FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND
To the Shareholders of Flaherty & Crumrine/Claymore Preferred Securities Income
Fund:
The new fiscal year began much like the previous year ended. For the three
month period ended February 28, 2010, total return (principal change and income)
on net asset value of the Fund was +11.1%. Over the same period, total return on
market price of Fund shares was +20.5%.
The strong performance came as credit markets continued to recover from the
depths of the financial crisis last year. Economists and investors have
expressed confidence that our financial system is back on track, and, although
problems persist, seeds of recovery are in place. We share this view and
encourage you to visit www.fcclaymore.com to read our Quarterly Economic Update.
Over the past several quarters, the focus of these letters has been the
financial crisis and its impact on the Fund's investment portfolio. We
experienced gut-wrenching market weakness starting in the second half of 2008
and continuing into early 2009, only to watch prices rebound dramatically in the
months since. Never before have we seen such extreme volatility over a
relatively short time frame. We expect smoother waters ahead, but, as always,
the future will be filled with challenges and opportunities.
We will take advantage of this relative calm to review the market for
preferred securities a bit more broadly than our typical quarterly letter. After
turbulence, the time seems right to take a step back and regain some perspective
on the market. Readers can compare these broad market comments to the Fund's
investments summarized on the following pages.
As of February 28, 2010, the market for preferred securities has grown to
$378 billion(1) from $231 billion in 2005. The issues that comprise the market
are far from homogeneous. An issuer is now able to tailor a preferred security
to its specific financing needs by choosing from a wide range of features.
Because of the variety of terms preferreds have, it has become easier to define
a preferred by what it is not--a preferred security is not senior debt and it is
not common stock.
Fifteen percent of the market is "traditional" preferred, i.e. the
distributions to investors are DIVIDENDS, and paid from after-tax income of the
issuer. These distributions may have after-tax benefits to investors. 85% is
"taxable" preferred that pay INTEREST(2); these payments are treated as interest
expense for issuers and ordinary income for investors.
Many features of preferred securities are especially beneficial to
companies in highly-regulated industries. Preferred issues from utilities, banks
and insurance companies comprise over 80% of the preferred market. Of course, as
the experience of the past couple of years serves to remind us, regulators can
contribute to problems at the companies they regulate. Nonetheless, regulators
recognize the critical role of the preferred market, and have helped facilitate
growth in the asset class.
Despite a rash of downgrades during the financial crisis, the market is
still comprised of mostly investment-grade issues. 64% of preferred issues are
rated Baa or higher. A substantially larger portion of the preferred universe is
comprised of issuers with SENIOR DEBT rated investment grade. For this reason,
preferred securities are widely considered to be the highest yielding asset
class of investment grade companies.
----------
(1) Market statistics used in this report, along with a wide range of
additional information can be viewed by visiting the Flaherty & Crumrine
website, www.preferredstockguide.com.
(2) We include preferred securities issued in the United States by foreign
domiciled entities in the "taxable" category; many of these issues make
distributions considered to be dividends for some types of investors.
A word about credit analysis is in order. We have always based investment
decisions on our internal credit research, and try to own credits that we
believe are investment grade quality. Of course, credit analysis is more art
than science, and no one does it perfectly, but we think our team does an
outstanding job.
Our focus is first and foremost on preferred securities. The objective of
our credit analysis is to develop an in-depth opinion about the quality of each
security in the Fund. This approach differs from the rating agencies, where the
focus is primarily on the quality of an issuer's most senior debt. Once the
senior debt rating is determined, a mechanical "notching" methodology is applied
to rate subordinated classes of securities, such as the issuer's preferreds
(rating agency methodology brings to mind the Bismarck quote, "laws are like
sausages, it is better not to see them being made").
Much has been made recently about potential conflicts at the public rating
agencies. Whether the conflicts are real or perceived, the business model of the
agencies is likely to change. Regardless of how one views the public rating
agencies, we don't face those conflicts and care only about choosing the right
investments for the Fund. We pay close attention to the public ratings, but our
investment decisions are only made after we do our own homework.
One additional question that should be on the minds of shareholders: can
the Fund continue to produce double-digit quarterly returns? The answer
shouldn't be surprising--it's not likely. By a variety of measures, in our view,
the preferred market remains attractive relative to other asset classes. But the
disparity is not as glaring as it was last spring and, in fact, is now
approaching a range we consider normal.
Of course, preferred security prices never experienced anything like the
volatility they experienced during the recent financial crisis. Historically,
investors have (quite properly) owned these securities for the income they
produce; only recently have they attracted the attention of those more inclined
toward casinos. Now that the economy is beginning to stabilize, the wrath of
recent markets seems to have instilled a new sense of discipline and propriety
on companies that lost their way. Nonetheless, we will continue to keep a close
eye on how those companies adapt to this new environment.
More information is always available on the Fund's 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
April 21, 2010
2
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OVERVIEW
FEBRUARY 28, 2010 (UNAUDITED)
FUND STATISTICS
----------------
Net Asset Value $ 14.52
Market Price $ 14.89
Premium 2.55
Yield on Market Price 9.19%
Common Stock Shares
Outstanding 42,687,988
MOODY'S RATINGS % OF NET ASSETS+
--------------- ----------------
AAA 0.4%
AA 0.1%
A 9.2%
BBB 66.6%
BB 17.8%
Below "BB" 2.0%
Not Rated 1.0%
Below Investment Grade* 15.4%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.
(PIE CHART)
INDUSTRY CATEGORIES % OF NET ASSETS+
------------------- ----------------
REITs 1%
Other 4%
Banking 38%
Utilities 26%
Insurance 24%
Energy 5%
Financial Services 2%
TOP 10 HOLDINGS BY ISSUER % OF NET ASSETS+
------------------------- ----------------
Banco Santander 6.9%
Liberty Mutual Group 5.8%
Capital One Financial 4.7%
Dominion Resources 4.0%
Metlife 3.8%
Southern Union 3.2%
Puget Energy 3.1%
Comerica 3.1%
Axis Capital 3.1%
Wisconsin Energy 3.0%
% OF NET ASSETS**+
------------------
Holdings Generating Qualified Dividend
Income (QDI) for Individuals 26%
Holdings Generating Income Eligible for
the Corporate Dividend Received Deduction (DRD) 12%
** 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
FEBRUARY 28, 2010 (UNAUDITED)
SHARES/$ PAR VALUE
-------------- ---------------
PREFERRED SECURITIES -- 92.3%
BANKING -- 38.0%
$ 17,750,000 Astoria Capital Trust I, 9.75% 11/01/29, Series B ............................. $ 18,470,490(1)
2,313,020 Banco Santander, 10.50% Pfd., Series 10 ....................................... 63,706,353**(1)(2)
87,400 Bank of America Corporation, 8.625% Pfd., Series 8 ............................ 2,195,488*(1)
Barclays Bank PLC:
$ 15,000,000 6.278% ..................................................................... 11,475,000**(1)(2)
345,000 6.625% Pfd., Series 2 ...................................................... 7,448,550**(1)(2)
140,000 8.125% Pfd., Series 5 ...................................................... 3,514,000**(1)(2)
35,000 BB&T Capital Trust V, 8.95% Pfd. .............................................. 968,538
200,000 BB&T Capital Trust VI, 9.60% Pfd. ............................................. 5,700,000(1)
240,000 BB&T Capital Trust VII, 8.10% Pfd. ............................................ 6,264,000(1)
$ 37,000,000 Capital One Capital III, 7.686% 08/15/36 ...................................... 34,817,000(1)
$ 3,000,000 Capital One Capital V, 10.25% 08/15/39 ........................................ 3,411,387
$ 5,350,000 Capital One Capital VI, 8.875% 05/15/40 ....................................... 5,716,026
$ 35,100,000 Colonial BancGroup, 7.114%, 144A**** .......................................... 105,300++
$ 34,396,000 Comerica Capital Trust II, 6.576% 02/20/37 .................................... 28,806,650(1)
28,800 FBOP Corporation, Adj. Rate Pfd., 144A**** .................................... 197,568*++
$ 3,000,000 Fifth Third Capital Trust IV, 6.50% 04/15/37 .................................. 2,415,000
7,850 First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** ........... 7,300,500(1)
12,500 First Tennessee Bank, Adj. Rate Pfd., 144A**** ................................ 7,121,094*
$ 3,000,000 First Tennessee Capital I, 8.07% 01/06/27, Series A ........................... 2,664,372(1)
6 FT Real Estate Securities Company, 9.50% Pfd., 144A**** ....................... 4,515,000
Goldman Sachs:
$ 17,015,000 Capital II, 5.793% ......................................................... 13,654,537(1)
3,600 STRIPES Custodial Receipts, Pvt. ........................................... 2,196,000*
$ 1,500,000 HSBC USA Capital Trust II, 8.38% 05/15/27, 144A**** ........................... 1,436,194
HSBC USA, Inc.:
555,400 Adj. Rate Pfd., Series D ................................................... 12,942,209*(1)
150,000 6.50% Pfd., Series H ....................................................... 3,646,875*(1)
$ 8,500,000 JPMorgan Chase Capital XXVII, 7.00% 11/01/39, Series AA ....................... 8,665,240
75,000 JPMorgan Chase Capital XXVIII, 7.20% Pfd. 12/22/39 ............................ 1,975,785
103,600 Keycorp Capital X, 8.00% Pfd. ................................................. 2,588,964(1)
$ 17,800,000 Lloyds Banking Group PLC, 6.657%, 144A**** .................................... 9,523,000**(2)+
100,000 Morgan Stanley Capital Trust VIII, 6.45% Pfd. 04/15/67 ........................ 2,187,000
$ 13,825,000 National City Preferred Capital Trust I, 12.00% ............................... 15,781,099(1)
295,000 PFGI Capital Corporation, 7.75% Pfd. .......................................... 6,748,125(1)
164,520 PNC Financial Services, 9.875% Pfd., Series F ................................. 4,822,493*(1)
90,000 Sovereign Capital Trust V, 7.75% Pfd. 05/22/36 ................................ 2,197,125(1)
8,641 Sovereign REIT, 12.00% Pfd., Series A, 144A**** ............................... 9,872,343
60 Union Planters Preferred Funding, 7.75% Pfd., Series 144A**** ................. 3,690,000
4
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2010 (UNAUDITED)
SHARES/$ PAR VALUE
-------------- ---------------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
1,137,900 Wachovia Preferred Funding, 7.25% Pfd., Series A .............................. $ 26,185,924(1)
Washington Mutual:
$ 2,100,000 9.75%, 144A**** ............................................................ 68,250++
$ 10,050,000 6.534%, 144A**** ........................................................... 326,625++
$ 11,067,000 Webster Capital Trust IV, 7.65% 06/15/37 ...................................... 7,193,550(1)
$ 650,000 Wells Fargo Capital XV, 9.75% ................................................. 708,955
---------------
353,222,609
---------------
FINANCIAL SERVICES -- 1.3%
$ 1,340,000 Ameriprise Financial, Inc., 7.518% 06/01/66 ................................... 1,256,250(1)
$ 850,000 General Electric Capital Corporation, 6.375% 11/15/67 ......................... 761,812
$ 7,000,000 Gulf Stream-Compass 2005 Composite Notes, 144A**** ............................ 2,678,410
Lehman Brothers Holdings, Inc.:
471,500 7.95% Pfd. ................................................................. 64,596*++
34,000 5.67% Pfd., Series D ....................................................... 16,150*++
20,000 Lehman Capital Trust III, 6.375% Pfd., Series K ............................... 8,250++
$ 10,000,000 RACERS(R) Series 2005 AMMC V Trust, 144A**** .................................. 4,143,614
$ 3,000,000 Schwab Capital Trust I, 7.50% 11/15/37 ........................................ 2,917,098(1)
---------------
11,846,180
---------------
INSURANCE -- 22.6%
$ 4,051,000 Ace Capital Trust II, 9.70% 04/01/30 .......................................... 4,708,777(1)(2)
Arch Capital Group Ltd.:
117,750 7.875% Pfd., Series B ...................................................... 2,951,109**(1)(2)
86,321 8.00% Pfd., Series A ....................................................... 2,185,000**(1)(2)
$ 8,500,000 AXA SA, 6.463%, 144A**** ...................................................... 6,778,750**(1)(2)
Axis Capital Holdings:
180,000 7.25% Pfd., Series A ....................................................... 4,304,250**(1)(2)
281,505 7.50% Pfd., Series B ....................................................... 24,103,866(1)(2)
37,000 Corts Provident Financing Trust I, 8.50% Pfd. ................................. 940,263(1)
558,000 Delphi Financial Group, 7.376% Pfd. 05/15/37 .................................. 11,194,875(1)
$ 20,919,000 Everest Re Holdings, 6.60% 05/15/37 ........................................... 16,839,795(1)
$ 6,650,000 Great West Life & Annuity Insurance, 7.153% 05/16/46, 144A**** ................ 6,051,500(1)
Liberty Mutual Group:
$ 1,400,000 7.80% 03/15/37, 144A**** ................................................... 1,211,000(1)
$ 35,618,000 10.75% 06/15/58, 144A**** .................................................. 38,823,620(1)
$ 3,000,000 MetLife Capital Trust IV, 7.875% 12/15/37, 144A**** ........................... 2,970,000(1)
$ 14,965,000 MetLife Capital Trust X, 9.25% 04/08/38, 144A**** ............................. 16,760,800(1)
5
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2010 (UNAUDITED)
SHARES/$ PAR VALUE
-------------- ---------------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
MetLife, Inc.:
418,000 6.50% Pfd., Series B ....................................................... $ 10,329,825*(1)
$ 4,170,000 10.75% 08/01/39 ............................................................ 5,151,293(1)
Principal Financial Group:
10,000 5.563% Pfd., Series A ...................................................... 822,500*
457,300 6.518% Pfd., Series B ...................................................... 10,340,696*(1)
Renaissancere Holdings Ltd.:
152,200 6.08% Pfd., Series C ....................................................... 3,135,320**(1)(2)
251,529 6.60% Pfd., Series D ....................................................... 5,448,118**(1)(2)
60,935 7.30% Pfd., Series B ....................................................... 1,490,013**(2)
407,200 Scottish Re Group Ltd., 7.25% Pfd. ............................................ 2,387,210**(2)+
$ 7,425,000 USF&G Capital, 8.312% 07/01/46, 144A**** ...................................... 7,691,944(1)
$ 13,000,000 USF&G Capital I, 8.50% 12/15/45, 144A**** ..................................... 13,752,752(1)
$ 12,200,000 XL Capital Ltd., 6.50%, Series E .............................................. 9,684,360(1)(2)
---------------
210,057,636
---------------
UTILITIES -- 24.3%
Baltimore Gas & Electric Company:
10,000 6.70% Pfd., Series 1993 .................................................... 977,813*(1)
10,000 7.125% Pfd., Series 1993 ................................................... 991,563*
328,179 Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 .............................. 15,014,189(1)
35,000 Central Maine Power, 5.25% Pfd., Pvt. ......................................... 3,255,000*
$ 18,533,000 COMED Financing III, 6.35% 03/15/33 ........................................... 15,162,996(1)
$ 19,675,000 Dominion Resources Capital Trust I, 7.83% 12/01/27 ............................ 20,371,436(1)
Dominion Resources, Inc.:
$ 15,262,000 7.50% ...................................................................... 15,128,259(1)
57,500 8.375% Pfd., Series A ...................................................... 1,635,875
296,300 Entergy Arkansas, Inc., 6.45% Pfd. ............................................ 6,601,949*
15,000 Entergy Louisiana, Inc., 6.95% Pfd. ........................................... 1,406,720*
63,184 FPC Capital I, 7.10% Pfd., Series A ........................................... 1,613,877(1)
$ 7,500,000 FPL Group Capital, Inc., 6.65% 06/15/67 ....................................... 6,984,795
130,140 Georgia Power Company, 6.50% Pfd., Series 2007A ............................... 13,168,541*(1)
119,805 Indianapolis Power & Light Company, 5.65% Pfd. ................................ 10,389,346*
$ 2,386,000 PECO Energy Capital Trust III, 7.38% 04/06/28, Series D ....................... 2,244,479(1)
$ 27,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 .................................. 21,818,484(1)
$ 32,500,000 Puget Sound Energy, Inc., 6.974% 06/01/67 ..................................... 28,962,310(1)
6
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2010 (UNAUDITED)
SHARES/$ PAR VALUE
------------ ---------------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
Southern California Edison:
74,235 6.00% Pfd., Series C ....................................................... $ 6,764,664*(1)
54,615 6.125% Pfd. ................................................................ 5,108,212*(1)
$ 18,130,000 Southern Union Company, 7.20% 11/01/66 ........................................ 16,362,325(1)
$ 4,200,000 Union Electric Power Company, 7.69% 12/15/36, Series A ........................ 4,168,630(1)
$ 30,400,000 Wisconsin Energy Corporation, 6.25% 05/15/67 .................................. 28,083,702(1)
---------------
226,215,165
---------------
ENERGY -- 4.9%
$ 26,870,000 Enbridge Energy Partners LP, 8.05% 10/01/37 ................................... 26,571,689(1)
Enterprise Products Partners:
$ 4,915,000 7.00% 06/01/67 ............................................................. 4,462,363
$ 3,435,000 7.034% 01/15/68 ............................................................ 3,259,468(1)
$ 11,500,000 8.375% 08/01/66, Series A .................................................. 11,643,635(1)
---------------
45,937,155
---------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 0.1%
50,000 Duke Realty Corporation, 6.60% Pfd., Series L ................................. 1,003,625
---------------
1,003,625
---------------
MISCELLANEOUS INDUSTRIES -- 1.1%
112,750 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ........................... 8,184,951*(1)
$ 2,500,000 Stanley Works, 5.902% 12/01/45 ................................................ 2,297,918(1)
---------------
10,482,869
---------------
TOTAL PREFERRED SECURITIES
(Cost $936,819,150) ........................................................ 858,765,239
---------------
CORPORATE DEBT SECURITIES -- 4.8%
FINANCIAL SERVICES -- 0.2%
55,000 Ameriprise Financial, Inc., 7.75% 06/15/39 .................................... 1,425,738(1)
$ 4,726,012 Lehman Brothers, Guaranteed Note, Variable Rate, 12/16/16, 144A**** ........... 581,299++
---------------
2,007,037
---------------
INSURANCE -- 1.7%
$ 15,415,000 Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** ........................... 13,550,910(1)
$ 2,500,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes ....................... 2,378,377(1)
---------------
15,929,287
---------------
7
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2010 (UNAUDITED)
SHARES/$ PAR VALUE
------------ ---------------
CORPORATE DEBT SECURITIES -- (CONTINUED)
UTILITIES -- 1.6%
40,000 Entergy Texas, Inc., 7.875% 06/01/39 .......................................... $ 1,134,000
Southern Union Company:
$ 5,300,000 7.60% 02/01/24, Senior Notes ............................................... 6,028,225(1)
$ 6,047,000 8.25% 11/15/29, Senior Notes ............................................... 7,059,359(1)
---------------
14,221,584
---------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 0.8%
$ 4,085,000 Duke Realty LP, 8.25% 08/15/19 ................................................ 4,488,169(1)
$ 3,500,000 Realty Income Corporation, 5.875% 03/15/35 .................................... 2,859,924(1)
---------------
7,348,093
---------------
MISCELLANEOUS INDUSTRIES -- 0.5%
16,500 Corp-Backed Trust Certificates, 7.00% 11/15/28, Series Sprint ................. 317,625(1)
Pulte Homes, Inc.:
58,240 7.375% 06/01/46 ............................................................ 1,201,054(1)
$ 3,550,000 7.875% 06/15/32 ............................................................ 3,239,375(1)
---------------
4,758,054
---------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $47,796,151) 44,264,055
---------------
COMMON STOCK -- 0.2%
BANKING -- 0.2%
54,740 CIT Group, Inc. ............................................................... 1,994,178*+
---------------
TOTAL COMMON STOCK
(Cost $10,901,025) ......................................................... 1,994,178
---------------
MONEY MARKET FUND -- 2.0%
18,327,479 BlackRock Provident Institutional, T-Fund ..................................... 18,327,479
---------------
TOTAL MONEY MARKET FUND
(Cost $18,327,479) ......................................................... 18,327,479
---------------
8
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2010 (UNAUDITED)
VALUE
---------------
TOTAL INVESTMENTS (Cost $1,013,843,805***) ......................................... 99.3% $ 923,350,951
OTHER ASSETS AND LIABILITIES (Net) ................................................. 0.7% 6,551,856
----- ---------------
NET ASSETS BEFORE LOAN ............................................................. 100.0%+++ $ 929,902,807
----- ---------------
LOAN PRINCIPAL BALANCE ......................................................................... (309,875,000)
---------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ..................................................... $ 620,027,807
===============
* 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 February 28, 2010, these
securities amounted to $167,335,424 or 18.0% 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 $656,995,474 at February 28,
2010.
(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, 2009 THROUGH FEBRUARY 28, 2010 (UNAUDITED)
VALUE
---------------
OPERATIONS:
Net investment income ....................................................................... $ 15,448,539
Net realized gain/(loss) on investments sold during the period .............................. (3,795,707)
Change in net unrealized appreciation/depreciation of investments ........................... 51,631,481
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ 63,284,313
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(2) ................... (14,597,649)
---------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ............................................ (14,597,649)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan .......... 201,581
---------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING FROM FUND SHARE
TRANSACTIONS ............................................................................. 201,581
---------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
FOR THE PERIOD .............................................................................. $ 48,888,245
===============
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period ......................................................................... $ 571,139,562
--------------
Net increase in net assets during the period ................................................ 48,888,245
---------------
End of period ............................................................................... $ 620,027,807
===============
----------
(1) These tables summarize the three months ended February 28, 2010 and should
be read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2009.
(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, 2009 THROUGH FEBRUARY 28, 2010 (UNAUDITED)
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT THE PERIOD.
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................................................ $ 13.38
---------------
INVESTMENT OPERATIONS:
Net investment income ....................................................................... 0.36
Net realized and unrealized gain/(loss) on investments. ..................................... 1.12
---------------
Total from investment operations ............................................................ 1.48
---------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income .................................................................. (0.34)
---------------
Total distributions to Common Stock Shareholders ............................................ (0.34)
---------------
Net asset value, end of period .............................................................. $ 14.52
===============
Market value, end of period ................................................................. $ 14.89
===============
Common Stock shares outstanding, end of period .............................................. 42,687,988
===============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income+ ...................................................................... 10.36%*
Operating expenses including interest expense. .............................................. 1.69%*
Operating expenses excluding interest expense ............................................... 1.02%*
SUPPLEMENTAL DATA:++
Portfolio turnover rate ..................................................................... 3%**
Net assets before loan, end of period (in 000's) ............................................ $ 929,903
Ratio of operating expenses including interest expense to net assets before loan ............ 1.14%*
Ratio of operating expenses excluding interest expense to net assets before loan ............ 0.69%*
(1) These tables summarize the three months ended February 28, 2010 and should
be read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2009.
* Annualized.
** Not annualized.
+ The net investment income ratios reflect income net of operating expenses,
including interest expense.
++ Information presented under heading Supplemental Data includes 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, 2009 ..................... $0.1140 $13.99 $13.97 $13.99
January 29, 2010 ...................... 0.1140 14.52 14.34 14.51
February 26, 2010 ..................... 0.1140 14.52 14.89 14.52
----------
(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 February 28, 2010 the aggregate cost of securities for federal income
tax purposes was $1,016,602,313, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost was
$67,013,236 and the aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over value was $160,264,598.
2. ADDITIONAL ACCOUNTING STANDARDS
FAIR VALUE MEASUREMENT: The inputs and valuation techniques used to measure
fair value of the Fund's investments are summarized into three levels as
described in the hierarchy 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)
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 investments as of February 28,
2010 is as follows:
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
FEBRUARY 28, 2010 PRICE INPUTS INPUTS
----------------- ------------ ------------ ------------
Preferred Securities
Banking $353,222,609 $225,035,449 $127,989,592 $ 197,568
Financial Services 11,846,180 761,812 7,845,783 3,238,585
Insurance 210,057,636 79,588,772 130,468,864 --
Utilities 226,215,165 18,378,011 207,837,154 --
Energy 45,937,155 -- 45,937,155 --
Real Estate Investment Trust (REIT) 1,003,625 1,003,625 -- --
Miscellaneous Industries 10,482,869 -- 10,482,869 --
Corporate Debt Securities 44,264,055 17,166,001 26,516,755 581,299
Common Stock
Banking 1,994,178 1,994,178 -- --
Money Market Fund 18,327,479 18,327,479 -- --
------------ ------------ ------------ -----------
Total Investments $923,350,951 $362,255,327 $557,078,172 $4,017,452
============ ============ ============ ===========
13
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The 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 11/30/09 $2,574,696 $158,400 $1,920,537 $495,759
Accrued discounts/premiums -- -- -- --
Realized gain/(loss) -- -- -- --
Change in unrealized appreciation/
(depreciation) 1,442,756 39,168 1,318,048 85,540
Net purchases/(sales) -- -- -- --
Transfers in and/or out of Level 3 -- -- -- --
---------- -------- ---------- --------
BALANCE AS OF 2/28/10 $4,017,452 $197,568 $3,238,585 $581,299
For the period ended February 28, 2010, total change in unrealized
gain/(loss) on Level 3 securities still held at period end and included in the
change in net assets was $1,442,756.
14
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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.
(FLAHERTY & CRUMRINE/CLAYMORE LOGO)
FLAHERTY & CRUMRINE/CLAYMORE
PREFERRED SECURITIES
INCOME FUND
QUARTERLY
REPORT
FEBRUARY 28, 2010
www.fcclaymore.com