY & CRUMRINE DYNAMIC
PREFERRED AND INCOME FUND INCORPORATED (NYSE: DFP)
301 E. Colorado Boulevard, Suite
720
Pasadena, California 91101
QUESTIONS AND ANSWERS
Important Information to Help You
Understand and Vote on the Proposals at the Annual Meetings and Special
Meetings.
While we strongly encourage
you to read the full text of the enclosed combined joint proxy statement, we are
also providing you with a brief overview of the proposals on which shareholders
are requested to vote. Your vote is important.
QUESTIONS AND ANSWERS
What are the proposals being
considered at the Annual Meetings of Shareholders (Annual Meetings) and
Special Meetings of Shareholders for PFD, PFO, FFC and FLC (Special Meetings,
together with the Annual Meetings, the Meetings)?
At the Annual Meetings, shareholders
are being asked to vote on the following proposals:
|
(1)
|
|
To elect Directors of each Fund
(Proposal 1).
|
|
|
|
(2)
|
|
To transact such other business
as may properly come before the Annual Meeting or any adjournments or
postponements thereof.
|
At the Special Meetings for PFD, PFO,
FFC and FLC, shareholders are being asked to vote on the following
proposals:
(1)
|
|
To approve a change to each Funds fundamental
investment policy regarding investments in commodities (Proposal
1).
|
|
(2)
|
|
To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements
thereof.
|
How does the Board recommend I vote?
The Board has unanimously approved, and
recommends that you vote FOR Proposal 1 at the Annual Meetings.
The Board has unanimously approved, and
recommends that you vote FOR Proposal 1 at the Special Meetings for PFD, PFO,
FFC and FLC.
Who is eligible to vote at the
Meetings?
Shareholders of record as of the close
of business on January 17, 2014 are eligible to vote at the relevant Meetings.
I only have a few shares. Why should I bother to vote?
Each vote makes a difference. Your vote
is needed to help ensure that the proposals can be acted upon. Voting promptly
is also important. If we do not receive enough votes, we may have to re-solicit
shareholders, which can be costly, time consuming and may delay the Meetings. We
encourage all shareholders to participate in the governance of their Fund and to
avoid unnecessary communications with you as a shareholder.
- 3 -
What if I have additional questions?
If you are a shareholder of FFC, FLC or
DFP, please call 1-877-855-3434 with any additional questions. If you are a
shareholder of PFD or PFO, please call 1-626-795-7300.
ANNUAL MEETINGS OF
SHAREHOLDERS
Who are the nominees for election to
the Board of Directors?
The nominee(s) for election to the
relevant Funds Board of Directors are as follows:
Fund
|
Nominees For
Election
|
PFD
|
David Gale
|
|
Karen H. Hogan
|
PFO
|
Morgan Gust
|
|
Karen H. Hogan
|
FFC
|
David Gale
|
|
|
FLC
|
David Gale
|
|
|
DFP
|
Donald F. Crumrine
|
|
Robert F.
Wulf
|
Biographical information for each
nominee is included in the enclosed combined joint proxy statement under
Proposal 1 of the Annual Meeting.
SPECIAL MEETINGS OF SHAREHOLDERS
FOR PFD, PFO, FFC AND FLC
What is the purpose of the Special
Meetings?
Each Funds Board of Directors called
the Special Meeting to present a proposal to shareholders for their approval
with respect to each Funds fundamental investment policy relating to
investments in commodities. The Board has proposed a clarification to its
existing policy in order to avoid confusion in light of recent changes to
applicable law. The proposed revised fundamental investment policy makes clear
that the Funds have the flexibility to use swaps on financial instruments in
order to achieve their investment goals, consistent with each Funds original
intent.
You can find greater detail in the
enclosed combined joint proxy statement under Proposal 1 of the Special
Meetings.
Why is the Funds Board of Directors
recommending revising each Funds fundamental investment policy with respect to
commodities?
Each Fund has adopted certain
investment policies that cannot be changed without shareholder approval. The
Board has proposed that the existing fundamental investment policy with respect
to the purchase and sale of commodities be revised in order to avoid confusion
in light of recent changes to applicable law. The change to the fundamental
policy is not expected to materially affect the manner in which each Funds
investment program is being conducted at this time.
- 4 -
What will happen if shareholders do
not approve the change to a Funds fundamental investment policy with respect to
commodities?
If the revised fundamental investment
policy with respect to commodities is not approved by shareholders of a Fund,
the fundamental investment policy will remain as is and the manner in which the
Funds investment program is being conducted at this time will remain
substantially the same. Since the change is a clarification, the Funds would be
able to use swaps on financial instruments even if the required vote was not
obtained.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and may minimize 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 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, Executor
|
|
|
|
Estate of Jane Smith
|
|
- 5 -
FLAHERTY & CRUMRINE PREFERRED
INCOME FUND INCORPORATED (NYSE: PFD)
FLAHERTY & CRUMRINE PREFERRED INCOME
OPPORTUNITY FUND INCORPORATED (NYSE: PFO)
FLAHERTY & CRUMRINE PREFERRED
SECURITIES INCOME FUND INCORPORATED (NYSE: FFC)
FLAHERTY & CRUMRINE TOTAL
RETURN FUND INCORPORATED (NYSE: FLC)
FLAHERTY & CRUMRINE DYNAMIC
PREFERRED AND INCOME FUND INCORPORATED (NYSE: DFP)
301 E. Colorado Boulevard, Suite
720
Pasadena, California 91101
ANNUAL MEETINGS OF SHAREHOLDERS
SPECIAL MEETINGS OF SHAREHOLDERS
April 17, 2014
COMBINED JOINT PROXY STATEMENT
This document is a
combined joint proxy statement (Joint Proxy Statement) for Flaherty &
Crumrine Preferred Income Fund Incorporated (Preferred Income Fund or PFD),
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
(Preferred Income Opportunity Fund or PFO), Flaherty & Crumrine
Preferred Securities Income Fund Incorporated (Preferred Securities Income
Fund or FFC), Flaherty & Crumrine Total Return Fund Incorporated (Total
Return Fund or FLC) and Flaherty & Crumrine Dynamic Preferred and Income
Fund Incorporated (Dynamic Preferred Income Fund or DFP) (each, a Fund and
collectively, the Funds). This Joint Proxy Statement is furnished in
connection with the solicitation of proxies by each Funds Board of Directors
(each, a Board and collectively, the Boards) to be voted at the Annual
Meetings of Shareholders for PFD, PFO, FFC, FLC and DFP (the Annual Meetings)
and the Special Meetings of Shareholders for PFD, PFO, FFC and FLC (the Special
Meetings, together with the Annual Meetings, the Meetings) to be held on
April 17, 2014, at the offices of Flaherty & Crumrine Incorporated, 301 E.
Colorado Boulevard, Suite 720, Pasadena, California 91101 and at any
adjournments or postponements thereof. The Annual Meetings will be held at 9:00
a.m. PT and the Special Meetings will be held at 9:30 a.m. PST.
This Joint Proxy Statement and the
accompanying Notice of Annual Meetings, Notice of Special Meetings and proxy
card for each Fund in which you own shares were mailed on or about March __,
2014 to shareholders of record as of the close of business on January 17, 2014.
Proxy solicitations will be made, beginning on or about March __, 2014,
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), the investment adviser
of each Fund, and BNY Mellon Investment Servicing (US) Inc. (BNY Mellon), the
transfer agent and administrator of each Fund. With respect to FFC, FLC and DFP,
proxy solicitations may also be made by Destra Capital Investments LLC, the
servicing agent for FFC, FLC and DFP. 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.
THE ANNUAL REPORT OF EACH
FUND, INCLUDING AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED NOVEMBER
30, 2013, IS AVAILABLE UPON REQUEST, WITHOUT CHARGE, BY WRITING TO BNY MELLON
C/O COMPUTERSHARE, P.O. BOX 30170, COLLEGE STATION, TEXAS 77842-3170, OR BY
CALLING 1-866-351-7446. EACH FUNDS ANNUAL REPORT IS ALSO AVAILABLE ON THE
FUNDS WEBSITE - WWW.PREFERREDINCOME.COM - THE SECURITIES AND EXCHANGE
COMMISSIONS (SEC) WEBSITE (WWW.SEC.GOV) OR, FOR FFC, FLC AND DFP ONLY, BY
CALLING DESTRA CAPITAL INVESTMENTS LLC AT 1-877-855-3434.
Important Notice Regarding the
Availability of Proxy Materials for the Shareholder Meetings to Be
Held on
April 17, 2014
The notices of Annual Meetings and
Special Meetings, as applicable, Joint Proxy Statement, proxy cards and each
Funds annual report for the fiscal year ended November 30, 2013 are available
to you on the Funds website - www.preferredincome.com. You are encouraged to
review all of the information contained in the proxy materials before voting. To
obtain directions to attend the Annual Meetings and Special Meetings, and vote
in person, please call 1-626-795-7300.
SEPARATE PROXY CARDS ARE ENCLOSED
FOR EACH FUND IN WHICH YOU OWN SHARES. YOUR VOTE IS IMPORTANT REGARDLESS OF
THE SIZE OF YOUR HOLDINGS IN THE FUND. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, WE ASK THAT YOU PLEASE VOTE PROMPTLY. INSTRUCTIONS FOR THE PROPER
VOTING AND/OR EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
SHAREHOLDERS MAY SUBMIT VOTING INSTRUCTIONS BY SIGNING AND DATING THE PROXY CARD
OR VOTING INSTRUCTION FORM AND RETURNING IT IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE.
1
SUMMARY OF PROPOSALS AND FUNDS AFFECTED
The following chart specifies the
Funds whose shareholders will be entitled to vote at the relevant Meetings on
each of the proposals being presented for shareholder consideration. The
proposals are set forth in the Notice of Annual Meetings and Notice of Special
Meetings, respectively, and are discussed in more detail below.
ANNUAL
MEETING OF SHAREHOLDERS
|
Proposal
|
Affected Funds
|
Page
Number
|
Proposal 1 To elect
|
PFD
|
[6]
|
Directors of each Fund
|
PFO
|
|
|
FFC
|
|
|
FLC
|
|
|
DFP
|
|
|
SPECIAL
MEETING OF SHAREHOLDERS
|
Proposal
|
Affected Funds
|
Page
Number
|
Proposal 1 To approve a
|
PFD
|
[16]
|
change to the fundamental
|
PFO
|
|
investment policy regarding
|
FFC
|
|
investments in commodities
|
FLC
|
|
If the enclosed proxy cards are
properly executed and returned in time to be voted at the relevant Meetings, 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 Proposal 1 at the Annual Meeting and FOR
Proposal 1 at the Special Meeting, as applicable. 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 Meetings 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 Meetings.
Under the Bylaws of each Fund, the
presence in person or by proxy of the holders of a majority of the outstanding
shares of the Fund entitled to vote shall be necessary and sufficient to
constitute a quorum for the transaction of business (a Quorum) at that Funds
Meeting(s). In the event that a Quorum is not present at the relevant Meeting,
or in the event that a Quorum is present but sufficient votes to approve any of
the proposals are not received, the Chairman of the Meeting may adjourn the
meeting
sine die
or from time to time to a date not more than 120 days after the original
record date without notice other than announcement at the Meeting. At such
adjourned meeting at which a Quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. A shareholder vote may be taken on a proposal in the Joint Proxy
Statement relating to the applicable Meeting prior to any such adjournment if
sufficient votes have been received for approval of that proposal. Once a Quorum
has been established at the relevant Meeting, shareholders may continue to
transact business, notwithstanding the withdrawal of shareholders and the loss
of a Quorum.
Each Fund has one class of capital
stock outstanding: common stock, par value $0.01 per share (the Common Stock
or the Shares). Each Share is entitled to one vote at the relevant Meetings
with respect to matters to be voted on, with pro rata voting rights for any
fractional Shares. On the record date, January 17, 2014, the following number of
Shares of each Fund were issued and outstanding:
Name of
Fund
|
|
|
Shares
Outstanding
|
|
Preferred Income Fund (PFD)
|
|
10,985,567
|
|
|
|
Preferred Income Opportunity Fund
(PFO)
|
|
12,298,870
|
|
|
|
Preferred Securities Income Fund
(FFC)
|
|
43,474,105
|
|
|
|
Total Return Fund (FLC)
|
|
9,897,817
|
|
|
|
Dynamic Preferred Income Fund
(DFP)
|
|
9,156,782
|
2
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, as amended (the 1934
Act), is the beneficial owner or owner of record of more than 5% of the
relevant Funds outstanding Shares as of January 17,
2014
*
:
Name and Address of
|
|
|
|
Amount and Nature
|
|
|
Beneficial/Record Owner
|
|
Title of Class
|
|
of Ownership
|
|
Percent of Class
|
Cede &
Co.
**
|
|
Common Stock
|
|
PFD 10,606,357
(record)
|
|
96.5%
|
Depository Trust
Company
|
|
|
|
PFO 11,845,881
(record)
|
|
96.3%
|
55 Water Street, 25
th
Floor
|
|
|
|
FLC 9,888,806
(record)
|
|
99.9%
|
New York, NY
10041
|
|
|
|
FFC 43,393,928
(record)
|
|
99.8%
|
|
|
|
|
DFP 19,152,577
(record)
|
|
99.9%
|
|
First Trust Portfolios
L.P.,
|
|
Common Stock
|
|
FLC
918,712
1
(beneficial)
|
9.29%
|
First Trust Advisors
L.P.
|
|
|
|
|
|
|
The Charger
Corporation
|
|
|
|
|
|
|
120 East Liberty Drive,
Suite 400
|
|
|
|
|
|
|
Wheaton, Illinois
60187
|
|
|
|
|
|
|
|
Guggenheim Capital, LLC,
Guggenheim
|
|
Common Stock
|
|
FLC
604,237
2
(beneficial)
|
5.89%
|
Partners, LLC, GI Holdco
II, LLC,
|
|
|
|
|
|
|
Guggenheim Partners
Investment
|
|
|
|
|
|
|
Management Holdings, LLC,
Guggenheim
|
|
|
|
|
|
|
Funds Services Holdings,
LLC,
|
|
|
|
|
|
|
Guggenheim Funds Services,
LLC and
|
|
|
|
|
|
|
Guggenheim Funds
Distributors, LLC
|
|
|
|
|
|
|
(collectively, the Filing
Entities).
|
|
|
|
|
|
|
____________________
*
|
|
As of January 17, 2014,
the Directors and officers, as a group, owned less than 1% of the Shares
of each Fund.
|
**
|
|
A nominee partnership of
The Depository Trust Company.
|
1
|
|
Information obtained from a Schedule
13G filed by First Trust Portfolios L.P. (FTP), First Trust Advisors L.P
(FTA) and The Charger Corporation (Charger) with the SEC reporting
share ownership as of December 31, 2013. Based on that filing, FTP, FTA
and Charger do not have sole or shared voting power, but do have the
shared power to dispose or direct the disposition of 918,712
Shares.
|
2
|
|
Information obtained from a Schedule
13G/A filed by the Filing Entities with the SEC reporting share ownership
as of December 31, 2013. Based on that filing, the Filing Entities have
the shared power to vote or direct the vote or dispose or direct the
disposition of 604,237 Shares.
|
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. At
each of the relevant Meetings, Shareholders of each Fund will vote as a single
class. Shareholders of each Fund will vote separately for each of PFD, PFO, FFC,
FLC and DFP on each proposal on which shareholders of that Fund are entitled to
vote at a Meeting. Separate proxy cards are enclosed for each Fund in which a
shareholder owns Shares. Thus, if a proposal at the relevant Meeting is approved
by shareholders of one or more Funds and not approved by shareholders of one or
more other Funds, the proposal will be implemented for the Fund or Funds that
approved the proposal and will not be implemented for any 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.
3
ANNUAL MEETINGS
(ALL FUNDS)
PROPOSAL 1: ELECTION OF DIRECTORS
At the Annual 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 Boards of
Directors
Each nominee named below is
currently a Director of each Fund and has consented to continue to serve as a
Director for the Fund(s) for which he or she is nominated if elected at the
relevant Annual 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. Each
nominee has been nominated for a three-year term to expire at each Funds 2017
Annual Meeting of Shareholders and until his or her successor is duly elected
and qualified. Shareholders of each Funds Common Stock are entitled to elect
the nominees for election to the Board of the relevant Fund.
Fund
|
Nominees For
Election
|
PFD
|
David Gale
|
|
Karen H. Hogan
|
PFO
|
Morgan Gust
|
|
Karen H. Hogan
|
FFC
|
David Gale
|
|
|
FLC
|
David Gale
|
|
|
DFP
|
Donald F. Crumrine
|
|
Robert F.
Wulf
|
4
Information About Each Director's or
Nominee for Election as Director's Experience, Qualifications, Attributes
or Skills
Directors
or Nominees for Election as Directors of the Funds, together with information as
to their positions with the Funds, principal occupations and other board
memberships for the past five years, are shown below.
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Funds in
|
|
Other Public
|
|
|
Current
|
|
|
|
|
|
Fund
|
|
Company Board
|
|
|
Position(s)
|
|
Term of Office and
|
|
Principal Occupation
|
|
Complex
|
|
Memberships
|
|
|
Held with
|
|
Length of Time
|
|
During Past Five
|
|
Overseen by
|
|
During Past Five
|
Name, Address and Age
|
|
Funds
|
|
Served*
|
|
Years
|
|
Director**
|
|
Years
|
Non-Interested
|
|
|
|
|
|
|
|
|
|
|
Directors/Nominees:
|
|
|
|
|
|
|
|
|
|
|
|
David Gale
|
|
Director
|
|
Class I
Director
|
|
President of
Delta
|
|
5
|
|
Emmis
|
Delta Dividend Group,
Inc.
|
|
|
|
PFD since 1997
|
|
Dividend Group,
Inc.
|
|
|
|
Communications
|
220 Montgomery
Street
|
|
|
|
PFO since 1997
|
|
(investments)
|
|
|
|
|
Suite 426
|
|
|
|
FFC since
inception
|
|
|
|
|
|
|
San Francisco, CA
94104
|
|
|
|
FLC since
inception
|
|
|
|
|
|
|
Age: 64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class II
Director
|
|
|
|
|
|
|
|
|
|
|
DFP since
inception
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morgan Gust
|
|
Director and
|
|
Class II
Director
|
|
Owner and
operator
|
|
5
|
|
CoBiz
Financial,
|
301 E. Colorado
Boulevard
|
|
Nominating
|
|
FFC since
inception
|
|
of various
entities
|
|
|
|
Inc.
(financial
|
Suite 720
|
|
and
|
|
FLC since
inception
|
|
engaged in
|
|
|
|
services)
|
Pasadena, CA
91101
|
|
Governance
|
|
|
|
agriculture and
real
|
|
|
|
|
Age: 66
|
|
Committee
|
|
Class III
Director
|
|
estate
|
|
|
|
|
|
|
Chairman
|
|
PFD since
inception
|
|
|
|
|
|
|
|
|
|
|
PFO since
inception
|
|
|
|
|
|
|
|
|
|
|
DFP since
inception
|
|
|
|
|
|
|
|
Karen H. Hogan
|
|
Director
|
|
Class I
Director
|
|
Board Co-Chair
and
|
|
5
|
|
|
301 E. Colorado
Boulevard
|
|
|
|
PFD since 2005
|
|
Member, IKAR, a
|
|
|
|
|
Suite 720
|
|
|
|
|
|
non-profit
|
|
|
|
|
Pasadena, CA
91101
|
|
|
|
Class II
Director
|
|
organization;
Active
|
|
|
|
|
Age: 52
|
|
|
|
FFC since 2005
|
|
Member,
Volunteer
|
|
|
|
|
|
|
|
|
FLC since 2005
|
|
to several
non-profit
|
|
|
|
|
|
|
|
|
DFP since
inception
|
|
organizations.
|
|
|
|
|
|
|
|
|
|
Class III
Director
|
|
|
|
|
|
|
|
|
|
|
PFO since 2005
|
|
|
|
|
|
|
|
Robert F. Wulf
|
|
Director
|
|
Class I
Director
|
|
Financial
Consultant;
|
|
5
|
|
|
301 E. Colorado
Boulevard
|
|
and Audit
|
|
DFP since
inception
|
|
Former Trustee,
|
|
|
|
|
Suite 720
|
|
Committee
|
|
|
|
University of
Oregon
|
|
|
|
|
Pasadena, CA
91101
|
|
Chairman
|
|
Class II
Director
|
|
Foundation;
Trustee,
|
|
|
|
|
Age: 76
|
|
|
|
PFD since
inception
|
|
San Francisco
|
|
|
|
|
|
|
|
|
PFO since
inception
|
|
Theological
|
|
|
|
|
|
|
|
|
|
|
Seminary
|
|
|
|
|
|
|
|
|
Class III
Director
|
|
|
|
|
|
|
|
|
|
|
FFC since
inception
|
|
|
|
|
|
|
|
|
|
|
FLC since
inception
|
|
|
|
|
|
|
|
Interested
|
|
|
|
|
|
|
|
|
|
|
Director/Nominee:
|
|
|
|
|
|
|
|
|
|
|
|
Donald F. Crumrine
(1)
|
|
Director,
|
|
Class I
Director
|
|
Chairman of the
|
|
5
|
|
|
301 E. Colorado
Boulevard
|
|
Chairman of
|
|
DFP since
inception
|
|
Board and
Director
|
|
|
|
|
Suite 720
|
|
the Board
|
|
|
|
of Flaherty
&
|
|
|
|
|
Pasadena, CA
91101
|
|
and Chief
|
|
Class II
Director
|
|
Crumrine
|
|
|
|
|
Age: 66
|
|
Executive
|
|
PFD since
inception
|
|
Incorporated
|
|
|
|
|
|
|
Officer
|
|
PFO since
inception
|
|
|
|
|
|
|
|
|
|
|
|
Class III
Director
|
|
|
|
|
|
|
|
|
|
|
FFC since
inception
|
|
|
|
|
|
|
|
|
|
|
FLC since
inception
|
|
|
|
|
|
|
____________________
*
|
|
The Class I Director of PFO and the
Class II Directors of PFD, FFC, FLC and DFP will serve until each Funds
Annual Meeting of Shareholders in 2015 and until their successors are duly
elected and qualified. The Class II Directors of PFO and the Class III
Directors of PFD, FFC, FLC and DFP will serve until each Funds 2016
Annual Meeting of Shareholders and until their successors are duly elected
and qualified. The Class I Nominees of PFD, FFC, FLC and DFP and the Class
III Nominees of PFO, if elected, will serve until each Funds 2017 Annual
Meeting of Shareholders and until their successors are duly elected and
qualified.
|
**
|
|
The Flaherty & Crumrine fund
complex consists solely of the Funds.
|
(1)
|
|
Interested person (as defined in
the Investment Company Act of 1940, as amended (the 1940 Act)) of the
Funds. Mr. Crumrine is considered an "interested person" because of his
affiliation with Flaherty & Crumrine.
|
5
With the exception of DFP, each
Director has been a Director of the Funds for at least five years. Additional
information about each Director follows (supplementing the information provided
in the table above) that describes some of the specific experiences,
qualifications, attributes or skills that each Director possesses which the
Boards believe have prepared them to be effective Directors. The Boards believe
that Directors need to have the ability to critically review, evaluate, question
and discuss information provided to them, and to interact effectively with Fund
management, service providers and counsel, in order to exercise effective
business judgment in the performance of their duties; the Boards believe that
their members satisfy this standard. Experience relevant to having this ability
may be achieved through a Director's educational background; business,
professional training or practice (
e.g
., accounting or law); public
service or academic positions; experience from service as a board member
(including the Boards of the Funds) or as an executive of investment funds,
public companies or significant private or not-for-profit entities or other
organizations; and/or other life experiences. The charters for the Boards'
Nominating and Governance Committees contain certain other factors considered by
the Committees in identifying and evaluating potential Director nominees. To
assist them in evaluating matters under federal and state law, the Independent
Directors (defined below) are counseled by their own independent legal counsel,
who participates in Board meetings and interacts with Flaherty & Crumrine,
and also may benefit from information provided by the Funds' and Flaherty &
Crumrine's counsel; both counsel to the Independent Directors and counsel to the
Funds and Flaherty & Crumrine have significant experience advising funds and
fund directors. The Boards and their Committees have the ability to engage other
experts as appropriate. The Boards evaluate their performance on an annual
basis.
-
Donald F. Crumrine
Mr. Crumrine
has been the Chairman of the Boards of PFD and PFO since 2002 and Chairman of
the Boards of FFC, FLC and DFP since each Funds inception. Mr. Crumrine has
over 36 years of experience managing portfolios of preferred securities. He
co-founded Flaherty & Crumrine in 1983, after spending twelve years at
Scudder, Stevens & Clark, to focus on managing preferred securities
portfolios and associated hedges. Mr. Crumrine is actively involved in the
day-to-day management of all Flaherty & Crumrine client portfolios,
including those of the Funds, and directs client service and marketing efforts
at Flaherty & Crumrine.
-
David Gale
In addition to his tenure as a Director of the Funds, Mr.
Gale has been President and Chief Executive Officer of Delta Dividend Group,
Inc., a San Francisco-based investment management firm, since 1992. Prior to
joining Delta Dividend Group, Inc., Mr. Gale was a Principal with Morgan
Stanley from 1983 to
1990, and a Managing
Director of Lehman Brothers Holdings Inc. from 1990 to 1992. Mr. Gale
previously served as a director of Emmis Communications.
-
Morgan Gust
In addition to his tenure as a Director of the Funds, Mr.
Gust is the owner and operator of various entities engaged in agriculture and
real estate. From 1990 to 2007, Mr. Gust served in various capacities,
including President, Executive Vice President, General Counsel and Corporate
Secretary of Giant Industries, Inc., a petroleum refining and marketing
company listed on the New York Stock Exchange (the NYSE). Mr. Gust currently
serves as lead Director of CoBiz Financial, Inc., a publicly traded bank
holding company. He is also a member of the Arizona State Bar.
-
Karen H. Hogan
In addition to her tenure as a Director of the Funds, Ms.
Hogan serves as a board member and committee member of several charitable and
non-profit organizations. From 1985 to 1997, Ms. Hogan served as Senior Vice
President of Preferred Stock Origination, and previously Vice President of New
Product Development, at Lehman Brothers Holdings Inc.
-
Robert F. Wulf
In addition to his tenure as a Director of the Funds, Mr.
Wulf has worked as a financial consultant for over 30 years. Mr. Wulf also
served as a board member of two non-profit organizations.
Board Composition and Leadership
Structure
The 1940 Act requires that at least
40% of the Funds' Directors not be "interested persons" (as defined in the 1940
Act) of the Funds, and therefore not affiliated with Flaherty & Crumrine
("Independent Directors"). To rely on certain exemptive rules under the 1940
Act, a majority of the Funds' Directors must be Independent Directors and, for
certain important matters, such as the approval of investment advisory
agreements or transactions with affiliates, the 1940 Act or the rules thereunder
require the approval of a majority of the Independent Directors. Currently, four
of the Funds' five Directors are Independent Directors. The Chairman of the
Boards is an interested person of the Funds. The four Independent Directors
interact directly with the Chairman and other senior management of Flaherty
& Crumrine at scheduled meetings and between meetings as appropriate.
Independent Directors have been designated to chair the Audit Committees and the
Nominating and Governance Committees, and the Independent Directors rotate the
responsibility for chairing meetings of Independent Directors. In addition, from
time to time, one or more Independent Directors may be designated, formally or
informally, to take the lead in addressing with
management or their independent legal counsel matters or issues of concern to
the Boards. As a result, the Boards have determined that their leadership
structures and composition, in which no individual Independent Director has been
designated to lead all the Independent Directors, are appropriate in light of
the Boards' size and the cooperative and dynamic working relationship among the
Independent Directors and the Independent Directors open lines of communication
with Fund management. The Boards have determined that their leadership
structures and composition, in which the Chairman of the Boards is an
"interested person" of the Funds and 80% of the Directors are Independent
Directors, are appropriate in light of the services that Flaherty & Crumrine
provides to the Funds.
6
Boards' Oversight Role in
Management
The Boards' role in management of
the Funds is oversight. As is the case with virtually all investment companies
(as distinguished from operating companies), service providers to the Funds,
primarily Flaherty & Crumrine, have responsibility for the day-to-day
management of the Funds, which includes responsibility for risk management
(including management of investment performance and investment risk, valuation
risk, issuer and counterparty credit risk, compliance risk and operational
risk). As part of their oversight, the Boards, acting at their scheduled
meetings, or the Chairman, acting between Board meetings, regularly interacts
with and receives reports from senior personnel of service providers, including
the Funds' and Flaherty & Crumrine's Chief Compliance Officer and portfolio
management personnel. The Boards' Audit Committees (which consist of all the
Independent Directors) meet during their scheduled meetings, and between
meetings the Audit Committee chairs maintain contact, with the Funds'
independent registered public accounting firm and the Funds' Chief Financial
Officer. The Boards also receive periodic presentations from senior personnel of
Flaherty & Crumrine regarding risk management generally, as well as periodic
presentations regarding specific operational, compliance or investment areas,
such as business continuity, personal trading, valuation and credit. The Boards
have adopted policies and procedures designed to address certain risks to the
Funds. In addition, Flaherty & Crumrine and other service providers to the
Funds have adopted a variety of policies, procedures and controls designed to
address particular risks to the Funds. Different processes, procedures and
controls are employed with respect to different types of risks. However, it is
not possible to eliminate all of the risks applicable to the Funds. The Boards
also receive reports from counsel to the Funds and Flaherty & Crumrine and
the Independent Directors' own independent legal counsel regarding regulatory,
compliance and governance matters. The Boards' oversight role does not make the
Boards guarantors of the Funds' investments or activities.
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 and Nominee for Election as
Director.
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Dollar Range of Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in All Registered Investment
|
|
|
Dollar Range of Equity
|
|
Companies Overseen by Director in Family
|
Name of
Director or Nominee
|
|
Securities
Held in a Fund*
(1)
|
|
of Investment
Companies*
(2)
|
|
|
PFD
|
|
PFO
|
|
FFC
|
|
FLC
|
|
DFP
|
|
Total
|
NON-INTERESTED
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTORS/NOMINEES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Gale
|
|
D
|
|
D
|
|
D
|
|
D
|
|
C
|
|
E
|
|
Morgan Gust
|
|
D
|
|
D
|
|
C
|
|
C
|
|
C
|
|
E
|
|
Karen H. Hogan
|
|
C
|
|
C
|
|
C
|
|
C
|
|
A
|
|
D
|
|
Robert F. Wulf
|
|
C
|
|
C
|
|
E
|
|
E
|
|
C
|
|
E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERESTED
DIRECTOR/NOMINEE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald F. Crumrine
|
|
E
(3)
|
|
E
(3)
|
|
E
(3)
|
|
E
(3)
|
|
E
(3)
|
|
E
(3)
|
____________________
*
|
|
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 17, 2014.
|
(1)
|
|
This information has been
furnished by each Director/Nominee as of January 17, 2014. Beneficial
ownership is determined in accordance with Rule 16a-1(a)(2) under the
1934 Act.
|
(2)
|
|
The
Directors, Nominees and executive officers of each Fund, as a group, own
less than 1% of each Fund.
|
(3)
|
|
Includes shares of the Fund held by Flaherty & Crumrine,
of which Mr. Crumrine is a shareholder and
director.
|
7
Officers of the Funds
The following table provides
information concerning each of the officers of the Funds.
|
|
Current Position(s)
|
|
Term of Office and Length of
|
|
Principal Occupation During
|
Name, Address and Age
|
|
Held with Funds
|
|
Time Served
*
|
|
Past Five Years
|
Robert M. Ettinger
|
|
President
|
|
PFD since 2002
|
|
President and
Director
|
301 E. Colorado
Boulevard
|
|
|
|
PFO since 2002
|
|
of Flaherty & Crumrine
Incorporated
|
Suite 720
|
|
|
|
FFC since
inception
|
|
|
Pasadena, CA
91101
|
|
|
|
FLC since
inception
|
|
|
Age: 55
|
|
|
|
DFP since
inception
|
|
|
|
R. Eric Chadwick
|
|
Chief Financial
|
|
PFD since 2004
|
|
Vice President and
Director of Flaherty &
|
301 E. Colorado
Boulevard
|
|
Officer, Vice
|
|
PFO since 2004
|
|
Crumrine Incorporated;
Chief Financial Officer
|
Suite 720
|
|
President and
|
|
FFC since 2004
|
|
|
Pasadena, CA
91101
|
|
Treasurer
|
|
FLC since 2004
|
|
|
Age: 38
|
|
|
|
DFP since
inception
|
|
|
|
Chad C. Conwell
|
|
Chief Compliance
|
|
PFD since 2005
|
|
Chief Compliance Officer
and Vice President
|
301 E. Colorado
Boulevard
|
|
Officer, Vice
|
|
PFO since 2005
|
|
of Flaherty & Crumrine
Incorporated; Director
|
Suite 720
|
|
President and
|
|
FFC since 2005
|
|
of Flaherty & Crumrine
since January 2011
|
Pasadena, CA
91101
|
|
Secretary
|
|
FLC since 2005
|
|
|
Age: 41
|
|
|
|
DFP since
inception
|
|
|
|
Bradford S. Stone
|
|
Vice President
and
|
|
PFD since 2003
|
|
Vice President and
Director of Flaherty &
|
47 Maple Street
|
|
Assistant
|
|
PFO since 2003
|
|
Crumrine
Incorporated
|
Suite 403
|
|
Treasurer
|
|
FFC since 2003
|
|
|
Summit, NJ 07901
|
|
|
|
FLC since
inception
|
|
|
Age: 54
|
|
|
|
DFP since
inception
|
|
|
|
|
|
|
|
|
|
Laurie C. Lodolo
|
|
Assistant
|
|
PFD since 2004
|
|
Assistant Compliance
Officer and Secretary
|
301 E. Colorado
Boulevard
|
|
Compliance
|
|
PFO since 2004
|
|
of Flaherty & Crumrine
Incorporated
|
Suite 720
|
|
Officer,
Assistant
|
|
FFC since 2004
|
|
|
Pasadena, CA
91101
|
|
Treasurer and
|
|
FLC since 2004
|
|
|
Age: 50
|
|
Assistant
Secretary
|
|
DFP since
inception
|
|
|
|
Linda M. Puchalski
|
|
Assistant
Treasurer
|
|
PFD since 2010
|
|
Administrator of Flaherty
& Crumrine
|
301 E. Colorado
Boulevard
|
|
|
|
PFO since 2010
|
|
Incorporated
|
Suite 720
|
|
|
|
FFC since 2010
|
|
|
Pasadena, CA
91101
|
|
|
|
FLC since 2010
|
|
|
Age: 57
|
|
|
|
DFP since
inception
|
|
|
____________________
*
|
|
Each officer serves until his or her
successor is elected and qualified or until his or her earlier resignation
or removal.
|
8
Audit Committee
The role of each Funds
Audit Committee is to assist the Board of Directors in its oversight of: (i) the
integrity of the Funds financial statements and the independent audit thereof;
(ii) the Funds accounting and financial reporting policies and practices, its
internal controls and, as appropriate, the internal controls of certain service
providers; (iii) the Funds compliance with legal and regulatory requirements;
and (iv) the independent auditors qualifications, independence and performance.
Each Funds Audit Committee is also required to prepare an audit committee
report pursuant to applicable laws and regulations for inclusion in the Funds
annual proxy statement. Each Audit Committee operates pursuant to a charter (the
Audit Committee Charter or Charter) that was most recently reviewed and
approved by the Board of Directors of each Fund on January 21, 2014 and which is
available at www.preferredincome.com. As set forth in the Charter, management is
responsible for the (i) preparation, presentation and integrity of each Funds
financial statements, (ii) maintenance of appropriate accounting and financial
reporting principles and policies and (iii) 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, KPMG LLP (the independent accountants or KPMG), is
responsible for planning and carrying out proper audits and reviews of each
Funds financial statements and expressing an opinion as to their conformity
with accounting principles generally accepted in the United States of
America.
Audit Committee Report
In performing its oversight
function, at a meeting held on January 21, 2014, each Audit Committee reviewed
and discussed with management of the Fund and the independent accountants, the
audited financial statements of the Fund as of and for the fiscal year ended
November 30, 2013, and discussed the audit of such financial statements with the
independent accountants.
In addition, each Audit Committee
discussed with the independent accountants the accounting principles applied by
the 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, as amended (AICPA,
Professional
Standards
, Vol. 1 AU Section 380), as adopted
by the Public Company Accounting Oversight Board in Rule 3200T. Each Audit
Committee also received from the independent accountants the written disclosures
and statements required by the SECs independence rules
,
delineating relationships
between the independent accountants and the Funds 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 Funds Audit Committee Charter, the Audit Committee has
significant duties and powers in its oversight role with respect to the Funds
financial reporting procedures, internal control systems, and the independent
audit process.
The members of each 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 the 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 Committees 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
Committees considerations and discussions referred to above do not provide
assurance that the audit of each Funds 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.
9
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 that
Fund's Board that the audited financial statements be included in the Funds
Annual Report for the fiscal year ended November 30, 2013.
This report was submitted by the
Audit Committee of each Funds Board of Directors
David Gale
Morgan Gust
Karen H. Hogan
Robert F. Wulf (Chairman)
January 22, 2014
Each Audit Committee was established
in accordance with Section 3(a)(58)(A) of 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, 2013. Each Audit Committee is
composed entirely of each Funds Independent Directors who are also
independent (as such term is defined by the NYSE under the listing standards
applicable to closed-end funds, as may be modified or supplemented (the NYSE
Listing Standards)), namely Ms. Hogan and Messrs. Gale, Gust and
Wulf.
Nominating and Governance
Committee
Each Board of Directors
has a Nominating and Governance Committee composed entirely of each Funds
Independent Directors who are also independent (as such term is defined by the
NYSE Listing Standards), namely Ms. Hogan and Messrs. Gale, Gust and Wulf. The
Nominating and Governance Committee of each Fund, except DFP, met twice during
the fiscal year ended November 30, 2013 and the Nominating and Governance
Committee of DFP met once during the period ended November 30, 2013.
The Nominating and Governance
Committee is responsible for identifying individuals believed to be qualified to
become Board members; for recommending to the Board such nominees to stand for
election as directors at each Funds annual meeting of shareholders and to fill
any vacancies on the Board; and for overseeing the Boards governance practices.
Each Funds Nominating and Governance Committee has a charter which is available
on its website, www.preferredincome.com.
Each Funds Nominating and
Governance 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. The Nominating and Governance Committees have not established a
formal process for identifying candidates where a vacancy exists on the Board.
In nominating candidates, each Nominating and Governance Committee shall take
into consideration such factors as it deems appropriate, including educational
background; business, professional training or practice (e.g., accounting or
law); public service or academic positions; experience from service as a board
member (including the Boards of the Funds) or as an executive of investment
funds, public companies or significant private or not-for-profit entities or
other organizations; and/or other life experiences. Each Funds Nominating and
Governance Committee may consider whether a potential nominees professional
experience, education, skills, and other individual qualities and attributes,
including gender, race or national origin, would provide beneficial diversity of
skills, experience or perspective to the Boards membership and collective
attributes. Each Funds Nominating and Governance 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 Annual Meetings 2015 below.)
Other Board-Related
Matters
Shareholders who wish
to send communications to the Board should send them to the address of their
Fund(s) and to the attention of the Board. All such communications will be
directed to the Boards attention.
10
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 18, 2013 Annual
Meetings of Shareholders.
Board Compensation
Each Director of each Fund who is
not a director, officer or employee of Flaherty & Crumrine or any of its
affiliates receives from each Fund a fee of $9,000 per annum plus $750 for each
in-person Board of Directors or Audit Committee meeting attended, $500 for each
in-person Nominating and Governance Committee meeting attended, and $250 for
each telephone meeting attended. In addition, the Audit Committee Chairman
receives from each Fund an annual fee of $3,000. Each Director of each Fund is
reimbursed for travel and out-of-pocket expenses associated with attending Board
and committee meetings. During the fiscal year ended November 30, 2013, the
Board of Directors for each of PFD and PFO held six meetings (two of which were
held by telephone conference call), the Board of Directors of each of FFC and
FLC held seven meetings (three of which were telephone meetings), and the Board
of Directors DFP held seven meetings (four of which were telephone meetings).
Each Director of each Fund 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/period ended November 30,
2013 is set forth below:
|
|
|
|
Board Meeting and
|
|
|
|
|
|
|
Committee Meeting
|
|
Travel and Out-of-Pocket
|
|
|
Annual Director Fees
|
|
Fees
|
|
Expenses*
|
PFD
|
|
$36,000
|
|
$33,000
|
|
$2,632
|
PFO
|
|
$36,000
|
|
$33,000
|
|
$2,632
|
FFC
|
|
$36,000
|
|
$34,000
|
|
$2,632
|
FLC
|
|
$36,000
|
|
$34,000
|
|
$2,632
|
DFP**
|
|
$22,402
|
|
$22,868
|
|
$1,178
|
____________________
*
|
|
Includes reimbursement for travel and
out-of-pocket expenses for both interested and Independent
Directors.
|
**
|
|
DFP commenced operations on May 29,
2013.
|
The following table sets forth
additional information regarding the compensation of each Funds Directors for
the fiscal year/period ended November 30, 2013. No executive officer or person
affiliated with a Fund received compensation from a Fund during the fiscal
year/period ended November 30, 2013 in excess of $60,000. Directors and
executive officers of the Funds do not receive pension or retirement benefits
from the Funds.
COMPENSATION TABLE
Name of
|
|
Aggregate
|
|
Total Compensation from
|
Person and
|
|
Compensation
|
|
the Funds and Fund
|
Position
|
|
from each
Fund
|
|
Complex Paid to Directors
*
|
Donald F.
Crumrine
|
|
$0
|
|
|
$0 (5)
|
Director, Chairman of the
Board and Chief Executive Officer
|
|
|
|
|
|
|
David Gale
|
|
$ 16,500
|
PFD
|
|
$77,351 (5)
|
Director
|
|
$ 16,500
|
PFO
|
|
|
|
|
$ 16,750
|
FFC
|
|
|
|
|
$ 16,750
|
FLC
|
|
|
|
|
$ 10,851
|
DFP
|
|
|
|
Morgan Gust
|
|
$ 16,500
|
PFD
|
|
$77,351 (5)
|
Director, Nominating and
Governance Committee Chairman
|
|
$ 16,500
|
PFO
|
|
|
|
|
$ 16,750
|
FFC
|
|
|
|
|
$ 16,750
|
FLC
|
|
|
|
|
$ 10,851
|
DFP
|
|
|
|
|
|
|
|
|
Karen H. Hogan
|
|
$ 16,500
|
PFD
|
|
$77,351 (5)
|
Director
|
|
$ 16,500
|
PFO
|
|
|
|
|
$ 16,750
|
FFC
|
|
|
|
|
$ 16,750
|
FLC
|
|
|
|
|
$ 10,851
|
DFP
|
|
|
|
Robert F. Wulf
|
|
$ 19,500
|
PFD
|
|
$91,217 (5)
|
Director, Audit Committee
Chairman
|
|
$ 19,500
|
PFO
|
|
|
|
|
$ 19,750
|
FFC
|
|
|
|
|
$ 19,750
|
FLC
|
|
|
|
|
$ 12,717
|
DFP
|
|
|
____________________
*
|
|
Represents the total compensation
paid for the fiscal year/period ended November 30, 2013 to such persons by
the Funds, 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 the fund complex as of November 30, 2013.
|
11
Required Vote
The election of Mr.
Gale and Ms. Hogan as Directors of PFD, the election of Mr. Gust and Ms. Hogan
as Directors of PFO, the election of Mr. Gale as a Director of FFC and FLC, and
the election of Mr. Crumrine and Mr. Wulf as Directors of DFP, will require the
affirmative vote of a plurality of the votes cast by holders of the Shares of
Common Stock of each such Fund at the Annual Meeting in person or by
proxy.
Independent Registered Public
Accounting Firm
KPMG, Two Financial
Center, 60 South Street, Boston, Massachusetts 02111, has been selected to serve
as each Funds independent registered public accounting firm for each Funds
fiscal year ending November 30, 2014. KPMG acted as the independent registered
public accounting firm for each Fund for the fiscal year ended November 30,
2013. 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 Meetings, 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 for the fiscal year ended November 30, 2012 and fiscal
year/period ended November 30, 2013, as applicable.
|
|
Fiscal Year/Period
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Audit-Related
|
|
|
|
|
Fund
|
|
|
November 30
|
|
Audit Fees
|
|
Fees
|
|
Tax Fees*
|
|
All Other Fees
|
PFD
|
|
2012
|
|
$45,000
|
|
$0
|
|
$8,650
|
|
$0
|
|
|
2013
|
|
$46,350
|
|
$0
|
|
$8,910
|
|
$0
|
|
PFO
|
|
2012
|
|
$45,000
|
|
$0
|
|
$8,650
|
|
$0
|
|
|
2013
|
|
$46,350
|
|
$0
|
|
$8,910
|
|
$0
|
|
FFC
|
|
2012
|
|
$47,500
|
|
$0
|
|
$8,650
|
|
$0
|
|
|
2013
|
|
$46,350
|
|
$0
|
|
$8,910
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
|
FLC
|
|
2012
|
|
$47,500
|
|
$0
|
|
$8,650
|
|
$0
|
|
|
2013
|
|
$46,350
|
|
$0
|
|
$8,910
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
|
DFP
|
|
2013
|
|
$46,350
|
|
$0
|
|
$8,910
|
|
$54,500**
|
____________________
*
|
|
Tax Fees are those fees billed
to each Fund by KPMG in connection with tax consulting services, including
primarily the review of each Funds income tax returns.
|
**
|
|
All Other Fees are those fees
billed to DFP by KPMG in connection with the Seed Audit of the
Fund.
|
12
Each Funds 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 Funds 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 LLP billed each Fund
fees for the fiscal year ended November 30, 2012 and the fiscal year/period
ended November 30, 2013, as applicable, were pre-approved by the Audit
Committee.
For each Funds fiscal year ended
November 30, 2012 and fiscal year/period ended November 30, 2013, KPMG did not
provide any non-audit services (or bill any fees for such services) to the
Funds investment adviser or any affiliates.
13
SPECIAL MEETINGS
(PFD, PFO, FFC
and FLC ONLY)
PROPOSAL 1: TO APPROVE A CHANGE TO
EACH FUNDS FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENTS IN
COMMODITIES
Background
. The preferred and debt securities typically held by each
Fund generally are longer duration instruments. As a result, the Fund can be
more sensitive to interest rate changes than funds that invest in shorter
duration instruments. However, each Fund historically has mitigated, and in the
future may mitigate, some or all of this exposure to long-term U.S. Treasury
interest rates through purchasing futures or options, entering into swap
transactions or utilizing other types of instruments. If a Fund did make such
investments, they normally would be expected to appreciate in value when
long-term interest rates rise significantly. If long-term interest rates did
rise, and the instruments employed by the Fund increased in value, the Fund
could use those realized gains to purchase additional preferred securities. This
could potentially increase dividends to common shareholders.
1940 Act Requirements:
PFD, PFO, FFC and FLC, like all registered
investment companies, are required by the 1940 Act to have certain specific
investment policies that can be changed only with the prior approval of the
holders of a majority of its outstanding voting securities. These policies are
often referred to as fundamental policies or restrictions. Under Section
8(b)(1)(F) of the 1940 Act, a fund is required to include in its registration
statement a recital of its policy regarding the purchase or sale of commodities,
and such policy must be a fundamental policy. The 1940 Act does not prohibit a
fund from owning commodities, whether physical commodities or contracts related
to physical commodities (such as oil or grains and related futures contracts),
or financial commodities and contracts related to financial commodities (such as
currencies).
PFD, PFO, FFC and FLC currently have
a fundamental investment policy with respect to commodities, as detailed below,
which restrict their use of certain commodities.
Title VII of The Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank Act) expanded the
scope of commodity interests subject to regulation under the Commodity
Exchange Act to include most swaps, including the types of interest rate swaps
that could be employed in the execution of each Funds interest-rate hedging
strategy. These instruments were not previously included within the legal
definition of commodities, but were permissible investments for each
Fund.
In connection with such changes, and
to avoid confusion, it is proposed that the below referenced fundamental
investment restriction of each Fund be changed so that the Fund may purchase and
sell commodities or commodity contracts, including futures contracts, to the
extent permitted by law. This change will clarify that the Fund continues to
have the same ability to utilize derivative instruments as it did prior to the
change in definition of commodity interest under the Dodd-Frank
Act.
In addition, the proposed revised
fundamental investment policy is intended to provide each Fund with flexibility
to respond to changing markets, new investment opportunities and future changes
in applicable law.
Flaherty & Crumrine has advised
the Board that the proposed revision to the fundamental policy on investment in
commodities and commodity contracts is not expected to materially affect the
manner in which a Funds investment program is being conducted at this time. In
addition, Flaherty & Crumrine has advised the Board that it does not expect
to purchase any physical commodities or contracts related to physical
commodities, such as swaps on precious metals or agricultural products. Instead,
it expects that it could use financial commodity contracts, such as interest
rate swaps, to mitigate risk of loss or otherwise increase return for each Fund.
14
Proposal:
Each Funds current fundamental investment policy regarding
investments in commodities is set forth below.
PFD
|
[The Fund may not] [i]nvest in commodities, except that
the Fund may enter into futures contracts, including interest rate and
stock index futures, and may purchase options and write covered options on
such futures contracts and securities, as described in this Prospectus.
|
PFO
|
[The Fund may not] [i]nvest
in commodities, except that the Fund may enter into futures contracts,
including interest rate and stock index futures contracts, and may
purchase options and write covered options on futures contracts,
securities and stock indices, as described in this Prospectus.
|
FFC
|
[The Fund may not] [i]nvest
in commodities, except that the Fund may enter into futures contracts,
including interest rate and stock index futures, and may purchase options
and write covered options on futures contracts and securities, as
described in the Prospectus.
|
FLC
|
[The Fund may not] [i]nvest
in commodities, except that the Fund may enter into futures contracts,
including interest rate and stock index futures, and may purchase options
and write covered options on futures contracts and securities, as
described in the Prospectus.
|
If shareholders of each Fund approve
the proposal, each Funds current fundamental investment policy relating to
investments in commodities will be revised as follows:
The Fund
may purchase and sell commodities or commodity contracts, including futures
contracts, to the extent permitted by law.
Shareholders of each Fund will vote
separately from shareholders of the other Funds with respect to their Fund's
investment policy.
THE BOARD OF DIRECTORS OF PFD, PFO,
FFC AND FLC, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE FOR PROPOSAL 1.
Required Vote
Approval of the change
in each Funds fundamental investment policy, with respect to Proposal 1, will
require the approval of the holders of a majority of the relevant Funds
outstanding voting securities. A majority of the Funds outstanding voting
securities for this purpose means the lesser of (1) 67% or more of the Shares
of Common Stock, present at a meeting of shareholders, if the holders of more
than 50% of such Shares are present or represented by proxy at the meeting, or
(2) more than 50% of the outstanding Shares.
OTHER MATTERS TO COME BEFORE THE
MEETINGS
Annual Meetings.
Each Fund does not intend to present any
other business at the relevant Meeting, nor is any 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.
Special
Meetings.
Under Maryland law and each
applicable Funds Bylaws, the only matters that may be acted on at a special
meeting of shareholders are those matters stated in the notice of the special
meeting. Accordingly, no other business may properly come before the Special
Meetings.
ADDITIONAL INFORMATION
Investment Adviser, Administrator and Servicing Agent
Flaherty & Crumrine
serves as the investment adviser to each Fund, and its business address is 301
E. Colorado Boulevard, Suite 720, Pasadena, California 91101. BNY Mellon acts as
the administrator to each Fund and is located at 4400 Computer Drive,
Westborough, Massachusetts 01581. Destra Capital Investments LLC acts as the
servicing agent to FFC, FLC and DFP and is located at 901
Warrenville Road, Suite 15, Lisle, Illinois 60532.
15
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 Funds Directors and
executive officers, certain persons affiliated with Flaherty & Crumrine and
persons who beneficially own more than 10% of a registered class of each Funds
securities to file reports of ownership and changes of ownership with the SEC
and the NYSE and 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
2013 all such filing requirements applicable to such persons were met in a
timely manner, except for one late Form 5 filing on behalf of Mr. Robert
Ettinger for PFD, PFO, FFC and FLC that related to a gift.
Submission of Shareholder Proposals
- 2015 Annual Meetings
All proposals by
shareholders of each Fund that are intended to be presented at each Funds next
Annual Meeting of Shareholders to be held in 2015 must be received by the
relevant Fund for consideration for inclusion in the relevant Funds proxy
statement relating to the meeting no later than November __, 2014, and must
satisfy the requirements of federal securities laws.
Each Funds Bylaws require
shareholders wishing to nominate Directors or make proposals to be voted on at
the Funds Annual Meeting to provide timely advance notice of the proposal in
writing. To be considered timely, any such advance notice must be in writing
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 Joint Proxy Statement
not earlier than the 150
th
day nor later than 5:00 p.m., Eastern
Time, on the 120
th
day prior to the first anniversary of the date of
the proxy statement for the preceding years annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced or delayed by
more than 30 days from the first anniversary of the date of the preceding years
annual meeting, notice by the shareholder to be timely must be so delivered not
earlier than the 150
th
day prior to the date of such annual meeting
and not later than 5:00 p.m., Eastern Time, on the later of the 120
th
day prior to the date of such annual meeting, as originally convened, or the
tenth day following the day on which public announcement of the date of such
meeting is first made.
Any such notice by a shareholder
shall set forth the information required by the Funds Bylaws with respect to
each matter the shareholder proposes to bring before the annual
meeting.
Householding
Please note that only one annual or
semi-annual report or Joint Proxy Statement may be delivered to two or more
shareholders of a Fund who share an address, unless the Fund has received
instructions to the contrary. To request a separate copy of an annual report or
semi-annual report or this Joint Proxy Statement, or for instructions regarding
how to request a separate copy of these documents or regarding how to request a
single copy if multiple copies of these documents are received, shareholders
should contact BNY Mellon C/O Computershare, P.O. Box 30170, College Station,
Texas 77842-3170 or by phone at 1-866-351-7446.
Voting Results
Each Fund will advise
its shareholders of the voting results of the matters voted upon at its Meetings
in its next Semi-Annual Report to Shareholders.
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 for the
Annual Meetings, abstentions do not constitute a vote for directors. With respect to Proposal 1 for the Special Meetings, abstentions do
not constitute a vote for the proposal and instead will count as a vote
against the proposal.
16
NOTICE TO BANKS, BROKER/DEALERS AND
VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Funds
whether other persons are the beneficial owners of Fund Shares for which proxies
are being solicited from you, and, if so, the number of copies of the Joint
Proxy Statement and other soliciting material you wish to receive in order to
supply copies to the beneficial owners of Fund Shares.
IT IS IMPORTANT THAT PROXIES BE
RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE RELEVANT
MEETINGS ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND RETURN ALL PROXY CARDS
AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
17
FLAHERTY &
CRUMRINE
TOTAL RETURN FUND INCORPORATED
Important Information Regarding
Annual Meeting of
Shareholders
and Special Meeting of Shareholders
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
|
Proxy Card for Annual Meeting and Special
Meeting
PLEASE FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.
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Annual
Meeting
A. Proposal - The Board of Directors
recommends a vote
FOR
the nominee
listed.
1. Election of
Director: 01 David Gale
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Mark here to vote
FOR
the nominee
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Mark here to
WITHHOLD
vote
from the nominee
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For All
EXCEPT
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To withhold authority to vote for any
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nominee(s),
write the name(s) of such nominee(s) below
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Special
Meeting
B.
Proposal The Board of Directors
recommends a vote
FOR
Proposal 1.
1. Approve a change to the fundamental
investment policy regarding investments in
commodities.
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FOR
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AGAINST
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ABSTAIN
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C. Non-Voting
Items
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Change of Address
-
Please print new address
below.
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Comments
Please print your comments below.
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D.
Authorized Signatures This Section
must be completed for your vote to be counted. Date and Sign
Below
NOTE: Please sign this proxy exactly as
your name(s) appear(s) on the books of the Fund. Joint owners should each sign
personally. Trustees and other fiduciaries should indicate the capacity in which
they sign, and where more than one name appears, a majority must sign. If a
corporation, the signature should be that of an authorized officer who should
state his or her title.
Date (mm/dd/yyyy) Please print date
below.
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Signature 1 Please keep signature
within the box.
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Signature 2 Please keep signature
within the box.
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/
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The Notices of Annual Meeting and
Special Meeting of Shareholders, Joint Proxy Statement
and proxy card for
the Fund are available on the Funds website at
www.preferredincome.com
.
PLEASE FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.
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Proxy - FLAHERTY & CRUMRINE TOTAL
RETURN FUND INCORPORATED
PROXY IN CONNECTION WITH EACH OF THE
ANNUAL MEETING AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 17, 2014
Important Notice Regarding the
Availability of Proxy Materials for the Shareholder Meetings to be held on April
17, 2014.
The Notices of Annual Meeting and
Special Meeting of Shareholders, Joint Proxy Statement and proxy card for the
Fund are available on the Funds website at www.preferredincome.com.
PROXY SOLICITED BY BOARD OF
DIRECTORS
The undersigned holder of shares of
Common Stock of Flaherty & Crumrine Total Return Fund Incorporated, a
Maryland corporation (the Fund), hereby appoints Donald F. Crumrine, Robert M.
Ettinger and Chad C. Conwell, 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 each of the Annual Meeting and Special Meeting of
Shareholders of the Fund to be held at the offices of Flaherty & Crumrine
Incorporated, 301 East Colorado Boulevard, Suite 720, Pasadena, California 91101
at 9:00 a.m. PT, and 9:30 a.m. PT, respectively, on April 17, 2014, and any
adjournments or postponements thereof. The undersigned hereby acknowledges
receipt of the Notices of Annual Meeting and Special Meeting and Joint Proxy
Statement and hereby instructs said 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 each Meeting. A majority of the proxies
present and acting at each 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.
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