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| As described in other sections, Flaherty & Crumrine manages portfolios for publicly traded closed-end funds and a variety of clients, including Fortune 100 companies, insurance companies, privately held companies, and utility Nuclear Decommissioning Trusts (NDT's). Our clients include those able to take advantage of the inter-corporate dividends received deduction (DRD), and those seeking the higher pre-tax yield of taxable preferreds. Because of their high pre-tax and after-tax yields, preferreds are especially attractive to companies concerned with the Alternative Minimum Tax. Most accounts own a diversified portfolio consisting of both DRD eligible (traditional) preferreds as well as taxable (hybrid) preferreds. Even for clients most interested in DRD income and after-tax returns, it may make sense to shift the allocation between traditional and hybrid securities as one market cheapens/richens relative to the other. For accounts more interested in pre-tax returns, a portfolio of higher yielding hybrid preferreds is usually appropriate, although the allocation can change as described above. In addition to the distinction based on tax preference, our clients also vary in the amount of interest rate risk they are willing to tolerate. Exposure to interest rates is managed through the use of interest rate management tools. This allows us to seek to tailor the portfolio to the client's specific risk tolerance. Flaherty & Crumrine manages four U.S. closed-end preferred stock funds. The Flaherty & Crumrine Preferred Income Fund and the Flaherty & Crumrine Preferred Income Opportunity Fund both invest in a mix of traditional and hybrid preferreds. The Flaherty & Crumrine/Claymore Preferred Securities Income Fund invests primarily in hybrid preferreds, and the Flaherty & Crumrine/Claymore Total Return Fund invests in a mix of hybrid preferreds and senior debt securities. The Funds employ a combination of hedging and leverage to create an income stream that has increased in periods of rising rates, but has been relatively resistant to declining rates. The Funds are listed on the New York Stock Exchange under the symbols PFD, PFO, FFC, and FLC, respectively. Additionally, Flaherty & Crumrine manage portfolios for the Flaherty & Crumrine Investment Grade Preferred Fund and the Flaherty & Crumrine Investment Grade Fixed Income Fund which trade on the Toronto Stock Exchange under the symbols FAC.UN and FFI.UN respectively. For detailed descriptions and furher contact information, please visit their respective websites at: Flaherty
& Crumrine Preferred Income Fund (NYSE: PFD) or Flaherty
& Crumrine/Claymore Preferred Securities Income Fund (NYSE:
FFC) or Flaherty
& Crumrine Investment Grade Preferred Fund (TSX:
FAC.UN)
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