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
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(Exact name of registrant as specified in charter)
301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101
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(Address of principal executive offices) (Zip code)
Donald F. Crumrine
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101
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(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, 2007
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 the Flaherty & Crumrine/Claymore Preferred Securities
Income Fund ("FFC"):
Beginning with issues arising in the subprime mortgage loan market, a
well-publicized series of events has roiled financial markets over the past
several months. The preferred stock market and closed-end funds have been
particularly impacted, and, consequently, for the Fund's third fiscal quarter
ended August 31, 2007, the Fund had a total return of -6.0% on the net asset
value (NAV) of its Common Stock.
As we've discussed in prior letters, problems in the subprime mortgage
loan market first bubbled up in January of this year. Throughout this year, the
Fund has had no direct exposure to subprime loans, and we avoided investing in
companies that had meaningful risks associated with the product. Our research
team closely monitors the loan quality and underwriting standards of each
financial company in the portfolio, and we invest only in companies that meet
our quality thresholds. We're not perfect, but we believe that the Fund's
portfolio is comprised of holdings in fundamentally sound companies.
In isolation, the impact of this weakness in the subprime loan market
should have been limited to direct participants in this market; unfortunately,
given the complexity of the financial system, few things happen in isolation.
When the subprime problems became more pronounced several months ago, the
fallout from this subprime weakness has been widespread and severe.
Fueled by low interest rates and relatively relaxed financing terms, a
great deal more leverage had become built into the system than even just a few
years ago. As investments directly associated with subprime mortgages declined
significantly in value during the quarter, they became very illiquid.
Highly-leveraged investors then were forced to sell other more liquid types of
assets like investment-grade preferred and debt securities to meet redemptions
or margin calls. Risk and liquidity premiums surged, indiscriminately taking
yields on all credit instruments with them. In short, excess leverage created
the financial powder keg and subprime loan problems provided the spark.
With yields on preferred securities rising more than yields on more senior
debt securities, the prices of the securities in our portfolio fell as the
supply of preferred securities exceeded demand. The rearview mirror is still a
bit foggy, but it appears that much of the selling pressure came from hedge
funds. Hedge funds had become the 800-pound gorilla in the credit markets
recently, and although they've been forced to slim down, they can still have a
big impact.
Hedge funds were not the only investors selling, but since they aren't
required to disclose their preferred securities holdings, no one knows how
extensive their selling pressure was. As a result, prospective buyers were
extremely cautious because they feared additional selling would further depress
prices. Wall Street brokers and dealers normally stand ready to provide
liquidity to sellers, but they appeared reluctant to buy. Long-term investors
like the Fund, as well as individual investors, insurance companies and pension
funds, also stayed on the sidelines for the most part. During the quarter, and
since it ended, we have added some positions at attractive levels, but we are
continuing to take a go-slow approach.
Subprime fallout also extended to the market for short-term, or
money-market, securities such as commercial paper and auction-rate securities.
This market was in a state of disarray throughout August and into early
September. Investors in money-market securities don't like risk, and, at the
slightest hint of trouble, they pull their money out and invest in short-term
government securities. While the perception of risk is real for a small segment
of borrowers, the reaction seems to be disproportionate.
These disruptions in the short-term market impacted the Fund in two
meaningful ways. First, they contributed to price weakness in many of the Fund's
investments, particularly in financial companies. While banks can fulfill their
short-term financing needs with customer deposits and through the Federal
Reserve, finance companies like broker-dealers need to rely on the short-term
securities market to run their day-to-day operations. This market is like oxygen
to most financial companies, and restricting their borrowing makes it more
expensive for them to operate. We continue to believe that none of the financial
companies in our portfolio face significant risks of default as a result of this
increased cost of borrowing, but it has clearly impacted their earnings outlooks
and the prices of their preferred securities.
Second, the rates paid by the Fund on its own auction-rate Preferred Stock
have risen significantly as a direct result of liquidity problems in the
financial markets. The frustrating irony is that the Fund's own Preferred Stock
is of very high quality with a rating of AAA and logic would dictate that rates
should fall as investors seek out higher quality investments. This high quality
is a function of the Investment Company Act (which governs the Fund) and the
guidelines imposed by the rating agencies. As Kevin Conery, Merrill Lynch's
Preferred Stock Strategist, recently observed about the Investment Company Act,
"while some have criticized it for being too conservative for its 200% asset
coverage test, at times like these in the market, we respect this discipline."
While we are beginning to see some improvement in the auction rates of our
Preferred Stock, and the recent interest rate cut by the Federal Reserve should
help over the coming months, we haven't yet returned to more normalized auction
rates.
The higher cost of our auction-rate Preferred Stock comes directly out of
money available for distribution as the monthly Common Stock dividend. On the
plus side, higher yields on preferred stock mean that we have been able to
increase the income earned on the portfolio. It will take some time to see how
these two offsetting factors affect income; in the meantime we are doing our
best to manage both. We are comfortable with the current dividend, but we strive
to pay out a rate that is sustainable and will make adjustments as conditions
warrant.
We have been through periods of fear and volatility before, and we remain
optimistic about long-term prospects for the Fund. Such periods create
opportunities to buy securities of sound companies at discounted prices, as many
shorter-term investors exit the market by selling both good and bad investments.
We expect both more rational pricing and reduced risk of early redemption of our
portfolio securities as markets settle down - both of which should benefit
future returns for long-term investors. In addition, our Preferred Stock auction
rates are likely to normalize in due course, as the market begins to better
recognize the credit quality of our Preferred Stock. While we cannot say with
certainty when, or if, these things will happen, as managers we are doing our
best to position the Fund to ride out the current storm and prepare for better
days ahead.
In volatile market conditions like these, we may provide more frequent
updates about the preferred securities market and the Fund's portfolio. We did
so this past quarter by adding special Questions and Answers regarding the
market price of the Fund's shares to the Fund's website at WWW.FCCLAYMORE.COM.
We encourage you to stay informed as shareholders by periodically visiting the
website for additional information about your Fund.
Sincerely,
/s/ Donald F. Crumrine /s/ Robert M. Ettinger
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
October 17, 2007
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OVERVIEW
AUGUST 31, 2007 (UNAUDITED)
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FUND STATISTICS ON 08/31/07
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Net Asset Value $ 20.87
Market Price $ 18.59
Discount 10.92%
Yield on Market Price 8.23%
Common Stock Shares Outstanding 42,601,719
MOODY'S RATINGS % OF PORTFOLIO
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AAA 0.2%
AA 6.9%
A 19.4%
BBB 54.1%
BB 12.8%
Not Rated 4.3%
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Below Investment Grade* 12.8%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
INDUSTRY CATEGORIES % OF PORTFOLIO
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Banking 33%
Utilities 27%
Insurance 20%
Financial Services 10%
Energy 5%
REITs 3%
Other 2%
TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
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Midamerican Energy 4.5%
Banco Santander 4.4%
Wachovia Corp 3.7%
Liberty Mutual Group 3.3%
ACE Ltd 3.0%
HBOS Plc 2.8%
Dominion Resources 2.3%
Wisconsin Energy 2.3%
Enterprise Products Partners 2.3%
AON Corp 2.3%
% OF PORTFOLIO**
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Holdings Generating Qualified Dividend Income
(QDI) for Individuals 28%
Holdings Generating Income Eligible for the Corporate
Dividend Received Deduction (DRD) 14%
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** 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.
3
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
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PREFERRED SECURITIES -- 85.5%
BANKING -- 32.6%
-----------------------------------------------------------------------------------------------------------------------------
$ 19,000,000 Astoria Capital Trust I, 9.75% 11/01/29, Series B ........................... $ 21,485,047
34,450 BAC Capital Trust I, 7.00% Pfd. 12/15/31 .................................... 863,402
1,000 BAC Capital Trust II, 7.00% Pfd. 02/01/32 ................................... 24,780
Banco Santander:
1,646,000 6.50% Pfd., 144A**** ..................................................... 36,936,240**(1)
1,141,600 6.80% Pfd., 144A**** ..................................................... 26,587,863**(1)
1,800 Bank of New York Capital IV, 6.875% Pfd., Series E .......................... 44,043
77,900 Bank One Capital Trust VI, 7.20% Pfd. ....................................... 1,957,237
$ 1,500,000 BB&T Capital Trust IV, 6.82% 06/12/57 ....................................... 1,419,050
$ 30,834,000 Capital One Capital III, 7.686% 08/15/36 .................................... 28,627,056
$ 27,600,000 CBG Florida REIT Corporation, 7.114%, 144A**** .............................. 26,882,704
112,000 Citizens Funding Trust I, 7.50% Pfd. 09/15/66 ............................... 2,761,506
105,000 Cobank, ACB, 7.00% Pfd., 144A**** ........................................... 5,392,800*
$ 23,740,000 Comerica Capital Trust II, 6.576% 02/20/37 .................................. 21,071,482
$ 800,000 CoreStates Capital Trust I, 8.00% 12/15/26, 144A**** ........................ 828,800
28,800 FBOP Corporation, Adj. Rate Pfd., 144A**** .................................. 29,484,000*
$ 2,635,000 First Midwest Capital Trust I, 6.95% 12/01/33 ............................... 2,747,580
First Republic Bank:
400,000 6.25% Pfd. ............................................................... 9,925,000*
30,000 7.25% Pfd. ............................................................... 738,750
7,850 First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** ......... 8,790,587
110,200 Fleet Capital Trust VIII, 7.20% Pfd. 03/15/32 ............................... 2,779,112(2)
6 FT Real Estate Securities Company, 9.50% Pfd., 144A**** ..................... 8,220,039
HBOS PLC:
$ 10,500,000 6.413%, 144A**** ......................................................... 9,100,067**(1)
$ 28,000,000 6.657%, 144A**** ......................................................... 24,698,800**(1)
$ 6,950,000 6.85% .................................................................... 6,647,675(1)
7,500 HSBC Series II, Variable Inverse Pfd., Pvt. ................................. 7,582,500*
ING Groep NV:
36,000 7.05% Pfd. ............................................................... 892,530**(1)
139,700 7.20% Pfd. ............................................................... 3,497,040**(1)
$ 2,000,000 JPMorgan Chase Capital XXI, Adj. Rate 02/02/37, Series U .................... 1,749,447
$ 6,400,000 JPMorgan Chase Capital XXIII, Adj. Rate 05/15/47 ............................ 5,615,533
23,800 Keycorp Capital V, 5.875% Pfd., Series A .................................... 512,712
20,000 Keycorp Capital VIII, 7.00% Pfd. 06/15/66 ................................... 496,250(2)
617,000 Keycorp Capital IX, 6.75% Pfd. 12/15/66 ..................................... 14,460,938
$ 2,000,000 Lloyds TSB Group PLC, 6.267%, 144A**** ...................................... 1,848,426**(1)
85,285 National City Capital Trust II, 6.625% Pfd. 11/15/36 ........................ 1,870,940
295,000 PFGI Capital Corporation, 7.75% Pfd. ........................................ 7,552,000
4
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
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$ 3,300,000 Regions Financing Trust II, 6.625% 05/15/47 ................................. $ 3,048,174
$ 7,200,000 Republic New York Capital I, 7.75% 11/15/26 ................................. 7,475,184(1)
$ 4,992,000 Republic New York Capital II, 7.53% 12/04/26 ................................ 5,185,939(1)
Roslyn Real Estate:
40 8.95% Pfd., Series C, 144A**** ........................................... 4,274,630
135 Adj. Rate Pfd., Series D, 144A**** ....................................... 13,681,406
63,700 Sovereign Bancorp, 7.30% Pfd., Series C ..................................... 1,701,586*
248,100 Sovereign Capital Trust V, 7.75% Pfd. 05/22/36 .............................. 6,318,809
$ 13,500,000 Sovereign Capital Trust VI, 7.908% 06/13/36 ................................. 14,540,837
60 Union Planters Preferred Funding, 7.75% Pfd., Series 144A**** ............... 6,580,355
U.S Bancorp, Auction Pass-Through Trust, Cl. B:
65 Series 2006-5, Variable Rate Pfd., 144A**** .............................. 1,462,500*
65 Series 2006-6, Variable Rate Pfd., 144A**** .............................. 1,462,500*
127,600 USB Capital VIII, 6.35% Pfd. 12/29/65 ....................................... 2,946,769
64,600 USB Capital X, 6.50% Pfd. 04/12/66 .......................................... 1,540,309
21,150 VNB Capital Trust I, 7.75% Pfd. ............................................. 530,072
5,550 Wachovia Capital Trust IX, 6.375% Pfd. ...................................... 129,383
2,010,800 Wachovia Preferred Funding, 7.25% Pfd., Series A ............................ 51,843,451
$ 10,050,000 Washington Mutual Preferred Funding, 6.534%, 144A**** ....................... 9,412,147
$ 7,400,000 Webster Capital Trust IV, 7.65% 06/15/37 .................................... 7,314,782
100,000 Wells Fargo Capital Trust IV, 7.00% Pfd. 09/01/31 ........................... 2,512,500
------------------------------------------------------------------------------------------------------------------------
466,053,269
-------------------
FINANCIAL SERVICES -- 6.8%
-----------------------------------------------------------------------------------------------------------------------------
CIT Group, Inc.:
$ 18,800,000 6.10% .................................................................... 13,867,839
203,712 6.35% Pfd., Series A ..................................................... 4,453,654*
749,995 Countrywide Capital IV, 6.75% Pfd. .......................................... 13,959,282(2)
26,305 Countrywide Capital V, 7.00% Pfd., 11/01/36 ................................. 486,971
380,000 Deutsche Bank Contingent Capital Trust II, 6.55% Pfd. ....................... 9,036,894**(1)
Goldman Sachs:
80,000 Adj. Rate Pfd., Series A ................................................. 1,920,000*
202,500 Cabco Trust Capital I, Adj. Rate Pfd. 02/15/34 ........................... 4,558,781
3,600 STRIPES Custodial Receipts, Pvt. ......................................... 2,919,600*
$ 7,000,000 Gulf Stream-Compass 2005 Composite Notes, 144A**** .......................... 6,535,550
143,920 Merrill Lynch Preferred Capital, Adj. Rate Pfd., Series G ................... 3,418,100*
27,000 Merrill Lynch Cap Trust I, 6.45% Pfd., 12/15/66, Series K ................... 642,938
Merrill Lynch:
172,000 Adj. Rate Pfd., Series 5 ................................................. 3,853,884*
5
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
PREFERRED SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------
76,000 Fixed Income Pass-through 2007-A, Cl.B, Adj. Rate Pfd., 144A**** ......... $ 782,800*
4,000 Series II STRIPES Custodial Receipts, Pvt. ............................... 3,064,000*
82,367 Merrill Lynch Preferred Capital Trust IV, 7.12% Pfd. ........................ 2,054,027
9,000 Morgan Stanley Capital Trust V, 5.75% Pfd. .................................. 196,313
336,100 Morgan Stanley Capital Trust VI, 6.60% Pfd. ................................. 8,154,626
$ 10,000,000 RACERS(R) Series 2005 AMMC V Trust, 144A**** ................................ 8,606,689
SLM Corporation:
160,000 6.97% Pfd., Series A ..................................................... 7,420,800*
17,000 Adj. Rate Pfd., Series B ................................................. 1,309,000*
------------------------------------------------------------------------------------------------------------------------
97,241,748
-------------------
INSURANCE -- 17.8%
------------------------------------------------------------------------------------------------------------------------------
1,703,580 ACE Ltd., 7.80% Pfd., Series C .............................................. 43,172,976**(1)
$ 2,500,000 AMBAC Financial Group Inc., 6.15% 02/15/37 .................................. 1,919,220
AON:
$ 25,570,000 Capital Trust A, 8.205% 01/01/27 ......................................... 27,081,724
106,000 Corts-Capital, 8.205% Pfd. ............................................... 2,855,375
94,900 Saturns-2003-3, 8.00% Pfd., Series AON Corp. ............................. 2,354,706
Arch Capital Group Ltd.:
167,650 7.875% Pfd., Series B .................................................... 4,107,425**(1)
99,321 8.00% Pfd. ............................................................... 2,473,719**(1)
AXA SA:
$ 11,300,000 6.379%, 144A**** ......................................................... 10,218,138**(1)
$ 9,500,000 6.463%, 144A**** ......................................................... 8,611,940**(1)
Axis Capital Holdings:
273,800 7.25% Pfd., Series A ..................................................... 6,533,553**(1)
231,805 7.50% Pfd., Series B ..................................................... 23,203,681(1)
322,600 Berkley W.R. Capital Trust II, 6.75% Pfd. 07/26/45 .......................... 7,585,133
500,000 Delphi Financial Group, 7.376% Pfd. 05/15/37 ................................ 12,015,000
49,150 Everest Re Capital Trust II, 6.20% Pfd., Series B ........................... 1,101,574
$ 7,000,000 Everest Re Holdings, 6.60% 05/15/37 ......................................... 6,530,643
$ 26,200,000 Liberty Mutual Group, 7.80% 03/15/37, 144A**** .............................. 23,422,328
Provident Financing Trust I:
$ 714,000 7.405% 03/15/38 .......................................................... 692,277
37,000 Corts-Unum, 8.50% Pfd. ................................................... 948,125
Renaissancere Holdings Ltd.:
77,800 6.08% Pfd., Series C ..................................................... 1,632,244**(1)
204,800 6.60% Pfd., Series D ..................................................... 4,526,080**(1)
283,935 7.30% Pfd., Series B ..................................................... 6,832,186**(1)
6
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
407,200 Scottish Re Group Ltd., 7.25% Pfd. .......................................... $ 7,100,550**(1)
36,600 Torchmark Capital Trust III, 7.10% Pfd. ..................................... 908,138
$ 7,425,000 USF&G Capital, 8.312% 07/01/46, 144A**** .................................... 8,853,570
$ 13,000,000 USF&G Capital I, 8.50% 12/15/45, 144A**** ................................... 15,822,300
XL Capital Ltd.:
$ 10,100,000 6.50% Series E ........................................................... 8,931,036(1)
$ 10,000,000 Mangrove Bay Passthru Trust, 6.102% 07/15/33, 144A**** ................... 9,450,000(1)
5,000 7.625% Pfd., Series B .................................................... 125,313**(1)
$ 6,400,000 ZFS Finance USA Trust V, 6.50% 05/09/37, 144A**** ........................... 5,998,579(1)
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255,007,533
-------------------
UTILITIES -- 21.4%
-----------------------------------------------------------------------------------------------------------------------------
Baltimore Gas & Electric Company:
10,000 6.70% Pfd., Series 1993 .................................................. 1,037,188*
50,000 7.125% Pfd., Series 1993 ................................................. 5,203,125*
1,355,359 Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 ............................ 64,867,482
35,000 Central Maine Power, 5.25% Pfd., Pvt. ....................................... 3,110,100*
$ 2,600,000 COMED Financing II, 8.50% 01/15/27, Series B ................................ 2,613,000
$ 17,645,000 COMED Financing III, 6.35% 03/15/33 ......................................... 15,843,446
$ 25,175,000 Dominion Resources Capital Trust I, 7.83% 12/01/27 .......................... 26,259,338
$ 6,000,000 Dominion Resources, Inc., 7.50% ............................................. 6,226,758
Entergy Arkansas, Inc.:
10,240 4.56% Pfd., Series 1965 .................................................. 837,222*
625,000 6.45% Pfd. ............................................................... 16,131,250*
85,000 Entergy Louisiana, Inc., 6.95% Pfd. ......................................... 8,901,200*
169,000 FPC Capital I, 7.10% Pfd., Series A ......................................... 4,177,477
52,150 FPL Group Capital Trust I, 5.875% Pfd. 03/15/44 ............................. 1,207,273
FPL Group Capital, Inc.:
$ 3,400,000 6.35% 10/01/66 ........................................................... 3,315,830
349,137 6.60% Pfd. 10/01/66, Series A ............................................ 8,575,678
$ 4,100,000 6.65% 06/15/67 ........................................................... 4,079,697
12,442 Great Plains Energy, Inc., 4.20% Pfd. ....................................... 947,583*
5,000 Indiana Michigan Power, 4.56% Pfd. .......................................... 406,100*
119,805 Indianapolis Power & Light Company, 5.65% Pfd. .............................. 11,261,670*
Interstate Power & Light Company:
110,000 7.10% Pfd., Series C ..................................................... 2,778,600*
11,000 8.375% Pfd., Series B .................................................... 332,640*
32,300 Laclede Capital Trust I, 7.70% Pfd. ......................................... 807,500
7
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
Pacific Enterprises:
4,550 $4.40 Pfd. ............................................................... $ 369,824*
4,510 $4.50 Pfd. ............................................................... 374,871*
$ 2,386,000 PECO Energy Capital Trust III, 7.38% 04/06/28, Series D ..................... 2,455,433
$ 27,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 ................................ 23,257,800
358,950 PSEG Funding Trust II, 8.75% Pfd. ........................................... 9,209,329
$ 5,000,000 Puget Sound Energy, Inc., 6.974% 06/01/67 ................................... 4,894,000
200,000 San Diego Gas & Electric Company, $1.70 Pfd. ................................ 5,243,760*
Southern California Edison:
115,750 6.00% Pfd. ............................................................... 11,438,415*
17,910 6.125% Pfd. .............................................................. 1,788,672*
Southern Union Company:
$ 5,100,000 7.20% 11/01/66 ........................................................... 5,159,405
228,700 7.55% Pfd. ............................................................... 5,840,998*
$ 4,200,000 Union Electric Company, 7.69% 12/15/36, Series A ............................ 4,254,180
Virginia Electric & Power Company:
14,985 $4.12 Pfd. ............................................................... 1,136,762*
21,684 $4.80 Pfd. ............................................................... 1,916,432*
35,000 $6.98 Pfd. ............................................................... 3,564,533*
342,500 Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 .......................... 8,618,156
$ 27,125,000 Wisconsin Energy Corporation, 6.25% 05/15/67 ................................ 26,321,775
Xcel Energy, Inc.:
7,110 $4.10 Pfd., Series C ..................................................... 539,436*
10,210 $4.11 Pfd., Series D ..................................................... 776,573*
------------------------------------------------------------------------------------------------------------------------
306,080,511
-------------------
ENERGY -- 3.5%
-----------------------------------------------------------------------------------------------------------------------------
Enterprise Products Partners:
$ 22,000,000 7.034% 01/15/68 .......................................................... 19,849,148
$ 12,500,000 8.375% 08/01/66 .......................................................... 12,818,438
13,200 EOG Resources, Inc., 7.195% Pfd., Series B .................................. 14,054,172*
$ 3,650,000 KN Capital Trust III, 7.63% 04/15/28 ........................................ 3,251,785
------------------------------------------------------------------------------------------------------------------------
49,973,543
-------------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 2.5%
-----------------------------------------------------------------------------------------------------------------------------
41,400 BRE Properties, Inc., 6.75% Pfd., Series C .................................. 937,971
51,000 Equity Residential Properties, 8.29% Pfd., Series K ......................... 2,937,600
4,980 Prologis Trust, 8.54% Pfd., Series C ........................................ 299,890
8
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
PREFERRED SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
PS Business Parks, Inc.:
45,500 6.70% Pfd., Series P ..................................................... $ 999,580
6,100 7.00% Pfd., Series H ..................................................... 137,631
56,200 7.20% Pfd., Series M ..................................................... 1,313,675
18,700 7.375% Pfd., Series O .................................................... 442,956
178,000 7.60% Pfd., Series L ..................................................... 4,316,500
60,000 7.95% Pfd., Series K ..................................................... 1,515,000
Public Storage, Inc.:
186,070 6.45% Pfd., Series F ..................................................... 4,163,316(2)
310,400 6.625% Pfd., Series M .................................................... 7,042,200
30,000 6.85% Pfd., Series Y ..................................................... 714,300
388,200 7.25% Pfd., Series K ..................................................... 9,583,688
70,000 Realty Income Corp., 6.75% Pfd., Series E ................................... 1,631,875
------------------------------------------------------------------------------------------------------------------------
36,036,182
-------------------
MISCELLANEOUS INDUSTRIES -- 0.9%
-----------------------------------------------------------------------------------------------------------------------------
2,245 Centaur Funding Corporation, 9.08% Pfd. 04/21/20, 144A**** .................. 2,494,055
112,750 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ......................... 10,237,700*
------------------------------------------------------------------------------------------------------------------------
12,731,755
-------------------
TOTAL PREFERRED SECURITIES
(Cost $1,268,616,161) .................................................... 1,223,124,541
-------------------
CORPORATE DEBT SECURITIES -- 13.2%
FINANCIAL SERVICES -- 3.0%
-----------------------------------------------------------------------------------------------------------------------------
200,000 Ford Motor Credit Company, 7.375% 10/15/31 .................................. 3,881,260
$ 25,000,000 General Motors Acceptance Corporation, 8.00% 11/01/31, Senior Bonds ......... 22,515,150
80,000 HSBC Finance Corporation, 6.875% 01/30/33 ................................... 1,965,000
$ 4,822,339 Lehman Brothers, Guaranteed Note, Variable Rate, 12/16/16, 144A**** ......... 4,118,760
$ 11,100,000 Lehman Brothers Holdings, 6.875% 07/17/37, Sub. Note ........................ 10,459,685
------------------------------------------------------------------------------------------------------------------------
42,939,855
-------------------
INSURANCE -- 2.4%
-----------------------------------------------------------------------------------------------------------------------------
239,000 Delphi Financial, 8.00% 05/15/33, Senior Notes .............................. 6,116,918
$ 4,000,000 Farmers Exchange Capital, 7.20% 07/15/48, 144A**** .......................... 3,892,800
$ 24,921,000 Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** ......................... 23,876,810
$ 1,000,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes ..................... 987,997
------------------------------------------------------------------------------------------------------------------------
34,874,525
-------------------
9
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
CORPORATE DEBT SECURITIES -- (CONTINUED)
UTILITIES -- 5.3%
-----------------------------------------------------------------------------------------------------------------------------
Duke Capital Corporation:
$ 6,179,000 6.75% 02/15/32, Senior Notes ............................................. $ 6,153,592
$ 6,315,000 8.00% 10/01/19, Senior Notes ............................................. 7,091,789
$ 5,000,000 Entergy Gulf States, Inc., 6.20% 07/01/33, 1st Mortgage ..................... 4,690,465
Entergy Louisiana LLC:
$ 14,458,000 6.30% 09/01/35, 1st Mortgage ............................................. 13,759,982
9,400 7.60% 04/01/32, 1st Mortgage ............................................. 236,175
16,500 Entergy Mississippi, Inc., 7.25%, 1st Mortgage .............................. 407,344
Oncor Electric Delivery Company:
$ 2,000,000 7.00% 09/01/22 ........................................................... 2,063,054
$ 7,070,000 7.25% 01/15/33 ........................................................... 7,527,804
137,900 PPL Capital Funding, Inc., 6.85% 07/01/47 ................................... 3,302,705
$ 8,268,000 PSEG Power LLC, 8.625% 04/15/31 ............................................. 10,182,381
Southern Union Company:
$ 5,300,000 7.60% 02/01/24, Senior Notes ............................................. 5,599,328
$ 6,047,000 8.25% 11/15/29, Senior Notes ............................................. 6,734,181
50,000 Strats-Dominion-2005-6, Adjustable Rate Pfd., 06/15/35, Series D ............ 1,125,000
$ 6,020,000 Wisconsin Electric Power Company, 6.875% 12/01/95 ........................... 6,351,630
------------------------------------------------------------------------------------------------------------------------
75,225,430
-------------------
ENERGY -- 1.7%
-----------------------------------------------------------------------------------------------------------------------------
$ 10,350,000 KN Energy, Inc., 7.45% 03/01/98 ............................................. 8,970,490
296,911 Nexen, Inc., 7.35% Subordinated Notes ....................................... 7,422,775(1)
$ 8,500,000 Noble Energy, Inc., 7.25% 08/01/97 .......................................... 8,733,648
------------------------------------------------------------------------------------------------------------------------
25,126,913
-------------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 0.2%
-----------------------------------------------------------------------------------------------------------------------------
$ 3,500,000 Realty Income Corporation, 5.875% 03/15/35 .................................. 3,186,750
------------------------------------------------------------------------------------------------------------------------
3,186,750
-------------------
MISCELLANEOUS INDUSTRIES -- 0.6%
-----------------------------------------------------------------------------------------------------------------------------
$ 390,000 BellSouth Telecommunication, 7.00% 12/01/95 ................................. 391,953
30,000 CBS Corporation, 6.75% 03/27/56 ............................................. 720,375
Comcast Corp.:
11,500 6.625%, 05/15/56 ......................................................... 272,406
68,500 7.00% 09/15/55, Series B ................................................. 1,686,813
20,000 Corp-Backed Trust Certificates, 7.00% 11/15/28, Series Sprint ............... 483,000
10
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
CORPORATE DEBT SECURITIES -- (CONTINUED)
MISCELLANEOUS INDUSTRIES -- (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
Pulte Homes, Inc.:
58,240 7.375% 06/01/46 .......................................................... $ 1,196,394
$ 3,550,000 7.875% 06/15/32 .......................................................... 3,218,102
------------------------------------------------------------------------------------------------------------------------
7,969,043
-------------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $195,302,031) ...................................................... 189,322,516
-------------------
OPTION CONTRACTS -- 0.0%
-----------------------------------------------------------------------------------------------------------------------------
2,930 December Put Options on December U.S. Treasury Bond Futures, Expiring 11/20/07 183,125+
7,370 October Put Options on December U.S. Treasury Bond Futures, Expiring 09/21/07 146,563+
------------------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $1,250,022) ........................................................ 329,688
-------------------
11
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
------------------ -------------------
MONEY MARKET FUND -- 0.2%
-----------------------------------------------------------------------------------------------------------------------------
2,818,397 BlackRock Provident Institutional, TempFund ................................. $ 2,818,397
------------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $2,818,397) ........................................................ 2,818,397
-------------------
SECURITIES LENDING COLLATERAL -- 0.3%
-----------------------------------------------------------------------------------------------------------------------------
4,258,100 Institutional Money Market Trust ............................................ 4,258,100
------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES LENDING COLLATERAL
(Cost $4,258,100) ........................................................ 4,258,100
-------------------
TOTAL INVESTMENTS (Cost $1,472,244,711***) .......................................... 99.2% 1,419,853,242
OTHER ASSETS AND LIABILITIES (Net) .................................................. 0.8% 11,129,048
------- -------------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK AND PREFERRED STOCK ...................... 100.0%++ $ 1,430,982,290
------- -------------------
AUCTION MARKET PREFERRED STOCK (AMPS) REDEMPTION VALUE ........................................... (542,000,000)
-------------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ....................................................... $ 888,982,290
===================
------------------------
* 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. These securities have been
determined to be liquid under the guidelines established by the Board of
Directors.
(1) Foreign Issuer.
(2) Security on loan.
+ Non-income producing.
++ The percentage shown for each investment category is the total value of
that category as a percentage of net assets available to Common and
Preferred Stock.
ABBREVIATIONS:
PFD. -- Preferred Securities
PVT. -- Private Placement Securities
12
--------------------------------------------------------------------------------
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, 2006 THROUGH AUGUST 31, 2007 (UNAUDITED)
-------------------------------------------------------------------------
VALUE
-------------
OPERATIONS:
Net investment income ................................................................. $ 72,075,553
Net realized gain/(loss) on investments sold during the period ........................ (2,656,578)
Change in net unrealized appreciation/depreciation of investments held
during the period ................................................................... (109,438,218)
Distributions to AMPS* Shareholders from net investment income, including
changes in accumulated undeclared distributions ..................................... (21,311,517)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................. (61,330,760)
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(2) ............. (48,885,473)
-------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ...................................... (48,885,473)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan .... --
-------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING
FROM FUND SHARE TRANSACTIONS ........................................................ --
=============
-------------
NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD ...................... $(110,216,233)
=============
-----------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period ................................................................... $ 999,198,523
Net decrease in net assets during the period .......................................... (110,216,233)
-------------
End of period ......................................................................... $ 888,982,290
=============
----------
* Auction Market Preferred Stock.
(1) These tables summarize the nine months ended August 31, 2007 and should be
read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2006.
(2) May include income earned, but not paid out, in prior fiscal year.
13
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
FINANCIAL HIGHLIGHTS(1)
FOR THE PERIOD FROM DECEMBER 1, 2006 THROUGH AUGUST 31, 2007 (UNAUDITED)
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT THE PERIOD.
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................................................. $ 23.45
-------------
INVESTMENT OPERATIONS:
Net investment income ................................................................. 1.69
Net realized and unrealized gain/(loss) on investments ................................ (2.62)
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income ............................................................ (0.50)
From net realized capital gains ....................................................... --
-------------
Total from investment operations ...................................................... (1.43)
-------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income ............................................................ (1.15)
From net realized capital gains ....................................................... --
-------------
Total distributions to Common Stock Shareholders ...................................... (1.15)
-------------
Net asset value, end of period ........................................................ $ 20.87
=============
Market value, end of period ........................................................... $ 18.59
=============
Common Stock shares outstanding, end of period ........................................ 42,601,719
=============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income+ ................................................................ 7.03%**
Operating expenses .................................................................... 1.17%**
-------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ............................................................... 50%***
Total net assets available to Common and Preferred Stock, end of period (in 000's) .... $ 1,430,982
Ratio of operating expenses to total average net assets available to
Common and Preferred Stock .......................................................... 0.75%**
(1) These tables summarize the nine months ended August 31, 2007 and should be
read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2006.
* Auction Market Preferred Stock.
** Annualized.
*** Not annualized.
+ The net investment income ratios reflect income net of operating expenses
and payments to AMPS* Shareholders.
++ Information presented under heading Supplemental Data includes AMPS*.
14
--------------------------------------------------------------------------------
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, 2006 ....... $0.1275 $23.15 $21.41 $21.54
January 31, 2007 ........ 0.1275 23.13 21.75 21.87
February 28, 2007 ....... 0.1275 23.44 21.81 21.96
March 31, 2007 .......... 0.1275 22.95 22.30 22.43
April 30, 2007 .......... 0.1275 23.05 22.05 22.12
May 31, 2007 ............ 0.1275 22.60 21.38 21.56
June 30, 2007 ........... 0.1275 22.18 20.42 20.62
July 31, 2007 ........... 0.1275 21.26 19.18 19.15
August 31, 2007 ......... 0.1275 20.87 18.59 18.78
----------
(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.
15
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------
1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES
At August 31, 2007 the aggregate cost of securities for federal income tax
purposes was $1,482,967,471, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $5,659,543,
and the aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $68,773,772.
16
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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
Nicholas Dalmaso
Vice President and Assistant Secretary
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?
o If your shares are held in a Brokerage Account, contact your Broker.
o If you have physical possession of your shares in certificate form,
contact the Fund's Transfer Agent--
PFPC 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] ============================
PREFERRED SECURITIES
INCOME FUND
Quarterly
Report
August 31, 2007
www.fcclaymore.com
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 16, 2007
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 16, 2007
By (Signature and Title)* /s/ R. Eric Chadwick
-------------------------------------------------------
R. Eric Chadwick, Chief Financial Officer, Treasurer
and Vice President
(principal financial officer)
Date October 16, 2007
* Print the name and title of each signing officer under his or her signature.