<![CDATA[Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incoporated]]>

 

 

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: February 29, 2012

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 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. § 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 is off to a strong start in the new fiscal year. During the three month period ending February 29th, total return1 on net asset value of the Fund was +11.6%. Total return based on market price of Fund shares for the period was +12.7%. A portion of the Fund’s NAV return in the quarter was recovery from the prior two quarters when total return was -3.7%. To provide context for return during the period, the comparable measure on the S&P 500 was +10.1%, and +2.0% for the Barclays Capital U.S. Aggregate Index.

A number of factors contributed to the strong performance. U.S. investor confidence turned positive after several months of decline. The labor picture is improving, corporate earnings have been rising, and the housing market is finally picking up. Europe appears to have stepped back from the precipice of economic disaster, as policy makers have flooded the continent with liquidity. Interest rates around the globe hover near historically low levels and are not expected to rise substantially anytime soon. All of this has stimulated demand for high-yielding assets, especially preferred securities.

Returns of this magnitude are rare, even in periods of above-average market volatility such as we’ve experienced over the past several years. And while we enjoy double digit quarterly returns as much as the next shareholder, we know it is unlikely to be replicated.

With spring training in full swing it is hard to resist dusting off some baseball analogies. Your Fund is like a part of the lineup built to get singles and doubles and lead the league in on-base percentage. Other investments are intended to hit home runs, and we trust shareholders will determine if these also belong on their team. We’ve tortured you with this to make a point — investors shouldn’t expect this type of quarterly Fund performance to be repeated.

Again, for several quarters we have seen signs of improvement in the U.S. economy, though the pace of growth has been well short of robust. The sovereign debt crisis in Europe appears to be moderating, although economic risks remain elevated in that region. Neither area is out of the woods and recovery could be easily derailed, but we believe the worst is behind us. Our Quarterly Economic Outlook can be viewed on the Fund’s website.

We expect new bank capital guidelines to be issued by the Federal Reserve very soon. Patient readers will recall we have said this before, and eventually we will be right! With the new rules set to go into effect in January 2013, time is running out for the regulators. The new guidelines, when issued, will provide the final pieces of the regulatory capital overhaul which grew out of the financial crisis. We’ve known for some time that most forms of trust preferred and hybrid preferred securities will eventually no longer count towards regulatory capital requirements. We’re waiting to learn what can be used instead.

Even without clear guidelines from regulators, a handful of banks recently have issued new preferred stock with terms expected to conform to the new rules. These securities are all perpetual, non-cumulative preferred stock. This is the basic form of capital we believe will ultimately replace much of the bank preferred capital currently outstanding.

We don’t think the transition will be immediate; nor is it likely that all of the older “non-qualifying” capital will be replaced with newer “good” Tier 1 capital. We have tried to anticipate the shift and stay ahead of the pack by selling some securities which may be called in the near term and reinvesting in suitable replacements. This type of proactive management has always been part of our investment approach.

 

 

1

Following the methodology required by the SEC, total return assumes dividend reinvestment and includes income and principal change, plus the impact of the Fund’s leverage and expenses.


Another fundamental part of our investment process is the hard work of credit analysis. The experience of the past few years has reinforced our commitment to rely on our own independent and objective research focused on the preferred level of the capital structure. The national rating agencies (Moody’s, S&P, and Fitch) often seem to shoot where the rabbit was, especially when it comes to preferred securities.

Although we sometimes disagree with the agencies on their overall ratings of specific credits, we often disagree with their ratings on preferred securities. This divergence typically results from agencies’ mechanical “notching” of preferred securities down from a company’s senior debt rating. In simplified terms, notching is the formulaic lowering of a security’s rating by a predetermined number of rating categories simply based on where it fits in a company’s capital structure. In our view, this methodology is arbitrary.

Our approach is to study every issuer to understand its business and financial condition, and every issue to understand its terms and conditions. Because we are investing in subordinated securities, it is essential that we understand the precise terms, many of which can be buried deep in the legal terms of the issue. With this knowledge we are better equipped to understand the full scope of risk associated with a specific security, and only then can we start to address questions of valuation.

As always, we encourage you to visit the Fund’s website www.fcclaymore.com for a more in-depth discussion of conditions in the preferred markets and the broader economy.

 

  Sincerely,  
  LOGO   LOGO
  Donald F. Crumrine   Robert M. Ettinger
  Chairman   President
  April 16, 2012  

 

2


   

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OVERVIEW

February 29, 2012 (Unaudited)

 

Fund Statistics        

Net Asset Value

   $ 17.33   

Market Price

   $ 18.78   

Premium

     8.37

Yield on Market Price

     8.69

Common Stock Shares Outstanding

     43,108,110   

 

Moody’s Ratings

   % of Net Assets†  

A

     8.6

BBB

     70.0

BB

     15.4

Below “BB”

     2.6

Not Rated*

     0.4

Below Investment Grade**

     11.0

 

* Does not include net other assets and liabilities of 3.0%.
** Below investment grade by all of Moody’s, S&P and Fitch.
Industry Categories    % of Net Assets†

 

LOGO

 

Top 10 Holdings by Issuer

   % of Net Assets†  

Liberty Mutual Group

     5.5

Banco Santander, S.A.

     5.2

Capital One Financial

     4.2

Metlife

     4.1

Dominion Resources

     3.2

Goldman Sachs Group

     3.1

HSBC PLC

     3.0

Southern California Edison

     2.8

Axis Capital

     2.8

Enbridge Energy Partners

     2.8

 

 

 

     % of Net Assets***†  

Holdings Generating Qualified Dividend Income (QDI) for Individuals

     31

Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD)

     18

 

*** 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 29, 2012 (Unaudited)

    

 

Shares/$ Par

          Value  
  Preferred Securities — 89.8%   
   Banking — 36.1%   
  

Astoria Financial:

  
$ 17,750,000      

Astoria Capital Trust I, 9.75% 11/01/29, Series B

   $ 18,478,158 (1)(2) 
  

Banco Bilbao Vizcaya Argentaria, S.A.:

  
$ 8,490,000      

BBVA International Preferred, 5.919%

     6,619,458 **(1)(2)(3) 
  

Banco Santander, S.A.:

  
  2,046,320      

Banco Santander, 10.50% Pfd., Series 10

     58,161,530 **(1)(3) 
  

Bank of America:

  
  235,840      

Bank of America Corporation, 8.625% Pfd.

     6,009,203 *(1) 
$ 2,475,000      

BankAmerica Capital II, 8.00% 12/15/26

     2,496,656   
$ 2,845,000      

BankAmerica Institutional, Series A, 8.07% 12/31/26, 144A****

     2,869,894   
  15,000      

Countrywide Capital IV, 6.75% Pfd. 04/01/33

     363,173   
  50,000      

Countrywide Capital V, 7.00% Pfd. 11/01/36

     1,204,625   
$ 1,825,000      

Fleet Capital Trust II, 7.92% 12/11/26

     1,818,156   
$ 3,150,000      

MBNA Capital, 8.278% 12/01/26, Series A

     3,201,503   
$ 9,507,000      

NB Capital Trust IV, 8.25% 04/15/27

     9,685,256 (1) 
  

Barclays Bank PLC:

  
$ 14,750,000      

Barclays Bank PLC, 6.278%

     11,933,679 **(1)(3) 
  23,000      

Barclays Bank PLC, 7.75% Pfd., Series 4

     578,450 **(3) 
  510,000      

Barclays Bank PLC, 8.125% Pfd., Series 5

     13,030,500 **(1)(3) 
  

BNP Paribas:

  
$ 13,500,000      

BNP Paribas, 7.195%, 144A****

     11,947,500 **(1)(2)(3) 
  

Capital One Financial:

  
$ 37,990,000      

Capital One Capital III, 7.686% 08/15/36

     38,797,288 (1)(2) 
$ 2,362,000      

Capital One Capital V, 10.25% 08/15/39

     2,474,195   
$ 5,350,000      

Capital One Capital VI, 8.875% 05/15/40

     5,555,654 (1)(2) 
  

Citigroup:

  
  88,875      

Citigroup Capital XII, 8.50% Pfd. 03/30/40

     2,316,305   
  341,100      

Citigroup Capital XIII, 7.875% Pfd. 10/30/40

     9,247,733 (1)(2) 
  

Colonial BancGroup:

  
$ 35,100,000      

Colonial BancGroup, 7.114%, 144A****

     70,200 (4)(5)†† 
  

FBOP Corp.:

  
  28,800      

FBOP Corporation, Adj. Rate Pfd., 144A****

     14,400 *(4)(5)† 
  

Fifth Third Bancorp.:

  
$ 8,785,000      

Fifth Third Capital Trust IV, 6.50% 04/15/37

     8,763,038 (1)(2) 
  93,625      

Fifth Third Capital Trust V, 7.25% Pfd. 08/15/67

     2,374,330   
  513,700      

Fifth Third Capital Trust VI, 7.25% Pfd. 11/15/67

     13,115,429 (1)(2) 

 

4


   

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

 

Shares/$ Par

          Value  
  Preferred Securities — (Continued)   
   Banking — (Continued)   
  

First Horizon:

  
  14,500      

First Tennessee Bank, Adj. Rate Pfd., 3.75%(6), 144A****

   $ 9,891,719
  8      

FT Real Estate Securities Company, 9.50% Pfd., 144A****

     7,640,000   
  

First Niagara Financial Group:

  
  572,000      

First Niagara Financial Group, Inc., 8.625% Pfd.

     15,850,978
  

First Republic Bank:

  
  40,020      

First Republic Bank, 6.70% Pfd.

     1,031,415
  

Goldman Sachs Group:

  
$ 6,000,000      

Goldman Sachs, Capital I, 6.345% 02/15/34

     5,634,432 (1)(2) 
$ 4,362,000      

Goldman Sachs, Capital II, 5.793%

     3,042,495 (1)(2) 
  3,600      

STRIPES Custodial Receipts, Adj. Rate, 10.70%(6), Pvt.

     1,746,000 *(4)(5) 
  

HSBC PLC:

  
  714,400      

HSBC Holdings PLC, 8.00% Pfd., Series 2

     19,397,746 **(1)(3) 
$ 2,000,000      

HSBC USA Capital Trust II, 8.38% 05/15/27, 144A****

     2,035,500 (1)(2) 
  3,750      

HSBC USA, Inc., $2.8575 Pfd.

     178,125
  366,326      

HSBC USA, Inc., 6.50% Pfd., Series H

     9,290,577 *(1) 
  

ING Groep NV:

  
  70,800      

ING Groep NV, 7.05% Pfd.

     1,649,038 **(3) 
  28,025      

ING Groep NV, 7.375% Pfd.

     679,887 **(3) 
  

JPMorgan Chase:

  
$ 3,865,000      

JPMorgan Chase Capital XVIII, 6.95% 08/17/36, Series R

     3,950,417 (1) 
$ 6,500,000      

JPMorgan Chase Capital XXVII, 7.00% 11/01/39, Series AA

     6,662,500 (1)(2) 
  

KeyCorp:

  
  279,600      

Keycorp Capital X, 8.00% Pfd. 03/15/68

     7,325,520 (1)(2) 
  

Lloyds Banking Group PLC:

  
$ 17,800,000      

Lloyds Banking Group PLC, 6.657%, 144A****

     12,371,000 **(3)† 
  

PNC Financial Services:

  
$ 9,265,000      

National City Preferred Capital Trust I, 12.00%

     9,989,699   
  164,520      

PNC Financial Services, 9.875% Pfd., Series L

     4,544,289 *(1) 
$ 2,500,000      

PNC Preferred Funding Trust III, 8.70%, 144A****

     2,588,273 (1)(2) 
  

Regions Financials:

  
  60      

Union Planters Preferred Funding, 7.75% Pfd., Series A, 144A****

     4,983,750   
  

Sovereign Bancorp:

  
  8,641      

Sovereign REIT, 12.00% Pfd., Series A, 144A****

     9,936,398   
  

SunTrust Banks:

  
  33,400      

SunTrust Capital IX, 7.875% Pfd. 03/15/68

     855,875   
  

US Bancorp:

  
  165,000      

US Bancorp, 6.50% Pfd.

     4,460,198

 

5


Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

    

 

Shares/$ Par

          Value  
  Preferred Securities — (Continued)   
   Banking — (Continued)   
  

Washington Mutual:

  
$ 10,050,000      

Washington Mutual, 6.534%, 144A****

   $ 100,500 †† 
$ 2,100,000      

Washington Mutual, 9.75%, 144A****

     21,000 †† 
  

Webster Financial:

  
$ 11,067,000      

Webster Capital Trust IV, 7.65% 06/15/37

     11,105,248 (1) 
  

Wells Fargo:

  
  109,785      

Wachovia Preferred Funding, 7.25% Pfd., Series A

     2,893,109 (1)(2) 
  11,173      

Wells Fargo & Company, 7.50% Pfd., Series L

     12,237,228 *(1) 
  100,000      

Wells Fargo & Company, 8.00% Pfd., Series J

     2,925,000 *(1) 
     

 

 

 
        406,144,229   
     

 

 

 
   Financial Services — 1.9%   
  

Ameriprise Financial:

  
$ 1,340,000      

Ameriprise Financial, Inc., 7.518% 06/01/66

     1,460,600 (1)(2) 
  

AMMC CLO V Ltd.:

  
  7,000      

AMMC CLO V Ltd., Adj. Rate, Pvt.

     2,170,000 (4)(5) 
  

Charles Schwab:

  
$ 1,000,000      

Charles Schwab Corporation, 7.00%

     1,045,190
$ 3,000,000      

Schwab Capital Trust I, 7.50% 11/15/37

     3,133,800 (1)(2) 
  

Credit Suisse Group:

  
$ 5,230,000      

Claudius, Ltd. - Credit Suisse AG, 7.875%, Series B

     5,360,750 (3) 
  

Gulf Stream-Compass CLO:

  
$ 7,000,000      

Gulf Stream-Compass CLO 2005 Composite Notes, 144A****

     5,084,870 (4)(5) 
  

HSBC PLC:

  
  118,954      

HSBC Finance Corporation, 6.36% Pfd., Series B

     2,969,270 *(1) 
  

Lehman Brothers:

  
  34,000      

Lehman Brothers Holdings, Inc., 5.67% Pfd., Series D

     9,520 *†† 
  471,500      

Lehman Brothers Holdings, Inc., 7.95% Pfd.

     2,358 *†† 
  20,000      

Lehman Capital Trust III, 6.375% Pfd., Series K

     2,470 †† 
     

 

 

 
        21,238,828   
     

 

 

 
   Insurance — 22.4%   
  

Ace Ltd.:

  
$ 4,566,000      

Ace Capital Trust II, 9.70% 04/01/30

     6,150,904 (1)(2)(3) 
  

Aon Corporation:

  
$ 455,000      

AON Corp, 8.205% 01/01/27

     534,275 (1) 

 

6


   

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

 

Shares/$ Par

          Value  
  Preferred Securities — (Continued)   
   Insurance — (Continued)   
  

Arch Capital Group:

  
  117,750      

Arch Capital Group Ltd., 7.875% Pfd., Series B

   $ 3,006,311 **(1)(3) 
  100,000      

Arch Capital Group Ltd., 8.00% Pfd., Series A

     2,568,750 **(1)(3) 
  

AXA SA:

  
$ 8,505,000      

AXA SA, 6.379%, 144A****

     6,889,050 **(1)(2)(3) 
  

Axis Capital:

  
  117,707      

Axis Capital Holdings, 7.25% Pfd., Series A

     3,012,569 **(1)(3) 
  301,400      

Axis Capital Holdings, 7.50% Pfd., Series B

     28,491,734 (1)(2)(3) 
  

Delphi Financial:

  
  558,000      

Delphi Financial Group, 7.376% Pfd. 05/15/37

     14,176,715 (1)(2) 
  

Everest Re Group:

  
$ 20,919,000      

Everest Re Holdings, 6.60% 05/15/37

     19,794,604 (1)(2) 
  

GWL&A Financial:

  
$ 4,650,000      

Great West Life & Annuity Insurance, 7.153% 05/16/46, 144A****

     4,638,375 (1)(2) 
  

Liberty Mutual Group:

  
$ 35,418,000      

Liberty Mutual Group, 10.75% 06/15/58, 144A****

     46,574,670 (1) 
  

Lincoln National Corp:

  
$ 1,000,000      

Lincoln National Corporation, 7.00% 05/17/66

     965,000   
  

MetLife:

  
$ 13,520,000      

MetLife, Inc., 10.75% 08/01/39

     19,316,213 (1)(2) 
$ 6,600,000      

MetLife Capital Trust IV, 7.875% 12/15/37, 144A****

     7,293,000 (1)(2) 
$ 15,585,000      

MetLife Capital Trust X, 9.25% 04/08/38, 144A****

     19,247,475 (1)(2) 
  

PartnerRe Ltd.:

  
  14,000      

PartnerRe Ltd., 7.250% Pfd., Series E

     368,340 **(3) 
  

Principal Financial:

  
  77,000      

Principal Financial Group, 5.563% Pfd., Series A

     7,271,688 *(1) 
  357,169      

Principal Financial Group, 6.518% Pfd., Series B

     9,219,425 *(1) 
  

RenaissanceRe Holdings:

  
  73,369      

RenaissanceRe Holdings Ltd., 6.60% Pfd., Series D

     1,845,230 **(1)(3) 
  

StanCorp Financial Group:

  
$ 7,500,000      

Stancorp Financial Group, 6.90% 06/01/67

     7,012,500 (1)(2) 
  

The Travelers Companies:

  
$ 7,425,000      

USF&G Capital, 8.312% 07/01/46, 144A****

     8,957,928 (1)(2) 
$ 13,000,000      

USF&G Capital I, 8.50% 12/15/45, 144A****

     15,995,811 (1)(2) 
  

Unum Group:

  
  37,000      

Corts Provident Financing Trust I, 8.50% Pfd.

     1,030,876 (1)(2) 
  

XL Group PLC:

  
$ 19,650,000      

XL Capital Ltd., 6.50%, Series E

     16,849,875 (1)(3) 
     

 

 

 
        251,211,318   
     

 

 

 

 

7


Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

    

 

Shares/$ Par

          Value  
  Preferred Securities — (Continued)   
   Utilities — 22.8%   
  

Alabama Power:

  
  59,025      

Alabama Power Company, 6.45% Pfd.

   $ 1,636,102 *(1) 
  

Baltimore Gas & Electric:

  
  10,000      

Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993

     1,018,125 *(1) 
  15,000      

Baltimore Gas & Electric Company, 7.125% Pfd., Series 1993

     1,528,595
  

Commonwealth Edison:

  
$ 15,828,000      

COMED Financing III, 6.35% 03/15/33

     15,833,049 (1)(2) 
  

Constellation Energy:

  
  146,100      

Constellation Energy Group, 8.625% Pfd. 06/15/63, Series A

     3,989,991 (1)(2) 
  

Dominion Resources:

  
$ 19,675,000      

Dominion Resources Capital Trust I, 7.83% 12/01/27

     19,874,052 (1)(2) 
$ 15,262,000      

Dominion Resources, Inc., 7.50% 06/30/66

     16,154,415 (1)(2) 
  

DTE Energy:

  
  63,248      

DTE Energy Company, 6.50% Pfd.

     1,735,367   
  

Entergy Arkansas:

  
  294,975      

Entergy Arkansas, Inc., 6.45% Pfd.

     7,429,683 *(1) 
  

Entergy Louisiana:

  
  105,000      

Entergy Louisiana, Inc., 6.95% Pfd.

     10,463,912 *(1) 
  

Georgia Power:

  
  164,400      

Georgia Power Company, 6.50% Pfd., Series 2007A

     18,145,650 *(1) 
  

Gulf Power:

  
  20,000      

Gulf Power Company, 6.45% Pfd., Series 2007A

     2,133,680
  

Indianapolis Power & Light:

  
  119,805      

Indianapolis Power & Light Company, 5.65% Pfd.

     11,703,451
  

Integrys Energy Group:

  
$ 7,000,000      

WPS Resources Corporation, 6.11% 12/01/66

     6,954,899 (1)(2) 
  

Interstate Power & Light:

  
  343,606      

Interstate Power & Light Company, 8.375% Pfd., Series B

     9,783,322 *(1) 
  

Nextera Energy:

  
$ 20,470,000      

FPL Group Capital, Inc., 6.65% 06/15/67

     20,748,720 (1)(2) 
$ 4,000,000      

FPL Group Capital, Inc., 7.30% 09/01/67, Series D

     4,214,747 (1)(2) 
  

Peco Energy:

  
$ 2,386,000      

PECO Energy Capital Trust III, 7.38% 04/06/28, Series D

     2,362,807 (1) 
$ 24,500,000      

PECO Energy Capital Trust IV, 5.75% 06/15/33

     21,238,388 (1)(2) 
  

PPL Corp.:

  
$ 17,680,000      

PPL Capital Funding, 6.70% 03/30/67, Series A

     17,433,223 (1) 
  67,735      

PPL Electric Utilities Corporation, 6.25% Pfd.

     1,729,362 *(1) 

 

8


   

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

 

Shares/$ Par

          Value  
  Preferred Securities — (Continued)   
   Utilities — (Continued)   
  

Puget Energy:

  
$ 28,015,000      

Puget Sound Energy, Inc., 6.974% 06/01/67

   $ 28,055,397 (1) 
  

Southern California Edison:

  
  121,700      

Southern California Edison, 6.00% Pfd., Series C

     12,093,937 *(1) 
  7,090      

Southern California Edison, 6.125% Pfd., Series B

     710,328
  182,850      

Southern California Edison, 6.50% Pfd., Series D

     19,004,971 *(1) 
     

 

 

 
        255,976,173   
     

 

 

 
   Energy — 4.9%   
  

Enbridge Energy Partners:

  
$ 28,500,000      

Enbridge Energy Partners LP, 8.05% 10/01/37

     30,922,500 (1)(2) 
  

Enterprise Products Partners:

  
$ 565,000      

Enterprise Products Partners, 7.00% 06/01/67

     565,599 (1)(2) 
$ 21,396,000      

Enterprise Products Partners, 8.375% 08/01/66, Series A

     23,182,759 (1) 
     

 

 

 
        54,670,858   
     

 

 

 
   Real Estate Investment Trust (REIT) — 0.1%   
  

PS Business Parks:

  
  9,293      

PS Business Parks, Inc., 6.70% Pfd., Series P

     235,787 (1) 
  25,000      

PS Business Parks, Inc., 6.875% Pfd., Series R

     665,000   
     

 

 

 
        900,787   
     

 

 

 
   Miscellaneous Industries — 1.6%   
  

Ocean Spray Cranberries:

  
  105,400      

Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A****

     9,406,950 *(1) 
  

Textron, Inc.:

  
$ 11,700,000      

Textron Financial Corporation, 6.00% 02/15/67, 144A****

     8,950,500   
     

 

 

 
        18,357,450   
     

 

 

 
  

Total Preferred Securities
(Cost $1,037,268,196)

     1,008,499,643   
     

 

 

 
  Corporate Debt Securities — 7.1%   
   Banking — 2.9%   
  

First Niagara Financial Group:

  
$ 1,200,000      

First Niagara Financial Group, Inc., 7.25% 12/15/21

     1,268,471   
  

Goldman Sachs Group:

  
$ 24,150,000      

Goldman Sachs Group, 6.75% 10/01/37, Sub Notes

     24,274,517 (1)(2) 

 

9


Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

    

 

Shares/$ Par

          Value  
  Corporate Debt Securities — (Continued)   
   Banking — (Continued)   
  

Regions Financial:

  
$ 8,230,000      

Regions Financial Corporation, 7.375% 12/10/37, Sub Notes

   $ 7,592,175   
     

 

 

 
        33,135,163   
     

 

 

 
   Financial Services — 0.1%   
  

Lehman Brothers:

  
$ 4,726,012      

Lehman Brothers, Guaranteed Note, Variable Rate, 5.843% 12/16/16, 144A****

     940,004 (4)(5)†† 
     

 

 

 
        940,004   
     

 

 

 
   Insurance — 1.6%   
  

Liberty Mutual Group:

  
$ 15,750,000      

Liberty Mutual Insurance, 7.697% 10/15/97, 144A****

     14,860,645 (1)(2) 
  

Unum Group:

  
$ 2,500,000      

UnumProvident Corporation, 7.25% 03/15/28

     2,687,173 (1) 
     

 

 

 
        17,547,818   
     

 

 

 
   Utilities — 2.1%   
  

Southern Union:

  
$ 9,300,000      

Southern Union Company, 7.60% 02/01/24

     11,077,230 (1)(2) 
$ 10,812,000      

Southern Union Company, 8.25% 11/15/29

     13,031,077 (1)(2) 
     

 

 

 
        24,108,307   
     

 

 

 
   Miscellaneous Industries — 0.4%   
  

Pulte Group Inc.:

  
  58,240      

Pulte Homes, Inc., 7.375% 06/01/46

     1,431,102 (1)(2) 
$ 3,550,000      

Pulte Homes, Inc., 7.875% 06/15/32

     3,283,750 (1) 
     

 

 

 
        4,714,852   
     

 

 

 
  

Total Corporate Debt Securities
(Cost $78,179,885)

     80,446,144   
     

 

 

 
  Common Stock — 0.5%   
   Banking — 0.2%   
  

CIT Group:

  
  54,740      

CIT Group, Inc.

     2,228,465 *† 
     

 

 

 
        2,228,465   
     

 

 

 

 

10


   

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

 

Shares/$ Par

              Value  

Common Stock — (Continued)

    
  

Utilities — 0.3%

    
  

Exelon Corp.:

    

44,930

  

Exelon Corporation

     $ 1,755,415
  

PPL Corp.:

    

46,587

  

PPL Corporation

       1,330,059
       

 

 

 
          3,085,474   
       

 

 

 
  

Total Common Stock
(Cost $13,952,748)

       5,313,939   
       

 

 

 

Money Market Fund — 1.3%

    
  

BlackRock Liquidity Funds:

    

14,424,983

  

T-Fund

       14,424,983   
       

 

 

 
  

Total Money Market Fund
(Cost $14,424,983)

       14,424,983   
       

 

 

 

Total Investments (Cost $1,143,825,812***)

     98.7     1,108,684,709   

Other Assets And Liabilities (Net)

     1.3     14,354,760   
     

 

 

   

 

 

 

Total Managed Assets

     100.0 %‡    $ 1,123,039,469   
     

 

 

   

 

 

 

Loan Principal Balance

       (376,075,000
       

 

 

 

Total Net Assets Available To Common Stock

     $ 746,964,469   
       

 

 

 

 

* 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 29, 2012, these securities amounted to $213,309,412 or 19.0% of total managed assets.
(1) 

All or a portion of this security is pledged as collateral for the Fund’s loan. The total value of such securities was $694,403,224 at February 29, 2012.

(2) 

All or a portion of this security has been rehypothecated. The total value of such securities was $358,118,905 at February 29, 2012.

(3)

Foreign Issuer.

(4)

Illiquid.

(5) 

Valued at fair value as determined in good faith by or under the direction of the Board of Directors as of February 29, 2012.

(6)

Represents the rate in effect as of the reporting date.

Non-income producing.

 

11


Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 29, 2012 (Unaudited)

    

 

†† 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 managed assets.

 

    ABBREVIATIONS:

CLO

  — Collaterized Loan Obligation

Corts

  — Corporate-Backed Trust Securities

Pfd.

  — Preferred Securities

Pvt.

  — Private Placement Securities

REIT

  — Real Estate Investment Trust

STRIPES

  — Structured Residual Interest Preferred Enhanced 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, 2011 through February 29, 2012 (Unaudited)

 

     Value  
  

OPERATIONS:

  

Net investment income

   $ 18,113,970   

Net realized gain/(loss) on investments sold during the period

     (902,211

Change in net unrealized appreciation/depreciation of investments

     61,914,582   
  

 

 

 

Net increase in net assets resulting from operations.

     79,126,341   

DISTRIBUTIONS:

  

Dividends paid from net investment income to Common Stock Shareholders(2)

     (20,593,229
  

 

 

 

Total Distributions to Common Stock Shareholders.

     (20,593,229 ) 

FUND SHARE TRANSACTIONS:

  

Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan

     1,128,944   
  

 

 

 

Net increase in net assets available to Common Stock resulting from Fund share transactions

     1,128,944   
  

 

 

 

NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD

   $ 59,662,056   
  

 

 

 

NET ASSETS AVAILABLE TO COMMON STOCK:

  

Beginning of period.

   $ 687,302,413   

Net increase in net assets during the period

     59,662,056   
  

 

 

 

End of period.

   $ 746,964,469   
  

 

 

 

 

(1)

These tables summarize the three months ended February 29, 2012 and should be read in conjunction with the Fund’s audited financial statements, including footnotes, in its Annual Report dated November 30, 2011.

(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, 2011 through February 29, 2012 (Unaudited)

For a Common Stock share outstanding throughout the period

    

 

PER SHARE OPERATING PERFORMANCE:

  

Net asset value, beginning of period

   $ 15.97   
  

 

 

 

INVESTMENT OPERATIONS:

  

Net investment income

     0.42   

Net realized and unrealized gain/(loss) on investments.

     1.42   
  

 

 

 

Total from investment operations

     1.84   
  

 

 

 

DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:

  

From net investment income

     (0.48
  

 

 

 

Total distributions to Common Stock Shareholders

     (0.48
  

 

 

 

Net asset value, end of period

   $ 17.33   
  

 

 

 

Market value, end of period

   $ 18.78   
  

 

 

 

Common Stock shares outstanding, end of period

     43,108,110   
  

 

 

 

RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:

  

Net investment income†

     10.20 %* 

Operating expenses including interest expense.

     1.73 %* 

Operating expenses excluding interest expense

     1.07 %* 

SUPPLEMENTAL DATA:††

  

Portfolio turnover rate

     6 %** 

Total managed assets, end of period (in 000’s)

   $ 1,123,039   

Ratio of operating expenses including interest expense to total managed assets

     1.13 %* 

Ratio of operating expenses excluding interest expense to total managed assets

     0.70 %* 

 

(1)

These tables summarize the three months ended February 29, 2012 and should be read in conjunction with the Fund’s audited financial statements, including footnotes, in its Annual Report dated November 30, 2011.

* 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.

 

14


   

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

FINANCIAL HIGHLIGHTS (Continued)

February 29, 2012 (Unaudited)

 

     Total
Dividends
Paid
     Net Asset
Value
     NYSE
Closing Price
     Dividend
Reinvestment
Price
(1)
 

December 30, 2011

   $ 0.2060       $ 16.24       $ 17.46       $ 16.59   

January 31, 2012

     0.1360         16.97         18.17         17.26   

February 29, 2012

     0.1360         17.33         18.78         17.84   

 

(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 February 29, 2012, the aggregate cost of securities for federal income tax purposes was $1,144,596,367, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $85,329,422 and the aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $121,241,080.

 

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. Transfers in and out of levels are recognized at market value at the end of the period. A summary of the inputs used to value the Fund’s investments as of February 29, 2012 is as follows:

 

     Total
Value at
February 29, 2012
     Level 1
Quoted
Price
     Level 2
Significant
Observable

Inputs
     Level 3
Significant
Unobservable
Inputs
 

Preferred Securities

           

Banking

   $ 406,144,229       $ 300,654,481       $ 105,405,148       $ 84,600   

Financial Services

     21,238,828         4,014,460         9,969,498         7,254,870   

Insurance

     251,211,318         144,509,449         106,701,869         —     

Utilities

     255,976,173         81,014,684         174,961,489         —     

Energy

     54,670,858         54,105,259         565,599         —     

Real Estate Investment Trust (REIT)

     900,787         900,787         —           —     

Miscellaneous Industries

     18,357,450         —           18,357,450         —     

Corporate Debt Securities

     80,446,144         25,705,619         53,800,521         940,004   

Common Stock

           

Banking

     2,228,465         2,228,465         —           —     

Utilities

     3,085,474         3,085,474         —           —     

Money Market Fund

     14,424,983         14,424,983         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 1,108,684,709       $ 630,643,661       $ 469,761,574       $ 8,279,474   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Fund did not have any significant transfers in and out of Level 1 and Level 2 during the period.

 

16


   

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

 

The Fund’s investments in Level 2 and Level 3 are based primarily on market information, where available. This includes, but is not limited to, prices provided by third-party providers, observable trading activity (including the recency, depth, and consistency of such information with quoted levels), and the depth and consistency of broker-quoted prices. In the event market information is not directly available, comparable information may be observed for securities that are similar in many respects to those being valued. The Fund may employ an income approach for certain securities that also takes into account credit risk, interest rate risk, and potential recovery prospects.

The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

      Preferred Securities  
     Total Investments     Banking     Financial
Services
     Corporate Debt
Securities
 

Balance as of 11/30/11

   $ 8,457,073      $ 1,067,400      $ 6,489,840       $ 899,833   

Accrued discounts/premiums

     —          —          —           —     

Realized gain/(loss)

     —          —          —           —     

Change in unrealized appreciation/ (depreciation)

     (177,599     (982,800     765,030         40,171   

Purchases

     —          —          —           —     

Sales

     —          —          —           —     

Transfer in

     —          —          —           —     

Transfer out

     —          —          —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of 2/29/12

   $ 8,279,474      $ 84,600      $ 7,254,870       $ 940,004   
  

 

 

   

 

 

   

 

 

    

 

 

 

For the period ended February 29, 2012 total change in unrealized gain/(loss) on Level 3 securities still held at period-end and included in the change in net assets was $(177,599).

 

17


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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

Linda M. Puchalski

Assistant Treasurer

Investment Adviser

Flaherty & Crumrine Incorporated

e-mail: flaherty@pfdincome.com

Servicing Agent

Guggenheim Funds Distributors, 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 —

BNY Mellon Investment Servicing

(US) Inc.

P.O. Box 358035

Pittsburgh, PA 15252-8035

1-866-351-7446

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.

 

 

LOGO

 

 

Quarterly

Report

 

 

February 29, 2012

 

 

 

 

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 4/25/12

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 4/25/12

 

By (Signature and Title)*  

    /s/ R. Eric Chadwick

      R. Eric Chadwick, Chief Financial Officer, Treasurer and
    Vice President
 
      (principal financial officer)

Date 4/25/12

 

* 

Print the name and title of each signing officer under his or her signature.