destra flaherty & crumrine preferred and income fund
Tickers: A Shares DPIAX · I Shares DPIIX · C Shares DPICX
CUSIPs: A Shares 250 64T 106 · I Shares 250 64T 403 · C Shares 250 64T 205
To seek total return, with an emphasis on high current income.
Investment Strategy and Philosophy
The Fund’s portfolio manager, Flaherty & Crumrine was founded in 1983, and is one of the of the oldest preferred securities managers in the industry. Through the years they have built a proprietary data base on over 1500 separate issues of preferred securities. Flaherty & Crumrine then leverages their experience and data base seeking to unlock hidden value, in what they believe is an inefficient preferred securities market. To accomplish this goal the Fund will, in normal markets, invest at least 80% of it’s net assets in a portfolio of preferred and income producing securities. The securities in which the Fund may invest include traditional preferred stock, trust preferred securities, hybrid securities, convertible securities, contingent-capital securities, subordinated debt, and senior debt securities of other open-end, closed-end or exchange-traded funds that invest primarily in the same types of securities. The Fund may invest up to 40% of its assets in securities of non-U.S. companies, and up to 15% of its assets in common stocks. In addition, under normal market conditions, the Fund invests more than 25% of its total assets in companies principally engaged in financial services.
The Fund will principally invest in (i) investment grade quality securities or (ii) below investment grade quality preferred or subordinated securities of companies with investment grade senior debt outstanding, in either case determined at the time of purchase. Securities that are rated below investment grade are commonly referred to as “high yield” or “junk bonds.” However, some of the Fund’s total assets may be invested in securities rated (or issued by companies rated) below investment grade at the time of purchase. Preferred and debt securities of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay dividends and interest and repayment of principal. Due to the risks involved in investing in preferred and debt securities of below investment grade quality, an investment in the Fund should be considered speculative. The maturities of preferred and debt securities in which the Fund will invest generally will be longer-term (perpetual, in the case of some preferred securities, and ten years or more for other preferred and debt securities); however, as a result of changing market conditions and interest rates, the Fund may also invest in shorter-term securities.
as of 10/31/2015
|Destra Flaherty & Crumrine Preferred and Income
|Destra Flaherty & Crumrine Preferred and Income
|Destra Flaherty & Crumrine Preferred and Income
This yield reflects the theoretical income that a portfolio would generate including dividends and interest, during the period after deducting a fund’s expenses the period. A fund’s actual net earnings for a given period under generally accepted accounting principals may differ from this standardized yield.
There is a contractual/voluntary fee waiver currently in place for this Fund through February 1, 2022, had that subsidy not been in place the Fund's standardized yields would have been 4.41% for A shares, 5.09% for I shares and 4.09% for C shares.
Destra Flaherty & Crumrine Preferred and Income Fund performance as of 10/31/2015
|ticker||1 mth||ytd||1 yr||3 yr||from|
|BofA Merrill Lynch 8% Constrained Core West Preferred & Jr Subordinated Securities Index*||1.75||4.00||4.87||5.87||6.95|
|50% BofA Merrill Lynch Hybrid Preferred Securities 8% Constrained Index and 50% BofA Merrill Lynch US Capital Securities US Issuers 8% Constrained Index*||1.09||3.33||4.19||5.64||6.80|
Destra Flaherty & Crumrine Preferred and Income Fund performance as of 9/30/2015
|ticker||1 mth||ytd||1 yr||3 yr||from|
|50% BofAML 8% Constrained Corp US Capital Securities Index and 50% BofAML 8% Capped Hybrid Pref Securities Index||0.13||2.22||4.09||5.80||6.68|
*Effective October 1, 2015, the Destra Flaherty & Crumrine Preferred and Income Fund (the “Fund”) adopted the BofA Merrill Lynch 8% Constrained Core West Preferred & Jr Subordinated Securities Index (“New Index”) as its primary benchmark. Previously, the Fund utilized a blend of 50% of the BofA Merrill Lynch Hybrid Preferred Securities 8% Constrained Index and 50% of the BofA Merrill Lynch US Capital Securities US Issuers 8% Constrained Index (“Former Index”). Going forward, the Fund’s performance will be compared to the New Index as we believe it more closely reflects the Fund’s investable universe. The utilization of the New Index will be reflected prospectively, therefore, all performance prior to October 1, 2015 will be compared to the Former Index.
Class A shares performance reflects the deduction of the maximum sales charge of 4.50%
Included in the each Fund’s Class A shares expenses is a distribution and service (12b-1) fee of 0.25%.
Class C shares have a maximum contingent deferred sales charge (CDSC) of 1%. However, w/CDSC performance for Class C shares reflects the deduction of: 1% for all shares on shares redeemed within 12 months of purchase.
Included in the each Fund’s Class C shares expenses is a distribution and service (12b-1) fee of 1.00%.
A 2% redemption fee will be imposed on certain redemptions or exchanges out of the Class I shares of the Fund within 90 days of purchase. Exceptions to the redemption fee are listed in the Fund's prospectus.
Past performance is no guarantee of future results. Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, yield, and return will vary and you may have a gain or loss when you sell your shares.
The Adviser has agreed to cap expenses such that the total annual fund operating expenses, excluding brokerage commissions and other trading expenses, taxes, acquired fund fees and other extraordinary expenses (such as litigation and other expenses not incurred in the ordinary course of business) at 1.50% for Class A, 2.25% for Class C and 1.22% for Class I. This waiver will continue in effect until February 1, 2022. The waiver may be terminated or modified prior to February 1, 2022 only with the approval of the Board of Trustees of the Trust. The gross expenses for the Class A, Class C and Class I shares are 2.26%, 3.10% and 1.64% respectively.
Exploit Market Inefficiency
The preferred securities marketplace is considered inefficient, with companies issuing multiple levels of preferred and subordinated debt, each with unique terms. Flaherty & Crumrine’s analysts review issues and issuers for credit and valuation metrics to develop a detailed database of all the critical elements for over 1,500 individual issues.
- 26 years of data
- 1,500 published issues
- 30-80 data points per issue
Source: Flaherty & Crumrine, February 2013.
Flaherty & Crumrine analysts accumulate information on all available data points for each security. The data is developed into a proprietary, individual Security Master Report. Analysts and portfolio managers then model security risks and valuation, seeking to determine what they are getting paid to own a company’s subordinated capital. Based on current market conditions and opportunities the portfolio is assembled, managed and maintained.
as of 9/30/2015
Top 10 Issuers (% of total assets)
|Wells Fargo & Company||4.90%|
|Capital One Financial||4.90%|
|Bank of America Corporation||4.61%|
|Goldman Sachs Group||4.60%|
|Enterprise Products Partners||3.19%|
|Moody's||Standard & Poor's|
|Not Rated||10.2%||< BB||0.3%|
Credit Ratings, as rated by S&P and Moody’s, is an assessment of the credit worthiness of an issuer of a security. AAA is the highest rating, the obligors capacity to meet is financial commitments is strong. As ratings decrease, the obligor is considered more speculative by market participants. Credit ratings apply only to the bonds and preferred securities in the portfolio and not to the shares of the fund which will fluctuate in value.
1 At NAV
2 After applying the redemption fee, Class I shares return for the period for the Fund would have been -0.51%.
**Compositions are subject to daily changes with market actions.
Investors should consider the investment objectives and policies, risk considerations, charges, and ongoing expenses of an investment carefully before investing. The prospectus contains this and other information relevant to an investment in the Fund. Please read the prospectus carefully before you invest or send money. To obtain a prospectus, please contact your investment representative or Destra Capital Investments LLC or download a PDF here.
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receive on your investment, may fluctuate significantly from day to day and over time. You may lose part or all of your investment in the Fund or your investment may not perform as well as other similar investments. The following is a summary description of certain risks of investing in the Fund. Preferred and Subordinated Security Risk: Preferred and other subordinated securities rank lower than bonds and other debt instruments in a company’s capital structure and therefore will be subject to greater credit risk than those debt instruments. Distributions on some types of these securities may also be skipped or deferred by issuers without causing a default. Finally, some of these securities typically have special redemption rights that allow the issuer to redeem the security at par earlier than scheduled. Credit Risk: Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments. Credit risk may be heightened for the Fund because the Fund may invest in “high yield” or “high risk” securities; such securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of default or bankruptcy, and are regarded as predominantly speculative with respect to the issuer’s capacity to pay dividends and interest and repay principal. Interest Rate Risk: If interest rates rise, in particular, if long-term interest rates rise, the prices of fixed-rate securities held by the Fund will fall. Liquidity Risk: This Fund, like all open-end funds, is limited to investing up to 15% of its net assets in illiquid securities. From time to time, certain securities held by the Fund may have limited marketability and may be difficult to sell at favorable times or prices. It is possible that certain securities held by the Fund will not be able to be sold in sufficient amounts or in a sufficiently timely manner to raise the cash necessary to meet any potentially large redemption requests by fund shareholders. Concentration Risk: The Fund intends to invest 25% or more of its total assets in securities of financial services companies. This policy makes the Fund more susceptible to adverse economic or regulatory occurrences affecting financial services companies. Financial Services Company Risk: Financial services companies are especially subject to the adverse effects of economic recession, currency exchange rates, government regulation, decreases in the availability of capital, volatile interest rates, portfolio concentrations in geographic markets and in commercial and residential real estate loans, and competition from new entrants in their fields of business. Foreign Investment Risk: Because the Fund can invest its assets in foreign instruments, the value of Fund shares can be adversely affected by changes in currency exchange rates and political and economic developments abroad. Foreign markets may be smaller, less liquid and more volatile than the major markets in the United States, and as a result, Fund share values may be more volatile. Trading in foreign markets typically involves higher expense than trading in the United States. The Fund may have difficulties enforcing its legal or contractual rights in a foreign country. Currency Risk: Since a portion of the Fund’s assets may be invested in securities denominated foreign currencies, changes in currency exchange rates may adversely affect the Fund’s net asset value, the value of dividends and income earned, and gains and losses realized on the sale of securities. Non-Diversification Risk: The Fund is non-diversified, which means that it may invest in the securities of fewer issuers than a diversified fund. As a result, it may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, may experience increased volatility and may be highly concentrated in certain securities. Convertible Securities Risk: The market value of a convertible security often performs like that of a regular debt security; that is, if market interest rates rise, the value of a convertible security usually falls. In addition, convertible securities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and their market value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’s creditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, a convertible security is also subject to the same types of market and issuer risks that apply to the underlying common stock. High Yield Securities Risk: High yield securities generally are less liquid, have more volatile prices, and have greater credit risk than investment grade securities. Investment in Other Investment Companies Risk: As with other investments, investments in other investment companies are subject to market and selection risk. In addition, if the Fund acquires shares of investment companies, including ones affiliated with the Fund, shareholders bear both their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies. To the extent the Fund is held by an affiliated fund, the ability of the Fund itself to hold other investment companies may be limited. Market Risk and Selection Risk: Market risk is the risk that one or more markets in which the Fund invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk is the risk that the securities selected by Fund management will under-perform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment strategies. This means you may lose money. Risks Associated with Active Management: The Fund is an actively managed portfolio and its success depends upon the investment skills and analytical abilities of the Fund’s sub-adviser to develop and effectively implement strategies that achieve the Fund’s investment objective. Subjective decisions made by the investment sub-adviser may cause the Fund to incur losses or to miss profit opportunities on which it may otherwise have capitalized. General Fund Investing Risks: The Fund is not a complete investment program and you may lose money by investing in the Fund. All investments carry a certain amount of risk and there is no guarantee that the Fund will be able to achieve its investment objective. In general, the Annual Fund Operating Expenses expressed as a percentage of the Fund’s average daily net assets will change as Fund assets increase and decrease, and the Fund’s Annual Fund Operating Expenses may differ in the future. Purchase and redemption activities by Fund shareholders may impact the management of the Fund and its ability to achieve its objective. Investors in the Fund should have long-term investment perspective and be able to tolerate potentially sharp declines in value. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person.
Issuer Concentration in Industries with Regulated Capital Structure
Over 80% of preferred securities are issued by regulated companies in the banking, financial services, insurance, and utility industries, with the regulatory structure potentially providing insulation against credit default. In normal market conditions, the Fund will invest at least 25% of its assets in securities of companies principally engaged in the financial services industry. This policy makes the Fund more susceptible to adverse economic or regulatory occurrences affecting financial services companies, including the adverse effects of economic recession, currency exchange rates, government regulation, decreases in the availability of capital, volatile interest rates, and portfolio concentration in geographic markets and commercial and residential real estate loans.
BofA Merrill Lynch 8% Constrained Core West Preferred & Jr Subordinated Securities Index tracks the performance of US dollar denominated high grade and high yield preferred securities and deeply subordinated corporate debt issued in the US domestic market. Qualifying securities must be rated at least B3, based on an average of Moody’s, S&P and Fitch and have a country of risk of either the U.S. or a Western European country. Qualifying preferred securities must be issued as public securities or through a 144a filing, must have a fixed or floating dividend schedule and must have a minimum amount outstanding of $100 million.
The BofA Merrill Lynch US Capital Securities US Issuers 8% Constrained Index is a subset of the BofA Merrill Lynch Corporate All Capital Securities Index that contains securities issued by U.S. corporations. The index includes investment grade, fixed rate, or fixed-to-floating rate $1,000 par securities that receive some degree of equity credit from the rating agencies or their regulators and with issuer concentration capped at a maximum of 8%.
The BofA Merrill Lynch Hybrid Preferred Securities 8% Constrained Index is a subset of the BofA Merrill Lynch Fixed Rate Preferred Securities Index that contains all subordinated constituents of the fixed rate index with a payment deferral feature and with issuer concentration capped at a maximum of 8%. The fixed rate index includes investment-grade DRD-eligible and non-DRD-eligible preferred stock and senior debt.
Holdings are subject to change without notice. There is no assurance that the investment process will lead to successful investing.Not FDIC-Insured, Not Bank Guaranteed, May Lose Value