Priority Income Fund, Inc. — Series PL (PRIF-PL)
Priority Income Fund occupies a specific corner of the investment landscape: it is a closed-end management company that buys preferred stocks and bonds and returns the income to shareholders via regular quarterly distributions. The PRIF-PL share class is the third publicly traded version of the same underlying fund, alongside PRIF-PD and PRIF-PK, each trading on the exchange under its own ticker symbol. All three own the same portfolio but may have different fee structures or distribution mechanics. The fund’s defining characteristic is its use of leverage — borrowed money invested in the portfolio to amplify yields — which allows it to pay distributions that exceed what the underlying portfolio alone would yield, but at the cost of compounding risk.
The fund was created to serve investors with a straightforward income objective: receive regular cash distributions from a diversified portfolio of income-producing securities, without needing to construct and rebalance such a portfolio themselves. This appeals to retirees, endowments, and others who rely on portfolio income and prefer the passivity of owning a single fund to managing a sprawl of individual bonds and preferred stocks. The trade-off is that the investor must accept the fund’s strategy, including its use of leverage, and surrender direct control over holdings.
Preferred stocks form the bulk of the fund’s portfolio. These are hybrid securities issued primarily by large banks, insurance companies, real estate investment trusts, and utilities. A preferred shareholder receives a fixed dividend, typically in the range of four to eight percent annually, and has claim on the company’s assets ahead of common stockholders but behind bondholders. The attraction is straightforward: preferred dividends are generally higher than bond yields from the same issuer, and the seniority of the claim provides protection. The downside is equally clear: if the issuer falls into financial distress, the preferred’s value can collapse, and the dividend can be suspended. Preferred stocks do not participate in the issuer’s upside the way common stocks do; returns are capped by the fixed dividend.
The fund typically holds preferred stocks from twenty to thirty different companies spread across multiple sectors and geographies within the United States. This diversification is essential because a single issuer’s financial troubles — a bank crisis, an insurance company’s losses, a utilities regulatory shock — can cause a preferred stock to plummet. By holding many issuers, the fund reduces the impact of any single default or cut.
Bonds make up the remaining portfolio, divided between investment-grade securities (issued by highly-rated companies with strong credit) and high-yield bonds (issued by companies rated below investment grade). Investment-grade bonds are more stable and provide predictable coupon payments but yield less. High-yield bonds offer more income but carry higher default risk. The fund’s allocation between the two depends on the manager’s assessment of credit conditions. In boom periods, the manager might tilt more aggressively toward high-yield to boost distributions. In uncertain periods, the fund typically moves toward the safety of investment-grade paper.
The fund’s use of leverage is accomplished through short-term borrowing facilities. The fund borrows money at rates close to the Fed funds rate plus a spread, and invests the proceeds in its portfolio of preferred stocks and bonds yielding three to eight percent or more. When borrowing costs are low and the portfolio yield is high, the leverage benefit is substantial. The fund can distribute more cash than the portfolio yield alone would support, and shareholders enjoy amplified returns. Conversely, when borrowing becomes expensive, when credit spreads widen, or when the portfolio’s yield falls, leverage can turn negative — the cost of borrowing exceeds the portfolio return, and NAV per share shrinks even if distributions are maintained.
This dynamic is crucial to understanding the fund’s fragility. In the years immediately after 2008, when interest rates fell to nearly zero and credit spreads were compressed, preferred stocks and bonds yielded very little, and the cost of leverage relative to return improved dramatically. The fund could pay attractive distributions because the gap between what it borrowed at and what it earned on the portfolio was favorable. But when credit conditions tighten, when defaults rise, or when interest rates climb, that gap narrows, and the fund must cut distributions or face NAV erosion.
The fund distributes nearly all of its earnings to shareholders quarterly. The distribution amount is stated as a target percentage of NAV and is typically in the range of five to nine percent annually, depending on current yields and the manager’s leverage deployment. Importantly, this distribution is not a guarantee. In years when the portfolio underperforms, the distribution can be reduced or suspended. This happened to many closed-end income funds in 2008 and 2009, and again in periods of credit stress. Investors comparing closed-end funds sometimes assume that the highest-yielding fund is the best bargain, but a distribution that cannot be sustained is a red flag, not a feature. The fund’s own performance reports and annual filings detail whether distributions are being paid from current income or from capital, an essential distinction for assessing long-term viability.
The fund’s share price on the exchange may trade above or below its net asset value — the calculated per-share value of its holdings. When shares trade at a discount to NAV, new investors can buy the portfolio at a bargain, but existing shareholders are underwater. When shares trade at a premium, new investors pay more than the portfolio is worth. These discounts and premiums fluctuate based on demand for the fund, confidence in the manager, and broader sentiment toward closed-end income funds. Persistent discounts often signal that investors doubt the fund’s ability to sustain distributions or have lost faith in the strategy.
The fund is sensitive to two dominant economic forces: interest-rate moves and credit cycles. Rising interest rates typically reduce preferred stock and bond valuations. The preferred stock’s fixed dividend becomes less attractive when new issuers can offer higher yields, and bond prices fall mechanically as yields on new bonds rise. Credit cycles affect default risk: in strong economic expansions, corporate earnings rise, leverage ratios improve, and default rates stay low, making the portfolio resilient. In recessions and financial crises, corporate earnings fall, debt becomes unsustainable, default rates spike, and the portfolio’s valuations collapse. The fund experienced severe stress during the 2008 financial crisis, the early stages of the 2020 pandemic recession, and other periods of financial tightening. Full recovery from such episodes takes years.
How a reader would evaluate Priority Income Fund depends on their time horizon and risk tolerance. Short-term investors focused on the next quarter’s distribution may be satisfied as long as cash lands in their account. Longer-term shareholders should assess whether the fund’s distribution is sustainable by examining the underlying portfolio yield, comparing it to the distribution rate, and considering whether the leverage being used is likely to remain affordable. Reading the fund’s annual report and fact sheets, tracking the net asset value over time to see whether it is growing or shrinking, and monitoring the manager’s commentary on credit conditions and interest-rate outlook provide the core information necessary to understand the fund’s prospects. The SEC filing (CIK 0001554625) contains the fund’s prospectus and detailed holdings, essential reading for anyone considering whether this complex security aligns with their income objectives and risk appetite.