ffc-nq_083118

FLAHERTY & CRUMRINE Preferred Securities Income Fund

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

Preferreds performed well in the third fiscal quarter1, bringing total return for the year just back into positive territory. While these returns have not kept pace with returns in recent years, preferreds continue to outperform certain areas of the fixed income market. Total return2 on net asset value (“NAV”) was 2.3% for the quarter, and 0.7% for the first nine months of fiscal 2018. Total return on market price over the same periods was 4.4% and -2.0%, respectively.

By most accounts, it has been a challenging year for corporate bond investments. As the current economic cycle has matured, interest rates rose modestly and credit spreads gradually widened. The yield curve flattened as the Federal Reserve methodically raised its benchmark rate while the long end of the Treasury yield curve moved up only modestly given a limited increase in broad-based inflation and subdued expectations for long-term economic growth. Over the first nine months of the Fund’s fiscal year, the Bloomberg Barclays U.S. Aggregate Index returned -0.5%, while the Bloomberg Barclays Long U.S. Credit Index returned -2.7%.

Preferreds outperformed these fixed-income benchmarks for a few key reasons. First, duration is moderate for many preferreds – and for the Fund’s portfolio specifically. We won’t repeat the merits of fixed-to-float preferreds here, but as previously discussed they offer attractive yields with intermediate duration. Owning both fixed-rate and fixed-to-float preferreds allows for management of portfolio duration despite the long-term nature of the Fund’s investments.

Second, an issuer’s preferreds generally yield more than its corporate bonds. The Fund’s strategy is to identify investment-grade issuers and invest down the capital structure (into preferreds) to earn extra yield for what is, in most cases, similar default risk. For issuers with solid credit quality, preferreds have consistently outperformed corporate bonds over a credit cycle. Over time, higher yields can make up for a lot of principal change and dampen effects of higher interest rates.

Outperformance of preferreds over other fixed income securities has been even better when considered after-tax. If shareholders missed our discussion on taxes in the semi-annual report dated May 31, 2018, we encourage a read. Most preferreds offer tax-advantaged income, which further enhances the extra yield earned for subordination (i.e. being lower in the capital structure than senior debt).

We believe the case for preferreds as an income investment remains largely intact, with a combination of higher relative yields, tax advantages, and benign credit conditions. Returns may be bumpy as markets navigate a late-cycle economy (albeit one that’s currently showing few signs of weakness) and an active Federal Reserve. For fixed-income investors, however, preferreds’ combination of credit quality, intermediate duration and yield should remain attractive.

Sincerely,

The Flaherty & Crumrine Portfolio Management Team

September 30, 2018


1 June 1, 2018 – August 31, 2018

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

2

 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OVERVIEW

August 31, 2018 (Unaudited)

Fund Statistics

 

 

 

 

Net Asset Value

$

19.42

Market Price

$

19.13

Discount

 

1.49

%

Yield on Market Price

 

7.15

%

Common Stock Shares Outstanding

 

44,252,635

Security Ratings**

% of Net Assets†

A

 

0.6

%

BBB

 

56.8

%

BB

 

32.4

%

Below “BB”

1.1

%

Not Rated***

 

7.7

%

Portfolio Rating Guidelines

% of Net Assets†

Security Rated Below Investment Grade By All****

 

31.9

%

Issuer or Senior Debt Rated Below Investment Grade by All*****

2.1

%

**Ratings are from Moody’s Investors Service, Inc. “Not Rated” securities are those with no ratings available from Moody’s.

***Excludes common stock and money market fund investments and net other assets and liabilities of 1.4%.

****Security rating below investment grade by all of Moody’s, Standard & Poor’s, and Fitch Ratings.

*****Security rating and issuer’s senior unsecured debt or issuer rating are below investment grade by all of Moody’s, S&P, and Fitch. The Fund’s investment policy currently limits such securities to 10% of Net Assets.

Industry Categories*

% of Net Assets†

Top 10 Holdings by Issuer

% of Net Assets†

JPMorgan Chase & Co

4.7

%

PNC Financial Services Group

4.4

%

Wells Fargo & Company

4.3

%

MetLife Inc

4.2

%

Citigroup Inc

3.8

%

Liberty Mutual Group

3.6

%

Morgan Stanley

3.5

%

BNP Paribas

3.3

%

Fifth Third Bancorp

3.2

%

Enbridge Energy Partners

2.9

%


 

% of Net Assets******†

Holdings Generating Qualified Dividend Income (QDI) for Individuals

 

 

61

%

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, 2018 (Unaudited)

Shares/$ Par

Value

Preferred Securities§ — 93.8%

Banking — 56.0%

$

5,103,000

Australia & New Zealand Banking Group Ltd., 6.75% to 06/15/26 then
ISDA5 + 5.168%, 144A****

$

5,307,120

**(1)(2)

$

12,800,000

Banco Bilbao Vizcaya Argentaria SA, 6.125% to 11/16/27 then SW5 + 3.87%

11,322,496

**(1)(2)

$

2,970,000

Banco Mercantil del Norte SA, 7.625% to 01/06/28 then T10Y + 5.353%, 144A****

3,027,915

**(2)

$

14,800,000

Bank of America Corporation, 5.875% to 03/15/28 then 3ML + 2.931%, Series FF

14,818,500

*(1)

Barclays Bank PLC:

300,036

8.125%, Series 5

7,932,952

**(1)(2)

$

5,615,000

7.75%, to 09/15/23 then SW5 + 4.842%

5,678,450

**(2)

$

18,863,000

7.875% to 03/15/22 then SW5 + 6.772%, 144A****

19,627,499

**(1)(2)

BNP Paribas:

$

2,340,000

7.00%, to 08/16/28 then SW5 + 3.98%, 144A****

2,345,850

**(2)

$

31,040,000

7.375% to 08/19/25 then SW5 + 5.15%, 144A****

32,723,920

**(1)(2)

$

8,000,000

7.625% to 03/30/21 then SW5 + 6.314%, 144A****

8,520,000

**(2)

Capital One Financial Corporation:

13,893

6.00%, Series B

356,425

*

58,600

6.00%, Series H

1,542,645

*

34,000

6.20%, Series F

891,480

*

120,900

6.70%, Series D

3,189,946

*(1)

Citigroup, Inc.:

$

4,590,000

5.95% to 05/15/25 then 3ML + 3.905%, Series P

4,680,423

*

1,036,484

6.875% to 11/15/23 then 3ML + 4.13%, Series K

28,871,262

*(1)

572,357

7.125% to 09/30/23 then 3ML + 4.04%, Series J

16,286,418

*(1)

CoBank ACB:

38,420

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

3,861,210

*

104,000

6.20% to 01/01/25 then 3ML + 3.744%, Series H, 144A****

11,128,000

*

60,000

6.25% to 10/01/22 then 3ML + 4.557%, Series F, 144A****

6,270,000

*(1)

$

2,498,000

6.25% to 10/01/26 then 3ML + 4.66%, Series I, 144A****

2,660,370

*

$

35,100,000

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

3,510

(3)(4)††

$

1,630,000

Credit Agricole SA, 7.875% to 01/23/24 then SW5 + 4.898%,144A****

1,733,823

**(2)

1,483,814

Fifth Third Bancorp, 6.625% to 12/31/23 then 3ML + 3.71%, Series I

41,465,182

*(1)

First Horizon National Corporation:

3,730

First Tennessee Bank, 3ML + 0.85%, min 3.75%, 3.75%(5),144A****

2,909,788

*

9

FT Real Estate Securities Company, 9.50% 03/31/31, 144A****

11,664,000

Goldman Sachs Group:

$

12,000,000

5.00% to 11/10/22 then 3ML + 2.874%, Series P

11,381,902

*(1)

$

390,000

5.70% to 05/10/19 then 3ML + 3.884%, Series L

395,893

*

140,000

6.375% to 05/10/24 then 3ML + 3.55%, Series K

3,812,200

*(1)

HSBC Holdings PLC:

$

2,100,000

6.00% to 05/22/27 then ISDA5 + 3.746%

2,039,730

**(1)(2)

$

20,770,000

6.50% to 03/23/28 then ISDA5 + 3.606%

20,354,600

**(1)(2)

$

5,243,000

6.875% to 06/01/21 then ISDA5 + 5.514%

5,472,381

**(1)(2)

$

4,400,000

HSBC Capital Funding LP, 10.176% to 06/30/30 then 3ML + 4.98%, 144A****

6,567,000

(1)(2)

4

 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2018 (Unaudited)

Shares/$ Par

Value

Preferred Securities — (Continued)

Banking — (Continued)

Huntington Bancshares, Inc.:

590,000

6.25%, Series D

$

15,682,200

*(1)

$

5,800,000

5.70% to 04/15/23 then 3ML + 2.88%, Series E

5,796,375

*(1)

300,000

ING Groep NV, 6.375%

7,704,000

**(2)

JPMorgan Chase & Company:

56,600

6.125%, Series Y

1,497,353

*

183,700

6.70%, Series T

4,779,874

*(1)

$

32,000,000

3ML + 3.47%, 5.8089%(5), Series I

32,264,000

*(1)

$

5,450,000

6.00% to 08/01/23 then 3ML + 3.30%, Series R

5,693,996

*(1)

$

15,155,000

6.75% to 02/01/24 then 3ML + 3.78%, Series S

16,700,052

*(1)

502,300

KeyCorp, 6.125% to 12/15/26 then 3ML + 3.892%, Series E

14,081,980

*(1)

$

9,340,000

Lloyds TSB Bank PLC, 12.00% to 12/16/24 then 3ML + 11.756%, 144A****

11,367,303

(1)(2)

$

16,750,000

M&T Bank Corporation, 6.45% to 02/15/24 then 3ML + 3.61%, Series E

17,964,375

*(1)

$

3,000,000

Macquarie Bank Ltd., 6.125% to 03/08/27 then SW5 + 3.703%, 144A****

2,756,250

**(2)

242,340

MB Financial, Inc., 6.00%, Series C

6,325,074

*(1)

Morgan Stanley:

879,089

5.85% to 04/15/27 then 3ML + 3.491%, Series K

23,010,155

*(1)

502,400

6.875% to 01/15/24 then 3ML + 3.94%, Series F

14,145,072

*(1)

298,300

7.125% to 10/15/23 then 3ML + 4.32%, Series E

8,595,514

*(1)

977,000

New York Community Bancorp, Inc., 6.375% to 03/17/27 then
3ML + 3.821%, Series A

27,248,530

*(1)

PNC Financial Services Group, Inc.:

1,941,960

6.125% to 05/01/22 then 3ML + 4.067%, Series P

54,073,876

*(1)

$

3,043,000

6.75% to 08/01/21 then 3ML + 3.678%, Series O

3,312,305

*(1)

$

7,885,000

RaboBank Nederland, 11.00% to 06/30/19 then 3ML + 10.868%, 144A****

8,377,812

(1)(2)

27,213

Regions Financial Corporation, 6.375% to 09/15/24 then 3ML + 3.536%, Series B

744,137

*

Societe Generale SA:

$

17,750,000

6.75% to 04/06/28 then SW5 + 3.929%, 144A****

16,818,125

**(1)(2)

$

7,000,000

7.375% to 09/13/21 then SW5 + 6.238%, 144A****

7,332,500

**(2)

 

8,641

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

10,174,777

Standard Chartered PLC:

$

11,370,000

7.50% to 04/02/22 then SW5 + 6.301%, 144A****

11,767,950

**(1)(2)

$

8,000,000

7.75% to 04/02/23 then SW5 + 5.723%, 144A****

8,310,000

**(1)(2)

505,500

State Street Corporation, 5.90% to 03/15/24 then 3ML + 3.108%, Series D

13,721,797

*(1)

59,724

Sterling Bancorp, 6.50%, Series A

1,590,773

*

174,959

US Bancorp, 6.50% to 01/15/22 then 3ML + 4.468%, Series F

4,938,218

*(1)

165,000

Valley National Bancorp, 5.50% to 09/30/22 then 3ML + 3.578%, Series B

4,323,000

*(1)

5

 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2018 (Unaudited)

Shares/$ Par

Value

Preferred Securities — (Continued)

Banking — (Continued)

Wells Fargo & Company:

55,000

5.625%, Series Y

$

1,401,119

*

1,353

7.50%, Series L

1,756,174

*

550,500

8.00%, Series J

13,825,807

*(1)

339,095

5.85% to 09/15/23 then 3ML + 3.09%, Series Q

8,780,865

*(1)

$

3,000,000

5.875% to 06/15/25 then 3ML + 3.99%, Series U

3,165,000

*(1)

$

16,314,000

3ML + 3.77%, 6.1106%(5), Series K

16,544,843

*(1)

402,925

6.625% to 03/15/24 then 3ML + 3.69%, Series R

11,084,467

*(1)

$

6,700,000

Westpac Banking Corporation, 5.00% to 09/21/27 then ISDA5 + 2.888%

6,018,682

**(1)(2)

Zions Bancorporation:

20,000

6.30% to 03/15/23 then 3ML + 4.24%, Series G

543,920

*

$

9,000,000

7.20% to 09/15/23 then 3ML + 4.44%, Series J

9,652,500

*(1)

732,713,640

Financial Services — 1.4%

$

2,540,000

AerCap Global Aviation Trust, 6.50% to 06/15/25 then
3ML + 4.30%, 06/15/45, 144A****

2,628,900

(2)

Charles Schwab Corporation:

13,600

5.95%, Series D

355,232

*

176,400

6.00%, Series C

4,629,618

*(1)

$

4,700,000

Credit Suisse Group AG, 7.50% to 07/17/23 then SW5 + 4.60%, 144A****

4,871,550

**(2)

$

2,600,000

E*TRADE Financial Corporation, 5.30% to 03/15/23 then 3ML + 3.16%, Series B

2,592,200

*

$

2,625,000

General Motors Financial Company, 5.75% to 09/30/27 then
3ML + 3.598%, Series A

2,561,016

*

17,638,516

Insurance — 19.9%

612,382

Allstate Corporation, 6.625%, Series E

15,929,954

*(1)

$

718,000

Aon Corporation, 8.205% 01/01/27

881,345

(1)

Arch Capital Group, Ltd.:

67,000

5.25%, Series E

1,624,562

**(2)

56,500

5.45%, Series F

1,400,635

**(2)

Aspen Insurance Holdings Ltd.:

65,962

5.625%

1,653,008

**(2)

65,830

5.95% to 07/01/23 then 3ML + 4.06%

1,708,288

**(2)

$

3,315,000

AXA SA, 6.379% to 12/14/36 then 3ML + 2.256%, 144A****

3,547,050

**(1)(2)

52,191

Axis Capital Holdings Ltd., 5.50%, Series E

1,304,253

**(2)

$

4,566,000

Chubb Ltd.:
Ace Capital Trust II, 9.70% 04/01/30

6,426,645

(1)(2)

732,250

Delphi Financial Group, 3ML + 3.19%, 5.5038%(5) 05/15/37

16,567,156

(1)

254,000

Enstar Group Ltd., 7.00% to 08/31/28 then 3ML + 4.015%, Series D

6,676,390

**(1)(2)

$

7,310,000

Everest Reinsurance Holdings, 3ML + 2.385%, 4.6988%(5) 05/15/37

7,236,900

(1)

6

 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2018 (Unaudited)

Shares/$ Par

Value

Preferred Securities — (Continued)

Insurance — (Continued)

50,000

Hartford Financial Services Group, Inc., 7.875% to 04/15/22 then
3ML + 5.596%, 04/15/42

$

1,429,750

$

24,634,000

Liberty Mutual Group, 7.80% 03/15/37, 144A****

29,129,705

(1)

MetLife, Inc.:

$

18,250,000

9.25% 04/08/38, 144A****

24,911,250

(1)

$

17,895,000

10.75% 08/01/39

27,603,038

(1)

$

2,250,000

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

2,801,250

(1)

PartnerRe Ltd.:

140,000

5.875%, Series I

3,521,000

**(1)(2)

36,394

6.50%, Series G

955,706

**(1)(2)

475,799

7.25%, Series H

13,324,751

**(1)(2)

Prudential Financial, Inc.:

$

4,906,000

5.625% to 06/15/23 then 3ML + 3.92%, 06/15/43

5,136,484

(1)

$

3,900,000

5.875% to 09/15/22 then 3ML + 4.175%, 09/15/42

4,158,375

(1)

$

21,757,000

QBE Insurance Group Ltd., 7.50% to 11/24/23 then
SW10 + 6.03%, 11/24/43, 144A****

23,796,719

(1)(2)

100,000

RenaissanceRe Holdings Ltd., 5.75%, Series F

2,539,500

**(2)

$

21,105,000

Unum Group:
Provident Financing Trust I, 7.405% 03/15/38

23,226,053

(1)

144,335

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

3,593,220

(1)

XL Group Limited:

$

8,000,000

Catlin Insurance Company Ltd., 3ML + 2.975%, 5.3169%(5), 144A****

7,920,000

(1)(2)

$

21,893,000

XL Capital Ltd., 3ML + 2.4575%, 4.7967%(5), Series E

21,566,794

(1)(2)

260,569,781

Utilities — 6.8%

$

3,752,000

CenterPoint Energy, Inc., 6.125% to 09/01/23 then 3ML + 3.27%, Series A

3,827,040

*

$

16,798,000

Commonwealth Edison:
COMED Financing III, 6.35% 03/15/33

17,821,166

(1)

802,012

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

19,773,606

(1)

DTE Energy Company:

164,000

5.375% 06/01/76, Series B

4,056,868

(1)

55,000

6.00% 12/15/76, Series F

1,445,400

$

12,170,000

Emera, Inc., 6.75% to 06/15/26 then 3ML + 5.44%, 06/15/76, Series 2016A

12,962,519

(1)(2)

2,500

Georgia Power Company, 5.00% 10/01/77, Series 2017A

61,413

98,800

Indianapolis Power & Light Company, 5.65%

10,135,892

*

463,700

Integrys Energy Group, Inc., 6.00% to 08/01/23 then 3ML + 3.22%, 08/01/73

12,021,423

(1)

$

707,000

NextEra Energy:
FPL Group Capital, Inc., 3ML + 2.125%, 4.4656%
(5) 06/15/67, Series C

681,419

(1)

$

1,900,000

NiSource, Inc., 5.65% to 06/15/23 then T5Y + 2.843%, 144A****

1,926,125

*

7

 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2018 (Unaudited)

Shares/$ Par

Value

Preferred Securities — (Continued)

Utilities — (Continued)

$

2,386,000

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

$

2,715,751

(1)

70,000

Southern California Edison:
SCE Trust V, 5.45% to 03/15/26 then 3ML + 3.79%, Series K

1,823,850

*(1)

89,252,472

Energy — 6.9%

$

2,510,000

DCP Midstream LLC, 5.85% to 05/21/23 then 3ML + 3.85%, 05/21/43, 144A****

2,321,750

DCP Midstream LP:

$

6,450,000

7.375% to 12/15/22 then 3ML + 5.148%, Series A

6,462,094

(1)

21,500

7.875% to 06/15/23 then 3ML + 4.919%, Series B

556,528

$

6,200,000

Enbridge, Inc., 6.00% to 01/15/27 then 3ML + 3.89%, 01/15/77

6,060,500

(1)(2)

$

38,198,000

Enbridge Energy Partners LP, 3ML + 3.7975%, 6.1349%(5) 10/01/37

38,409,294

(1)

Energy Transfer Partners LP:

631,750

7.375% to 05/15/23 then 3ML + 4.53%, Series C

16,212,537

(1)

8,600

7.625% to 08/15/23 then 3ML + 4.738%, Series D

225,750

$

3,700,000

Enterprise Products Operating L.P., 5.25% to 08/16/27 then
3ML + 3.033%, 08/16/77, Series E

3,505,750

11,900

Kinder Morgan, Inc., 9.75% 10/26/18, Series A

395,385

*

191,783

NuStar Logistics LP, 3ML + 6.734%, 9.0732%(5) 01/15/43

4,975,810

Transcanada Pipelines, Ltd.:

$

4,000,000

5.30% to 03/15/27 then 3ML + 3.208%, 03/15/77, Series 2017-A

3,842,500

(1)(2)

$

7,000,000

5.875% to 08/15/26 then 3ML + 4.64%, 08/15/76, Series 2016-A

7,157,500

(1)(2)

90,125,398

Real Estate Investment Trust (REIT) — 0.1%

19,210

Annaly Capital Management, Inc., 6.95% to 09/30/22 then 3ML + 4.993%, Series F

492,737

20,064

National Retail Properties, Inc., 5.20%, Series F

477,924

37,673

PS Business Parks, Inc., 5.20%, Series W

906,224

1,876,885

Miscellaneous Industries — 2.7%

 

$

 

2,500,000

BHP Billiton Limited:

BHP Billiton Finance U.S.A., Ltd., 6.75% to 10/19/25 then
SW5 + 5.093%, 10/19/75, 144A****

2,750,000

(2)

$

5,074,000

General Electric Company, 5.00% to 01/21/21 then 3ML + 3.33%, Series D

5,001,061

*(1)

Land O’ Lakes, Inc.:

$

7,900,000

7.25%, Series B, 144A****

8,551,750

*

$

9,500,000

8.00%, Series A, 144A****

10,450,000

*(1)

97,900

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

8,688,625

*

35,441,436

Total Preferred Securities
(Cost $1,207,575,101)

1,227,618,128

 

8

 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2018 (Unaudited)

Shares/$ Par

Value

Corporate Debt Securities§ — 4.8%

Banking — 2.0%

$

3,077,000

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

$

4,026,589

(1)

806,700

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

20,776,559

(1)

25,000

Zions Bancorporation, 6.95% to 09/15/23 then 3ML + 3.89%, 09/15/28, Sub Notes

739,625

25,542,773

Financial Services — 0.0%

15,000

B. Riley Financial, Inc., 7.50% 05/31/27

381,825

$

4,726,012

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

46,788

(3)(4)††

428,613

Insurance — 1.4%

$

13,500,000

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

18,375,975

(1)

18,375,975

Energy — 0.6%

$

6,717,000

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

8,199,332

(1)

8,199,332

Communication — 0.5%

Qwest Corporation:

127,729

6.50% 09/01/56

3,009,934

155,921

6.75% 06/15/57

3,813,048

2,300

7.00% 04/01/52

58,432

6,881,414

Miscellaneous Industries — 0.3%

$

3,550,000

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

3,984,875

(1)

3,984,875

Total Corporate Debt Securities
 (Cost $54,853,273)

63,412,982

 

Common Stock — 0.0%

Insurance — 0.0%

241,737

WMI Holdings Corporation, 144A****

365,023

*†

365,023

Total Common Stock
(Cost $12,130,446)

365,023

 

9

 

Flaherty & Crumrine Preferred Securities Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2018 (Unaudited)

Shares/$ Par

Value

Money Market Fund — 0.4%

 

4,787,457

BlackRock Liquidity Funds:
T-Fund, Institutional Class

$

4,787,457

Total Money Market Fund
(Cost $4,787,457)

4,787,457

Total Investments (Cost $1,279,346,277***)

99.0

%

1,296,183,590

Other Assets And Liabilities (Net)

1.0

%

12,828,383

Total Managed Assets

100.0

%‡

$

1,309,011,973

Loan Principal Balance

(449,575,000

)

Total Net Assets Available To Common Stock

$

859,436,973

 

§Date shown is maturity date unless referencing the end of the fixed-rate period of a fixed-to-floating rate security.

*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, 2018, these securities amounted to $348,337,182 or 26.6% 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 $790,579,678 at August 31, 2018.

(2)Foreign Issuer.

(3)Level 3, illiquid security (designation is unaudited; see Note 2: Additional Accounting Standards).

(4)Valued at fair value as determined in good faith by or under the direction of the Board of Directors as of August 31, 2018.

(5)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.

ABBREVIATIONS:

3ML — 3-Month ICE LIBOR USD A/360

ISDA5 — 5-year USD ICE Swap Semiannual 30/360

SW5 — 5-year USD Swap Semiannual 30/360

SW10 — 10-year USD Swap Semiannual 30/360

T5Y — Federal Reserve H.15 5-Yr Constant Maturity Treasury Semiannual yield

T10Y — Federal Reserve H.15 10-Yr Constant Maturity Treasury Semiannual yield

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, 2017 through August 31, 2018 (Unaudited)

Value

OPERATIONS:

Net investment income

$

43,238,022

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

(7,452,465

)

Change in net unrealized appreciation/(depreciation) of investments

(31,072,376

)

Net increase in net assets resulting from operations

4,713,181

DISTRIBUTIONS:

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

(45,843,261

)

Total Distributions to Common Stock Shareholders

(45,843,261

)

FUND SHARE TRANSACTIONS:

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

838,921

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

838,921

NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE period

$(40,291,159

)

NET ASSETS AVAILABLE TO COMMON STOCK:

Beginning of period

$

899,728,132

Net decrease in net assets during the period

(40,291,159

)

End of period

$

859,436,973

 

(1)These tables summarize the nine months ended August 31, 2018 and should be read in conjunction with the Fund’s audited financial statements, including notes to the financial statements, in its Annual Report dated November 30, 2017.

(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 December 1, 2017 through August 31, 2018 (Unaudited)
For a Common Stock share outstanding throughout the period

 

PER SHARE OPERATING PERFORMANCE:

 

 

 

 

Net asset value, beginning of period

 

$

20.35

INVESTMENT OPERATIONS:

 

 

Net investment income

 

 

0.98

Net realized and unrealized gain/(loss) on investments

 

 

(0.87

)

Total from investment operations

 

 

0.11

DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:

 

 

From net investment income

 

 

(1.04

)

Total distributions to Common Stock Shareholders

 

 

(1.04

)

Net asset value, end of period

 

$

19.42

Market value, end of period

 

$

19.13

Common Stock shares outstanding, end of period

 

 

44,252,635

RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:

 

Net investment income†

 

 

6.59

%*

Operating expenses including interest expense

 

 

2.20

%*

Operating expenses excluding interest expense

 

 

0.85

%*

 

 

SUPPLEMENTAL DATA: ††

 

 

Portfolio turnover rate

 

 

10

%**

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

 

$

1,309,012

Ratio of operating expenses including interest expense to average total managed assets

 

 

1.46

%*

Ratio of operating expenses excluding interest expense to average total managed assets

 

 

0.56

%*

 

(1)These tables summarize the nine months ended August 31, 2018 and should be read in conjunction with the Fund’s audited financial statements, including notes to the financial statements, in its Annual Report dated November 30, 2017.

*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 29, 2017

$0.1190

$20.33

$20.46

$20.33

January 31, 2018

0.1190

20.11

18.71

18.94

February 28, 2018

0.1140

19.95

19.20

19.26

March 29, 2018

0.1140

19.83

19.00

18.89

April 30, 2018

0.1140

19.55

18.49

18.53

May 31, 2018

0.1140

19.33

18.66

18.72

June 29, 2018

0.1140

19.23

18.92

18.99

July 31, 2018

0.1140

19.33

19.15

19.17

August 31, 2018

0.1140

19.42

19.13

19.07

 

(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, 2018, the aggregate cost of securities for federal income tax purposes was $1,317,342,589, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $71,453,942 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $92,612,941.

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, 2018 is as follows:

Level 2

Level 3

Total

Level 1

Significant

Significant

Value at

Quoted

Observable

Unobservable

August 31, 2018

Price

Inputs