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Definitions

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Callable – see redeemable below. Sometimes used to describe a ‘redeemable’ issue.

Change of Control – If a company is bought or someone purchases a controlling interest many preferred stocks have provisions for holders to redeem their shares (circumstances vary).

Contingent Voting – In certain circumstances preferred shareholders receive a vote–typically after dividends have been suspended for some predetermined amount of time.

Convertible Preferred Stock – Shares that can be converted into a fixed number of common shares of the issuer.

Credit Rating – see rating below.

Cumulative – If the issuer suspends payment of dividends they continue to ‘accumulate’ and must be paid prior to any distributions on the common shares.

Floating Rate – The interest rate paid on the issue ‘floats’, typically after a period of fixed rate payment.  Normally based upon 3 month Libor plus a fixed rate, reset quarterly.

Mandatory Redemption -A few issues have mandatory redemption dates (essentially a maturity date).

Non Cumulative – If the issuer does not pay a dividend it is gone forever (typically used by banks and insurance companies).

Participating Preferred – Preferred shareholders receive a coupon rate, plus a ‘participation’ in profits.  These are rare.

Perpetual Stock – Shares have no maturity mandated.  Likely can be ‘redeemed’ by the issuers 5 years after issuance (at the issuers option).

Preferred Stock – Ownership in a corporation without voting rights.  Has characteristics of both bonds and stock.  Normally pays a fixed interest rate.  Ranks senior to common stock, but is junior to all debt in a liquidation situation.

Qualified Dividends – Eligible for a lower tax rate (either 15 or 20%).

Rating (Credit Rating) – Like a bond many preferred issues are rated by S&P, Moodys and/or Fitch.  This is not always the case and most REIT preferreds are not rated.

Redeemable – Shares can typically be ‘redeemed’, at the issuers option, 5 years after issuance.  Some issues have ‘redemption’ periods as soon as 1 year after issue and some as long as 10 years after issue.

Registered Investment Company (RIC) – A RIC is a domestic corporation that groups funds from more than 100 investors for the purpose of investing.  The investment Act of 1940 created RIC’s as a way for small investors to gain professional management and more diversified investment possibilities.   A RIC is required to distribute 90% of their taxable ordinary income and short term realized capital gains

Term Preferred Stock – Having a specific mandatory redemption date.

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