UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21129
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
(Exact name of registrant as specified in charter)
301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101
(Address of principal executive offices) (Zip code)
Donald F. Crumrine
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101
(Name and address of agent for service)
Registrant's telephone number, including area code: 626-795-7300
Date of fiscal year end: November 30
Date of reporting period: August 31, 2009
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (Sections 239.24 and 274.5
of this chapter), to file reports with the Commission, not later than 60 days
after the close of the first and third fiscal quarters, pursuant to rule 30b1-5
under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may
use the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. Section 3507.
ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.
FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND
To the Shareholders of Flaherty & Crumrine/Claymore Preferred Securities Income
Fund:
The Fund delivered a second consecutive quarter of double-digit returns as
financial markets continued to recover from lows hit earlier this year. During
the three-month period ended August 31st, total return on net asset value was
+26.8%, and total return on market value of Fund shares was +33.6%.
As the worst of the financial crisis appears to be behind us, prices on
most securities in the Fund's portfolio rose during the quarter. Although the
credit outlook for some issuers remains speculative and the prices of their
securities remain depressed, many securities that suffered the biggest declines
earlier in the year staged the most dramatic recoveries. That being said, while
prices in general are much higher than just three months ago, they remain well
below the highs reached in recent years. There should be further recovery if the
markets continue to normalize as we expect.
The strong performance over the past two quarters occurred despite the
negative impact of our investments in a few troubled companies. During the past
quarter, Colonial Bank was shut down by regulators. At this point, we are
assuming there will be no additional income earned and minimal principal
recovery on our investment in its parent, Colonial BancGroup, Inc. Two
additional credits, FBOP Bancorp and CIT Group, suspended distributions on the
securities owned by the Fund. Both companies are currently exploring strategies
to improve their financial condition.
One year ago, the world's financial system was on the brink of collapse. In
the blink of an eye, we went from a world in which anyone with a pulse could get
a loan to a virtual shutdown of the capital markets. Investors, large and small,
appeared ready to stuff money in a mattress rather than hand it over to a bank
or money market fund. Access to short-term liquidity, the life blood of
business, largely disappeared, and long-term financing was virtually
unobtainable. Banks simply stopped lending (not only to long-time customers, but
even more troublesome, to other banks), and capital market investors were in no
mood to provide new financing.
When compared to broader credit markets, the preferred market has a much
greater concentration in financial companies. In addition, the majority of
preferred issues are long-term and consequently tend to have more volatile
prices than other fixed-income instruments. As a result, the performance of the
preferred market (and the Fund) was dismal throughout the early part of the
financial crisis.
After one year, and massive amounts of government intervention, we see
signs of recovery and perhaps a greater sense of rationality in the markets. On
more than one occasion we've expressed our opinion that market volatility was
exacerbated by excessive amounts of leverage. We underestimated the extent to
which price declines could trigger selling by over-leveraged investors,
producing an accelerating downward price spiral. We learned some valuable
lessons during this financial chaos. We improved our analytic tools (and
hopefully developed a more refined sense of smell) to help us discern changes in
fundamental value from a leverage-fed frenzy. We further refined our credit
criteria to help us identify riskier issuers earlier in the credit cycle. And,
as leveraged investors ourselves, we have a keener appreciation for liquidity in
the Fund's portfolio.
We believe these lessons will improve ongoing management of the Fund. Don't
expect wholesale changes, but we would not be doing our job if we did not adapt
to this new, more turbulent environment. For instance, the Fund suspended its
hedging strategy last year, not because we no longer believe in hedging but
because we did not think it would work in a crisis environment. At some point in
the future, we anticipate reinstating the Fund's hedging strategy. Similarly, we
have increased the portfolio's emphasis on liquid issues and issuers. By doing
so, the Fund may give up some current income, but we believe this provides
greater flexibility in managing the portfolio and its leverage for the benefit
of shareholders.
In our last letter we indicated that the Fund was in the process of
replacing all remaining shares of Auction Market Preferred Stock with bank debt.
The switch is complete and the Fund's leverage is now comprised entirely of
debt. While the breakdown in the auction preferred stock market made the change
necessary, the Fund already is realizing some benefits from the new leverage.
Foremost among these benefits are lower borrowing expense and greater
flexibility in managing the portfolio.
All markets have endured tremendous upheaval over the past year. More
change is on the horizon, as the financial system moves from crisis to recovery.
The Fund will continue to assess and adapt to this new market environment. We
take that responsibility seriously, and we appreciate the support that
shareholders have given us.
More information is always available on the Fund's website, including
discussion of many of the topics in this letter. In addition, our thoughts on
the economic outlook are published quarterly and posted to the site. We
encourage you to visit the website at www.fcclaymore.com.
Sincerely,
/s/ Donald F. Crumrine /s/ Robert M. Ettinger
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
October 15, 2009
2
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OVERVIEW
AUGUST 31, 2009 (UNAUDITED)
FUND STATISTICS ON 8/31/09
--------------------------
Net Asset Value $ 12.12
Market Price $ 11.73
Discount 3.22%
Yield on Market Price 11.66%
Common Stock Shares Outstanding 42,655,370
MOODY'S RATINGS % OF NET ASSETS+
--------------- ----------------
AAA 0.5%
AA 0.1%
A 19.3%
BBB 54.2%
BB 20.5%
Below "BB" 2.4%
Not Rated 1.7%
----
Below Investment Grade* 15.4%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.
(PIE CHART)
INDUSTRY CATEGORIES % OF NET ASSETS+
------------------- ----------------
Financial Services 1%
Other 2%
Banking 42%
Energy 6%
Utilities 26%
Insurance 23%
TOP 10 HOLDINGS BY ISSUER % OF NET ASSETS+
------------------------- ----------------
Banco Santander 8.2%
Liberty Mutual Group 5.8%
Wells Fargo 5.7%
Capital One Financial 4.5%
PNC Financial Services 3.5%
Wisconsin Energy 3.3%
Dominion Resources 3.3%
Puget Energy 3.2%
Sovereign Bancorp 3.2%
Southern Union 3.1%
% OF NET ASSETS**+
------------------
Holdings Generating Qualified Dividend Income (QDI) for Individuals 28%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD) 15%
** THIS DOES NOT REFLECT YEAR-END RESULTS OR ACTUAL TAX CATEGORIZATION OF FUND
DISTRIBUTIONS. THESE PERCENTAGES CAN, AND DO, CHANGE, PERHAPS
SIGNIFICANTLY, DEPENDING ON MARKET CONDITIONS. INVESTORS SHOULD CONSULT
THEIR TAX ADVISOR REGARDING THEIR PERSONAL SITUATION.
+ NET ASSETS INCLUDES ASSETS ATTRIBUTABLE TO THE USE OF LEVERAGE.
3
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2009 (UNAUDITED)
SHARES/$ PAR VALUE
------------ ------------
PREFERRED SECURITIES -- 95.0%
BANKING -- 41.7%
$ 19,000,000 Astoria Capital Trust I, 9.75% 11/01/29, Series B .................... $ 19,076,817(1)
Banco Santander:
57,400 Adj. Rate Pfd ..................................................... 905,916**(2)
1,841,890 6.50% Pfd ......................................................... 42,644,358**(1)(2)
734,697 6.80% Pfd ......................................................... 17,708,034**(1)(2)
87,400 Bank of America Corporation, 8.625% Pfd., Series 8 ................... 1,966,500*(1)
$ 8,850,000 Barclays Bank PLC, 6.278% ............................................ 6,294,562**(1)(2)
100,000 BB&T Capital Trust VI, 9.60% Pfd ..................................... 2,618,000(1)
$ 37,393,000 Capital One Capital III, 7.686% 08/15/36 ............................. 29,540,470(1)
$ 4,000,000 Capital One Capital V, 10.25% 08/15/39 ............................... 4,076,848
CIT Group, Inc.:
30,000 5.189% Pfd., Series B ............................................. 130,314*+
$ 13,685,000 6.10% 03/15/67 .................................................... 1,505,350+
385,662 6.35% Pfd., Series A .............................................. 1,065,391*+
105,000 Cobank, ACB, 7.00% Pfd., 144A**** .................................... 3,665,161*(1)
$ 35,100,000 Colonial BancGroup, 7.114%, 144A**** ................................. 614,250+
$ 32,716,000 Comerica Capital Trust II, 6.576% 02/20/37 ........................... 22,574,040(1)
28,800 FBOP Corporation, Adj. Rate Pfd., 144A**** ........................... 1,233,000*+
7,850 First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** .. 7,104,250
4,000 First Tennessee Bank, Adj. Rate Pfd., 144A**** ....................... 1,621,250*
$ 1,950,000 First Tennessee Capital I, 8.07% 01/06/27, Series A .................. 1,297,263
6 FT Real Estate Securities Company, 9.50% Pfd., 144A**** .............. 3,375,000
Goldman Sachs:
$ 13,215,000 Capital II, 5.793% ................................................ 9,713,025
3,600 STRIPES Custodial Receipts, Pvt.................................... 741,600*
HSBC USA, Inc.:
624,400 Adj. Rate Pfd., Series D .......................................... 13,001,569*(1)
264,000 Adj. Rate Pfd., Series G .......................................... 4,926,900*(1)
41,100 Keycorp Capital X, 8.00% Pfd ......................................... 878,102
$ 17,800,000 Lloyds Banking Group PLC, 6.657%, 144A**** ........................... 7,666,727**(2)
$ 13,825,000 National City Preferred Capital Trust I, 12.00% ...................... 14,966,364(1)
295,000 PFGI Capital Corporation, 7.75% Pfd .................................. 6,914,063(1)
164,520 PNC Financial Services, 9.875% Pfd., Series F ........................ 4,379,934*(1)
493,425 Sovereign Bancorp, 7.30% Pfd., Series C .............................. 11,799,025*(1)
170,500 Sovereign Capital Trust V, 7.75% Pfd. 05/22/36 ....................... 3,909,991(1)
8,641 Sovereign REIT, 12.00% Pfd., Series A, 144A**** ...................... 7,798,503
U.S. Bancorp, Auction Pass-Through Trust, Cl. B:
65 Series 2006-5, Variable Rate Pfd., 144A**** ....................... 1,626*+
65 Series 2006-6, Variable Rate Pfd., 144A**** ....................... 1,626*+
4
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2009 (UNAUDITED)
SHARES/$ PAR VALUE
------------ ------------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
60 Union Planters Preferred Funding, 7.75% Pfd., Series 144A**** ........ $ 4,346,250
1,369,600 Wachovia Preferred Funding, 7.25% Pfd., Series A ..................... 28,340,448(1)
Washington Mutual:
$ 2,100,000 9.75%, 144A**** ................................................... 31,500++
$ 10,050,000 6.534%, 144A**** .................................................. 150,750++
$ 11,067,000 Webster Capital Trust IV, 7.65% 06/15/37 ............................. 6,529,530
$ 15,591,000 Wells Fargo & Company, 7.98%, Series K ............................... 14,109,855*
------------
309,224,162
------------
FINANCIAL SERVICES -- 0.8%
$ 1,340,000 Ameriprise Financial, Inc., 7.518% 06/01/66 .......................... 1,051,900(1)
$ 850,000 General Electric Capital Corporation, 6.375% 11/15/67 ................ 687,405
$ 7,000,000 Gulf Stream-Compass 2005 Composite Notes, 144A**** ................... 486,710
Lehman Brothers Holdings, Inc.:
34,000 5.67% Pfd., Series D .............................................. 12,580*++
471,500 7.95% Pfd ......................................................... 44,792*++
20,000 Lehman Capital Trust III, 6.375% Pfd., Series K ...................... 6,250++
$ 10,000,000 RACERS(R) Series 2005 AMMC V Trust, 144A**** ......................... 3,837,027
------------
6,126,664
------------
INSURANCE -- 21.6%
$ 2,500,000 Ace Capital Trust II, 9.70% 04/01/30 ................................. 2,508,710(1)(2)
Arch Capital Group Ltd.:
117,750 7.875% Pfd., Series B ............................................. 2,699,124**(1)(2)
86,321 8.00% Pfd., Series A .............................................. 2,100,406**(1)(2)
AXA SA:
$ 1,200,000 6.379%, 144A**** .................................................. 894,000**(1)(2)
$ 5,500,000 6.463%, 144A**** .................................................. 4,097,500**(1)(2)
Axis Capital Holdings:
200,000 7.25% Pfd., Series A .............................................. 4,602,500**(1)(2)
281,505 7.50% Pfd., Series B .............................................. 18,350,607(1)(2)
37,000 Corts Provident Financing Trust I, 8.50% Pfd ......................... 827,783(1)
558,000 Delphi Financial Group, 7.376% Pfd. 05/15/37 ......................... 9,625,500(1)
$ 20,469,000 Everest Re Holdings, 6.60% 05/15/37 .................................. 14,430,645(1)
$ 6,650,000 Great West Life & Annuity Insurance, 7.153% 05/16/46, 144A**** ....... 5,353,250(1)
Liberty Mutual Group:
$ 12,500,000 7.80% 03/15/37, 144A**** .......................................... 8,937,500(1)
$ 31,850,000 10.75% 06/15/58, 144A**** ......................................... 28,505,750(1)
5
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2009 (UNAUDITED)
SHARES/$ PAR VALUE
------------ ------------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
$ 12,965,000 MetLife Capital Trust X, 9.25% 04/08/38, 144A**** .................... $ 12,639,423(1)
$ 4,170,000 MetLife, Inc., 10.75% 08/01/39 ....................................... 4,703,414(1)
Principal Financial Group:
10,000 5.563% Pfd., Series A ............................................. 635,000*
285,000 6.518% Pfd., Series B ............................................. 5,173,463*
Renaissancere Holdings Ltd.:
141,800 6.08% Pfd., Series C .............................................. 2,634,644**(1)(2)
248,229 6.60% Pfd., Series D .............................................. 5,083,730**(1)(2)
87,835 7.30% Pfd., Series B .............................................. 1,927,319**(1)(2)
407,200 Scottish Re Group Ltd., 7.25% Pfd .................................... 1,002,730**(2)+
$ 7,425,000 USF&G Capital, 8.312% 07/01/46, 144A**** ............................. 7,139,093(1)
$ 13,000,000 USF&G Capital I, 8.50% 12/15/45, 144A**** ............................ 12,769,432(1)
$ 3,500,000 XL Capital Ltd., 6.50%, Series E ..................................... 2,100,000(2)
$ 1,612,000 ZFS Finance USA Trust V, 6.50% 05/09/37, 144A**** .................... 1,289,600
------------
160,031,123
------------
UTILITIES -- 23.9%
10,000 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ............ 890,000*(1)
328,179 Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 ..................... 14,029,652(1)
35,000 Central Maine Power, 5.25% Pfd., Pvt ................................. 3,027,500*
$ 18,533,000 COMED Financing III, 6.35% 03/15/33 .................................. 14,414,541
$ 15,675,000 Dominion Resources Capital Trust I, 7.83% 12/01/27 ................... 15,043,674(1)
Dominion Resources, Inc.:
$ 11,000,000 7.50% ............................................................. 9,031,330(1)
15,000 8.375% Pfd., Series A ............................................. 397,500
131,000 Entergy Arkansas, Inc., 6.45% Pfd .................................... 2,718,250*
63,184 FPC Capital I, 7.10% Pfd., Series A .................................. 1,572,176(1)
130,140 Georgia Power Company, 6.50% Pfd., Series 2007A ...................... 12,505,647*(1)
119,805 Indianapolis Power & Light Company, 5.65% Pfd ........................ 9,610,613*
$ 2,386,000 PECO Energy Capital Trust III, 7.38% 04/06/28, Series D .............. 2,028,651(1)
$ 27,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 ......................... 19,342,152(1)
$ 29,500,000 Puget Sound Energy, Inc., 6.974% 06/01/67 ............................ 23,685,373(1)
Southern California Edison:
74,235 6.00% Pfd., Series C .............................................. 5,848,330*(1)
54,615 6.125% Pfd ........................................................ 4,411,871*(1)
$ 14,350,000 Southern Union Company, 7.20% 11/01/66 ............................... 10,798,375(1)
$ 4,200,000 Union Electric Company, 7.69% 12/15/36, Series A ..................... 3,878,020(1)
$ 31,000,000 Wisconsin Energy Corporation, 6.25% 05/15/67 ......................... 24,525,061(1)
------------
177,758,716
------------
6
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2009 (UNAUDITED)
SHARES/$ PAR VALUE
------------ ------------
PREFERRED SECURITIES -- (CONTINUED)
ENERGY -- 5.6%
$ 24,360,000 Enbridge Energy Partners LP, 8.05% 10/01/37 .......................... $ 20,583,688(1)
Enterprise Products Partners:
$ 19,000,000 7.034% 01/15/68 ................................................... 15,603,123(1)
$ 5,000,000 8.375% 08/01/66, Series A ......................................... 4,342,905(1)
$ 1,500,000 Teppco Partners LP, 7.00% 06/01/67 ................................... 1,191,636
------------
41,721,352
------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 0.1%
50,000 Duke Realty Corporation, 6.60% Pfd., Series L ........................ 879,125
------------
879,125
------------
MISCELLANEOUS INDUSTRIES -- 1.3%
112,750 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** .................. 7,533,109*
$ 2,500,000 Stanley Works, 5.902% 12/01/45 ....................................... 1,893,305(1)
------------
9,426,414
------------
TOTAL PREFERRED SECURITIES
(Cost $901,884,256) ............................................. 705,167,556
------------
CORPORATE DEBT SECURITIES -- 3.8%
FINANCIAL SERVICES -- 0.2%
55,000 Ameriprise Financial, Inc., 7.75% 06/15/39 ........................... 1,320,138(1)
$ 4,726,012 Lehman Brothers, Guaranteed Note, Variable Rate, 12/16/16, 144A**** .. 444,245++
------------
1,764,383
------------
INSURANCE -- 1.0%
$ 8,470,000 Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** .................. 5,640,520
$ 2,500,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes .............. 1,856,840(1)
------------
7,497,360
------------
UTILITIES -- 1.6%
Southern Union Company:
$ 5,300,000 7.60% 02/01/24, Senior Notes ...................................... 5,507,490(1)
$ 6,047,000 8.25% 11/15/29, Senior Notes ...................................... 6,675,942(1)
------------
12,183,432
------------
7
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2009 (UNAUDITED)
SHARES/$ PAR VALUE
------------ ------------
CORPORATE DEBT SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- 0.4%
$ 3,500,000 Realty Income Corporation, 5.875% 03/15/35 .............................. $ 2,586,580(1)
------------
2,586,580
------------
MISCELLANEOUS INDUSTRIES -- 0.6%
16,500 Corp-Backed Trust Certificates, 7.00% 11/15/28, Series Sprint ........... 249,975(1)
Pulte Homes, Inc.:
58,240 7.375% 06/01/46 ...................................................... 1,028,664
$ 3,550,000 7.875% 06/15/32 ...................................................... 2,822,250(1)
------------
4,100,889
------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $37,008,321) ................................................... 28,132,644
------------
MONEY MARKET FUND -- 0.2%
1,647,170 BlackRock Provident Institutional, T-Fund ............................... 1,647,170
------------
TOTAL MONEY MARKET FUND
(Cost $1,647,170) .................................................... 1,647,170
------------
8
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2009 (UNAUDITED)
VALUE
------------
TOTAL INVESTMENTS (Cost $940,539,747***) .................................... 99.0% $734,947,370
OTHER ASSETS AND LIABILITIES (Net) .......................................... 1.0% 7,692,210
----- ------------
NET ASSETS BEFORE LOAN ...................................................... 100.0%+++ $742,639,580
----- ------------
LOAN PRINCIPAL BALANCE ................................................................. (225,775,000)
------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ............................................. $516,864,580
============
* Securities eligible for the Dividends Received Deduction and distributing
Qualified Dividend Income.
** Securities distributing Qualified Dividend Income only.
*** Aggregate cost of securities held.
**** Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers. At August 31, 2009, these
securities amounted to $137,177,052 or 18.5% of net assets before the loan.
These securities have been determined to be liquid under the guidelines
established by the Board of Directors.
(1) All or a portion of this security is pledged as collateral for the Fund's
loan. The total value of such securities was $551,390,874 at August 31,
2009.
(2) Foreign Issuer.
+ Non-income producing.
++ The issuer has filed for bankruptcy protection. As a result, the Fund may
not be able to recover the principal invested and also does not expect to
receive income on this security going forward.
+++ The percentage shown for each investment category is the total value of
that category as a percentage of total net assets before the loan.
ABBREVIATIONS:
CORTS -- Corporate-Backed Trust Securities
PFD. -- Preferred Securities
PVT. -- Private Placement Securities
RACERS -- Restructured Asset Certificates with Enhanced Returns
REIT -- Real Estate Investment Trust
STRIPES -- Structured Residual Interest Preferred Enhanced Securities
9
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
FOR THE PERIOD FROM DECEMBER 1, 2008 THROUGH AUGUST 31, 2009 (UNAUDITED)
VALUE
------------
OPERATIONS:
Net investment income ....................................................... $ 42,615,249
Net realized gain/(loss) on investments sold during the period .............. (80,000,579)
Change in net unrealized appreciation/depreciation of investments ........... 243,759,732
Distributions to AMPS* Shareholders from net investment income,
including changes in accumulated undeclared distributions ................ (1,646,350)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ 204,728,052
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(2) ... (43,736,382)
------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ............................ (43,736,382)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment and Cash
Purchase Plan ............................................................ 503,187
------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING FROM
FUND SHARE TRANSACTIONS .................................................. 503,187
------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
FOR THE PERIOD .............................................................. $161,494,857
============
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period ......................................................... $355,369,723
Net increase in net assets during the period ................................ 161,494,857
------------
End of period ............................................................... $516,864,580
============
* Auction Market Preferred Stock.
(1) These tables summarize the nine months ended August 31, 2009 and should be
read in conjunction with the Fund's audited financial statements, including
footnotes, in its Annual Report dated November 30, 2008.
(2) May include income earned, but not paid out, in prior fiscal year.
10
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
FINANCIAL HIGHLIGHTS(1)
FOR THE PERIOD FROM DECEMBER 1, 2008 THROUGH AUGUST 31, 2009 (UNAUDITED)
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT THE PERIOD.
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................................ $ 8.34
------------
INVESTMENT OPERATIONS:
Net investment income ....................................................... 1.00
Net realized and unrealized gain/(loss) on investments ...................... 3.85
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income .................................................. (0.04)
------------
Total from investment operations ............................................ 4.81
------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income .................................................. (1.03)
------------
Total distributions to Common Stock Shareholders ............................ (1.03)
------------
Net asset value, end of period .............................................. $ 12.12
============
Market value, end of period ................................................. $ 11.73
============
Common Stock shares outstanding, end of period .............................. 42,655,370
============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income+ ...................................................... 14.75%**
Net investment income, including payments to AMPS Shareholders+ ............. 14.18%**
Operating expenses including interest expense ............................... 2.91%**
Operating expenses excluding interest expense ............................... 1.25%**
SUPPLEMENTAL DATA:
Portfolio turnover rate ..................................................... 25%***
Net assets before loan, end of period (in 000's) ............................ $ 742,640
Ratio of operating expenses including interest expense(2) to net assets
before loan and AMPS ..................................................... 1.79%**
Ratio of operating expenses excluding interest expense(2) to net assets
before loan and AMPS ..................................................... 0.77%**
(1) These tables summarize the nine months ended August 31, 2009 and should be
read in conjunction with the Fund's audited financial statements, including
footnotes, in its Annual Report dated November 30, 2008.
(2) Does not include distributions to AMPS Shareholders.
* Auction Market Preferred Stock.
** Annualized.
*** Not annualized.
+ The net investment income ratios reflect income net of operating expenses,
including interest expense.
++ Information presented under heading Supplemental Data includes AMPS and loan
principal balance.
11
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
FINANCIAL HIGHLIGHTS (CONTINUED)
PER SHARE OF COMMON STOCK (UNAUDITED)
TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE (1)
--------- --------- ------------- ------------
December 31, 2008 ............. $0.1140 $ 8.85 $ 7.75 $ 8.40
January 30, 2009 .............. 0.1140 8.13 8.18 8.13
February 27, 2009 ............. 0.1140 7.01 6.55 6.09
March 31, 2009 ................ 0.1140 7.17 6.40 6.73
April 30, 2009 ................ 0.1140 7.89 7.68 7.66
May 29, 2009 .................. 0.1140 9.85 9.05 9.65
June 30, 2009 ................. 0.1140 10.47 10.49 10.47
July 31, 2009 ................. 0.1140 11.48 11.02 11.45
August 31, 2009 ............... 0.1140 12.12 11.73 11.74
----------
(1) Whenever the net asset value per share of the Fund's Common Stock is less
than or equal to the market price per share on the reinvestment date, new
shares issued will be valued at the higher of net asset value or 95% of the
then current market price. Otherwise, the reinvestment shares of Common
Stock will be purchased in the open market.
12
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES
At August 31, 2009 the aggregate cost of securities for federal income tax
purposes was $943,165,573, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $31,226,163
and the aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $239,444,366.
2. ADDITIONAL ACCOUNTING STANDARDS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 157 "FAIR VALUE
MEASUREMENTS" ("SFAS 157")
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157 "Fair Value Measurements"
("SFAS 157") effective for fiscal years beginning after November 15, 2007. This
standard clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value measurements. The Fund has adopted SFAS
157 as of December 1, 2007. The three levels of the fair value hierarchy under
SFAS 157 are described below:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value when the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly",
("FSP 157-4"). FSP 157-4 is effective for fiscal years and interim periods
ending after June 15, 2009. FSP 157-4 provides additional guidance for
estimating fair value in accordance with SFAS 157, when the volume and level of
activity for the asset or liability have significantly decreased. FSP 157-4 also
includes guidance on identifying circumstances that indicate a transaction is
not orderly. FSP 157-4 requires entities to describe the inputs and valuation
techniques used to measure fair value and changes in those techniques and
related inputs during the period. FSP 157-4 expands the three-level hierarchy
disclosure and the level three roll forward disclosure for each major security
type as described in paragraph 19 of SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities."
13
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities. A
summary of the inputs used to value the Fund's net assets as of August 31, 2009
is as follows:
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
AUGUST 31, 2009 PRICE INPUTS INPUTS
--------------- ------------ ------------ ------------
Preferred Securities
Banking $309,224,162 $148,998,875 $158,992,287 $1,233,000
Financial Services 6,126,664 63,622 5,471,299 591,743
Insurance 160,031,123 35,677,199 124,353,924 --
Utilities 177,758,716 1,969,676 175,789,040 --
Energy 41,721,352 -- 41,721,352 --
Real Estate Investment Trust (REIT) 879,125 879,125 -- --
Miscellaneous Industries 9,426,414 -- 9,426,414 --
Corporate Debt Securities 28,132,644 14,782,209 12,906,190 444,245
Money Market Fund 1,647,170 1,647,170 -- --
------------ ------------ ------------ ----------
Total Investments $734,947,370 $204,017,876 $528,660,506 $2,268,988
============ ============ ============ ==========
Following is a reconciliation of Level 3 investments for which significant
unobservable inputs were used to determine fair value:
PREFERRED SECURITIES
--------------------------
FINANCIAL CORPORATE DEBT
TOTAL INVESTMENTS BANKING SERVICES SECURITIES
----------------- ------------ ----------- --------------
BALANCE AS OF 11/30/08 $ 6,983,076 $ -- $ 6,649,892 $333,184
Accrued discounts/premiums -- -- -- --
Realized gain/(loss) -- -- -- --
Change in unrealized appreciation/
(depreciation) (16,348,110) (13,887,000) (2,572,171) 111,061
Net purchases/(sales) -- -- -- --
Transfers in and/or out of Level 3 11,634,022 15,120,000 (3,485,978) --
------------ ------------ ----------- --------
BALANCE AS OF 8/31/09 $ 2,268,988 $ 1,233,000 $ 591,743 $444,245
14
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. SECTION 19 NOTICES
Section 19 of the Investment Company Act of 1940 requires registered
investment companies to include a notice with the payment of a dividend if a
portion of that dividend may come from sources other than undistributed net
income (other sources could include realized gains from the sale of securities
and non-taxable return of capital). Copies of the Section 19 notices for the
Fund are available on the website at www.fcclaymore.com.
The amounts and sources of distributions reported below are only estimates
and are not being provided for tax reporting purposes. Form 1099-DIV will be
sent to shareholders in January 2010 reporting the amount and tax
characterization of distributions for the 2009 calendar year.
SOURCE OF DISTRIBUTIONS AS OF 8/31/09
-------------------------------------
NET NET RETURN
INVESTMENT REALIZED OF
INCOME CAPITAL GAINS CAPITAL
---------- ------------- -------
Calendar 2009 Percentage of Total Distributions ........ 95.0% 0.0% 5.0%
15
(FLAHERTY & CRUMRINE/CLAYMORE LOGO)
PREFERRED SECURITIES
INCOME FUND
Quarterly Report
August 31, 2009
www.fcclaymore.com
DIRECTORS
Donald F. Crumrine, CFA
Chairman of the Board
David Gale
Morgan Gust
Karen H. Hogan
Robert F. Wulf, CFA
OFFICERS
Donald F. Crumrine, CFA
Chief Executive Officer
Robert M. Ettinger, CFA
President
R. Eric Chadwick, CFA
Chief Financial Officer,
Vice President and Treasurer
Chad C. Conwell
Chief Compliance Officer,
Vice President and Secretary
Bradford S. Stone
Vice President and
Assistant Treasurer
Laurie C. Lodolo
Assistant Compliance Officer,
Assistant Treasurer and
Assistant Secretary
INVESTMENT ADVISER
Flaherty & Crumrine Incorporated
e-mail: flaherty@pfdincome.com
SERVICING AGENT
Claymore Securities, Inc.
1-866-233-4001
QUESTIONS CONCERNING YOUR SHARES OF FLAHERTY & CRUMRINE/CLAYMORE PREFERRED
SECURITIES INCOME FUND?
- If your shares are held in a Brokerage Account, contact your Broker.
- If you have physical possession of your shares in certificate form,
contact the Fund's Transfer Agent --
PNC Global Investment Servicing (U.S.) Inc.
1-800-331-1710
THIS REPORT IS SENT TO SHAREHOLDERS OF FLAHERTY & CRUMRINE/CLAYMORE PREFERRED
SECURITIES INCOME FUND INCORPORATED FOR THEIR INFORMATION. IT IS NOT A
PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR SALE
OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Flaherty & Crumrine/Claymore Preferred Securities Income Fund
Incorporated
By (Signature and Title)* /s/ Donald F. Crumrine
----------------------------------------
Donald F. Crumrine, Director, Chairman
of the Board and Chief Executive Officer
(principal executive officer)
Date October 27, 2009
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Donald F. Crumrine
----------------------------------------
Donald F. Crumrine, Director, Chairman
of the Board and Chief Executive Officer
(principal executive officer)
Date October 27, 2009
------------------------
By (Signature and Title)* /s/ R. Eric Chadwick
----------------------------------------
R. Eric Chadwick, Chief Financial
Officer, Treasurer and Vice
President (principal financial
officer)
Date October 27, 2009
------------------------
* Print the name and title of each signing officer under his or her
signature.