SCHEDULE 14A
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [X]
Filed by Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only as permitted by Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11c or Rule 14a-12
FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND INCORPORATED
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
___________________________
(2) Aggregate number of securities to which transaction applies:
____________________________
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11. (Set forth the amount on which the filing fee is
calculated and state how it was determined):
_______________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________
(5) Total fee paid:
_______________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:_____________________________________________________
(2) Form, Schedule or Registration Statement No.:_______________________________
(3) Filing Party: ______________________________________________________________
(4) Date Filed: ________________________________________________________________
FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND INCORPORATED
(NYSE: FFC)
FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND INCORPORATED (NYSE: FLC)
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
To Be Held on April 23, 2004
To the Shareholders:
Notice is hereby given that the Annual Meetings of Shareholders of
Flaherty &Crumrine/Claymore Preferred Securities Income Fund Incorporated
("PREFERRED SECURITIES FUND" OR "FFC") and Flaherty &Crumrine/Claymore Total
Return Fund Incorporated ("TOTAL RETURN FUND" OR "FLC") (EACH A "FUND" AND,
COLLECTIVELY, THE "FUNDS"), each a Maryland corporation, will be held at the
offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, 38th Floor, New
York, New York 10019 at 8:30 a.m., on April 23, 2004, for the following
purposes:
1. To elect Directors of each Fund (PROPOSAL 1).
2. To approve an amendment to FFC's Articles Supplementary
Establishing and Fixing the Rights and Preferences of Auction
Market Preferred Stock ("Articles Supplementary") (as more
fully set forth in the Joint Proxy Statement) (PROPOSAL 2 -
FFC ONLY).
3. To transact such other business as may properly come before
the Meetings or any adjournments thereof.
The Board of Directors of each Fund has fixed the close of business on
January 26, 2004 as the record date for the determination of shareholders of
each Fund entitled to notice of and to vote at the Annual Meetings.
By Order of the Boards of Directors,
February [__], 2004 R. ERIC CHADWICK
SECRETARY
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SEPARATE PROXY CARDS ARE ENCLOSED FOR EACH FUND IN WHICH YOU OWN SHARES.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETINGS ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD(S). THE PROXY CARD(S) SHOULD BE
RETURNED IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
CONTINENTAL UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE
SET FORTH ON THE INSIDE COVER.
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INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may avoid the time and expense to the Fund(s) involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card(s).
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAN OR ESTATE ACCOUNTS
(1) John B. Smith, Cust., John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Executor, John B. Smith, Jr., Executor
estate of Jane Smith
FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND INCORPORATED
(NYSE: FFC)
FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND INCORPORATED (NYSE: FLC)
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
ANNUAL MEETINGS OF SHAREHOLDERS
April 23, 2004
JOINT PROXY STATEMENT
This document is a joint proxy statement ("Joint Proxy Statement") for
Flaherty &Crumrine/Claymore Preferred Securities Income Fund Incorporated
("PREFERRED SECURITIES FUND" OR "FFC") and Flaherty & Crumrine/Claymore Total
Return Fund Incorporated ("TOTAL RETURN FUND" OR "FLC") (EACH A "FUND" AND,
COLLECTIVELY, THE "FUNDS"). This Joint Proxy Statement is furnished in
connection with the solicitation of proxies by each Fund's Board of Directors
(each a "Board" and collectively, the "Boards") for use at the Annual Meeting of
Shareholders of each Fund to be held on April 23, 2004, at 8:30 a.m., at the
offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, 38th Floor, New
York, New York 10019 and at any adjournments thereof (each a "Meeting" and
collectively, the "Meetings"). A Notice of Annual Meetings of Shareholders and
proxy card for each Fund of which you are a shareholder accompany this Joint
Proxy Statement. Proxy solicitations will be made, beginning on or about
February [--,] 2004, primarily by mail, but proxy solicitations may also be made
by telephone, telegraph or personal interviews conducted by officers of each
Fund, Flaherty & Crumrine Incorporated ("Flaherty & Crumrine" or the "Adviser"),
the investment adviser of each Fund, Claymore Securities, Inc. (the "Servicing
Agent"), the servicing agent of each Fund, and PFPC Inc., the transfer agent and
administrator of each Fund and a member of The PNC Financial Services Group,
Inc. In addition, FFC has retained Proxy Advantage to assist in the solicitation
of proxies for a fee estimated at $35,000 plus reimbursement of expenses. Other
costs of proxy solicitation and expenses incurred in connection with the
preparation of this Joint Proxy Statement and its enclosures will be shared
proportionately by the Funds. Each Fund also will reimburse brokerage firms and
others for their expenses in forwarding solicitation material to the beneficial
owners of its shares.
THE ANNUAL REPORT OF EACH FUND, INCLUDING AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2003, IS AVAILABLE UPON REQUEST, WITHOUT
CHARGE, BY WRITING TO PFPC INC., P.O. BOX 43027, PROVIDENCE, RI 02940-3027, OR
CALLING 1-800-331-1710.
If the enclosed proxy card is properly executed and returned in time to
be voted at the relevant Meeting, the Shares (as defined below) represented
thereby will be voted in accordance with the instructions marked thereon. Unless
instructions to the contrary are marked thereon, a proxy will be voted "FOR" the
election of the nominees for Director and "FOR" the other matters (as applicable
to each Fund) listed in the accompanying Notice of Annual Meetings of
Shareholders. Any shareholder who has given a proxy has the right to revoke it
at any time prior to its exercise either by attending the relevant Meeting and
voting his or her Shares in person or by submitting a letter of revocation or a
later-dated proxy to the appropriate Fund at the above address prior to the date
of the Meeting.
In the event that a quorum is not present at a Meeting or in the event
that a quorum is present but sufficient votes to approve any of the proposals
are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. Any such
adjournment will require the affirmative vote of a majority of those shares
represented at the Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to vote
"FOR" the proposal in favor of such an adjournment and will vote those proxies
required to be voted "AGAINST" the proposal against any such adjournment. A
shareholder vote may be taken on a proposal in the Joint Proxy Statement prior
to any such adjournment if sufficient votes have been received for approval.
Under the By-Laws of each Fund, a quorum is constituted by the presence in
person or by proxy of the holders of a majority of the outstanding shares of the
Fund entitled to vote at the Meeting. If a proposal is to be voted upon by only
one class of a Fund's shares, a quorum of that class of shares must be present
at the Meeting in order for the proposal to be considered.
Each Fund has two classes of capital stock: common stock, par value
$0.01 per share (the "Common Stock"); and Auction Market Preferred Shares, par
value $0.01 per share ("AMPS"; together with the Common Stock, the "Shares").
Each Share is entitled to one vote at the Meeting, with pro rata voting rights
for any fractional Shares. On the record date, January 26, 2004, the following
number of Shares of each Fund were issued and outstanding:
1
COMMON STOCK AMPS
NAME OF FUND OUTSTANDING OUTSTANDING
------------ ----------- -----------
Preferred Securities Fund (FFC) 42,052,055 Series M7 - 3,200
Series T7 - 3,200
Series W7 - 3,200
Series Th7 - 3,200
Series F7 - 3,200
Series T28 - 2,840
Series W28 - 2,840
Total Return Fund (FLC) 9,703,910 Series T7 - 2,570
Series W28 - 2,570
To the knowledge of each Fund and its Board, the following
shareholder(s) or "group", as that term is defined in Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act"), is the beneficial owner or
owner of record of more than 5% of the relevant Fund's outstanding shares as of
January 26, 2004*:
NAME AND ADDRESS OF BENEFICIAL/ AMOUNT AND NATURE
RECORD OWNER TITLE OF CLASS OF OWNERSHIP PERCENT OF CLASS
------------ -------------- ------------ ----------------
Cede & Co.** Common FFC - 41,973,568 99.81%
Depository Trust Company Stock (record)
55 Water Street, 25th Floor FLC - 9,693,833 99.90%
New York, NY (record)
10041
AMPS FFC -
Series M7 - 3,200 (record) 100%
Series T7 - 3,200 (record) 100%
Series W7 - 3,200 (record) 100%
Series Th7 - 3,200 (record) 100%
Series F7 - 3,200 (record) 100%
Series T28 - 2,840 (record) 100%
Series W28 - 2,840 (record) 100%
FLC -
Series T7 - 2,570 (record) 100%
Series W28 - 2,570 (record) 100%
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* As of January 26, 2004, the Directors and officers, as a group, owned
less than 1% of each class of Shares.
** A nominee partnership of The Depository Trust Company.
This Joint Proxy Statement is being used in order to reduce the
preparation, printing, handling and postage expenses that would result from the
use of a separate proxy statement for each Fund. Shareholders of each Fund will
vote as a single class except as described below under Proposal 1 and Proposal 2
(FFC only) and will vote separately on each proposal on which shareholders of
that Fund are entitled to vote. Separate proxy cards are enclosed for each Fund
in which a shareholder is a record owner of Shares. Thus, if a proposal is
approved by shareholders of one Fund and disapproved by shareholders of the
other Fund, the proposal will be implemented for the Fund that approved the
proposal and will not be implemented for the Fund that did not approve the
proposal. It is therefore essential that shareholders complete, date and sign
EACH enclosed proxy card. SHAREHOLDERS OF EACH FUND ARE ENTITLED TO VOTE ON THE
PROPOSAL(S) PERTAINING TO THAT FUND.
In order that your Shares may be represented at the Meetings, you are
requested to vote on the following matters:
SUMMARY OF VOTING RIGHTS ON PROXY PROPOSALS
PREFERRED SECURITIES FUND (FFC)
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PROPOSAL COMMON SHAREHOLDERS AMPS SHAREHOLDERS
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1. Election of Directors Common Shareholders as a single class AMPS Shareholders as a single class
elect four Directors: Martin Brody, elect two Directors: Nicholas Dalmaso
Donald F. Crumrine, David Gale and and Morgan Gust
Robert F. Wulf
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2. Amendment to Articles Common and AMPS Shareholders, voting Common and AMPS Shareholders,
Supplementary together as a single class voting together as a single class
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3. Other Business Common and AMPS Shareholders, voting together as a single class
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2
SUMMARY OF VOTING RIGHTS ON PROXY PROPOSALS
TOTAL RETURN FUND (FLC)
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PROPOSAL COMMON SHAREHOLDERS AMPS SHAREHOLDERS
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1. Election of Directors Common Shareholders as a single class AMPS Shareholders as a single class
elect four Directors: Martin Brody, elect two Directors: Nicholas Dalmaso
Donald F. Crumrine, David Gale and and Morgan Gust
Robert F. Wulf
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2. Other Business Common and AMPS Shareholders, voting together as a single class
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PROPOSAL 1: ELECTION OF DIRECTORS
At the Meetings, shareholders are being asked to consider the election
of Directors of each Fund. Each nominee named below has consented to serve as a
Director if elected at the relevant Meeting. If a designated nominee declines or
otherwise becomes unavailable for election, however, the proxy confers
discretionary power on the persons named therein to vote in favor of a
substitute nominee or nominees.
NOMINEES FOR THE BOARD OF DIRECTORS
The Board of each Fund is divided into three classes, each class having
a term of three years. The initial election of each Director Nominee will take
place at the Meeting and each year thereafter the term of office of one class
expires and the successor or successors elected to such class serve for a
three-year term. The classes of Directors are the same for each Fund and are
indicated below:
CLASS I DIRECTORS CLASS II DIRECTORS CLASS III DIRECTORS
----------------- ------------------ -------------------
Nicholas Dalmaso Martin Brody Donald F. Crumrine
David Gale Morgan Gust Robert F. Wulf
The Class I Directors of each Fund all have been nominated for a
one-year term to expire at each Fund's 2005 Annual Meeting of Shareholders and
until their successors are duly elected and qualified. Class II Directors of
each Fund all have been nominated for a two-year term to expire at each Fund's
2006 Annual Meeting of Shareholders and until their successors are duly elected
and qualified. Class III Directors of each Fund have all been nominated for a
three-year term to expire at each Fund's 2007 Annual Meeting of Shareholders and
until their successors are duly elected and qualified. Each Director has served
in such capacity since each Fund's commencement of operations.
Under each Fund's Articles of Incorporation, Articles Supplementary and
the Investment Company Act of 1940, as amended (the "1940 Act"), holders of
AMPS, voting as a single class, will be entitled to elect two Directors, and
holders of the Common Stock will be entitled to elect the remaining Directors.
However, subject to the provisions of the 1940 Act and the Fund's Articles of
Incorporation, the holders of AMPS, when dividends are in arrears for two full
years, are able to elect the minimum number of additional Directors, that when
combined with the two Directors elected by the holders of AMPS, would give the
holders of AMPS a majority of the Directors. Nicholas Dalmaso and Morgan Gust,
as Directors, currently represent holders of AMPS of each Fund. A quorum of the
AMPS shareholders must be present at the Meeting of each Fund in order for the
proposal to elect Messrs. Dalmaso and Gust, respectively, to be considered.
FUND (CLASS) NOMINEE(S) FOR DIRECTOR
FFC (Common Stock) Brody
Crumrine
Gale
Wulf
FFC (AMPS) Dalmaso
Gust
FLC (Common Stock) Brody
Crumrine
Gale
Wulf
FLC (AMPS) Dalmaso
Gust
3
INFORMATION ABOUT DIRECTORS AND OFFICERS
Set forth in the table below are the existing Directors and nominees
for election to the Boards of Directors of the Funds, including information
relating to their respective positions held with each Fund, a brief statement of
their principal occupations during the past five years and other directorships,
if any. Each Director serves in the same capacity for each Fund.
NUMBER OF
PRINCIPAL FUNDS IN
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUNDS TIME SERVED* FIVE YEARS BY DIRECTOR** HELD BY DIRECTOR
-------------- --------------- -------------- ------------- ------------- -------------------
NON-INTERESTED
DIRECTORS:
MARTIN BRODY Director Class II Director Retired 4 Director, Jaclyn, Inc.
c/o HMK Associates FFC - since inception (luggage and accessories);
30 Columbia Turnpike FLC - since inception Director Emeritus, Smith
Florham Park, NJ 07932 Barney Mutual Funds
Age: 82 (18 funds); Director,
Flaherty & Crumrine
Preferred Income Fund
Incorporated and Flaherty &
Crumrine Preferred Income
Opportunity Fund
Incorporated.
DAVID GALE Director Class I Director President and CEO 4 Director, Golden State
Delta Dividend Group, Inc. FFC - since inception of Delta Dividend Vintners, Inc. (wine pressing);
220 Montgomery Street, FLC - since inception Group, Inc. Director, Flaherty & Crumrine
Suite 426 (investments) Preferred Income Fund Incor-
San Francisco, CA 94104 porated and Flaherty &
Age: 54 Crumrine Preferred Income
Opportunity Fund
Incorporated.
MORGAN GUST (1) Director Class II Director Since March 2002, 4 Director, Flaherty & Crumrine
Giant Industries, Inc. FFC - since inception President of Giant Preferred Income Fund Incor-
23733 N. Scottsdale Road FLC - since inception Industries, Inc. porated and Flaherty &
Scottsdale, AZ 85255 (petroleum refining Crumrine Preferred Income
Age: 56 and marketing) and, Opportunity Fund
for more than five Incorporated.
years prior thereto,
Executive Vice
President, and
various other
Vice President
positions at
Giant Industries,
Inc.
ROBERT F. WULF Director Class III Director Financial Consultant; 4 Director, Flaherty & Crumrine
3560 Deerfield Drive South FFC - since inception Trustee, University of Preferred Income Fund Incor-
Salem, OR 97302 FLC - since inception Oregon Foundation; porated and Flaherty &
Age: 66 Trustee, San Francisco Crumrine Preferred
Theological Seminary Income Opportunity Fund
Incorporated.
4
NUMBER OF
PRINCIPAL FUNDS IN
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUNDS TIME SERVED* FIVE YEARS BY DIRECTOR** HELD BY DIRECTOR
-------------- --------------- -------------- ------------- ------------- -------------------
INTERESTED
DIRECTORS:
DONALD F. CRUMRINE (1)(2)(3) Director, Class III Director Chairman of the Board 4 Director, Flaherty &
301 E. Colorado Boulevard Chairman of FFC - since inception and Director of Crumrine Preferred
Suite 720 the Board and FLC - since inception Flaherty & Crumrine Income Fund
Pasadena, CA 91101 Chief Executive Incorporated and
Age: 56 Officer Flaherty & Crumrine
Preferred Income
Opportunity Fund
Incorporated.
NICHOLAS DALMASO (1) Director, Class I Director Senior Managing 2 Trustee, Dreman/
201 N. Hale Street Vice President FFC - since inception Director and Claymore Dividend
Wheaton, IL 60187 and Assistant FLC - since inception General Counsel of and Income Fund,
Age: 38 Secretary Claymore Securities, Advent Claymore
Inc. since November, Equity Income Fund,
2001 and Claymore MBIA Capital/
Advisers, LLC since Claymore Managed
October, 2003. Partner Duration Investment
of DBN Group since Grade Municipal
April, 2001. Assistant Fund and Western
General Counsel of Asset/Claymore U.S.
Nuveen Investments Treasury Inflation
from July 1999 to Protection Securities
November, 2001. Prior Fund.
to that, Vice President
and Associate General
Counsel of Van Kampen
Investments.
OFFICERS:
ROBERT M. ETTINGER President Officer President and N/A N/A
301 E. Colorado Boulevard FFC - since inception Director of
Suite 720 FLC - since inception Flaherty & Crumrine
Pasadena, CA 91101
Age: 45
PETER C. STIMES Chief Financial Officer Vice President of N/A N/A
301 E. Colorado Boulevard Officer, Chief FFC - since inception Flaherty & Crumrine
Suite 720 Accounting FLC - since inception
Pasadena, CA 91101 Officer, Vice
Age: 48 President,
Treasurer and
Assistant Secretary
5
NUMBER OF
PRINCIPAL FUNDS IN
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUNDS TIME SERVED* FIVE YEARS BY DIRECTOR** HELD BY DIRECTOR
-------------- --------------- -------------- ------------- ------------- -------------------
OFFICERS:
BRADFORD S. STONE Vice President Officer Since May 2003, N/A N/A
392 Springfield Avenue and Assistant FFC - since 2003 Vice President of
Mezzanine Suite Treasurer FLC - since inception Flaherty & Crumrine;
Summit, NJ 07901 from June 2001 to
Age: 44 April 2003, Director of
US Market Strategy at
Barclays Capital; from
February 1987 to June
2001, Vice President of
Goldman, Sachs &
Company as Director
of US Interest Rate
Strategy and, previously,
Vice President of
Interest Rate
Product Sales
R. ERIC CHADWICK Vice President, Officer Vice President of N/A N/A
301 E. Colorado Boulevard Secretary FFC - since inception Flaherty & Crumrine
Suite 720 and FFC - since inception since August 2001,
Pasadena, CA 91101 Assistant and previously (since
Age: 28 Treasurer January 1999) portfolio
manager of Flaherty &
Crumrine. Prior to that,
portfolio manager of
Koch Industries, Inc.
-----------------------------------
* Class I Directors of each Fund all have been nominated for a one-year
term to expire at each Fund's 2005 Annual Meeting of Shareholders and
until their successors are duly elected and qualified. Class II
Directors of each Fund all have been nominated for a two-year term to
expire at each Fund's 2006 Annual Meeting of Shareholders and until
their successors are duly elected and qualified. Class III Directors of
each Fund all have been nominated for a three-year term to expire at
each Fund's 2007 Annual Meeting of Shareholders and until their
successors are duly elected and qualified.
** The funds in the fund complex are: Flaherty & Crumrine Preferred Income
Fund Incorporated, Flaherty & Crumrine Preferred Income Opportunity
Fund Incorporated, Flaherty & Crumrine/Claymore Preferred Securities
Income Fund Incorporated and Flaherty & Crumrine/Claymore Total Return
Fund Incorporated (together, the "Flaherty & Crumrine Fund Family").
(1) As a Director, represents holders of AMPS.
(2) "Interested person" of the Funds as defined in the 1940 Act. Messrs.
Crumrine and Dalmaso are each considered an "interested person" because
of their affiliation with the Adviser and the Servicing Agent,
respectively.
(3) During the year ended November 30, 2003, Donald F. Crumrine purchased
100 shares of common stock of Flahery & Crumrine for $81,212.20, paid
in cash, from Robert T. Flaherty.
BENEFICIAL OWNERSHIP OF SHARES IN FUNDS AND FUND COMPLEX FOR EACH DIRECTOR AND
NOMINEE FOR ELECTION AS DIRECTOR
Set forth in the table below is the dollar range of equity securities
in each Fund and the aggregate dollar range of equity securities in the Flaherty
& Crumrine Fund Family beneficially owned by each Director.
6
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY DIRECTOR IN
NAME OF DIRECTOR SECURITIES HELD IN FUND* (1)(2) FAMILY OF INVESTMENT COMPANIES* (3)
---------------- ------------------------------- ---------------------------------------
FFC FLC TOTAL
--- --- -----
NON-INTERESTED DIRECTORS:
Martin Brody C D E
David Gale C C E
Morgan Gust C C E
Robert F. Wulf C B D
INTERESTED DIRECTORS:
Donald F. Crumrine E(4) E(4) E(4)
Nicholas Dalmaso A A A
---------------------------
* Key to Dollar Ranges
A. None
B. $1 - $10,000
C. $10,001 -$50,000
D. $50,001 - $100,000
E. over $100,000
All shares were valued as of December 31, 2003.
(1) No Director or officer of the Funds owned any shares of AMPS on January
26, 2004.
(2) This information has been furnished by each Director as of January 29,
2004. "Beneficial Ownership" is determined in accordance with Rule
16a-1(a)(2) of the 1934 Act.
(3) As a group, less than 1%.
(4) Includes shares of FFC and FLC held by Flaherty & Crumrine of which the
reporting person is a shareholder and director.
Each Director of each Fund who is not a director, officer or employee
of Flaherty & Crumrine or any of their affiliates receives a fee of $9,000 per
annum plus $500 for each in-person meeting, and $150 for each telephone meeting
for FFC and $100 for each telephone meeting for FLC. In addition, effective
October 17, 2003, the Audit Committee Chairman receives an annual fee per Fund
of $2,500. Each Director of each Fund is reimbursed for travel and out-of-pocket
expenses associated with attending Board and committee meetings. The Board of
Directors of FFC held ten meetings (four of which were held by telephone
conference call) and the Board of Directors of FLC held five meetings (two of
which were held by telephone conference call) during the fiscal year ended
November 30, 2003, and all of the Directors of each Fund then serving in such
capacity attended at least 75% of the meetings of Directors and any Committee of
which he is a member. In addition, one meeting of a special "ad hoc" committee
of the Board of Directors was held for FFC. The aggregate remuneration paid to
the Directors and officers of each Fund for the fiscal year ended November 30,
2003 is set forth below:
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BOARD MEETING TRAVEL AND
ANNUAL AND OUT-OF-POCKET
DIRECTORS FEES COMMITTEE MEETING FEES EXPENSES*
--------------------------------------------------------------------------------
FFC $34,296 $21,800 $19,154
FLC $13,404 $10,300 $6,099
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--------------
* Includes reimbursement for travel and out-of-pocket expenses for both
"interested" and "non-interested" Directors ("Independent Directors").
AUDIT COMMITTEE REPORT
The role of each Fund's Audit Committee is to assist the Board of
Directors in its oversight of (i) the integrity of each Fund's financial
statements and the independent audit therof; (ii) each Fund's accounting and
financial reporting policies and practices, its internal controls and, as
appropriate, the internal controls of certain service providers; (iii) each
Fund's compliance with legal and regulatory requirements; and (iv) the
independent auditor's qualifications, independence and performance. In addition,
pursuant to each Fund's Audit Committee Charter, each Fund's Audit Committee is
also required to prepare an audit committee report pursuant to the rules of the
Securities and Exchange Commission (the "SEC") for inclusion in each Fund's
annual proxy statement. Each Audit Committee operates pursuant to a Charter that
was most recently reviewed and approved by the Board of Directors of each Fund
on January 21, 2004. The Audit Committee Charter appli-
7
cable to each Fund is attached as Annex A to this Joint Proxy Statement. As set
forth in the Charter, management is responsible for (i) the preparation,
presentation and integrity of each Fund's financial statements, (ii) the
maintenance of appropriate accounting and financial reporting principles and
policies, and (iii) the maintenance of internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. The independent accountants are responsible for planning and
carrying out proper audits and reviews of each Fund's financial statements and
expressing an opinion as to their conformity with accounting principles
generally accepted in the United States of America.
In performing its oversight function, at a meeting held on January 21,
2004, the Audit Committee reviewed and discussed with management of each Fund
and the independent accountants, KPMG LLP ("KPMG"), the audited financial
statements of each Fund as of and for the fiscal year ended November 30, 2003,
and discussed the audit of such financial statements with the independent
accountants.
In addition, the Audit Committee discussed with the independent
accountants the accounting principles applied by each Fund and such other
matters brought to the attention of the Audit Committee by the independent
accountants required by Statement of Auditing Standards No. 61, Communications
with Audit Committees, as currently modified or supplemented. The Audit
Committee also received from the independent accountants the written disclosures
and statements required by the SEC's independence rules, delineating
relationships between the independent accountants and each Fund and discussed
the impact that any such relationships might have on the objectivity and
independence of the independent accountants.
As set forth above, and as more fully set forth in each Fund's Audit
Committee Charter, the Audit Committee has significant duties and powers in its
oversight role with respect to the Fund's financial reporting procedures,
internal controls systems, and the independent audit process.
The members of the Audit Committee are not, and do not represent
themselves to be, professionally engaged in the practice of auditing or
accounting and are not employed by each Fund for accounting, financial
management or internal control. Moreover, the Audit Committee relies on and
makes no independent verification of the facts presented to it or
representations made by management or independent verification of the facts
presented to it or representations made by management or the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles and policies, or internal controls
and procedures, designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not provide assurance that
the audit of each Fund's financial statements has been carried out in accordance
with generally accepted accounting standards or that the financial statements
are presented in accordance with generally accepted accounting principles.
Based on its consideration of the audited financial statements and the
discussions referred to above with management and the independent accountants
and subject to the limitations on the responsibilities and role of the Audit
Committee set forth in the Charter and those discussed above, the Audit
Committee of each Fund recommended to the Board of Directors of each Fund that
the audited financial statements be included in each Fund's Annual Report for
the fiscal year ended November 30, 2003.
THIS REPORT WAS SUBMITTED BY THE AUDIT COMMITTEE OF EACH FUND'S BOARD OF
DIRECTORS
Martin Brody
David Gale
Morgan Gust
Robert Wulf (Chairman)
January 21, 2004
The Audit Committee for FFC met four times and the Audit Committee for
FLC met twice during the fiscal year ended November 30, 2003. Each Audit
Committee is composed entirely of the relevant Fund's independent (as such term
is defined by the New York Stock Exchange, Inc.'s listing standards (the "NYSE
Listing Standards")) Directors, namely Messrs. Brody, Gale, Gust and Wulf.
NOMINATING COMMITTEE
Each Board of Directors has a Nominating Committee composed entirely of
each Fund's independent (as such term is defined by the NYSE Listing Standards)
Directors, namely Messrs. Brody, Gale, Gust and Wulf. The Nominating Committee
of each Fund did not meet during the fiscal year ended November 30, 2003. The
Nominating Committee is
8
responsible for identifying individuals believed to be qualified to become Board
members and recommending to the Board of Directors such nominees to stand for
election as directors at each Fund's annual meeting of shareholders and to fill
any vacancies on the Board. Each Fund's Nominating Committee has a charter which
is available on the Funds' website (www.fcclaymore.com).
Each Fund's Nominating Committee believes that it is in the best
interest of the Fund and its shareholders to obtain highly qualified candidates
to serve as members of the Board of Directors. The Nominating Committees have
not established a formal process for identifying candidates where a vacancy
exists on the Board. In nominating candidates, the Nominating Committee shall
take into consideration such factors as it deems appropriate. These factors may
include judgment, skill, diversity, experience with investment companies and
other organizations of comparable purpose, complexity, size and subject to
similar legal restrictions and oversight, the interplay of the candidate's
experience with the experience of other Board members, and the extent to which
the candidate would be a desirable addition to the Board and any committees
thereof.
Each Fund's Nominating Committee will consider director candidates
recommended by shareholders and submitted in accordance with applicable law and
procedures as described in this Joint Proxy Statement (see "Submission of
Shareholder Proposals" below).
OTHER BOARD-RELATED MATTERS
Shareholders who wish to send communications to the Board should send
them to the address of the Fund and to the attention of the Board. All such
communications will be directed to the Board's attention.
The Funds do not have a formal policy regarding Board member attendance
at the Annual Meeting of Shareholders.
COMPENSATION
The following table sets forth certain information regarding the
compensation of each Fund's Directors for the fiscal year ended November 30,
2003. No executive officer or person affiliated with the Fund received
compensation from the Fund during the fiscal year ended November 30, 2003 in
excess of $60,000. Directors and executive officers of the Funds do not receive
pension or retirement benefits from the Funds.
COMPENSATION TABLE
NAME OF AGGREGATE TOTAL COMPENSATION FROM
PERSON AND COMPENSATION THE FUNDS AND FUND
POSITION FROM EACH FUND COMPLEX PAID TO DIRECTORS*
-------- -------------- --------------------------
DONALD F. CRUMRINE $0 $0 (4)
Director, Chairman of the Board
and Chief Executive Officer
NICHOLAS DALMASO $0 $0 (2)
Director
MARTIN BRODY $13,574 - FFC $46,725 (4)
Director $ 5,551 - FLC
DAVID GALE $14,074 - FFC $47,725 (4)
Director $ 6,051 - FLC
MORGAN GUST $14,274 - FFC $48,125 (4)
Director $ 6,051 - FLC
ROBERT F. WULF $14,174 - FFC $48,628 (4)
Director $ 6,051 - FLC
------------------------------
* Represents the total compensation paid to such persons by the Funds and
the other funds in the Flaherty & Crumrine Fund Family for, in the case
of FFC and FLC, the fiscal period from each Fund's commencement of
operations through November 30, 2003, and, in the case of Flaherty &
Crumrine Preferred Income Fund Incorporated and Flaherty & Crumrine
Preferred Income Opportunity Fund Incorporated, for the fiscal year
ended November 30, 2003, which are considered part of the same "fund
complex" because they have a common adviser. The parenthetical number
represents the total number of investment company directorships held by
the director or nominee in such fund complex as of November 30, 2003.
9
REQUIRED VOTE
The election of Messrs. Brody, Crumrine, Gale and Wulf as Directors of
each Fund will require the affirmative vote of a plurality of the votes cast by
holders of the shares of Common Stock of each Fund at the Meeting in person or
by proxy. The election of Messrs. Dalmaso and Gust as Directors of each Fund
will require the affirmative vote of a plurality of the votes cast by holders of
the shares of AMPS of each Fund at the Meeting in person or by proxy.
Proposal 1 is a routine item. A routine item is one which occurs
annually and makes no fundamental or material changes to a fund's investment
objectives, policies or restrictions, or to the investment management contracts.
EACH BOARD OF DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS,
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" EACH NOMINEE AS
DIRECTOR.
PROPOSAL 2: APPROVAL OF AN AMENDMENT TO THE PREFERRED SECURITIES FUND'S
ARTICLES SUPPLEMENTARY
The second proposal to be considered at the Meeting is amending FFC's
Articles Supplementary Establishing and Fixing the Rights and Preferences of
Auction Market Preferred Stock (the "Articles Supplementary") as set forth in
the proposed Articles of Amendment (the "Proposed Amendment") described below
and attached to this Joint Proxy Statement as Annex B.
The Articles Supplementary establish procedures for regular periodic
auctions for FFC's AMPS. The auctions establish the dividend rate to be paid to
the holders of the AMPS for the next dividend period and are held by FFC's
auction agent at the times and in the manner provided in the Articles
Supplementary.
The Articles Supplementary currently contain a provision (the "Force
Majeure Provision") which provides that, if an auction date for any series
("Series") of AMPS is not a business day because the New York Stock Exchange
("NYSE") is closed for business due to an act of God, natural disaster, extreme
weather, act of war, civil or military disturbance, act of terrorism, sabotage,
riots or a loss or malfunction of utilities or communications services (each, an
"Extraordinary Event"), or if the auction agent is not able to conduct an
auction in accordance with the auction procedures for any such reason, the
dividend rate for the next dividend period for that Series will be the dividend
rate determined on the previous auction date.
The Proposed Amendment would revise the Force Majeure Provision to (a)
modify how the dividend rate to be paid to the holders of AMPS is determined by
creating a distinction between situations where the NYSE is closed for (i) more
than three calendar days or (ii) three or fewer calendar days and (b) provides
that if an Extraordinary Event occurs with respect to a Series of AMPS, existing
holders of such Series will continue to hold their AMPS until the next auction
for that Series of AMPS is held. With regard to dividend payments that cannot be
effected due to NYSE closures for an Extraordinary Event, the Proposed Amendment
also creates a distinction between deferral of dividend payment dates for more
than three days and three or fewer days.
The purpose of the Proposed Amendment is to revise and clarify the
procedures for auctions and dividend payments for certain situations outside the
control of FFC that force the NYSE to close or prevent the auction agent from
conducting an auction.
DIVIDEND RATE PROVISION. The revised Force Majeure Provision provides
that if an auction date is not a business day because the NYSE is closed for
more than three consecutive calendar days (excluding Saturdays and Sundays and
previously announced NYSE holidays), or the auction agent cannot conduct an
auction in accordance with the auction procedures for such period, due to an
Extraordinary Event, then the dividend rate to be paid to the holders of the
AMPS will be the dividend rate determined on the previous auction date. If an
auction date is not a business day because the NYSE is closed for three or fewer
than three consecutive calendar days, or if the auction agent cannot conduct an
auction in accordance with the auction procedures for such period due to an
Extraordinary Event, then the dividend rate to be paid to the holders of the
AMPS will be the dividend rate determined by auction on the first business day
(i.e., the first day on which the NYSE is open) following such auction date.
DIVIDEND PAYMENT PROVISION. The current provision applicable to payment
of a dividend where the NYSE is closed due to an Extraordinary Event would
similarly be modified to distinguish short-term from longer-term closings. Under
the Articles Supplementary currently, special provisions allow the deferral of a
dividend payment to the next business day on which FFC and the auction agent are
able to cause the dividend to be paid using commercially reasonable available
means. The Proposed Amendment narrows the circumstances in which this deferral
would apply to where the NYSE is closed for more than three consecutive calendar
days due to an Extraordinary Event.
10
HOLD OVER PROVISION. The proposed revised Force Majeure Provision also
provides that in the event an auction for a Series of AMPS cannot be held due to
an Extraordinary Event, each existing holder of such Series of AMPS will
continue to hold all of his or her AMPS until the next auction for such Series
of AMPS is held (unless a holder sells his or her AMPS outside of an auction in
a secondary trading market). This means that a holder would, under these
circumstances, be required to hold his or her AMPS for another dividend period
(which would be seven days in the case of Series M7, T7, W7, TH7 and F7 AMPS and
28 days in the case of Series T28 and W28 AMPS).
REASONS FOR THE PROPOSED AMENDMENT. The Proposed Amendment is designed
to bring the Force Majeure provisions for FFC into line with those for FLC and
current practices for newly issued preferred shares of closed-end funds. It is
also designed to make clear, rather than implicit, that holders of a Series of
AMPS will be required to continue to hold their shares of that Series until an
auction is held following an Extraordinary Event. Under the Proposed Amendment,
if a NYSE closing is of short duration, a new auction will be held, while only
under longer-duration closings (or a longer- duration inability of the auction
agent to conduct an auction) will the holders maintain the current dividend
rate. As a result, AMPS holders may benefit. Rather than receiving the existing
dividend rate for an additional period in all instances, AMPS holders will be
entitled to the rate resulting from an auction when the NYSE is closed for three
days or less due to an Extraordinary Event. The same holds true for dividend
payment dates. If a NYSE closing is of short duration, the dividend payment date
would be the regular dividend payment date determined in accordance with the
Articles Supplementary. A dividend payment date would be deferred to the next
business day on which FFC and the auction agent are able to cause the dividend
to be paid using commercially reasonable means only for longer-duration
closings.
At a meeting held on January 21, 2004, the Board of Directors of FFC
approved the Proposed Amendment, subject to shareholder approval and subject to
receipt of written confirmation by the rating agencies rating the AMPS, as
discussed below. The Board considered a number of factors in its deliberations,
including that the effect of the Proposed Amendment to the Articles
Supplementary is to ensure that, upon an Extraordinary Event, FFC's auction for
its AMPS can be conducted pursuant to clear procedures set forth in its Articles
Supplementary; that the Proposed Amendment will benefit AMPS holders in the
event of a NYSE closing of three days or less due to an Extraordinary Event by
allowing their dividend rate to be determined at an auction in the ordinary
course; and that the Proposed Amendment would bring the Force Majeure Provision
for FFC in line with that for FLC and current industry practice. The Board also
considered the potential benefit to the Common Shareholders of the Proposed
Amendment. In particular, they considered that the change could mitigate any
disruption of the Fund's AMPS auction due to an Extraordinary Event, thereby
preserving any potential benefit derived from the Fund being leveraged with
AMPS.
REQUIRED VOTE
Approval of the Articles of Amendment will require the affirmative vote
of a majority of the outstanding shares of stock entitled to be cast by the
holders of FFC's Common Stock and AMPS, voting together as a single class. The
Proposed Amendment will not be implemented unless Moody's Investor Service, Inc.
("Moody's") and Fitch Ratings ("Fitch"), the ratings agencies currently rating
the AMPS, confirm that the Proposed Amendment would not impair their current
ratings on the AMPS ("Aaa" and "AAA," respectively). Conversations have been
held with both Moody's and Fitch and they have indicated preliminarily their
willingness to confirm their ratings.
THE BOARD OF DIRECTORS OF FFC UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" PROPOSAL NO. 2.
SUBMISSION OF SHAREHOLDER PROPOSALS
All proposals by shareholders of each Fund that are intended to be
presented at each Fund's next Annual Meeting of Shareholders to be held in 2005
must be received by the relevant Fund for consideration for inclusion in the
relevant Fund's proxy statement relating to the meeting no later than October
[--], 2004 and must satisfy the other requirements of federal securities laws.
Each Fund's By-laws require shareholders wishing to nominate Directors
or make proposals to be voted on at the Fund's annual meeting to provide timely
notice of the proposal in writing. To be considered timely, any such notice must
be delivered to or mailed and received at the principal executive offices of the
Fund not later than 60 days prior to the date of the meeting; provided however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, any such notice by a shareholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which notice of the date of the annual meeting was given or
such public disclosure was made.
11
Any such notice by a shareholder shall set forth the information
required by the Fund's By-laws with respect to each matter the shareholder
proposes to bring before the annual meeting.
ADDITIONAL INFORMATION
INDEPENDENT ACCOUNTANTS
KPMG, 99 High Street, Boston, Massachusetts 02110-2371, has been
selected to serve as each Fund's independent accountants for each Fund's fiscal
year ending November 30, 2004. KPMG acted as the independent accountants for
each Fund for the fiscal period from each Fund's commencement of operations
through November 30, 2003. The Funds know of no direct financial or material
indirect financial interest of KPMG in the Funds. A representative of KPMG will
not be present at the Meeting, but will be available by telephone and will have
an opportunity to make a statement, if asked, and will be available to respond
to appropriate questions.
Set forth in the table below are audit fees and non-audit related fees
billed to each Fund by KPMG for professional services received for each Fund's
fiscal period ended November 30, 2003.
FISCAL PERIOD ENDED AUDIT-RELATED
FUND NOVEMBER 30 AUDIT FEES* FEES** TAX FEES*** ALL OTHER FEES
---- ----------- ----------- ------ ----------- --------------
FFC 2003 58,500 12,800 6,000 --
FLC 2003 58,500 6,400 6,000 --
-------------------------
* Includes non-recurring fees billed to each Fund by KPMG in connection with
the initial offering of Common Stock and AMPS of each Fund.
** "Audit-Related Fees" are those fees billed to each Fund by KPMG in
connection with their agreed-upon procedures reports on each Fund's
Articles Supplementary. Such reports are required quarterly by Moody's and
Fitch in connection with maintaining public ratings for each Fund's AMPS.
*** "Tax Fees" are those fees billed to each Fund by KPMG in connection with
tax consulting services, including primarily the review of each Fund's
income tax returns.
Each Fund's Audit Committee Charter requires that the Audit Committee
pre-approve all audit and non-audit services to be provided by the auditors to
the Fund, and all non-audit services to be provided by the auditors to the
Fund's investment adviser ("affiliates") and any service providers controlling,
controlled by or under common control with the Funds' investment adviser that
provide on-going services to each Fund, if the engagement relates directly to
the operations and financial reporting of each Fund, or to establish detailed
pre-approval policies and procedures for such services in accordance with
applicable laws. All of the audit, audit-related and tax services for which KPMG
billed each Fund fees for each Fund's fiscal period ended November 30, 2003 were
pre-approved by the Audit Committee.
For each Fund's fiscal period ended November 30, 2003, KPMG did not
provide any non-audit services (or bill any fees for such services) to the
Funds' investment adviser or any affiliates thereof that provide services to the
Funds.
INVESTMENT ADVISER AND ADMINISTRATOR
Flaherty & Crumrine serves as the investment adviser to each Fund and
its business address is 301 E. Colorado Boulevard, Suite 720, Pasadena,
California 91101. PFPC Inc. acts as the administrator to each Fund and is
located at 4400 Computer Drive, Westborough, Massachusetts 01581.
12
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the 1934 Act and Section 30(h) of the 1940 Act require
each Fund's directors and officers, certain persons affiliated with Flaherty &
Crumrine and persons who beneficially own more than 10% of a registered class of
each Fund's securities, to file reports of ownership and changes of ownership
with the SEC, the New York Stock Exchange, Inc. and each Fund. Directors,
officers and greater-than-10% shareholders are required by SEC regulations to
furnish each Fund with copies of such forms they file. Based solely upon its
review of the copies of such forms received by it and written representations
from certain of such persons, each Fund believes that during 2003, all such
filing requirements applicable to such persons were met, except that two filings
on behalf of Mr. Gale, whose purchase of (i) 1,000 shares of FFC's Commom Stock
during the initial offering of the Fund's Common Stock on January 29, 2003 was
filed on October 6, 2003 and (ii) 1,000 shares of FLC's Common Stock during the
initial offering of the Fund's Common Stock on August 29, 2003 was filed on
January 30, 2004.
BROKER NON-VOTES AND ABSTENTIONS
A proxy which is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter). Proxies that reflect abstentions or broker non-votes (collectively
"abstentions") will be counted as shares that are present and entitled to vote
on the matter for purposes of determining the presence of a quorum. Under
Maryland law, abstentions do not constitute a vote "for" or "against" a matter
and will be disregarded in determining the "votes cast" on an issue.
OTHER MATTERS TO COME BEFORE THE MEETING
Each Fund does not intend to present any other business at the relevant
Meeting, nor is either Fund aware that any shareholder intends to do so. If,
however, any other matters are properly brought before the Meeting, the persons
named in the accompanying form of proxy will vote thereon in accordance with
their judgment.
--------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETINGS ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND
RETURN ALL PROXY CARDS AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
--------------------------------------------------------------------------------
13
ANNEX A
AUDIT COMMITTEE CHARTER
1. The Audit Committee (the "Committee") shall consist of at least
three members and shall be composed entirely of independent directors (within
the meaning of the applicable regulatory requirements), all of whom shall be
financially literate and at least one of whom shall have accounting or related
financial management expertise as determined by the Fund's Board in its business
judgment. At least one member of the Committee may qualify and be designated an
"audit committee financial expert" ("ACFE"), within the meaning of the rules
adopted and implemented under Section 407 of the Sarbanes-Oxley Act of 2002.
2. The purposes of the Committee are:
(a) to assist Board oversight of (i) the integrity of the
Fund's financial statements and the independent audit thereof; (ii) the Fund's
accounting and financial reporting policies and practices, its internal controls
and, as appropriate, the internal controls of certain service providers; (iii)
the Fund's compliance with legal and regulatory requirements; and (iv) the
independent auditor's (the "auditors") qualifications, independence and
performance; and
(b) to prepare the report required to be prepared by the
Committee pursuant to the rules of the Securities and Exchange Commission (the
"SEC") for inclusion in the Fund's annual proxy statement.
The auditors shall report directly to the Committee.
The function of the Committee is oversight. The Fund's management is
responsible for (i) the preparation, presentation and integrity of the Fund's
financial statements, (ii) the maintenance of appropriate accounting and
financial reporting principles and policies and (iii) the maintenance of
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The auditors are responsible for
planning and carrying out proper audits and reviews. In fulfilling their
responsibilities hereunder, it is recognized that members of the Committee are
not employees of the Fund and are not, and do not represent themselves to be,
accountants or auditors by profession or experts in the fields of accounting or
auditing, notwithstanding the possibility that one or more members may be
designated an ACFE. As such, it is not the duty or responsibility of the
Committee or its members to conduct "field work" or other types of auditing or
accounting reviews or procedures. Each member of the Committee shall be entitled
to rely on (i) the integrity of those persons and organizations within and
outside the Fund from which it receives information and (ii) the accuracy of the
financial and other information, including, for example, the information
contemplated by paragraph 3(d), provided to the Committee by such persons and
organizations absent actual knowledge to the contrary (which shall be promptly
reported to the Fund's Board). In addition, the evaluation of the Fund's
financial statements by the Committee is not of the same scope as, and does not
involve the extent of detail as, audits performed by the auditors, nor does the
Committee's evaluation substitute for the responsibilities of the Fund's
management for preparing, or the auditors for auditing, the financial
statements. The designation of a person as an ACFE is not intended to impose any
greater responsibility or liability on that person than the responsibility and
liability imposed on such person as a member of the Committee, nor does it
decrease the duties and obligations of other Committee members or the Board.
3. To carry out its purposes, the Committee shall have the following
duties and powers:
(a) be directly responsible for the appointment, compensation,
retention and oversight of the work of the Fund's auditors or any other public
accounting firm engaged for the purposes of preparing or issuing an audit report
or performing other audit, review or attest services for the Fund (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) and, in connection therewith, evaluate the
independence of the auditors;
(b) to pre-approve all audit and non-audit services to be
provided by the auditors to the Fund, and all non-audit services to be provided
by the auditors to the Fund's investment adviser and any service providers
controlling, controlled by or under common control with the Fund's investment
adviser that provide ongoing services to the Fund, if the engagement relates
directly to the operations and financial reporting of the Fund, or to establish
detailed pre-approval policies and procedures for such services in accordance
with applicable laws;
(c) to consider whether the provision by the Fund's auditor of
non-audit services to its investment adviser or adviser affiliate that provides
ongoing services to the Fund, which services were not pre-approved by the Audit
Committee, is compatible with maintaining the auditor's independence;
A-1
(d) to meet with the Fund's auditors, including private
meetings as necessary: (i) to review the arrangements for and scope of the
annual audit and any special audits; (ii) to review the scope of non-audit
services being provided; (iii) to discuss any matters of concern relating to the
Fund's financial statements, including any adjustments to such statements
recommended by the auditors, or other results of said audits; (iv) to consider
the auditor's comments with respect to the Fund's financial policies, procedures
and internal accounting controls and management's responses thereto; (v) to
obtain annually in writing from the auditors their letter as to the adequacy of
such controls; (vi) to review any difficulties the auditors encountered in the
course of the audit, including any restrictions on their activities or access to
requested information and any significant disagreements with management, and
management's response thereto; (vii) to review the form of report the auditors
propose to render to the Board and shareholders; and (viii) to ensure receipt of
a formal written statement from the auditors at least annually specifically
delineating all relationships between the auditors and the Fund, including any
relationships or services that may impact the auditors' objectivity and
independence;
(e) at least annually, obtain and review a report by the
Fund's independent auditor describing the auditor's internal quality control
procedures; any material issues raised by the most recent internal quality
control review, or peer review, of the independent auditor, or by any inquiry or
investigation by governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried out by the
independent auditor, and any steps taken to deal with any such issues; and for
the purpose of assessing the auditor's independence, all relationships between
the independent auditor and the Fund;
(f) to meet with the Fund's management and, in the case of
audited financial statements, the auditors: (i) to discuss the annual audited
financial statements and semi-annual financial statements and any quarterly
financial statements; (ii) to discuss generally earnings press releases and any
financial information and earnings guidance provided to analysts and rating
agencies, if any (but the Committee need not discuss in advance each earnings
release or each instance in which the Fund may provide earnings guidance); (iii)
to review all critical accounting policies and practices applied by the Fund in
preparing its financial statements; (iv) to review all alternative treatments
within generally accepted accounting principles for policies and practices
related to material items that have been discussed with management; and (v) to
review other material written communications between the auditor and the Fund,
including any management letter, report or recommendation on internal controls,
schedule of unadjusted differences, engagement letter and independence letter;
(g) to review with the Fund's principal executive officer
and/or principal financial officer in connection with their certification of
Form N-CSR any significant deficiencies in the design or operation of internal
controls which could adversely affect the Fund's ability to record, process,
summarize and report financial data or material weaknesses therein and any
reported evidence of fraud involving management of other employees who have a
significant role in the Fund's internal controls;
(h) to consider and evaluate the effect upon the Fund of
significant changes in accounting principles, practices, controls or procedures
proposed or contemplated by management or the auditors;
(i) to discuss guidelines and policies governing the process
by which management of the Fund manages the Fund's exposure to risk, and to
discuss the Fund's major financial risk exposures and the steps management has
taken to monitor and control such exposures;
(j) to establish procedures for the receipt, retention and
treatment of complaints regarding accounting, internal accounting controls or
auditing matters, including procedures for the confidential anonymous submission
by employees of the investment adviser or any other provider of accounting
related services, as well as any employees of the Fund, of concerns regarding
questionable accounting or auditing matters pertaining to the Fund;
(k) to establish hiring policies for employees or former
employees of the auditor consistent with government regulations;
(l) to review and evaluate the qualifications, performance and
independence of the lead partner of the auditors;
(m) to discuss with management the timing and process for
implementing the rotation of the lead audit partner and the reviewing partner,
and to consider whether there should be a regular rotation of the audit firm
itself;
A-2
(n) to cause the preparation of any report or other
disclosures required by the New York Stock Exchange or the Securities and
Exchange Commission; and
(o) to report its activities to the full Board on a periodic
basis and make such recommendations with respect to the matters within the scope
of its authority and other matters, as the Committee may deem necessary or
appropriate; and
(p) to prepare and review with the Board an annual performance
evaluation of the Committee, which evaluation shall compare the performance of
the Committee with the requirements of this Charter. The performance evaluation
by the Committee shall be conducted in such manner as the Committee deems
appropriate. The report to the Board may take the form of an oral report by the
chairperson of the Committee or any other member of the Committee designated by
the Committee to make this report.
4. The Committee shall meet as frequently as necessary to carry out its
obligations and is empowered to hold special meetings as circumstances require
and shall periodically meet separately with management and with the auditors. A
majority of the total number of members of the Committee shall constitute a
quorum of the Committee. A majority of the members of the Committee present
shall be empowered to act on behalf of the Committee. The Committee shall
regularly meet (typically, on the same day as regular Committee meetings) with
the Fund's management and with the personnel of the Fund's administrator.
Members of the Committee may participate in a meeting of the Committee in person
or by means of a conference call or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
5. The Committee may, in its discretion, delegate all or a portion of
its duties and responsibilities to a subcommittee of the Committee, which shall
be comprised of at least one person. Any actions of the subcommittee shall be
presented to the full Committee at the next meeting of the Committee.
6. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain, as it deems
necessary to carry out its duties, special counsel and other experts or
consultants at the expense of the Fund. The Fund shall provide appropriate
funding for the Committee to discharge its responsibilities, including for the
payment of compensation to (a) any registered public accounting firm engaged to
prepare or issue an audit report or perform other audit, review or attest
services for the Fund, (b) any advisers employed by the Committee and (c)
ordinary administrative expenses.
7. The Committee shall review the adequacy of this Charter at least
annually and recommend any changes to the full Board. The Board also shall
review and approve this Charter at least annually.
8. This Charter may be altered, amended or repealed, or a new Charter
may be adopted, by the Board by the affirmative vote of a majority of all of the
members of the Board, including a majority of the "non-interested" Board members
(within the meaning of the Investment Company Act of 1940, as amended).
9. With respect to any subsequent changes to the composition of the
Committee, and otherwise approximately once each year, the Fund shall provide
the New York Stock Exchange written confirmation regarding:
(a) any determination that the Fund's Board has made regarding
the independence of directors pursuant to the New York Stock Exchange's
governance standards or applicable law;
(b) the financial literacy of the Committee members;
(c) the determination that at least one of the Committee
members has accounting or related financial management expertise; and
(d) the annual review and reassessment of the adequacy of the
Charter.
Amended and Re-Adopted: January 21, 2004
A-3
ANNEX B
ARTICLES OF AMENDMENT OF
FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND INCORPORATED
Flaherty & Crumrine/Claymore Preferred Securities Income Fund
Incorporated (the "Corporation"), a corporation organized and existing under and
by virtue of the Maryland General Corporation Law, hereby certifies that:
FIRST: Part II, Section 7 of the Articles Supplementary Establishing and Fixing
the Rights and Preferences of Auction Market Preferred Stock of the Corporation,
as filed with the State Department of Assessments and Taxation on April 20,
2003, is hereby amended as follows: By deleting in its entirety the current
Section 7 of Part II and substituting therefore the following new Section 7:
"7. FORCE MAJEURE.
(a) Notwithstanding anything else set forth herein,
(i) if an Auction Date is not a Business Day because the
New York Stock Exchange is closed for business for
more than three consecutive calendar days (excluding
Saturdays and Sundays and previously announced New
York Stock Exchange holidays) due to an act of God,
natural disaster, extreme weather, act of war, civil
or military disturbance, act of terrorism, sabotage,
riots or a loss or malfunction of utilities or
communications services, or if the Auction Agent is
not able to conduct an Auction in accordance with the
Auction Procedures for any such reason, then the
Applicable Rate for the next Dividend Period shall be
the Applicable Rate determined on the previous
Auction Date; and
(ii) if an Auction Date is not a Business Day because the
New York Stock Exchange is closed for business for
three or fewer than three consecutive calendar days
(excluding Saturdays and Sundays and previously
announced New York Stock Exchange holidays) due to an
act of God, natural disaster, extreme weather, act of
war, civil or military disturbance, act of terrorism,
sabotage, riots or a loss or malfunction of utilities
or communications services, or if the Auction Agent
is not able to conduct an Auction in accordance with
the Auction Procedures for any such reason, then the
Applicable Rate for the next Dividend Period shall be
the Applicable Rate determined by auction on the
first Business Day following such Auction Date.
(b) Notwithstanding anything else set forth herein, if a Dividend
Payment Date is not a Business Day because the New York Stock
Exchange is closed for business for more than three
consecutive calendar days due to an act of God, natural
disaster, extreme weather, act of war, civil or military
disturbance, act of terrorism, sabotage, riots or a loss or
malfunction of utilities or communications services, or if
the dividend payable on such date can not be paid for any
such reason, then:
(i) The Dividend Payment Date for the affected Dividend
Period shall be the next Business Day on which the
Fund and the Auction Agent are able to cause the
dividend to be paid using commercially reasonable
best efforts;
(ii) The affected Dividend Period shall end on the day it
would have ended had such event not occurred and the
Dividend Payment Date had remained the scheduled
date; and
(iii) The next Dividend Period will begin and end on the
dates on which it would have begun and ended had such
event not occurred and the Dividend Payment Date
remained the scheduled date.
(c) In the event that either provision (a) or (b) of this Section
7 is applicable for a Series of Preferred Shares, each
Beneficial Owner or Existing Holder, as the case may be, of
such Series of Preferred Shares shall hold all of the
Preferred Shares of such Series held by such Beneficial Owner
or Existing Holder until the next Auction Date for such
Series of Preferred Shares (unless the Beneficial Owner or
Existing Holder, as the case may be, of such Series of
Preferred Shares sells his or her Preferred Shares outside of
an Auction in a secondary trading market)."
B-1
SECOND: The amendment to the Charter of the Corporation set
forth in Article FIRST above was advised by the Board of Directors and approved
by the stockholders.
IN WITNESS WHEREOF, the undersigned officers of the
Corporation have executed these Articles of Amendment and do hereby acknowledge
that these Articles of Amendment are the act and deed of the Corporation and
that, to the best of their knowledge, information and belief, the matters and
facts contained herein with respect to authorization and approval are true in
all material respects, under penalties of perjury.
DATE: _______________, 2004 ____________________________
Donald F. Crumrine
Chief Executive Officer
WITNESS:
--------------------------
R. Eric Chadwick
Secretary
B-2
FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of Flaherty & Crumrine/Claymore
Preferred Securities Income Fund Incorporated, a Maryland corporation (the
"Fund"), hereby appoints Donald F. Crumrine, Robert M. Ettinger and Teresa M. R.
Hamlin, attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of Common Stock, which the undersigned is entitled
to vote at the Annual Meeting of Shareholders of the Fund to be held at the
offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, 38th Floor, New
York, New York 10019 at 8:30 a.m., on April 23, 2004, and any adjournments
thereof. The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and Proxy Statement and hereby instructs said attorneys and proxies to
vote said shares as indicated hereon. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Meeting. A majority of the proxies present and acting at the Meeting in person
or by substitute (or, if only one shall be so present, then that one) shall have
and may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------
FLAHERTY & CRUMRINE/CLAYMORE
PREFERRED SECURITIES INCOME FUND
C/O PFPC, INC.
P.O. BOX 8586
EDISON, NJ 08818-8586
--- PLEASE MARK
|X| VOTES AS IN
--- THIS EXAMPLE.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR PROPOSAL 2.
PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSAL.
1. ELECTION OF DIRECTORS. NOMINEES:
(01) Martin Brody, (02) Donald F. Crumrine, (03) David Gale and
(04) Robert F. Wulf
FOR --- --- WITHHELD
ALL | | | | FROM ALL
NOMINEES --- --- NOMINEES
---
| | --------------------------------------
--- For all nominees except as noted above
2. To approve an amendment to the Fund's Articles Supplementary Establishing and
Fixing the Rights and Preferences of Auction Market Preferred Stock.
FOR AGAINST ABSTAIN
--- --- ---
| | | | | |
--- --- ---
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEES AS DIRECTORS AND "FOR" THE APPROVAL
OF AN AMENDMENT TO THE FUND'S ARTICLES
SUPPLEMENTARY ESTABLISHING AND FIXING THE
RIGHTS AND PREFERENCES OF AUCTION MARKET
PREFERRED STOCK.
---
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT | |
---
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
NOTE: Please sign exactly as your name
appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee,
guardian or corporate officer, please give
your full title.
Signature: Date: Signature: Date:
------------- ---------- ------------- -----------
FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Auction Market Preferred Stock ("AMPS") of
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated, a
Maryland corporation (the "Fund"), hereby appoints Donald F. Crumrine, Robert M.
Ettinger and Teresa M. R. Hamlin, attorneys and proxies for the undersigned,
with full powers of substitution and revocation, to represent the undersigned
and to vote on behalf of the undersigned all shares of AMPS, which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Fund to be held at the offices of Willkie Farr & Gallagher LLP, 787 Seventh
Avenue, 38th Floor, New York, New York 10019 at 8:30 a.m., on April 23, 2004,
and any adjournments thereof. The undersigned hereby acknowledges receipt of the
Notice of Annual Meeting and Proxy Statement and hereby instructs said attorneys
and proxies to vote said shares as indicated hereon. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Meeting. A majority of the proxies present and acting at the Meeting
in person or by substitute (or, if only one shall be so present, then that one)
shall have and may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.
------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------
FLAHERTY & CRUMRINE/CLAYMORE
PREFERRED SECURITIES INCOME FUND
C/O PFPC, INC.
P.O. BOX 8586
EDISON, NJ 08818-8586
--- PLEASE MARK
|X| VOTES AS IN
--- THIS EXAMPLE.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR PROPOSAL 2.
PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSAL.
1. ELECTION OF DIRECTORS. NOMINEES:
(01) Nicholas Dalmaso, (02) Morgan Gust
FOR --- --- WITHHELD
ALL | | | | FROM ALL
NOMINEES --- --- NOMINEES
---
| | --------------------------------------
--- For all nominees except as noted above
2. To approve an amendment to the Fund's Articles Supplementary Establishing and
Fixing the Rights and Preferences of Auction Market Preferred Stock.
FOR AGAINST ABSTAIN
--- --- ---
| | | | | |
--- --- ---
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEES AS DIRECTORS AND "FOR" THE APPROVAL
OF AN AMENDMENT TO THE FUND'S ARTICLES
SUPPLEMENTARY ESTABLISHING AND FIXING THE
RIGHTS AND PREFERENCES OF AUCTION MARKET
PREFERRED STOCK.
---
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT | |
---
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
NOTE: Please sign exactly as your name
appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee,
guardian or corporate officer, please give
your full title.
Signature: Date: Signature: Date:
------------- ---------- ------------- -----------
IMPORTANT - IMPORTANT - IMPORTANT
WE NEED THE SUPPORT OF FFC SHAREHOLDERS IN APPROVING PROPOSAL 2:
o THE FUND HAS OUTSTANDING SEVERAL SERIES OF AUCTION MARKET PREFERRED
SECURITIES (AMPS), EACH OF WHICH HOLDS REGULAR AUCTIONS.
o CURRENTLY, AN EXTRAORDINARY EVENT, SUCH AS OCCURRED ON 9/11/2001, COULD
DISRUPT ONE OR MORE OF THESE AUCTIONS AND POSSIBLY RESULT IN THE FUND
REDEEMING SHARES OF AMPS.
o COMMON STOCKHOLDERS COULD EXPERIENCE AN INCREASE IN THE COST OF THE
FUND'S LEVERAGE IF AUCTIONS WERE DISRUPTED BY AN EXTRAORDINARY EVENT.
IN ADDITION, REDEMPTION OF AMPS COULD RESULT IN A REDUCTION IN THE
FUND'S DIVIDEND RATE.
o AMPS HOLDERS COULD LOSE THEIR OPPORTUNITY TO INVEST IN FFC.
o PROPOSAL 2 MODIFIES PROCEDURES IN CASE OF AN EXTRAORDINARY EVENT, AS
DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT.
o YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FFC SHAREHOLDERS
APPROVE PROPOSAL 2 TO AVOID THE POSSIBILITY OF ADVERSE CONSEQUENCES
FROM AN EXTRAORDINARY EVENT.