Flaherty & Crumrine Preferred Securities Income Fund Incorporated

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 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)

R. Eric Chadwick

Flaherty & Crumrine Incorporated

301 E. Colorado Boulevard, Suite 720

                                              Pasadena, CA 91101                                             

(Name and address of agent for service)

Registrant’s telephone number, including area code:      626-795-7300         

Date of fiscal year end:   November 30         

Date of reporting period:   August 31, 2016

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 PREFERRED SECURITIES INCOME FUND

To the Shareholders of Flaherty & Crumrine Preferred Securities Income Fund (“FFC”):

The preferred market didn’t miss a beat in the third fiscal quarter1, continuing where it left off second quarter with additional positive returns. Total return2 on net asset value (“NAV”) was 5.9% for the quarter, bringing the total return for the first nine months of fiscal 2016 to 10.4%. Total return on market price over the same periods was 6.2% and 14.1%, respectively.

Tailwinds described earlier in the year continued unabated during the most recent quarter. Monetary policy globally was very accommodative; supply of new preferred securities was subdued; “legacy” (those losing regulatory-capital treatment) and higher-coupon preferred securities were redeemed at a healthy pace; and credit quality remained strong. Preferred securities offered yield to investors struggling to find it in other places, which resulted in strong demand and higher prices for the asset class.

There is a direct inverse relationship in fixed-income securities (including preferreds) between price and yield, and higher prices this year have led to much lower coupons for newly-issued preferred securities. Many new issues during the quarter yield in the range of 4.5%—5.5%, which in many cases is lower than early-2016 levels by almost 1.0%. These lower yields on preferreds were the result of lower overall interest rates (Treasuries and Swap Rates) and tighter spreads. Many issuers have taken advantage of persistently-low rates and positive market sentiment to refinance higher-coupon securities.

Although U.S. interest rates remain very low, the short end of the curve (notably T-bills and LIBOR) has moved higher in recent months as investors begin to factor in additional rate hikes by the Federal Reserve. The Federal Open Market Committee passed on a rate hike at its meeting on September 21, however, so markets continue to wrestle with predicting a future path of increases. Higher levels of 3-month LIBOR have resulted in higher leverage costs for the Fund, and future changes in this reference rate will be highly correlated to Federal Reserve rate changes. Although leverage still adds substantial incremental net income for the Fund, we expect that to decline modestly over time as borrowing costs rise.

We continue to see value in preferred securities, although security selection has become more challenging as yields have moved lower and older, higher-coupon issues have been refinanced. Flows into the preferred market (via mutual funds, exchange-traded funds (ETFs), asset managers, and retail investors) have been very strong for many years. If anything gives us pause, it is more this level of inflow than current valuations. ETFs that invest in preferreds have become very large relative to their target market segment ($25-par listed securities), and it isn’t clear where the outer limits are located. We know ETFs have been a source of volatility in the past (or opportunity, depending on one’s viewpoint), and we expect they could be again in the future. Preferreds should benefit from continued strong credit quality, reliably earning coupons—many of them tax-advantaged—over time. However, at current levels they are potentially more sensitive to changes in market sentiment than they were six months ago.

 

 

 

1 

June 1, 2016—August 31, 2016

2 

Following the methodology required by the Securities and Exchange Commission, total return assumes dividend reinvestment.


As always, we encourage you to visit the Fund’s website, www.preferredincome.com for timely and important information.

Sincerely,

The Flaherty & Crumrine Portfolio Management Team

September 30, 2016

 

2


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OVERVIEW

August 31, 2016 (Unaudited)

 

Fund Statistics       
Net Asset Value   $ 19.75   
Market Price   $ 21.59   
Premium     9.32
Yield on Market Price     7.56
Common Stock Shares Outstanding     43,880,341   

 

Moody’s Ratings*   % of Net Assets†
A     1.6%   
BBB     68.6%   
BB     20.0%   
Below “BB”     0.7%   
Not Rated**     7.1%   
Below Investment Grade***     19.1%   

 

* Ratings are from Moody’s Investors Service, Inc. “Not Rated” securities are those with no ratings available from Moody’s.
** Does not include net other assets and liabilities of 2.0%.
*** 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     5.7%   
JPMorgan Chase     4.8%   
Wells Fargo & Company     4.4%   
MetLife     4.3%   
Fifth Third Bancorp     3.9%   
M&T Bank Corporation     3.7%   
PNC Financial Services Group     3.7%   
Citigroup     3.6%   
Axis Capital Holdings Ltd     2.7%   
Enbridge Energy Partners     2.5%   
 

 

% of Net Assets****†  
Holdings Generating Qualified Dividend Income (QDI) for Individuals     58%   
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)     44%   

 

**** 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 Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS

August 31, 2016 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

 

Preferred Securities — 93.4%

   
       

Banking — 48.3%

               
  5,420     

Astoria Financial Corp., 6.50%, Series C

  $ 145,866        *   
$ 3,103,000     

Australia & New Zealand Banking Group Ltd., 6.75%, 144A****

    3,493,953        * *(3) 
 

Bank of America Corporation:

   
$ 6,310,000     

8.00%, Series K

    6,499,300        * (1) 
$ 10,000,000     

8.125%, Series M

    10,310,980        *   
 

Barclays Bank PLC:

   
  390,600     

7.10%, Series 3

    10,073,574        * *(3) 
  481,036     

8.125%, Series 5

    12,593,522        * *(1)(3) 
 

BNP Paribas:

   
$ 16,170,000     

7.375%, 144A****

    16,473,188        * *(3) 
$ 8,000,000     

7.625%, 144A****

    8,432,000        * *(3) 
 

Capital One Financial Corporation:

   
  34,000     

6.20%, Series F

    926,160        *   
  126,900     

6.70%, Series D

    3,644,885        * (1)(2) 
 

Citigroup, Inc.:

   
  981,500     

6.875%, Series K

    29,064,669        * (1) 
  572,357     

7.125%, Series J

    17,389,637        * (1) 
 

CoBank ACB:

   
  38,420     

6.125%, Series G, 144A****

    3,838,400        *   
  104,000     

6.20%, Series H, 144A****

    10,913,500        * (1) 
  60,000     

6.25%, Series F, 144A****

    6,406,878        *   
$ 2,498,000     

6.25%, Series I, 144A****

    2,710,552        *   
$ 35,100,000     

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

    52,650        (4 )(5)†† 
  1,561,612     

Fifth Third Bancorp, 6.625%, Series I

    50,756,294        * (1) 
 

First Horizon National Corporation:

   
  3,730     

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

    2,574,749        *   
  8     

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

    10,420,000     
 

First Republic Bank:

   
  50,000     

5.625%, Series C

    1,313,625        *   
  99,000     

6.70%, Series A

    2,571,278        * (1) 
 

Goldman Sachs Group:

   
$ 390,000     

5.70%, Series L

    398,873        *   
  140,000     

6.375%, Series K

    4,090,800        * (1) 
 

HSBC PLC:

   
$ 4,400,000     

HSBC Capital Funding LP, 10.176%, 144A****

    6,672,600        (1 )(2)(3) 
$ 5,243,000     

HSBC Holdings PLC, 6.875%

    5,498,596        * *(3) 
  564,243     

HSBC Holdings PLC, 8.00%, Series 2

    14,936,923        * *(1)(3) 
  590,000     

Huntington Bancshares, Inc., 6.25%, Series D

    16,456,575        * (1) 

 

4


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2016 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

 

Preferred Securities — (Continued)

   
       

Banking — (Continued)

               
 

ING Groep NV:

   
  355,000     

6.375%

  $ 9,123,500        * *(3) 
  125,000     

7.05%

    3,131,563        * *(3) 
  116,054     

7.20%

    3,051,350        * *(3) 
 

JPMorgan Chase & Company:

   
$ 5,450,000     

6.00%, Series R

    5,759,015        * (1) 
  56,600     

6.125%, Series Y

    1,570,650        *   
  183,700     

6.70%, Series T

    5,206,058        * (1) 
$ 15,155,000     

6.75%, Series S

    17,109,389        * (1) 
$ 32,000,000     

7.90%, Series I

    33,240,000        * (1) 
  633,300     

KeyCorp, 8.625%, Series C

    16,592,460        *   
 

M&T Bank Corporation:

   
$ 16,750,000     

6.450%, Series E

    18,718,125        * (1) 
$ 29,323,000     

6.875%, Series D, 144A****

    29,579,576        * (1) 
 

Morgan Stanley:

   
  502,400     

6.875%, Series F

    15,046,880        * (1) 
  298,300     

7.125%, Series E

    9,128,726        * (1) 
 

PNC Financial Services Group, Inc.:

   
  1,419,760     

6.125%, Series P

    43,008,080        * (1) 
$ 4,443,000     

6.75%, Series O

    5,020,590        * (1) 
$ 7,885,000     

RaboBank Nederland, 11.00%, 144A****

    9,654,197        (1 )(2)(3) 
  27,213     

Regions Financial Corporation, 6.375%, Series B

    803,668        *   
  292,000     

Royal Bank of Scotland Group PLC, 7.25%, Series T

    7,413,880        * *(1)(3) 
 

Sovereign Bancorp:

   
$ 1,000,000     

Sovereign Capital Trust VI, 7.908% 06/13/36

    1,001,679     
  8,641     

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

    11,006,474     
$ 9,970,000     

Standard Chartered PLC, 7.50%, 144A****

    9,984,955        * *(3) 
  505,500     

State Street Corporation, 5.90%, Series D

    14,448,454        * (1) 
  107,166     

SunTrust Banks, Inc., 5.875%, Series E

    2,793,014        * (1) 
  216,000     

US Bancorp, 6.50%, Series F

    6,750,540        * (1) 
  357,568     

Webster Financial Corporation, 6.40%, Series E

    9,444,265        * (1) 
 

Wells Fargo & Company:

   
  339,095     

5.85%, Series Q

    9,532,808        * (1) 
$ 3,000,000     

5.875%, Series U

    3,317,100        * (1)(2) 
  402,925     

6.625%, Series R

    12,349,651        * (1) 
$ 16,314,000     

7.98%, Series K

    17,272,448        * (1) 
  550,500     

8.00%, Series J

    15,200,681        * (1) 

 

5


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2016 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

 

Preferred Securities — (Continued)

   
       

Banking — (Continued)

               
 

Zions Bancorporation:

   
  20,000     

6.30%, Series G

  $ 640,450        *   
$ 9,000,000     

7.20%, Series J

    9,607,500        *   
  514,666     

7.90%, Series F

    13,540,862        * (1) 

 

 

   
      628,708,615     
   

 

 

   
       

Financial Services — 0.6%

               
$ 2,540,000     

AerCap Global Aviation Trust, 6.50% 06/15/45, 144A****

    2,622,550        (3 ) 
 

Charles Schwab Corporation:

   
  13,600     

5.95%, Series D

    373,898        *   
  176,400     

6.00%, Series C

    4,854,969        * (1)(2) 

 

 

   
      7,851,417     
   

 

 

   
       

Insurance — 25.5%

               
  612,382     

Allstate Corp., 6.625%, Series E

    17,252,332        * (1) 
$ 1,053,000     

Aon Corporation, 8.205% 01/01/27

    1,400,490        (1 )(2) 
  615,000     

Arch Capital Group, Ltd., 6.75%, Series C

    16,292,888        * *(1)(3) 
 

Aspen Insurance Holdings Ltd.:

   
  71,206     

5.95%

    2,139,028        * *(3) 
  16,729     

7.25%

    444,195        * *(3) 
 

AXA SA:

   
$ 3,315,000     

6.379%, 144A****

    3,629,925        * *(1)(2)(3) 
$ 2,750,000     

8.60% 12/15/30

    3,874,613        (3 ) 
  1,343,586     

Axis Capital Holdings Ltd., 6.875%, Series C

    35,151,569        * *(1)(3) 
$ 8,000,000     

Catlin Insurance Company Ltd., 7.249%, 144A****

    6,180,000        (3 ) 
$ 4,566,000     

Chubb Ltd.:

   
 

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

    6,928,905        (1 )(2)(3) 
  732,250     

Delphi Financial Group, 7.376% 05/15/37

    16,338,328        (1 )(2) 
  84,000     

Endurance Specialty Holdings, 6.35%, Series C

    2,341,080        * *(1)(2)(3) 
$ 13,308,000     

Everest Re Holdings, 6.60% 05/15/37

    10,846,020        (1 )(2) 
  50,000     

Hartford Financial Services Group, Inc., 7.875%

    1,578,125     
$ 36,918,000     

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

    55,838,475        (1 )(2) 
 

MetLife:

   
$ 16,612,000     

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

    26,786,850        (1 )(2) 
$ 2,250,000     

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

    2,835,000        (1 )(2) 
$ 18,250,000     

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

    26,135,460        (1 )(2) 

 

6


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2016 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

 

Preferred Securities — (Continued)

   
       

Insurance — (Continued)

               
 

PartnerRe Ltd.:

   
  140,000     

5.875%, Series I

  $ 3,864,000        * *(1)(3) 
  31,500     

6.50%, Series G

    916,965        * *(1)(3) 
  475,799     

7.25%, Series H

    14,965,068        * *(1)(3) 
 

Prudential Financial, Inc.:

   
$ 4,906,000     

5.625% 06/15/43

    5,267,818        (1 )(2) 
$ 3,900,000     

5.875% 09/15/42

    4,324,125        (1 )(2) 
 

QBE Insurance:

   
$ 17,752,000     

QBE Capital Funding III Ltd., 7.25% 05/24/41, 144A****

    20,215,090        (1 )(2)(3) 
 

Unum Group:

   
$ 15,240,000     

Provident Financing Trust I, 7.405% 03/15/38

    17,112,127        (1 )(2) 
  140,000     

W.R. Berkley Corporation, 5.75% 06/01/56

    3,675,350     
 

XL Group PLC:

   
$ 33,000,000     

XL Capital Ltd., 6.50%, Series E

    24,783,000        (1 )(2)(3) 

 

 

   
      331,116,826     
   

 

 

   
       

Utilities — 11.7%

               
  10,000     

Baltimore Gas & Electric Company, 6.70%, Series 1993

    1,018,438        * (1) 
 

Commonwealth Edison:

   
$ 15,828,000     

COMED Financing III, 6.35% 03/15/33

    16,878,868        (1 )(2) 
  680,000     

Dominion Resources, Inc., 5.25% 07/30/76, Series A

    17,518,500     
  164,000     

DTE Energy Company, 5.375% 06/01/76, Series B

    4,298,850     
$ 12,170,000     

Emera, Inc., 6.75% 06/15/76, Series 2016A

    13,183,067        (1 )(3) 
  164,400     

Georgia Power Company, 6.50%, Series 2007A

    17,308,242        * (1) 
  98,800     

Indianapolis Power & Light Company, 5.65%

    10,093,042        *   
  463,700     

Integrys Energy Group, Inc., 6.00%

    12,752,909        (1 ) 
 

Nextera Energy:

   
$ 16,293,000     

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

    13,645,388        (1 )(2) 
$ 5,100,000     

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

    5,080,620        (1 )(2) 
 

PECO Energy:

   
$ 2,386,000     

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

    2,893,927        (1 )(2) 
 

PPL Corp:

   
$ 18,180,000     

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

    15,785,839        (1 )(2) 
$ 23,500,000     

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

    20,166,055     
  70,000     

SCE Trust V, 5.45%, Series K

    2,076,375        * (1)(2) 

 

 

   
      152,700,120     
   

 

 

   

 

7


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2016 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

 

Preferred Securities — (Continued)

   
       

Energy — 3.3%

               
$ 2,510,000     

DCP Midstream LLC, 5.85% 05/21/43, 144A****

  $ 1,932,700     
$ 38,198,000     

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

    32,611,543        (1 )(2) 
$ 1,471,000     

Enterprise Products Operating L.P., 8.375% 08/01/66, Series A

    1,380,901     
$ 7,000,000     

Transcanada Pipelines, Ltd., 5.875% 08/15/76, Series 2016A

    7,476,875        (3 ) 

 

 

   
      43,402,019     
   

 

 

   
       

Real Estate Investment Trust (REIT) — 1.7%

               
 

National Retail Properties, Inc.:

   
  263,818     

5.70%, Series E

    7,039,324        (1 )(2) 
  89,652     

6.625%, Series D

    2,322,211        (1 )(2) 
 

PS Business Parks, Inc.:

   
  22,000     

5.70%, Series V

    579,975     
  30,000     

5.75%, Series U

    776,700     
  50,000     

6.00%, Series T

    1,317,500     
  265,336     

6.45%, Series S

    6,883,479        (1 ) 
  105,536     

Regency Centers Corporation, 6.625%, Series 6

    2,745,255     

 

 

   
      21,664,444     
   

 

 

   
       

Miscellaneous Industries — 2.3%

               
 

BHP Billiton Limited:

   
$ 2,500,000     

BHP Billiton Finance U.S.A., Ltd., 6.75% 10/19/75, 144A****

    2,859,375        (3 ) 
$ 6,974,000     

General Electric Company, 5.00%, Series D

    7,488,333        * (1)(2) 
$ 9,500,000     

Land O’ Lakes, Inc., 8.00%, 144A****

    10,105,625        * (1)(2) 
  97,900     

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

    8,804,881        *   

 

 

   
      29,258,214     
   

 

 

   
 

Total Preferred Securities
(Cost $1,169,599,281)

    1,214,701,655     
   

 

 

   

 

Corporate Debt Securities — 4.8%

   
       

Banking — 1.7%

               
$ 10,992,000     

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

    14,328,512        (1 )(2) 
  274,000     

Texas Capital Bancshares Inc., 6.50% 09/21/42, Sub Notes

    7,149,345     
  25,000     

Zions Bancorporation, 6.95% 09/15/28, Sub Notes

    770,813     

 

 

   
      22,248,670     
   

 

 

   

 

8


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2016 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

 

Corporate Debt Securities — (Continued)

   
       

Financial Services — 0.2%

               
  101,339     

Affiliated Managers Group, Inc., 6.375% 08/15/42

  $ 2,702,964        (1 )(2) 
$ 4,726,012     

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

    133,274        (4 )(5)†† 

 

 

   
      2,836,238     
   

 

 

   
       

Insurance — 1.4%

               
$ 13,500,000     

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

    18,093,105        (1 )(2) 

 

 

   
      18,093,105     
   

 

 

   
       

Energy — 0.7%

               
$ 6,717,000     

Energy Transfer Partners LP, 8.25% 11/15/29

    8,363,411        (1 )(2) 

 

 

   
      8,363,411     
   

 

 

   
       

Communication — 0.4%

               
  194,000     

Qwest Corporation, 6.50% 09/01/56

    5,034,766     

 

 

   
      5,034,766     
   

 

 

   
       

Miscellaneous Industries — 0.4%

               
  38,000     

eBay, Inc., 6.00% 02/01/56

    1,042,815     
$ 3,550,000     

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

    4,151,725        (1 )(2) 

 

 

   
      5,194,540     
   

 

 

   
 

Total Corporate Debt Securities
(Cost $49,576,155)

    61,770,730     
   

 

 

   

 

Common Stock — 0.2%

   
       

Banking — 0.2%

               
  54,740     

CIT Group, Inc.

    2,018,811        *   

 

 

   
      2,018,811     
   

 

 

   
       

Insurance — 0.0%

               
  241,737     

WMI Holdings Corporation, 144A****

    601,925        * † 

 

 

   
      601,925     
   

 

 

   
 

Total Common Stock
(Cost $23,031,471)

    2,620,736     
   

 

 

   

 

9


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2016 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

 

Money Market Fund — 0.5%

               
 

BlackRock Liquidity Funds:

   
  7,091,670     

T-Fund, Institutional Class

  $ 7,091,670     

 

 

   
 

Total Money Market Fund
(Cost $7,091,670)

    7,091,670     
   

 

 

   

Total Investments (Cost $1,249,298,577***)

     98.9%        1,286,184,791   

Other Assets And Liabilities (Net)

     1.1%        14,828,901   
  

 

 

   

 

 

 

Total Managed Assets

         100.0% ‡    $ 1,301,013,692   
  

 

 

   

 

 

 

Loan Principal Balance

  

    (434,375,000
    

 

 

 

Total Net Assets Available To Common Stock

  

  $ 866,638,692   
    

 

 

 

 

* Securities eligible for the Dividends Received Deduction and distributing Qualified Dividend Income.
** Securities distributing Qualified Dividend Income only.
*** Aggregate cost of securities held.
**** Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional buyers. At August 31, 2016, these securities amounted to $292,201,057 or 22.5% 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 $749,926,220 at August 31, 2016.

(2) 

All or a portion of this security has been rehypothecated. The total value of such securities was $290,755,760 at August 31, 2016

(3) 

Foreign Issuer.

(4) 

Illiquid security (designation is unaudited).

(5) 

Valued at fair value as determined in good faith by or under the direction of the Board of Directors as of August 31, 2016.

(6) 

Represents the rate in effect as of the reporting date.

Non-income producing.
†† The issuer has filed for bankruptcy protection. As a result, the Fund may not be able to recover the principal invested and also does not expect to receive income on this security going forward.
The percentage shown for each investment category is the total value of that category as a percentage of total managed assets.

 

10


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)

For the period from December 1, 2015 through August 31, 2016 (Unaudited)

 

 

     Value  

OPERATIONS:

  

Net investment income

   $ 52,313,143   

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

     934,344   

Change in net unrealized appreciation/(depreciation) of investments

     31,433,513   
  

 

 

 

Net increase in net assets resulting from operations

     84,681,000   

DISTRIBUTIONS:

  

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

     (53,600,672
  

 

 

 

Total Distributions to Common Stock Shareholders

     (53,600,672

FUND SHARE TRANSACTIONS:

  

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

     3,833,671   
  

 

 

 

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

     3,833,671   

NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK

  

 

 

 

FOR THE PERIOD

   $ 34,913,999   
  

 

 

 
       

NET ASSETS AVAILABLE TO COMMON STOCK:

  

Beginning of period

   $ 831,724,693   

Net increase in net assets during the period

     34,913,999   
  

 

 

 

End of period

   $ 866,638,692   
  

 

 

 

 

(1) 

These tables summarize the nine months ended August 31, 2016 and should be read in conjunction with the Fund’s audited financial statements, including notes to financial statements, in its Annual Report dated November 30, 2015.

(2) 

May include income earned, but not paid out, in prior fiscal year.

 

11


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

FINANCIAL HIGHLIGHTS(1)

For the period from December 1, 2015 through August 31, 2016 (Unaudited)

For a Common Stock share outstanding throughout the period

 

 

PER SHARE OPERATING PERFORMANCE:

 

Net asset value, beginning of period

  $ 19.04   
 

 

 

 

INVESTMENT OPERATIONS:

 

Net investment income

    1.19   

Net realized and unrealized gain/(loss) on investments

    0.74   
 

 

 

 

Total from investment operations

    1.93   
 

 

 

 

DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:

 

From net investment income

    (1.22
 

 

 

 

Total distributions to Common Stock Shareholders

    (1.22
 

 

 

 

Net asset value, end of period

  $ 19.75   
 

 

 

 

Market value, end of period

  $ 21.59   
 

 

 

 

Common Stock shares outstanding, end of period

    43,880,341   
 

 

 

 

RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:

 

Net investment income†

    8.45 %* 

Operating expenses including interest expense

    1.61 %* 

        Operating expenses excluding interest expense

    0.90 %* 

SUPPLEMENTAL DATA:††

 

Portfolio turnover rate

    10 %** 

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

  $ 1,301,014   

Ratio of operating expenses including interest expense to total managed assets

    1.06 %* 

Ratio of operating expenses excluding interest expense to total managed assets

    0.59 %* 

 

 

(1) 

These tables summarize the nine months ended August 31, 2016 and should be read in conjunction with the Fund’s audited financial statements, including notes to financial statements, in its Annual Report dated November 30, 2015.

* Annualized.
** Not annualized.
The net investment income ratio reflects income net of operating expenses, including interest expense.
†† Information presented under heading Supplemental Data includes loan principal balance.

 

12


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

FINANCIAL HIGHLIGHTS (Continued)

Per Share of Common Stock (Unaudited)

 

 

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

December 31, 2015

   $ 0.1360       $ 18.84       $ 20.05       $ 19.05   

January 29, 2016

     0.1360         18.51         19.91         18.91   

February 29, 2016

     0.1360         18.16         19.78         18.79   

March 31, 2016

     0.1360         18.56         20.35         19.33   

April 29, 2016

     0.1360         18.63         20.63         19.60   

May 31, 2016

     0.1360         19.02         20.74         19.70   

June 30, 2016

     0.1360         19.11         21.66         20.58   

July 29, 2016

     0.1360         19.50         21.60         20.52   

August 31, 2016

     0.1360         19.75         21.59         20.51   

 

(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.

 

13


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited)

 

 

1. Aggregate Information for Federal Income Tax Purposes

At August 31, 2016, the aggregate cost of securities for federal income tax purposes was $1,284,310,408, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $115,253,331 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $113,378,948.

 

2. Additional Accounting Standards

Fair Value Measurements: The Fund has analyzed all existing investments to determine the significance and character of all inputs to their fair value determination. The levels of fair value inputs used to measure the Fund’s investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investment’s valuation. The three levels of the fair value hierarchy are described below:

 

   

Level 1 – quoted prices in active markets for identical securities

 

   

Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

 

   

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

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.

 

14


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

 

 

A summary of the inputs used to value the Fund’s investments as of August 31, 2016 is as follows:

 

     Total
Value at
August 31, 2016
     Level 1
Quoted
Price
     Level 2
Significant
Observable
Inputs
     Level 3
Significant
Unobservable
Inputs
 

Preferred Securities

           

Banking

   $ 628,708,615       $ 520,775,907       $ 107,880,058       $ 52,650   

Financial Services

     7,851,417         5,228,867         2,622,550           

Insurance

     331,116,826         188,752,853         142,363,973           

Utilities

     152,700,120         84,341,548         68,358,572           

Energy

     43,402,019         8,857,776         34,544,243           

Real Estate Investment Trust (REIT)

     21,664,444         21,664,444                   

Miscellaneous Industries

     29,258,214         10,347,708         18,910,506           

Corporate Debt Securities

           

Banking

     22,248,670         7,920,158         14,328,512           

Financial Services

     2,836,238         2,702,964                 133,274   

Insurance

     18,093,105                 18,093,105           

Energy

     8,363,411                 8,363,411           

Communication

     5,034,766         5,034,766                   

Miscellaneous Industries

     5,194,540         1,042,815         4,151,725           

Common Stock

           

Banking

     2,018,811         2,018,811                   

Insurance

     601,925         601,925                   

Money Market Fund

     7,091,670         7,091,670                   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 1,286,184,791       $ 866,382,212       $ 419,616,655       $ 185,924   
  

 

 

    

 

 

    

 

 

    

 

 

 

During the reporting period, there were no transfers into Level 1 from Level 2 or into Level 2 from Level 1.

The fair values of the Fund’s investments are generally based on market information and quotes received from brokers or independent pricing services that are approved by the Board of Directors and are unaffiliated with the Adviser. To assess the continuing appropriateness of security valuations, management, in consultation with the Adviser, regularly compares current prices to prior prices, prices across comparable securities, actual sale prices for securities in the Fund’s portfolio, and market information obtained by the Adviser as a function of being an active market participant.

Securities with quotes that are based on actual trades or actionable bids and offers with a sufficient level of activity on or near the measurement date are classified as Level 1. Securities that are priced using quotes derived from implied values, indicative bids and offers, or a limited number of actual trades—or the same information for securities that are similar in many respects to those being valued—are classified as Level 2. If market information is not available for securities being valued, or materially-comparable securities, then those securities are classified as Level 3. In considering market information, management evaluates changes in liquidity, willingness of a broker to execute at the quoted price, the depth and consistency of prices from pricing services, and the existence of observable trades in the market.

 

15


 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

 

 

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

 

          

Preferred

Securities

    

Corporate Debt

Securities

 
      Total Investments     Banking      Financial Services  

Balance as of 11/30/15

   $ 201,992      $ 52,650       $ 149,342   

Accrued discounts/premiums

                      

Realized gain/(loss)

                      

Change in unrealized appreciation/(depreciation)

     (16,068             (16,068

Purchases

                      

Sales

                      

Transfers in

                      

Transfers out

                      

Balance as of 08/31/16

   $ 185,924      $ 52,650       $ 133,274   

For the nine months ended August 31, 2016, total change in unrealized gain/(loss) on Level 3 securities still held at period-end and included in the change in net assets was $(16,068).

The following table summarizes the valuation techniques used and unobservable inputs developed to determine the fair value of Level 3 investments:

 

Category  

Fair Value

at 08/31/16

    Valuation Technique   Unobservable Input   Input Range (Wgt Avg)  

Preferred Securities

       

(Banking)

  $ 52,650      Bankruptcy recovery   Credit/Structure-specific recovery     0.00% - 0.50% (0.15%)  

Corporate Debt

    133,274      Bankruptcy recovery   Credit/Structure-specific recovery     2% - 5% (2.8%)   

Securities

(Financial Services)

       

The significant unobservable inputs used in the fair value measurement technique for bankruptcy recovery are based on recovery analysis that is specific to the security being valued, including the level of subordination and structural features of the security, and the current status of any bankruptcy or liquidation proceedings. Observable market trades in bankruptcy claims are utilized by management, when available, to assess the appropriateness of valuations, although the frequency of trading depends on the specific credit and seniority of the claim. Expected recoveries in bankruptcy by security type and industry do not tend to deviate much from historical recovery rates, which are very low (sometimes zero) for preferred securities and more moderate for senior debt. Significant changes in these inputs would result in a significantly higher or lower fair value measurement.

 

16


 

Directors

R. Eric Chadwick, CFA

Chairman of the Board

David Gale

Morgan Gust

Karen H. Hogan

Officers

R. Eric Chadwick, CFA

Chief Executive Officer and

President

Chad C. Conwell

Chief Compliance Officer,

Vice President and Secretary

Bradford S. Stone

Chief Financial Officer,

Vice President and Treasurer

Roger W. Ko

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

Destra Capital Investments LLC

1-877-855-3434

Questions concerning your shares of Flaherty & Crumrine 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 c/o Computershare

P.O. Box 30170

College Station, TX 77842-3170

1-866-351-7446

This report is sent to shareholders of Flaherty & Crumrine 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

August 31, 2016

www.preferredincome.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 Preferred Securities Income Fund Incorporated

By (Signature and Title)*  

      /s/ R. Eric Chadwick

        R. Eric Chadwick, Chief Executive Officer and President
        (principal executive officer)
Date  

                10/21/2016

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/ R. Eric Chadwick

        R. Eric Chadwick, Chief Executive Officer and President
        (principal executive officer)
Date  

                10/21/2016

 

By (Signature and Title)*  

      /s/ Bradford S. Stone

        Bradford S. Stone, Chief Financial Officer, Treasurer and Vice President
        (principal financial officer)
Date  

                10/21/2016

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