FLAHERTY & CRUMRINE TOTAL RETURN FUND INC

Regulatory Filings • Oct 29, 2012

N-Q 1 d394694dnq.htm FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND INCORPORATED

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-21380

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

(Exact name of registrant as specified in charter)

301 E. Colorado Boulevard, Suite 720

Pasadena, CA 91101

(Address of principal executive offices) (Zip code)

Donald F. Crumrine

Flaherty & Crumrine Incorporated

301 E. Colorado Boulevard, Suite 720

Pasadena, CA 91101

(Name and address of agent for service)

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

Date of fiscal year end: November 30

Date of reporting period: August 31, 2012

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Schedule of Investments.

The Schedule(s) of Investment is attached herewith.

FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND

To the Shareholders of Flaherty & Crumrine/Claymore Total Return Fund:

Your Fund continues to benefit from strong markets, active management, and efficient use of leverage. During the third fiscal quarter 1 , total return on net asset value 2 was +7.5%. Since the fiscal year began on December 1, 2011, total return on NAV was an eye-popping +22.5%. Total return based on market price of Fund shares for the comparable periods was +14.2% and +26.0% respectively.

Conditions in the preferred market have been, and remain, positive. Redemptions of securities have significantly outpaced new issues, leaving many investors scrambling to find replacements. In addition, it appears that fixed-income investors are increasingly turning to preferred securities, attracted to relatively high yields.

Since June 1, redemptions of preferred securities totaled roughly $44 billion. Redemptions of trust preferred securities issued by U.S. banks accounted for almost $34 billion. As discussed in the past, over the coming years certain important regulatory benefits of trust preferreds available to banks will be phased out as a result of Dodd-Frank reform legislation. Changes in regulatory treatment of preferred securities and historically low current interest rates made many older issues ripe for redemption.

New issue activity has been robust, but the amount of new issuance, almost $29 billion since June 1, has fallen well short of redemptions. Of this amount, only $6.5 billion was issued by U.S. banks in the new form of qualifying Tier 1 capital. This is largely as expected—most banks have chosen to build up capital by retaining earnings and issuing common stock. The balance of new issues came from a variety of industries, including insurance ($3.6b), other finance ($5.5b), REIT ($5.7b), foreign banks ($2.0b) and miscellaneous industrials and energy ($5.7b).

Fundamental credit quality has improved steadily since the financial crisis, despite sluggish economic growth. As preferred investors, we focus primarily on an issuer’s balance sheet to ensure the company’s ability to meet its obligations. From our perspective, corporate balance sheets are healthier now than at any time in recent memory. Of course, not all companies are thriving. The ongoing European crisis has strained issuers in that region. However, our approach of owning preferred securities issued by strong, diversified European companies paid off recently—this segment of the portfolio (13% as of August 31 st ) was the Fund’s top performer during the quarter.

Leverage is an essential component of Fund strategy. We expect the cost of leverage to be below the yield on the Fund’s investment portfolio, providing a boost to income available to shareholders. In addition, leverage magnifies the principal change of securities in the portfolio. With leverage, if total return (the sum of income plus principal change) on portfolio holdings is positive (negative), total return on net asset value of the Fund will be even higher (lower) than an unleveraged portfolio. The Fund’s leverage has worked exactly as expected and helped produce this year’s excellent returns.

While we welcome strong performance for the Fund, shareholders should understand that the decline in preferred securities’ yields in the years since the financial crisis, if they persist, will put downward pressure on Fund income over time. The Fund continues to have holdings in bank trust preferred securities that will likely be redeemed (approximately 8.0% of its total net assets as of August 31, 2012) and which have a

1 June 1, 2012—August 31, 2012

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

weighted average current yield of approximately 8.35% as of August 31, 2012. New issue preferred securities have been coming at yields in the range of 5.20-6.25%. We are working hard to reinvest proceeds from called issues into attractive securities, but in most cases, yields on those securities are lower than the called securities.

On the flip side, the Fund’s cost of leverage has remained low, as the Federal Reserve has increased its monetary accommodation. In addition, the Fund increased its dollar amount of leverage as preferred securities’ values increased while its percentage amount of leverage remained at around 33% as of August 31, 2012. Both have helped support the Fund’s distributable income per common share. However, leverage costs cannot drop much further. At some point, the lower yield on preferred securities—again, if they persist—will reduce Fund income. While the distribution rate probably will be lower at some point in the future, we believe preferred securities offer attractive total return potential and the Fund will continue to offer a competitive distribution rate.

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

Sincerely,

●	●
Donald F. Crumrine	Robert M. Ettinger
Chairman	President
October 5, 2012

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OVERVIEW

August 31, 2012 (Unaudited)

Fund Statistics
Net Asset Value	$ 19.48
Market Price	$ 21.27
Premium	9.19 %
Yield on Market Price	7.87 %
Common Stock Shares Outstanding	9,864,361

Moody’s Ratings
A	1.6%
BBB	62.9%
BB	27.6%
Below “BB”	3.8%
Not Rated*	2.5%
Below Investment Grade**	19.8%

• Does not include net other assets and liabilities of 1.6%.

** Below investment grade by all of Moody’s, S&P and Fitch.

Industry Categories % of Net Assets†

Top 10 Holdings by Issuer
Liberty Mutual Group	5.3%
Banco Santander, S.A.	4.2%
MetLife	4.0%
Capital One Financial	3.7%
Goldman Sachs Group	3.5%
HSBC PLC	3.4%
Georgia Power	2.8%
Enbridge Energy Partners	2.7%
Unum Group	2.7%
Axis Capital	2.6%

% of Net Assets***†
Holdings Generating Qualified Dividend Income (QDI) for Individuals	36%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD)	22%

*** 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.

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS

August 31, 2012 (Unaudited)

Shares/$ Par		Value
Preferred Securities — 84.5%
	Banking — 32.1%
	Astoria Financial:
$ 4,850,000	Astoria Capital Trust I, 9.75% 11/01/29, Series B	$ 5,032,263	(1)(2)
	Banco Bilbao Vizcaya Argentaria, S.A.:
$ 2,050,000	BBVA International Preferred, 5.919%	1,360,554	** (1)(2)(3)
	Banco Santander, S.A.:
439,755	Banco Santander, 10.50% Pfd., Series 10	12,038,293	** (1)(3)
	Bank of America:
108,000	Bank of America Corporation, 8.625% Pfd.	2,784,380	*
25,000	Countrywide Capital V, 7.00% Pfd. 11/01/36	626,812
$ 780,000	NB Capital Trust II, 7.83% 12/15/26	784,875
	Barclays Bank PLC:
$ 3,600,000	Barclays Bank PLC, 6.278%	3,048,750	** (1)(3)
8,800	Barclays Bank PLC, 7.75% Pfd., Series 4	222,376	** (3)
120,000	Barclays Bank PLC, 8.125% Pfd., Series 5	3,068,400	** (1)(3)
	BB&T Corp:
62,500	BB&T Corporation, 5.625% Pfd., Series E	1,601,250	* (1)
	BNP Paribas:
$ 3,775,000	BNP Paribas, 7.195%, 144A****	3,463,562	** (1)(2)(3)
	Capital One Financial:
$ 8,250,000	Capital One Capital III, 7.686% 08/15/36	8,363,437	(1)(2)
$ 500,000	Capital One Capital V, 10.25% 08/15/39	517,500	(1)
$ 1,643,000	Capital One Capital VI, 8.875% 05/15/40	1,689,426	(1)(2)
	Citigroup:
20,000	Citigroup Capital VII, 7.125% Pfd. 07/31/31	505,000
83,300	Citigroup Capital XIII, 7.875% Pfd. 10/30/40	2,298,564	(1)
	Colonial BancGroup:
$ 10,000,000	Colonial BancGroup, 7.114%, 144A****	20,000	(4)(5) ††
	FBOP Corp:
7,000	FBOP Corporation, Adj. Rate Pfd., 144A****	3,500	* (4)(5) †
	Fifth Third Bancorp:
$ 2,150,000	Fifth Third Capital Trust IV, 6.50% 04/15/37	2,158,062	(1)(2)
	First Horizon:
3,525	First Tennessee Bank, Adj. Rate Pfd., 3.75% (6) , 144A****	2,547,914	*
3	FT Real Estate Securities Company, 9.50% Pfd., 144A****	2,865,000
	First Niagara Financial Group:
138,000	First Niagara Financial Group, Inc., 8.625% Pfd.	4,120,887	*
	Goldman Sachs Group:
$ 1,855,000	Goldman Sachs, Capital I, 6.345% 02/15/34	1,849,094	(1)(2)

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2012 (Unaudited)

Shares/$ Par		Value
Preferred Securities — (Continued)
	Banking — (Continued)
	HSBC PLC:
$ 2,000,000	HSBC Capital Funding LP, 10.176%, 144A****	$ 2,700,000	(1)(3)
172,000	HSBC Holdings PLC, 8.00% Pfd., Series 2	4,778,418	** (1)(3)
$ 200,000	HSBC USA Capital Trust I, 7.808% 12/15/26, 144A****	203,000
$ 275,000	HSBC USA Capital Trust II, 8.38% 05/15/27, 144A****	277,911	(1)
19,109	HSBC USA, Inc., 6.50% Pfd., Series H	491,913	* (1)
	ING Groep NV:
28,700	ING Groep NV, 7.05% Pfd.	711,803	** (3)
11,925	ING Groep NV, 7.20% Pfd.	296,473	** (3)
12,475	ING Groep NV, 7.375% Pfd.	311,750	** (3)
	JPMorgan Chase:
$ 2,270,000	JPMorgan Chase & Company, 7.90%, Series 1	2,548,307	*
	KeyCorp:
1,250	KeyCorp, 7.75% Pfd., Series A	147,188	*
	Lloyds Banking Group PLC:
$ 1,000,000	Lloyds Banking Group PLC, 6.657%, 144A****	752,500	** (3)
	M&T Bank Corp:
225	M&T Bank Corporation, 5.00% Pfd., Series C	227,813	*
	PNC Financial Services:
$ 1,676,000	National City Preferred Capital Trust I, 12.00%	1,717,322
17,600	PNC Financial Services, 6.125% Pfd., Series P	488,268	*
39,995	PNC Financial Services, 9.875% Pfd., Series L	1,065,967	* (1)
$ 1,000,000	PNC Preferred Funding Trust III, 8.70%, 144A****	1,020,120	(1)(2)
	Sovereign Bancorp:
3,000	Sovereign REIT, 12.00% Pfd., Series A, 144A****	3,355,848
	Wells Fargo:
$ 600,000	First Union Capital II, 7.95% 11/15/29	676,323	(1)
3,015	Wells Fargo & Company, 7.50% Pfd., Series L	3,603,679	* (1)
50,000	Wells Fargo & Company, 8.00% Pfd., Series J	1,499,625	*
	Zions Bancorporation:
125,000	Zions Bancorporation, 7.90% Pfd., Series F	3,428,750	*
45,000	Zions Bancorporation, 9.50% Pfd., Series C	1,184,850	*
		92,457,727
	Financial Services — 2.0%
	Ameriprise Financial:
$ 250,000	Ameriprise Financial, Inc., 7.518% 06/01/66	277,500

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2012 (Unaudited)

Shares/$ Par		Value
Preferred Securities — (Continued)
	Financial Services — (Continued)
	Credit Suisse Group:
$ 1,800,000	Claudius, Ltd. - Credit Suisse AG, 7.875%, Series B, 144A****	$ 1,892,250	(3)
	Gulf Stream-Compass CLO:
$ 3,000,000	Gulf Stream-Compass CLO 2005 Composite Notes, 144A****	2,174,040	(4)(5)
	HSBC PLC:
54,897	HSBC Finance Corporation, 6.36% Pfd., Series B	1,378,052	*
		5,721,842
	Insurance — 22.2%
	Ace Ltd.:
$ 1,550,000	Ace Capital Trust II, 9.70% 04/01/30	2,216,500	(1)(2)(3)
	Aon Corporation:
$ 1,775,000	AON Corp, 8.205% 01/01/27	2,159,840	(1)
	Arch Capital Group:
26,512	Arch Capital Group, Ltd., 6.75% Pfd., Series C	729,146	** (1)(3)
	AXA SA:
$ 1,316,000	AXA SA, 6.379%, 144A****	1,133,405	** (1)(2)(3)
	Axis Capital:
271,100	Axis Capital Holdings, 6.875% Pfd., Series C	7,463,735	** (1)(2)(3)
	Delphi Financial:
160,000	Delphi Financial Group, 7.376% Pfd. 05/15/37	3,980,000	(1)(2)
	Everest Re Group:
$ 5,760,000	Everest Re Holdings, 6.60% 05/15/37	5,788,800	(1)(2)
	Liberty Mutual Group:
$ 8,300,000	Liberty Mutual Group, 10.75% 06/15/58, 144A****	11,723,750	(1)
	Lincoln National Corp:
$ 260,000	Lincoln National Corporation, 7.00% 05/17/66	261,300
	MetLife:
$ 888,000	MetLife Capital Trust IV, 7.875% 12/15/37, 144A****	1,043,400	(1)
$ 5,335,000	MetLife Capital Trust X, 9.25% 04/08/38, 144A****	6,828,800	(1)(2)
$ 2,555,000	MetLife, Inc., 10.75% 08/01/39	3,749,462	(1)(2)
	PartnerRe Ltd.:
1,800	PartnerRe Ltd., 7.250% Pfd., Series E	50,184	** (3)
	Principal Financial:
12,000	Principal Financial Group, 5.563% Pfd., Series A	1,168,876	*
68,867	Principal Financial Group, 6.518% Pfd., Series B	1,880,930	* (1)
	StanCorp Financial Group:
$ 2,060,000	StanCorp Financial Group, 6.90% 06/01/67	1,998,200	(1)
	The Travelers Companies:
$ 3,615,000	USF&G Capital, 8.312% 07/01/46, 144A****	4,511,097	(1)(2)

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2012 (Unaudited)

Shares/$ Par		Value
Preferred Securities — (Continued)
	Insurance — (Continued)
	XL Group PLC:
$ 7,850,000	XL Capital Ltd., 6.50%, Series E	$ 7,192,563	(1)(3)
		63,879,988
	Utilities — 20.3%
	Alabama Power:
6,050	Alabama Power Company, 6.45% Pfd.	176,206	* (1)
	Baltimore Gas & Electric:
33,700	Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993	3,435,294	* (1)
	Commonwealth Edison:
$ 3,160,000	COMED Financing III, 6.35% 03/15/33	3,191,600	(1)(2)
	Constellation Energy:
20,170	Constellation Energy Group, 8.625% Pfd. 06/15/63, Series A	538,337	(1)
	Dominion Resources:
$ 2,500,000	Dominion Resources Capital Trust I, 7.83% 12/01/27	2,537,245	(1)(2)
$ 3,500,000	Dominion Resources, Inc., 7.50% 06/30/66	3,787,521	(1)(2)
	Entergy Arkansas:
83,000	Entergy Arkansas, Inc., 6.45% Pfd.	2,129,473	* (1)
	Entergy Louisiana:
59,850	Entergy Louisiana, Inc., 6.95% Pfd.	5,992,481	* (1)
	Georgia Power:
70,791	Georgia Power Company, 6.50% Pfd., Series 2007A	7,999,383	* (1)
	Indianapolis Power & Light:
18,300	Indianapolis Power & Light Company, 5.65% Pfd.	1,863,741	* (1)
	Interstate Power & Light:
94,721	Interstate Power & Light Company, 8.375% Pfd., Series B	2,610,748	* (1)
	Nextera Energy:
$ 4,197,000	FPL Group Capital, Inc., 6.65% 06/15/67	4,458,620	(1)(2)
$ 1,975,000	FPL Group Capital, Inc., 7.30% 09/01/67, Series D	2,137,704	(1)(2)
	Peco Energy:
$ 3,600,000	PECO Energy Capital Trust IV, 5.75% 06/15/33	3,419,219	(1)(2)
	PPL Corp:
$ 3,700,000	PPL Capital Funding, 6.70% 03/30/67, Series A	3,800,829	(1)
	Puget Energy:
$ 5,175,000	Puget Sound Energy, Inc., 6.974% 06/01/67	5,518,729	(1)(2)
	Southern California Edison:
46,460	Southern California Edison, 6.50% Pfd., Series D	4,955,252	* (1)
		58,552,382

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2012 (Unaudited)

Shares/$ Par		Value
Preferred Securities — (Continued)
	Energy — (Continued)
	Enterprise Products Partners:
$ 5,550,000	Enterprise Products Partners, 8.375% 08/01/66, Series A	$ 6,221,223	(1)(2)
		14,107,875
	Real Estate Investment Trust (REIT) — 0.1%
	PS Business Parks:
10,000	PS Business Parks, Inc., 6.875% Pfd., Series R	272,000
		272,000
	Miscellaneous Industries — 2.9%
	Ocean Spray Cranberries:
37,400	Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A****	3,340,288	*
	Stanley Black & Decker:
99,662	Stanley Black & Decker, Inc., 5.75% Pfd. 07/25/52	2,616,128	(1)
	Textron, Inc.:
$ 2,850,000	Textron Financial Corporation, 6.00% 02/15/67, 144A****	2,379,750
		8,336,166
	Total Preferred Securities (Cost $235,308,532)	243,327,980
Corporate Debt Securities — 13.6%
	Banking — 5.9%
	First Niagara Financial Group:
$ 300,000	First Niagara Financial Group, Inc., 7.25% 12/15/21	347,716
	Goldman Sachs Group:
$ 7,885,000	Goldman Sachs Group, 6.75% 10/01/37, Sub Notes	8,234,913	(1)(2)
	Morgan Stanley:
$ 4,335,000	Morgan Stanley, 6.375% 07/24/42	4,406,358
	Regions Financial:
$ 3,741,000	Regions Financial Corporation, 7.375% 12/10/37, Sub Notes	3,909,345
		16,898,332
	Financial Services — 0.5%
	Affiliated Managers Group:
27,895	Affiliated Managers Group, Inc., 6.375% 08/15/42	713,066

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2012 (Unaudited)

Shares/$ Par		Value
Corporate Debt Securities — (Continued)
	Financial Services — 0.5%
	Affiliated Managers Group:
27,895	Affiliated Managers Group, Inc., 6.375% 08/15/42	$ 713,066
	Lehman Brothers:
$ 4,726,012	Lehman Brothers, Guaranteed Note, Variable Rate, 5.843% 12/16/16, 144A****	563,813	(4)(5) ††
	Raymond James Financial:
8,700	Raymond James Financial, 6.90% 03/15/42	239,437
		1,516,316
	Insurance — 4.0%
	Liberty Mutual Group:
$ 3,400,000	Liberty Mutual Insurance, 7.697% 10/15/97, 144A****	3,561,687	(1)(2)
	Unum Group:
$ 7,000,000	UnumProvident Corporation, 7.25% 03/15/28	7,843,913	(1)(2)
		11,405,600
	Utilities — 1.1%
	Energy Transfer Equity:
$ 1,000,000	Southern Union Company, 7.60% 02/01/24	1,239,929	(1)(2)
$ 1,600,000	Southern Union Company, 8.25% 11/15/29	2,014,208	(1)(2)
		3,254,137
	Energy — 1.1%
	Nexen, Inc.:
120,475	Nexen, Inc., 7.35% 11/01/43	3,089,160	(3)
		3,089,160
	Miscellaneous Industries — 1.0%
	Pulte Group Inc.:
25,844	Pulte Homes, Inc., 7.375% 06/01/46	664,488
$ 2,160,000	Pulte Homes, Inc., 7.875% 06/15/32	2,149,200	(1)(2)
		2,813,688
	Total Corporate Debt Securities (Cost $39,687,523)	38,977,233
Common Stock — 0.3%
	Banking — 0.2%
	CIT Group:
13,500	CIT Group, Inc.	509,760	*†
		509,760

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2012 (Unaudited)

Shares/$ Par		Value
Common Stock — (Continued)
	Utilities — 0.1%
	Exelon Corp:
11,750	Exelon Corporation	$ 428,522	*
		428,522
	Total Common Stock (Cost $3,031,124)	938,282
Money Market Fund — 0.1%
	BlackRock Liquidity Funds:
310,352	T-Fund	310,352
	Total Money Market Fund (Cost $310,352)	310,352

Total Investments (Cost $278,337,531***) — Other Assets And Liabilities (Net)	98.5% — 1.5%		4,315,487
Total Managed Assets	100.0%	‡	$ 287,869,334
Loan Principal Balance			(95,700,000	)
Total Net Assets Available To Common Stock			$ 192,169,334

• 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, 2012, these securities amounted to $56,361,635 or 19.6% 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 $180,801,428 at August 31, 2012.

(2) All or a portion of this security has been rehypothecated. The total value of such securities was $92,956,759 at August 31, 2012.

(3) Foreign Issuer.

(4) Illiquid

(5) Valued at fair value as determined in good faith by or under the direction of the Board of Directors as of August 31, 2012.

(6) Represents the rate in effect as of the reporting date.

† Non-income producing.

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Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2012 (Unaudited)

†† The issuer has filed for bankruptcy protection. As a result, the Fund may not be able to recover the principal invested and also does not expect to receive income on this security going forward.

‡ The percentage shown for each investment category is the total value of that category as a percentage of total managed assets.

CLO	ABBREVIATIONS: — —	Collaterized Loan Obligation
Pfd.	—	Preferred Securities
REIT	—	Real Estate Investment Trust

11

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

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

For the period from December 1, 2011 through August 31, 2012 (Unaudited)

	Value
OPERATIONS:
Net investment income	$ 12,450,747
Net realized gain/(loss) on investments sold during the period	(1,060,526	)
Change in net unrealized appreciation/depreciation of investments	25,365,174
Net increase in net assets resulting from operations	36,755,395
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders (2)	(12,907,619	)
Total Distributions to Common Stock Shareholders	(12,907,619	)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan	593,591
Net increase in net assets available to Common Stock resulting from Fund share transactions	593,591
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
FOR THE PERIOD	$ 24,441,367
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period	$ 167,727,967
Net increase in net assets during the period	24,441,367
End of period	$ 192,169,334

(1) These tables summarize the nine months ended August 31, 2012 and should be read in conjunction with the Fund’s audited financial statements, including footnotes, in its Annual Report dated November 30, 2011.

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

12

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

FINANCIAL HIGHLIGHTS (1)

For the period from December 1, 2011 through August 31, 2012 (Unaudited)

For a Common Stock share outstanding throughout the period

PER SHARE OPERATING PERFORMANCE: — Net asset value, beginning of period	$ 17.06
INVESTMENT OPERATIONS:
Net investment income	1.26
Net realized and unrealized gain/(loss) on investments.	2.47
Total from investment operations	3.73
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income	(1.31	)
Total distributions to Common Stock Shareholders	(1.31	)
Net asset value, end of period	$ 19.48
Market value, end of period	$ 21.27
Common Stock shares outstanding, end of period	9,864,361
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income†	9.14	%*
Operating expenses including interest expense	1.99	%*
Operating expenses excluding interest expense	1.35	%*

SUPPLEMENTAL DATA:†† — Portfolio turnover rate	25	%**
Total managed assets, end of period (in 000’s)	$ 287,869
Ratio of operating expenses including interest expense to total managed assets	1.32	%*
Ratio of operating expenses excluding interest expense to total managed assets	0.90	%*

(1) These tables summarize the nine months ended August 31, 2012 and should be read in conjunction with the Fund’s audited financial statements, including footnotes, in its Annual Report dated November 30, 2011.

• Annualized.

** Not annualized.

† The net investment income ratios reflect income net of operating expenses, including interest expense.

†† Information presented under heading Supplemental Data includes loan principal balance.

13

Flaherty & Crumrine/Claymore Total Return 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 30, 2011	$ 0.1945	$ 17.34	$ 18.70	$ 17.77
January 31, 2012	0.1395	18.03	19.20	18.24
February 29, 2012	0.1395	18.45	19.43	18.46
March 30, 2012	0.1395	18.47	19.01	18.47
April 30, 2012	0.1395	18.60	19.00	18.60
May 31, 2012	0.1395	18.51	19.03	18.51
June 29, 2012	0.1395	18.68	19.43	18.68
July 31, 2012	0.1395	19.22	20.51	19.48
August 31, 2012	0.1395	19.48	21.27	20.21

(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.

14

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited)

1. Aggregate Information for Federal Income Tax Purposes

At August 31, 2012, the aggregate cost of securities for federal income tax purposes was $278,523,396, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $29,162,497 and the aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $24,132,046.

1. Additional Accounting Standards

Fair Value Measurements: The Fund has performed an analysis of all existing investments and derivative instruments 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. A summary of the inputs used to value the Fund’s investments as of August 31, 2012 is as follows:

	Total Value at August 31, 2012	Level 1 Quoted Price	Level 2 Significant Observable Inputs	Level 3 Significant Unobservable Inputs
Preferred Securities
Banking	$ 92,457,727	$ 68,333,856	$ 24,100,371	$ 23,500
Financial Services	5,721,842	1,378,052	2,169,750	2,174,040
Insurance	63,879,988	40,923,270	22,956,718	—
Utilities	58,552,382	17,333,759	41,218,623	—
Energy	14,107,875	14,107,875	—	—
Real Estate Investment Trust (REIT)	272,000	272,000	—	—
Miscellaneous Industries	8,336,166	2,616,128	5,720,038	—
Corporate Debt Securities	38,977,233	17,347,422	21,065,998	563,813
Common Stock
Banking	509,760	509,760	—	—
Utilities	428,522	428,522	—	—
Money Market Fund	310,352	310,352	—	—
Total Investments	$ 283,553,847	$ 163,560,996	$ 117,231,498	$ 2,761,353

15

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

During the reporting period, there were no transfers into Level 1 from Level 2. During the reporting period, securities with an aggregate market value of $7,234,137 were transferred into Level 2 from Level 1. The securities were transferred because of a reduction in the amount of observable market data, resulting from: a decrease in market activity for the securities, reduced availability of quoted prices for the securities, or de-listing of securities from a national securities exchange that resulted in a material decrease in activity.

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

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

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

	Preferred Securities — Total Investments	Banking		Financial Services		Corporate Debt Securities
Balance as of 11/30/11	$ 3,354,693	$	303,500	$	2,151,360	$ 899,833
Accrued discounts/premiums	—		—		—	—
Realized gain/(loss)	—		—		—	—
Change in unrealized appreciation/(depreciation)	(593,340	)	(280,000	)	22,680	(336,020	)
Purchases	—		—		—	—
Sales	—		—		—	—
Transfers in	—		—		—	—
Transfers out	—		—		—	—
Balance as of 8/31/12	$ 2,761,353	$	23,500	$	2,174,040	$ 563,813

For the nine months ended August 31, 2012, total change in unrealized gain/(loss) on Level 3 securities still held at period-end and included in the change in net assets was $(593,340).

16

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

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

Category	Fair Value at 8/31/12	Valuation Technique	Unobservable Input	Input Range (Wgt Avg)
Preferred Securities
Banking	$ 23,500	Bankruptcy recovery	Credit/Structure-specific recovery	0.00%-0.50% (0.20%)
Financial Services	2,174,040	Trust Liquidation Value	Discount for marketability	20%-30% (25%)
Corporate Debt Securities	563,813	Bankruptcy recovery	Credit/Structure-specific recovery	20%-25% (21%)

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

The investment in the category “Preferred Securities—Financial Services” is a subordinated interest in a trust whose assets consist of secured 1 st or 2 nd lien senior bank loans with floating-rate (adjustable) coupons. The trust assets are valued by the trustee on a monthly basis utilizing third-party pricing services, and the liabilities are reported at face value. Management utilizes third-party bank loan index data and market spread data to assess the appropriateness of valuations provided by the trustee and to adjust valuations for intra-month valuation purposes. The Fund’s investment is a residual claim on the net assets of the trust. The significant unobservable input used in the fair value technique is a discount for marketability of the investment. Significant increases or decreases in this input would result in a significantly higher or lower fair value measurement.

17

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Directors

Donald F. Crumrine, CFA

Chairman of the Board

David Gale

Morgan Gust

Karen H. Hogan

Robert F. Wulf, CFA

Officers

Donald F. Crumrine, CFA

Chief Executive Officer

Robert M. Ettinger, CFA

President

R. Eric Chadwick, CFA

Chief Financial Officer,

Vice President and Treasurer

Chad C. Conwell

Chief Compliance Officer,

Vice President and Secretary

Bradford S. Stone

Vice President and

Assistant Treasurer

Laurie C. Lodolo

Assistant Compliance Officer,

Assistant Treasurer and

Assistant Secretary

Linda M. Puchalski

Assistant Treasurer

Investment Adviser

Flaherty & Crumrine Incorporated

e-mail: flaherty@pfdincome.com

Servicing Agent

Guggenheim Funds Distributors, LLC

1-866-233-4001

Questions concerning your shares of Flaherty & Crumrine/Claymore Total Return Fund?

• If your shares are held in a Brokerage Account, contact your Broker.

• If you have physical possession of your shares in certificate form, contact the Fund’s Transfer Agent —

BNY Mellon Investment Servicing

P.O. Box 358035

Pittsburgh, PA 15252-8035 1-866-351-7446

This report is sent to shareholders of Flaherty & Crumrine/Claymore Total Return Fund Incorporated for their information. It is not a Prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report.

Quarterly

Report

August 31, 2012

www.fcclaymore.com

Item 2. Controls and Procedures.

(a) The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3. Exhibits.

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) Flaherty & Crumrine/Claymore Total Return Fund Incorporated

By (Signature and Title)*	/s/ Donald F. Crumrine
	Donald F. Crumrine, Director, Chairman of the Board and Chief
	Executive Officer
	(principal executive officer)
Date 10/24/12
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)*	/s/ Donald F. Crumrine
	Donald F. Crumrine, Director, Chairman of the Board and Chief Executive Officer
	(principal executive officer)
Date 10/24/12
By (Signature and Title)*	/s/ R. Eric Chadwick
	R. Eric Chadwick, Chief Financial Officer, Treasurer and Vice
	President
	(principal financial officer)
Date 10/24/12

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