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STEWART R. HOREJSI
March 25, 1998
Dear Fellow Shareholder:
By now you probably have received a long letter from the management of a
mutual fund that you own, the Preferred Income Management Fund Incorporated.
They complain loudly about my efforts to elect two of the Fund's six directors
in opposition to the management of the Fund. Look closely at the facts, and I
believe you will agree with me that the Fund's management and their handpicked
directors are mostly worried about keeping their Board seats and all the fees
that come with the seats.
- WHOSE INTEREST IS ALIGNED WITH YOURS? The Fund's management acts like it
is wrong that the companies and trusts I manage have invested $50 million in the
Fund. The management directors don't make a very big point of how much of their
own money they have put in the Fund. In fact, the two management nominees have
only 1,000 and 508 shares. THEY HAVE EACH RECEIVED MUCH MORE MONEY IN FEES FROM
THE FUND THAN THEY HAVE INVESTED IN IT. In fact, none of the six captive
directors personally has a significant investment in the Fund. If the management
directors are so confident that the Fund is heading in the right direction, why
haven't they put their money where their mouth is? IN CONTRAST, NO ONE HAS A
BIGGER FINANCIAL INTEREST THAN I DO IN MAKING SURE THAT THE FUND INVESTS WISELY.
- LOOK AT THE FACTS. The Fund pays Flaherty & Crumrine $1.4 million a year
in fees to provide investment advice. Flaherty & Crumrine handpick the directors
of the Fund that approve these fees, and put these directors on three Flaherty &
Crumrine boards that all do much the same work. So the Flaherty & Crumrine
directors get $33,000 a year in fees for attending four meetings a year. THE
FLAHERTY & CRUMRINE DIRECTORS GET MORE MONEY FROM OTHER FLAHERTY & CRUMRINE
COMPANIES THAN FROM THE FUND. And, according to SEC filings, one of Flaherty &
Crumrine's nominees received almost $125,000 as the handpicked management
director sitting on the boards of 16 mutual funds in 1996. That, I believe, is a
very dangerous situation for Fund shareholders. These directors should not be
considered YOUR directors.
In discussions with Flaherty & Crumrine, I agreed to call off this proxy
contest and compromise. However, Flaherty & Crumrine demanded that I stop
talking about some key issues. In particular, I asked: SHOULD FLAHERTY &
CRUMRINE BOTH ADVISE THE FUND AND ALSO APPOINT ALL OF THE OFFICERS OF THE FUND?
SHOULD THE FUND'S INDEPENDENT DIRECTORS TAKE MONEY FROM OTHER FUNDS ADVISED BY
FLAHERTY & CRUMRINE? I refuse to stop asking these questions.
- DON'T LET THEM USE SCARE TACTICS. You may think after reading material
sent out by the Fund's management that this proxy contest is about imminent
changes in the Fund's investment focus. They use a lot of ink deploring possible
changes. The truth is, the world has changed. Capital gains tax rates have been
reduced. Congress is evaluating whether to eliminate the dividend received
deduction for preferred stocks. Management's directors want to ignore these
changes and continue on as if nothing has happened. I want to consider whether
these changes mean that a shift in the Fund's investment focus is a good idea.
The Fund should have the right to consider investing in attractive common stock
opportunities.
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Why won't Flaherty & Crumrine consider a change in investment focus? I believe
the answer is that Flaherty & Crumrine's expertise is in preferred stocks and
not common stocks. They will lose fees if the Fund hires someone else to provide
advice on common stocks.
The Fund's management falsely implies that we might make the Fund invest in
troubled, high risk companies. This is simply not true and another example of
their scare tactics. We will only recommend investments that offer good
potential, are not high risk, and are appropriate for a mutual fund. AFTER ALL,
THE COMPANIES AND TRUSTS I MANAGE HAVE $50 MILLION INVESTED IN THE FUND COMPARED
TO VERY LITTLE FOR ALL SIX CAPTIVE DIRECTORS.
But even if we are successful, we will only have elected two of six
directors and will not control the Fund. More importantly, and what the Fund's
management does not tell you, NO CHANGES CAN BE MADE IN THE FUND'S INVESTMENT
FOCUS WITHOUT SHAREHOLDER APPROVAL. In fact, even if the Fund's directors and
shareholders approve a change in investment focus, I believe the focus should be
changed only gradually in response to opportunities in the market. Neither the
Fund's management nor you have any reason to fear an overnight change in the
Fund's strategy. But the Fund's management is using scare tactics to make you
think otherwise.
- THE BOTTOM LINE. In closing, let me address the key issue in this proxy
contest. Why would the Fund's management use scare tactics about sudden, forced
changes in the Fund's investment focus? MAYBE THIS ELECTION IS NOT REALLY ABOUT
THE FUND'S INVESTMENT FOCUS, BUT RATHER ABOUT INCUMBENT MANAGEMENT TRYING TO
SAVE THEIR JOBS AND THEIR FEES. Flaherty & Crumrine want to keep their control
of the Board by making sure all of the Fund directors continue to be their
handpicked candidates. Don't let the Fund's management stifle debate on the
Board. Let the shareholders decide what is best for the Fund.
- YOUR VOTE IS IMPORTANT. Whether or not you vote for or against our
nominees we urge you to vote. Remember that your vote counts. Please help us
elect two directors that will represent the shareholders -- not Flaherty &
Crumrine. Thank you for your support.
Sincerely,
/s/ Stewart R. Horejsi
Stewart R. Horejsi
IMPORTANT
Please sign, date and return your BLUE PROXY CARD
today in the enclosed, postage paid envelope.
If you have questions or need assistance in voting your shares, please
contact our proxy solicitor, Georgeson & Company Inc. at 1-800-223-2064.
