FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES
INCOME FUND
Dear Shareholder:
The Flaherty & Crumrine/Claymore Preferred Securities Income Fund ("FFC")
produced a total return on Net Asset Value ("NAV") of 3.6%(1) during the three
month period ending August 31, 2004. Since the beginning of the fiscal year on
December 1, 2003, the total return on NAV has been 4.3%.
The NAV returns are consistent with our expectations for how the Fund
should perform during periods of volatile long-term interest rates. As can be
seen from the chart below, the yield on the 30 year U.S. Treasury bond has
changed direction in each of the first three fiscal quarters of 2004 (changes in
the value of the Fund's assets and hedge positions are closely correlated to the
performance of this bond). The decline in rates during the first fiscal quarter
contributed to strong returns for the period. The subsequent jump in rates
during the second fiscal quarter resulted in negative returns for the period, as
the Fund's hedges only partially offset the drop in value of the Fund's
investment portfolio.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
--------------------------------------------------------------------------------
YIELD ON LONG-TERM U.S. TREASURY BOND
Date Yield
12/01/03 5.155%
12/05/03 5.047%
12/12/03 5.090%
12/19/03 4.959%
12/26/03 4.969%
01/02/04 5.170%
01/09/04 4.964%
01/16/04 4.892%
01/23/04 4.938%
01/30/04 4.965%
02/06/04 4.928%
02/13/04 4.916%
02/20/04 4.954%
02/27/04 4.855%
03/05/04 4.743%
03/12/04 4.707%
03/19/04 4.718%
03/26/04 4.771%
04/02/04 4.972%
04/09/04 5.028%
04/16/04 5.174%
04/23/04 5.246%
04/30/04 5.281%
05/07/04 5.462%
05/14/04 5.500%
05/21/04 5.460%
05/28/04 5.345%
06/04/04 5.461%
06/11/04 5.474%
06/18/04 5.374%
06/25/04 5.336%
07/02/04 5.205%
07/09/04 5.213%
07/16/04 5.121%
07/23/04 5.171%
07/30/04 5.203%
08/06/04 5.034%
08/13/04 5.008%
08/20/04 5.027%
08/27/04 5.016%
08/31/04 4.935%
--------------------------------------------------------------------------------
As we began the most recent fiscal quarter, the Fund's hedge positions had
appreciated significantly and were offsetting changes in value of the preferred
portfolio almost dollar-for-dollar. Following the weakness in March and April we
were unwilling to risk further declines in NAV, so we maintained the existing
hedge position. If interest rates had continued to rise, the NAV of the Fund
should have remained reasonably stable. That is exactly how the Fund's safety
net hedging strategy is intended to work!
Shortly after the start of the third quarter, long-term interest rates
reversed course and began a steady DECLINE, despite the fact that the Federal
Reserve began INCREASING short-term rates in June (for a more detailed
discussion of the economic conditions driving interest rates, see the "3rd
Quarter Economic Update" on the Fund's website: WWW.FCCLAYMORE.COM). As
expected, the Fund's preferred securities appreciated throughout the period,
while the hedge fell in value, dragging down overall performance. Initially this
drag was substantial, but it lessened as rates continued to fall.
The Fund also benefited from a modest, favorable move in the relationship
between the Fund's preferred securities and U.S. Treasuries. Simply stated, the
price of our preferreds rose by more than the price of corresponding Treasury
bonds during the quarter. This was the opposite of conditions in the previous
quarter.
--------------------------
(1) Based on monthly data provided by Lipper Inc. Distributions are assumed
to be reinvested at NAV in accordance with Lipper's practice.
NAV investment performance is comprised of principal change and income. The
discussion to this point has focused on factors that impact the principal
change. Let's turn to the other component of performance -- income. The Fund's
investment portfolio continues to produce sufficient amounts of dividend and
interest income to support the current monthly dividend. There are, however,
some warning flags on the horizon.
The Federal Reserve's present policy of raising short-term interest rates
directly affects the Fund by increasing the cost of its leverage. The Fed's
policy has been in place for some time now, and we have factored it into our
management strategy. However, changes in long-term interest rates and the
resulting impact on income are more difficult to plan for. If long-term interest
rates rise, the Fund's hedges should appreciate and enable the Fund to purchase
additional income-producing securities; this additional income should tend to
offset the higher leverage expense.
Things get more challenging if long-term rates decline. This so-called
"bull flattening" scenario (short-term rates rise while long-term rates
decline), initially puts a strain on distributable income. Once again, the cost
of LEVERAGE goes up along with higher short-term rates, but now the income
generated by the investment portfolio may at some point actually fall if issuers
retire older preferred securities with relatively high coupons and replace them
with new issues that pay a lower rate (the issuer is analogous to a homeowner
refinancing a mortgage when interest rates drop).
Fortunately, there is a bright side to this scenario -- as the yield curve
flattens, the cost of the Fund's HEDGING strategy falls. The mathematics behind
this are fairly complicated, but the concept is quite simple. Hedging a
long-term security creates a package that closely resembles a short-term
security. The market imposes a "charge" for this transformation, the amount of
which is closely tied to the difference between long-term and short-term
interest rates. The larger the difference, the more expensive it is to hedge.
Therefore, the cost of hedging declines when the yield curve flattens and the
interest rate differential shrinks. The benefits to the Fund don't materialize
immediately, but they can be significant over time.
Changes in investment income, leverage expense and the cost of hedging (as
well as other factors like realized gains or losses) mean that setting the
dividend rate entails both science and art. We carefully monitor all of these
moving parts, and do our best to set a rate that is sustainable under current
market conditions.
Readers will notice some changes to the appearance of the information that
follows. These changes are in accordance with recent changes to the SEC rules on
shareholder reporting. The biggest change is the inclusion of a complete listing
of the investment portfolio (previous reports for the Fund's first and third
fiscal quarters did not include a portfolio listing). In addition, we've
included a page entitled "Portfolio Overview" that contains a number of
schedules summarizing important measures of the Fund's investments.
We hope you will also continue to visit the Fund's web site at
WWW.FCCLAYMORE.COM where a broad range of information about the Fund is updated
regularly. We also encourage you to visit WWW.PREFERREDSTOCKGUIDE.COM. It
contains useful information about most of the issues that make up the preferred
securities universe.
Sincerely,
/S/DONALD F. CRUMRINE /S/ROBERT M. ETTINGER
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
October 11, 2004
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OVERVIEW
AUGUST 31, 2004
------------------
FUND STATISTICS ON 8/31/04
-------------------------------------------
Net Asset Value $ 24.33
Market Price $ 25.23
Premium/Discount 3.70%
Yield on Market Price 8.20%
Common Shares
Outstanding 42,291,252
MOODY'S RATINGS % OF PORTFOLIO
-------------------------------------------
AAA 2.8%
AA 6.7%
A 36.1%
BBB 42.3%
BB 6.9%
Not Rated 4.0%
-------------------------------------------
Below Investment Grade* 6.6%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND
S&P
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
INDUSTRY CATEGORIES % OF PORTFOLIO
-------------------------------------------
Banks 34%
Utilities 27%
Financial
Services 17%
Insurance 14%
Other 4%
Oil and Gas 2%
REITs 2%
TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
-------------------------------------------
J.P. Morgan Chase 5.6%
Lehman Brothers 5.5%
Wachovia Corp 3.9%
Zurich RegCaPS 3.4%
Duke Energy 3.1%
Bank of America 3.0%
ACE Ltd. 2.9%
Countrywide Financial 2.7%
TXU Corp 2.7%
GreenPoint Financial 2.5%
% OF PORTFOLIO**
---------------------------------------------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income (QDI) for Individuals 22%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD) 15%
---------------------------------------------------------------------------------------------------------------------
** THIS DOES NOT REFLECT YEAR-END RESULTS OR ACTUAL TAX CATEGORIZATION OF FUND
DISTRIBUTIONS. THESE PERCENTAGES CAN, AND DO, CHANGE, PERHAPS SIGNIFICANTLY,
DEPENDING ON MARKET CONDITIONS. INVESTORS SHOULD CONSULT THEIR TAX ADVISOR
REGARDING THEIR PERSONAL SITUATION.
3
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- 78.3%
BANKING -- 34.2%
------------------------------------------------------------------------------------------------------------------------
108,197 Abbey National Group, 7.375% Pfd. ................................................ $ 2,891,565**(1)
15,000 ABN AMRO Capital Fund Trust VII, 6.08% Pfd. ...................................... 367,200**(1)
ABN AMRO North America, Inc.:
2,015 6.46% Pfd., 144A**** ........................................................... 2,115,619*
12,301 6.59% Pfd., 144A**** ........................................................... 13,079,838*
$17,500,000 Astoria Capital Trust I, 9.75% 11/01/29 Capital Security, Series B ............... 21,944,037
19,500 BAC Capital Trust III, 7.00% Pfd. ................................................ 519,675
954,000 BAC Capital Trust IV, 5.875% Pfd. ................................................ 23,706,900
600 BAC Capital Trust V, 7.00% Pfd. .................................................. 15,894
$1,240,000 BankBoston Capital Trust I, 8.25% 12/15/26 Capital Security ...................... 1,412,459
$16,155,000 BankBoston Capital Trust II, 7.75% 12/15/26 Capital Security, Series B ........... 17,888,351
478,100 Bank of New York Capital V, 5.95% Pfd. ........................................... 11,847,318
7,000 Bank One Capital Trust I, 8.00% Pfd. ............................................. 177,170
51,000 Bank One Capital Trust VI, 7.20% Pfd. ............................................ 1,354,305
$500,000 BT Capital Trust B, 7.90% 01/15/27, Capital Security ............................. 558,582(1)
$5,000,000 Chase Capital I, 7.67% 12/01/26 Capital Security ................................. 5,460,175
62,900 Chase Capital VII, 7.00% Pfd., Series G .......................................... 1,590,741
421,250 Chase Capital XI, 5.875% Pfd. 06/15/33 ........................................... 10,202,675
18,800 Citigroup, Inc., 6.231% Pfd., Series H ........................................... 991,136*
105,000 Cobank, ACB, 7.00% Pfd., 144A**** ................................................ 5,687,325*
27,900 Comerica (Imperial) Capital Trust I, 7.60% Pfd. .................................. 748,278
$11,000,000 Cullen/Frost Capital Trust I, 8.42% 02/01/27 Capital Security, Series A .......... 12,468,170
$2,500,000 Dime Capital Trust I, 9.33% Capital Security, Series A ........................... 2,961,800
$5,600,000 First Chicago NBD Capital A, 7.95% 12/01/26 Capital Security, 144A**** ........... 6,224,260
$875,000 First Chicago NBD Capital B, 7.75%, 12/01/26 Capital Security, 144A**** .......... 963,458
$3,000,000 First Midwest Capital Trust I, 6.95% 12/01/33 Capital Security ................... 3,201,510
$3,500,000 First Tennessee Capital Trust II, 6.30% 04/15/34 Capital Security, Series B ...... 3,471,248
62,600 Fleet Capital Trust VII, 7.20% Pfd. .............................................. 1,672,359
86,500 Fleet Capital Trust VIII, 7.20% Pfd. ............................................. 2,321,228
2 FT Real Estate Securities Company, 9.50% Pfd., 144A**** .......................... 2,685,636
$500,000 Great Western Finance Trust II, 8.206% 02/01/27 Capital Security, Series A ....... 558,123
33,550,000 GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security ...................... 38,723,913
$23,725,000 HBOS Capital Funding LP, 6.85% Pfd. .............................................. 24,345,527(1)
6,300 Household Capital Trust VI, 8.25% Pfd. ........................................... 171,455
$12,497,000 J.P. Morgan Capital Trust I, 7.54% 01/15/27 Capital Security ..................... 13,617,169
$11,908,000 J.P. Morgan Capital Trust II, 7.95% 02/01/27 Capital Security .................... 13,313,501
4
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co.:
15,000 6.625% Pfd., Series H .......................................................... $ 799,950*
118,758 Adj. Rate Pfd. ................................................................. 6,000,248*
300,241 Adj. Rate Pfd., Series A ....................................................... 27,622,172*
23,800 Keycorp Capital V, 5.875% Pfd., Series A ......................................... 573,342
$12,595,000 KeyCorp Institutional Capital A, 7.826% 12/01/26 Capital Security, Series A ...... 13,800,782
$4,000,000 Lloyds TSB Bank PLC, Tier I, 6.90% 10/22/49 ...................................... 4,156,720(1)
$25,280,000 Marshall & Ilsley Capital Trust A, 7.65% 12/01/26 Capital Security .............. 27,857,422
20 Marshall & Ilsley Investment II, 8.875% Pfd., 144A**** ........................... 2,221,765
$3,000,000 North Fork Capital Trust I, 8.70% 12/15/26 Capital Security ...................... 3,417,990
$13,750,000 RBS Capital Trust B, 6.80% Pfd. .................................................. 14,150,538**(1)
$15,600,000 Republic New York Capital I, 7.750% 11/15/26 Capital Security .................... 17,175,834(1)
$17,127,000 Republic New York Capital II, 7.53% 12/04/26 Capital Security .................... 18,691,209(1)
Roslyn Real Estate:
10 8.95% Pfd., Pvt., Series C, 144A**** ........................................... 1,056,359
30 Series D, Adj. Rate Pfd., 144A**** ............................................. 3,022,500
Royal Bank of Scotland Group PLC:
739,000 5.75% Pfd., Series B ........................................................... 17,639,930**(1)
80,000 6.40% Pfd., Series M ........................................................... 2,019,200**(1)
$14,167,000 Union Planters Capital Trust, 8.20% 12/15/26 Capital Security .................... 15,885,032
60 Union Planters Preferred Funding, 7.75% Pfd., Series 144A**** .................... 6,673,944
23,500 VNB Capital Trust I, 7.75% Pfd. .................................................. 620,165
$300,000 Wachovia Capital Trust V, 7.965% 06/01/27 Capital Security, 144A**** ............. 335,379
$2,217,200 Wachovia Preferred Funding, 7.25% Pfd., Series A ................................. 61,438,612
$20,750,000 Washington Mutual, Inc., 8.36% 12/01/26 Capital Security, 144A**** ............... 23,305,570
$8,000,000 Webster Capital Trust II, 10.00% 04/01/27 Capital Security ....................... 9,509,920
365,000 Wells Fargo Capital Trust VII, 5.85% Pfd. ........................................ 8,924,250
45,000 Wells Fargo Capital Trust IX, 5.625% Pfd. ........................................ 1,068,750
------------------------------------------------------------------------------------------------------------------------
537,226,183
----------------
FINANCIAL SERVICES -- 13.7%
------------------------------------------------------------------------------------------------------------------------
58,500 The Bear Stearns Companies Inc., 5.49% Pfd., Series G ............................ 2,798,640*
30,000 Corporate-Backed Trust Certificates, 7.75% Pfd., Series CIT ...................... 808,950
$15,459,000 Countrywide Capital I, 8.00% 12/15/26 Capital Security ........................... 16,654,444
1,030,200 Countrywide Capital IV, 6.75% Pfd. ............................................... 26,275,251
Fannie Mae:
680,420 5.10% Pfd., Series E ........................................................... 30,646,117*
96,300 5.125% Pfd. .................................................................... 4,396,577*
5
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
68,600 Freddie Mac, 5.79% Pfd. .......................................................... $ 3,479,735*
483,052 General Electric Capital Corporation, 5.875% Pfd. ................................ 12,088,376
Lehman Brothers Holdings, Inc.:
295,000 5.67% Pfd., Series D ........................................................... 14,267,675*
25,000 5.94% Pfd., Series C ........................................................... 1,245,625*
1,569,750 6.50% Pfd., Series F ........................................................... 40,915,534*
570,000 Lehman Capital Trust III, 6.375% Pfd., Series K .................................. 14,398,200
138,975 Merrill Lynch Capital Trust V, 7.28% Pfd. ........................................ 3,750,935
10,000 Merrill Lynch Preferred Capital Trust IV, 7.12% Pfd. ............................. 268,700
64,300 Morgan Stanley Capital Trust II, 7.25% Pfd. ...................................... 1,690,126
1,074,900 Morgan Stanley Capital Trust III, 6.25% Pfd. ..................................... 26,818,755
202,000 Morgan Stanley Capital Trust IV, 6.25% Pfd. ...................................... 5,082,320
9,000 Morgan Stanley Capital Trust V, 5.75% Pfd. ....................................... 212,220
160,000 SLM Corporation, 6.97% Pfd., Series A ............................................ 8,982,400*
-------------------------------------------------------------------------------------------------------------------
214,780,580
----------------
INSURANCE -- 13.4%
------------------------------------------------------------------------------------------------------------------------
1,719,980 ACE Ltd., 7.80% Pfd., Series C ................................................... 46,293,262**(1)
$16,551,000 AON Capital Trust A, 8.205% 01/01/27 Capital Security ............................ 18,977,459
48,100 Corporate-Backed Trust Certificates, 8.00% Pfd., Series AON ...................... 1,242,423
106,000 Corts-AON Capital, 8.205% Pfd. ................................................... 2,849,810
37,000 Corts-UnumProvident Corporation, 8.50% Pfd. ...................................... 977,355
142,300 Everest Re Capital Trust II, 6.20% Pfd., Series B ................................ 3,393,143(1)
ING Groep NV:
36,000 7.05% Pfd. ..................................................................... 946,800**(1)
489,000 7.20% Pfd. ..................................................................... 13,017,180**(1)
$10,000,000 Mangrove Bay Passthru Trust, 6.102% 07/15/33 Capital Security, 144A**** .......... 10,206,450(1)
$2,200,000 MMI Capital Trust I, 7.625% 12/15/27 Capital Security, Series B .................. 2,385,548
270,989 PartnerRe Ltd., 6.75% Pfd., Series C ............................................. 6,824,858**(1)
$8,000,000 Provident Financing Trust I, 7.405% 03/15/38 Capital Security .................... 7,168,560
332,235 Renaissancere Holding, 7.30% Pfd., Series B ...................................... 8,761,037(1)
94,900 Saturns-AON 2003-3, 8.00% Pfd. Series AON ........................................ 2,513,426
56,000 Saturns-SAFC 2001-7, 8.25% Pfd., Series SAFC ..................................... 1,508,920
22,390 St. Paul Capital Trust I, 7.60% Pfd. ............................................. 592,216
$8,075,000 USF&G Capital, 8.312% 07/01/46 Capital Security, 144A**** ........................ 9,557,409
$16,750,000 USF&G Capital I, 8.50% 12/15/45 Capital Security, 144A**** ....................... 20,251,671
15,000 XL Capital Ltd., 7.625% Pfd., Series B ........................................... 408,825**(1)
6
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust:
19,525 6.01% Pfd., 144A**** ........................................................... $ 19,827,638*
31,900 6.58% Pfd., 144A**** ........................................................... 33,052,547*
-------------------------------------------------------------------------------------------------------------------
210,756,537
----------------
UTILITIES -- 12.5%
------------------------------------------------------------------------------------------------------------------------
$3,750,000 AGL Capital Trust, 8.17% 06/01/37 Capital Security .............................. 4,201,462
275,000 Alabama Power Company, 5.30% Pfd. ................................................ 6,635,750*
6,146 Appalachian Power Company, 5.92% Sinking Fund Pfd. ............................... 618,042*
10,000 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ........................ 1,047,800*
50,000 Baltimore Gas & Electricity, 7.125% Pfd., Series 1993 ............................ 5,255,500*
35,000 Central Maine Power, 5.25% Pfd., Pvt. ............................................ 3,262,525*
$8,700,000 COMED Financing II, 8.50% 01/15/27 Capital Security, Series B .................... 9,886,071
$20,395,000 COMED Financing III, 6.35% 03/15/33 Capital Security ............................. 20,511,761
23,883 Delmarva Power & Light, 5.00% Pfd. ............................................... 2,310,083*
50,000 Dominion CNG Cap Trust I, 7.80% Pfd. ............................................. 1,335,000
$3,000,000 Dominion Resources Capital Trust I, 7.83% 12/01/27 Capital Security ............. 3,317,970
Duke Energy Corporation:
85,385 4.50% Pfd., Pvt., Series C ..................................................... 7,262,848*
59,662 7.04% Pfd., Series Y ........................................................... 6,161,891*
51,331 7.85% Pfd., Series S ........................................................... 5,324,308*
96,450 Duquesne Light Company, 6.50% Pfd. ............................................... 4,965,246*
67,700 Energy East Capital Trust I, 8.25% Pfd. .......................................... 1,803,190
Entergy Arkansas, Inc.:
10,240 4.56% Pfd., Series 1965 ........................................................ 804,762*
5,692 7.40% Pfd. ..................................................................... 592,680*
11,675 Entergy Louisiana, Inc., 8.00% Pfd., Series 92 ................................... 294,677*
105,000 Entergy Louisiana Capital I, 9.00% Pfd., Series A ................................ 2,709,000
Florida Power Company:
49,750 4.40% Pfd. ..................................................................... 4,125,768*
37,088 4.58% Pfd. ..................................................................... 3,217,013*
21,585 4.60% Pfd. ..................................................................... 1,871,420*
60,000 FPC Capital I, 7.10% Pfd., Series A .............................................. 1,510,200
12,442 Great Plains Energy, Inc., 4.20% Pfd. ............................................ 907,146*
5,000 Gulf Power Capital Trust III, 7.375% Pfd. ........................................ 132,725
$17,262,000 Houston Light & Power, Capital Trust II, 8.257%, 02/01/37 Capital Security ....... 18,227,982
7
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
Indiana Michigan Power Company:
4,342 5.90% Sinking Fund Pfd. ........................................................ $ 432,745*
25,999 6.875% Sinking Fund Pfd. ....................................................... 2,591,190*
119,805 Indianapolis Power & Light Company, 5.65% Pfd. ................................... 10,833,367*
Interstate Power & Light Company:
110,000 7.10% Pfd., Series C ........................................................... 2,949,100*
11,000 8.375% Pfd., Series B .......................................................... 350,240*
15,017 Kentucky Energy Corp., 4.75% Pfd. ................................................ 1,297,093*
32,300 Laclede Capital Trust I, 7.70% Pfd. .............................................. 859,180
5,000 Northern Indiana Public Service Company, Adj. Rate Pfd., Series A ................ 257,625*
3,800 OGE Energy Capital Trust I, 8.375% Pfd. ........................................ 98,344
Pacific Enterprises:
4,550 $4.40 Pfd. ..................................................................... 369,164*
4,510 $4.50 Pfd. ..................................................................... 374,240*
23,085 $4.75 Pfd., Series 53 .......................................................... 2,022,015*
3,500 PacifiCorp, $7.48 Sinking Fund Pfd. .............................................. 366,310*
$2,337,000 PECO Energy Capital Trust III, 7.38% 04/06/28, Capital Security, Series D ........ 2,647,470
$17,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 Capital Security .................... 15,996,320
13,061 Portland General Electric, 7.75% Sinking Fund Pfd. ............................... 1,357,169*
65,488 Potomac Electric Power Company, $3.40 Sinking Fund Pfd. .......................... 3,279,966*
215,750 PSEG Funding Trust II, 8.75% Pfd. ................................................ 5,942,834
19,646 Public Service Electric & Gas, 4.30% Pfd., Series C .............................. 1,534,156*
$6,000,000 Puget Capital Trust, 8.231% 06/01/27 Capital Security, Series B .................. 6,620,580
42,000 Savannah Electric & Gas Company, 6.00% Pfd. ...................................... 1,137,780*
160,000 Southern Union Company, 7.55% Pfd. ............................................... 4,378,400*
34,252 TXU US Holdings Company, $4.00 Pfd., Series TES .................................. 2,453,813*
$2,500,000 Union Electric Company, 7.69% 12/15/36 Capital Security, Series A ................ 2,769,125
Virginia Electric & Power Company:
14,985 $4.12 Pfd. ..................................................................... 1,216,183*
21,684 $4.80 Pfd. ..................................................................... 2,050,222*
78,700 Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 ............................... 2,108,767
15,000 Wisconsin Power & Light Company, 6.20% Pfd. ...................................... 1,540,650*
Xcel Energy, Inc.:
7,110 $4.10 Pfd., Series C ........................................................... 520,310*
10,210 $4.11 Pfd., Series D ........................................................... 742,522*
-------------------------------------------------------------------------------------------------------------------
197,389,700
----------------
OIL AND GAS -- 1.9%
------------------------------------------------------------------------------------------------------------------------
13,200 EOG Resources, Inc., 7.195% Pfd., Series B ....................................... 14,449,578*
$13,315,000 Phillips 66 Capital Trust II, 8.00% 01/15/37 Capital Security .................... 15,121,246
-------------------------------------------------------------------------------------------------------------------
29,570,824
----------------
8
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- 2.0%
------------------------------------------------------------------------------------------------------------------------
AMB Property Corporation:
54,405 6.50% Pfd., REIT, Series L ..................................................... $ 1,302,728
30,000 6.75% Pfd., REIT, Series M ..................................................... 740,700
160,000 BRE Properties, Inc., 6.75% Pfd., REIT, Series C ................................. 3,912,000
19,100 Equity Office Property Trust, 7.75% Pfd., REIT, Series G ......................... 509,970
51,000 Equity Residential Properties, 8.29% Pfd., REIT, Series K ........................ 3,125,025
Health Care Property Investment:
160,000 7.10% Pfd., REIT, Series F ..................................................... 4,056,800
25,000 7.25% Pfd., REIT, Series E ..................................................... 639,875
PS Business Parks, Inc.:
133,000 6.875% Pfd., REIT, Series I .................................................... 3,130,820
75,000 7.60% Pfd., REIT, Series L ..................................................... 1,901,250
60,000 7.95% Pfd., REIT, Series K ..................................................... 1,562,100
Public Storage, Inc.:
14,700 7.625% Pfd., REIT, Series U .................................................... 390,873
18,000 8.00% Pfd., REIT, Series R ..................................................... 483,570
232,000 Regency Centers Corporation, 7.25% Pfd., REIT .................................... 5,866,120
162,000 Weingarten Realty Investment, 6.95% Pfd., REIT ................................... 4,151,250
-------------------------------------------------------------------------------------------------------------------
31,773,081
----------------
MISCELLANEOUS INDUSTRIES -- 0.6%
------------------------------------------------------------------------------------------------------------------------
21,500 Delphi Trust I, 8.25% Pfd. ....................................................... 572,437
100,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** .............................. 8,315,000*
-------------------------------------------------------------------------------------------------------------------
8,887,437
----------------
TOTAL PREFERRED SECURITIES
(Cost $1,193,042,325) 1,230,384,342
----------------
CORPORATE DEBT SECURITIES -- 15.0%
BANKING -- 0.2%
------------------------------------------------------------------------------------------------------------------------
$2,500,000 Citigroup, Inc., 6.00% 10/31/33 .................................................. 2,528,675
-------------------------------------------------------------------------------------------------------------------
2,528,675
----------------
FINANCIAL SERVICES -- 2.8%
------------------------------------------------------------------------------------------------------------------------
47,000 Corp-Backed Trust Certificates, 5.80% Series Goldman Sachs ....................... 1,137,870
$25,000,000 General Motors Acceptance Corporation, 8.00% 11/01/31, Senior Bonds .............. 25,884,875
Lehman Brothers:
$5,000,000 Guaranteed Note, Variable Rate, 12/16/16, 144A**** ............................. 5,025,000
$9,593,000 Guaranteed Note, Variable Rate, 10/15/15, 144A**** ............................. 10,132,606
9
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
CORPORATE DEBT SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
$2,200,000 Morgan Stanley Finance, 8.03% 02/28/17, Capital Units ............................ $ 2,439,382
-------------------------------------------------------------------------------------------------------------------
44,619,733
----------------
INSURANCE -- 0.8%
------------------------------------------------------------------------------------------------------------------------
239,000 Delphi Financial, 8.00% 05/15/33, Senior Notes ................................... 6,344,255
$4,400,000 Oneamerica Financial Partners, 7.00% 10/15/33 144A**** ........................... 4,506,964
$1,000,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes .......................... 950,785
-------------------------------------------------------------------------------------------------------------------
11,802,004
----------------
OIL AND GAS -- 0.4%
------------------------------------------------------------------------------------------------------------------------
238,261 Nexen, Inc., 7.35% Subordinated Notes ............................................ 6,190,021(1)
-------------------------------------------------------------------------------------------------------------------
6,190,021
----------------
UTILITIES -- 10.4%
------------------------------------------------------------------------------------------------------------------------
$32,000,000 AEP Texas Central Company, 6.65% 02/15/33, Senior Notes, Series E ................ 34,469,760
$19,000,000 Constellation Energy Group, 7.60% Pfd., 04/1/32, Senior Notes .................... 22,026,795
$1,000,000 DTE Energy Company, 6.375% 04/15/33, Senior Notes ................................ 1,004,995
Duke Capital Corporation:
$11,179,000 6.75% 02/15/32, Senior Notes ................................................... 11,701,842
$10,000,000 8.00% 10/01/19 Senior Notes .................................................... 11,804,550
$5,000,000 Entergy Gulf States, Inc., 6.20% 07/01/33, 1st Mortgage .......................... 4,929,300
16,500 Entergy Mississippi, Inc., 7.25%, 1st Mortgage ................................... 435,352
Georgia Power Company:
567,015 5.90% 04/15/33, Senior Notes ................................................... 14,141,354
125,000 6.00% 10/15/33, Senior Notes ................................................... 3,145,625
125,000 6.00% 08/15/44, Senior Notes ................................................... 3,165,000
$3,000,000 Indianapolis Power & Light Company, 6.60% 01/01/34, 1st Mortgage, 144A**** ....... 3,175,125
40,000 Northern States Power Company, 8.00% ............................................. 1,104,000
$10,000,000 Oncor Electric Delivery Company, 7.25% 01/15/33, Secured ......................... 11,652,750
$18,268,000 PSEG Power LLC, 8.625% 04/15/31 ................................................. 23,187,755
$10,250,000 TXU U.S. Holdings Company, 7.00% 03/15/13 ........................................ 11,516,029
$6,000,000 Wisconsin Electric Power Company, 6.875% 12/01/95 ................................ 6,675,360
-------------------------------------------------------------------------------------------------------------------
164,135,592
----------------
MISCELLANEOUS -- 0.4%
------------------------------------------------------------------------------------------------------------------------
$390,000 BellSouth Telecommunication, 7.00% 12/01/95 ...................................... 419,459
$5,000,000 Ford Motor Company, 7.45% 07/16/31 .............................................. 4,902,075
10
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
CORPORATE DEBT SECURITIES -- (CONTINUED)
MISCELLANEOUS -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
30,000 Maytag Corporation, 7.875% 08/01/31 .............................................. $ 795,900
-------------------------------------------------------------------------------------------------------------------
6,117,434
----------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $221,638,140) ............................................................ 235,393,459
----------------
COMMON STOCK AND CONVERTIBLE SECURITIES -- 4.1%
INSURANCE -- 0.2%
------------------------------------------------------------------------------------------------------------------------
20,000 Hartford Financial Services, 7.00% Mandatory Convertible, 08/16/06 ............... 1,208,300
45,000 UnumProvident Corporation, 8.25% Mandatory Convertible, 05/16/06 ................. 1,496,475
54,000 XL Capital Ltd., 6.50% Mandatory Convertible, 05/15/07 ........................... 1,281,150(1)
-------------------------------------------------------------------------------------------------------------------
3,985,925
----------------
UTILITIES -- 3.7%
------------------------------------------------------------------------------------------------------------------------
170,700 Ameren Corporation, 9.75%, Mandatory Convertible, 05/15/05 ....................... 4,701,931
125,000 American Electric Power, 9.25%, Mandatory Convertible, 8/16/05 ................... 5,573,125
300,000 Duke Energy Corporation .......................................................... 6,646,500*
324,300 FPL Group, Inc., 8.50%, Mandatory Convertible, Series A 02/16/05 ................. 18,674,816
100,000 Keyspan Corporation, 8.75%, Mandatory Convertible, 05/16/05 ...................... 5,212,500
365,000 TXU Corporation, 8.75%, Mandatory Convertible, 11/16/05 .......................... 16,682,325
-------------------------------------------------------------------------------------------------------------------
57,491,197
----------------
MISCELLANEOUS -- 0.2%
------------------------------------------------------------------------------------------------------------------------
65,000 Alltel Corporation, 7.75% Pfd. Mandatory Convertible, 05/17/05 ................... 3,344,575
-------------------------------------------------------------------------------------------------------------------
3,344,575
----------------
TOTAL COMMON STOCK AND CONVERTIBLE SECURITIES
(Cost $53,073,434) ............................................................. 64,821,697
----------------
11
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
OPTION CONTRACTS -- 0.1%
10,500 October Put Options on December U.S. Treasury Bond Futures, Expiring 9/25/04 ..... $ 1,078,125+
-------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS CONTRACTS
(Cost $8,330,949) .............................................................. 1,078,125
MONEY MARKET FUND -- 1.8%
28,885,432 BlackRock Provident Institutional, TempFund ...................................... 28,885,432
-------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $28,885,432) ............................................................. 28,885,432
---------------
TOTAL INVESTMENTS (Cost $1,504,970,280***) .............................. 99.3% $ 1,560,563,055
OTHER ASSETS AND LIABILITIES (NET) ...................................... 0.7% 10,468,275
------- ----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK AND PREFERRED STOCK .......... 100.0%++ $ 1,571,031,330
------ ----------------
AUCTION MARKET PREFERRED STOCK (AMPS) REDEMPTION VALUE ......................................... (542,000,000)
ACCUMULATED UNDECLARED DISTRIBUTIONS TO AMPS ................................................... (213,655)
----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ..................................................... $ 1,028,817,675
=================
-----------------------------
* 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.
(1) Foreign issuer.
+ 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:
REIT -- Real Estate Investment Trust
PFD. -- Preferred Securities
PVT. -- Private Placement Securities
Capital Securities are treated as debt instruments for financial
statement purposes and the amounts shown in the Shares/$ Par column
are dollar amounts of par value.
12
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
FINANCIAL DATA
PER SHARE OF COMMON STOCK (UNAUDITED)
--------------------------------------------------------------------------
TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE(1)
--------- ---------- ------------- ------------
December 16, 2003 .................................. $0.1725 $24.90 $26.42 $25.10
December 31, 2003 Extra ............................ 0.9000 25.12 26.76 25.42
January 31, 2004 ................................... 0.1725 25.49 26.67 25.49
February 29, 2004 .................................. 0.1725 25.61 27.07 25.72
March 31, 2004 ..................................... 0.1725 25.69 27.66 26.28
April 30, 2004 ..................................... 0.1725 24.49 24.45 24.46
May 31, 2004 ....................................... 0.1725 24.00 24.49 24.00
June 30, 2004 ...................................... 0.1725 23.65 23.60 23.72
July 31, 2004 ...................................... 0.1725 23.86 24.67 23.86
August 31, 2004 .................................... 0.1725 24.33 25.23 24.33
--------------------
(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 payment 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.
13
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
STATEMENT OF CHANGES IN NET ASSETS AVAILABLETOCOMMONSTOCK(1)
FOR THE PERIOD FROM DECEMBER 1, 2003 THROUGH AUGUST 31, 2004 (UNAUDITED)
------------------------------------------------------------------------
VALUE
(000'S)
--------
OPERATIONS:
------------------------------------------------------------------------------------------------------------------------
Net investment income ........................................................................ $ 65,563
Net realized loss on investments sold during the period ...................................... (24,277)
Change in net unrealized appreciation of investments held during the period. ................. 6,743
Distributions to Auction Market Preferred Stock (AMPS) Shareholders from net
investment income, including changes in accumulated undeclared distributions ............. (5,201)
-----------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................................... 42,828
DISTRIBUTIONS:
------------------------------------------------------------------------------------------------------------------------
Dividends paid from net investment income to Common Stock Shareholders (2) ................... (66,523)
Distributions paid from net realized capital gains to Common Stock Shareholders .............. (35,769)
-----------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ......................................... (102,292)
FUND SHARES TRANSACTIONS:
------------------------------------------------------------------------------------------------------------------------
Increase from Common Stock Transactions ...................................................... 29,830
-----------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .................................. 29,830
NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE
-----------------
PERIOD (29,634)
=================
NET ASSETS AVAILABLE TO COMMON STOCK:
------------------------------------------------------------------------------------------------------------------------
Beginning of period 1,058,452
Net decrease during the period (29,634)
-----------------
End of period $ 1,028,818
=================
--------------------------------------------------------
(1) These tables summarize the nine months ended August 31, 2004 and should be read in conjunction with the Fund's audited
financial statements, including footnotes, in its Annual Report dated November 30, 2003.
(2) Includes income earned, but not paid out, in prior fiscal year.
14
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
FINANCIAL HIGHLIGHTS(1)
FOR THE PERIOD FROM DECEMBER 1, 2003 THROUGH AUGUST 31, 2004 (UNAUDITED)
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD.
-----------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............................. $ 25.74
-------------
INVESTMENT OPERATIONS:
Net investment income ............................................................... 1.55
Net realized loss and unrealized depreciation on investments ........................ (0.42)
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income .......................................................... (0.12)
From net realized capital gains ..................................................... --
-------------
Total from investment operations .................................................... 1.01
-------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income .......................................................... (1.57)
From net realized capital gains ..................................................... (0.85)
-------------
Total distributions to Common Shareholders .......................................... (2.42)
-------------
Net asset value, end of period ...................................................... $ 24.33
=============
Market value, end of period ......................................................... $ 25.23
=============
Common shares outstanding, end of period ............................................ 42,291,252
=============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income + ............................................................. 7.74%**
Operating expenses .................................................................. 1.15%**
--------------------------------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate .......................................... 19%***
Total net assets available to Common and Preferred Stock, end of period (in 000's) .. $ 1,571,031
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, 2004 and should be read in conjunction with the
Fund's audited financial statements, including footnotes, in its Annual Report dated November 30, 2003.
* 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*.
------------------------------------------------------------------------------------------------------------------
15
[BEGIN SIDEBAR]
DIRECTORS
Martin Brody
Donald F. Crumrine, CFA
Nicholas Dalmaso
David Gale
Morgan Gust
Robert F. Wulf, CFA
OFFICERS
Donald F. Crumrine, CFA
Chairman of the Board
and Chief Executive Officer
Robert M. Ettinger, CFA
President
R. Eric Chadwick, CFA
Chief Financial Officer,
Vice President, Treasurer
and Secretary
Peter C. Stimes, CFA
Chief Compliance
Officer and Vice President
Nicholas Dalmaso
Vice President
Bradford S. Stone
Vice President
Laurie Lodolo
Assistant Compliance Officer,
Assistant Treasurer and
Assistant Secretary
INVESTMENT ADVISER
Flaherty & Crumrine Incorporated
e-mail: flaherty@pfdincome.com
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 & Shareholder Servicing Agent --
PFPC Inc.
P.O. Box 43027
Providence, RI
02940-3027
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.
[END SIDEBAR]
[GRAPHIC OMITTED]
LIGHTHOUSE
FLAHERTY & CRUMRINE/CLAYMORE
============================
PREFERRED SECURITIES
INCOME FUND
QUARTERLY
REPORT
AUGUST 31, 2004
web site: www.fcclaymore.com