FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND
To the Shareholders of the Flaherty & Crumrine/Claymore Total Return Fund
("FLC"):
During the Fund's 3rd fiscal quarter, the economy slowed from its rapid
growth earlier in the year and, for the first time in two years, the Federal
Reserve paused in its ratcheting up of short-term interest rates. In this
environment, the Fund performed very well, earning a total return of +2.9% on
its net asset value (NAV) in the three months ended August 31st and +5.5% over
its fiscal year-to-date.
In a reversal of the weak markets for Treasury securities earlier in the
year, when the Fund's hedging strategies contributed significantly to results,
long-term interest rates declined during the recent fiscal quarter and the
interest-rate hedge proved unnecessary. However, as always, we follow the Fund's
investment strategy of maintaining the hedge in place, while attempting to
control its cost. Doing so helps protect the value of the Fund's holdings
against significant increases in long-term interest rates and potentially
results in an increase in the Fund's distributable income. During the recent
fiscal quarter, the Fund's NAV performed very well, even after absorbing the
cost of the hedge.
Conditions in the market for preferred securities continue to be positive.
This market is somewhat amorphous, so we find it useful to break it down into
smaller groups of similarly-structured issues. Fully taxable or "hybrid"
preferred securities comprise the lion's share of the preferred market, and this
segment continues to grow rapidly. Over $24 billion of new taxable preferred
securities have come to market in 2006. Income from these issues is taxed as
ordinary income to investors and is a deductible expense for the issuer. As of
August 31st, 67% of the Fund's portfolio was invested in fully-taxable preferred
securities.
Much of the recent growth in taxable preferred securities has come from
issuance of "enhanced" preferreds. These issues have certain terms and
conditions which may result in better credit ratings for the issuer (which in
turn helps keep their borrowing costs down). Since most of these features favor
the issuer, investors should require a higher return. In our view, too often
this is not the case. As a result, the portfolio's allocation to enhanced
preferreds has increased at a much slower pace than that of the overall market.
The market for traditional preferred stock (issues that pay dividends and
may have tax advantages to certain investors which the Fund can pass through to
its shareholders) has been delivering strong relative returns for some time. As
of August 31st, this type of security comprised 19% of the Fund's portfolio.
Since the beginning of 2006, fourteen new traditional preferred stock
issues totaling $5.7 billion have been brought to market (increasing the sector
total by roughly 10%); the additional supply has helped focus interest on
traditional preferred stock and appears to have attracted new investors. Several
of these recent issues have dividend rates that adjust every quarter to reflect
changes in short-term interest rates. This floating-rate feature fits the Fund
nicely because it tends to offset changes in the cost of the Fund's leverage and
requires only a minimal interest-rate hedge. However, unless the level of income
we can earn on this type of security goes up, we don't anticipate increasing the
Fund's holdings much beyond present levels.
While changes in short-term interest rates affect the valuation of some of
the Fund's securities (and therefore its NAV), short-term rates more directly
affect the Fund's income and the amount of its dividend by influencing both the
cost of its Auction Market Preferred Stock (AMPS) leverage and its hedging
strategy. The Fund's leverage generally produces additional distributable income
for its Common Stock shareholders. The amount of this additional income is
influenced by the "spread" between the income generated by the portfolio and the
cost of leverage.
As the Fed increased short-term interest rates through June 2006, these
spreads narrowed significantly and the Fund generated less additional
distributable income. If the Fed maintains its pause on short-term rates, and
long-term rates do not decrease materially, the Fund's leverage should continue
to produce the same additional distributable income as it does now. Of course,
if the Fed lowers short-term interest rates, the Fund should see a greater
benefit from its use of leverage and consequently have more additional
distributable income for its Common Stock shareholders.
The cost of the Fund's hedging strategy is also directly affected by the
slope of the yield curve (in other words, the difference between short- and
long-term interest rates). When the yield curve is steep - as it was for most of
the period from mid-2001 through 2004 - hedging tends to be expensive, because
the market charges the difference between long- and short-term yields to those
hedging. However, if the slope of the yield curve is as flat as it has been this
year, the market will not charge as much to hedge and the Fund should not need
to spend as much on its hedging strategy as it has over the past few years.
We hope investors will take advantage of the Fund's website,
WWW.FCCLAYMORE.COM. On it, there is a more extensive discussion of enhanced
hybrid preferred securities, the impact of changing short-term interest rates on
the additional distributable income provided by the Fund's leverage and how the
slope of the yield curve affects the cost of the Fund's hedging strategy. It
also contains a wide range of additional information about the Fund.
Sincerely,
/S/ DONALD F. CRUMRINE /S/ ROBERT M. ETTINGER
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
October 19, 2006
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OVERVIEW
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
FUND STATISTICS ON 08/31/06
-------------------------------------------------
Net Asset Value $ 22.41
Market Price $ 20.44
Discount 8.79%
Yield on Market Price 7.49%
Common Stock Shares
Outstanding 9,776,333
INDUSTRY CATEGORIES % OF PORTFOLIO
-------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS
Banks 34%
Utilities 26%
Insurance 19%
REITs 7%
Oil and Gas 5%
Financial Services 5%
Other 4%
MOODY'S RATINGS % OF PORTFOLIO
--------------------------------------
AAA 0.1%
AA 1.9%
A 24.8%
BBB 50.3%
BB 13.2%
B 0.7%
Not Rated 6.5%
--------------------------------------
Below Investment Grade* 15.8%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND
S&P.
TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
--------------------------------------------------
Wachovia Corp. 3.5%
North Fork Bancorporation 3.2%
Midamerican Energy 3.1%
Public Storage 3.1%
Dominion Resources 3.1%
Capital One Financial 2.8%
Nexen, Inc. 2.6%
PS Business Parks 2.3%
JPMorgan Chase 2.2%
Liberty Mutual Insurance 2.2%
% OF PORTFOLIO**
---------------------------------------------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income (QDI) for Individuals 26%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD) 19%
---------------------------------------------------------------------------------------------------------------------
** THIS DOES NOT REFLECT YEAR-END RESULTS OR ACTUAL TAX CATEGORIZATION OF FUND
DISTRIBUTIONS. THESE PERCENTAGES CAN, AND DO, CHANGE, PERHAPS SIGNIFICANTLY,
DEPENDING ON MARKET CONDITIONS. INVESTORS SHOULD CONSULT THEIR TAX ADVISOR
REGARDING THEIR PERSONAL SITUATION.
3
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
------------ ------
PREFERRED SECURITIES -- 81.6%
BANKING -- 33.7%
---------------------------------------------------------------------------------------------------------------------
$ 5,750,000 Astoria Capital Trust I, 9.75% 11/01/29 Capital Security, Series B............... $ 6,526,940
Auction Pass-Through Trust, Cl. B:
15 Series 2006-5, Variable Rate Pfd., 144A****.................................... 448,125*
15 Series 2006-6, Variable Rate Pfd., 144A****.................................... 448,125*
10,900 BAC Capital Trust II, 7.00% Pfd. 02/01/32........................................ 274,898
17,000 BAC Capital Trust XII, 6.875% Pfd. 08/02/55...................................... 435,285
50,900 Bank One Capital Trust VI, 7.20% Pfd............................................. 1,290,569
$ 2,600,000 Barclays Bank PLC, Adj. Rate Pfd................................................. 2,436,993**(1)
68,750 Capital One Capital II, 7.50% Pfd. 06/15/66...................................... 1,806,062
$ 7,500,000 Capital One Capital III, 7.686% Pfd.............................................. 7,837,387
20,000 Citigroup Capital VIII, 6.95% Pfd. 09/15/31...................................... 509,000
40,000 Cobank, ACB, 7.00% Pfd., 144A****................................................ 2,071,800*
20,000 Colonial Capital Trust IV, 7.875% Pfd............................................ 515,700
11,000 Comerica (Imperial) Capital Trust I, 7.60% Pfd. 07/01/50......................... 280,170
7,000 FBOP Corporation, Adj. Rate Pfd., 144A****....................................... 7,140,000*
$ 2,000,000 First Chicago NBD Capital A, 7.95% 12/01/26 Capital Security, 144A****........... 2,083,410
$ 400,000 First Empire Capital Trust I, 8.234% 02/01/27 Capital Security................... 419,506
$ 1,900,000 First Hawaiian Capital I, 8.343% 07/01/27 Capital Security, Series B............. 2,002,381(1)
First Republic Bank:
160,000 6.25% Pfd...................................................................... 3,931,200*
23,898 7.25% Pfd...................................................................... 604,022
23,100 Fleet Capital Trust VII, 7.20% Pfd. 12/15/31..................................... 589,165
2 FT Real Estate Securities Company, 9.50% Pfd., 144A****.......................... 2,654,157
$ 7,100,000 GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security...................... 7,544,069
HBOS Capital Funding LP:
$ 4,500,000 6.85% Pfd...................................................................... 4,560,975(1)
$ 750,000 Variable Rate Pfd., 144A****................................................... 713,558**(1)
$ 3,000,000 Haven Capital Trust I, 10.46% 02/01/27 Capital Security.......................... 3,202,380
$ 855,000 HSBC Capital Trust II, 8.38% 05/15/27 Capital Security, 144A****................. 905,988(1)
225,000 HSBC USA, Inc., 6.50% Pfd., Series H............................................. 5,947,875*
ING Groep NV:
36,000 7.05% Pfd..................................................................... 914,760**(1)(2)
20,500 7.20% Pfd..................................................................... 527,875**(1)
$ 2,550,000 JPMorgan Capital Trust I, 7.54% 01/15/27 Capital Security........................ 2,650,419
2,700 JPMorgan Chase Capital IX, 7.50% Pfd. 02/15/31................................... 69,026
$ 1,500,000 JPMorgan Chase Capital XVIII, 6.95% 08/17/36 Capital Security, Series R.......... 1,575,570
10 Marshall & Ilsley Investment II, 8.875% Pfd., 144A****........................... 1,032,229
$ 2,500,000 North Fork Capital Trust I, 8.70% 12/15/26 Capital Security...................... 2,616,150
$ 810,000 North Fork Capital Trust II, 8.00% 12/15/27 Capital Security..................... 853,193
4
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
------------ ------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
141,059 PFGI Capital Corporation, 7.75% Pfd.............................................. $ 3,640,733
$ 1,500,000 RBS Capital Trust B, 6.80% Pfd................................................... 1,512,990**(1)
Roslyn Real Estate:
25 8.95% Pfd., Series C, 144A**** ............................................... 2,734,541
10 Adj. Rate Pfd., Series D, 144A**** ........................................... 1,012,500
33,100 Sovereign Bancorp, 7.30% Pfd., Series C.......................................... 882,446*
191,525 Sovereign Capital Trust V, 7.75% Pfd. 05/22/36................................... 5,052,430
4,100 SunTrust Capital IV, 7.125% Pfd. 10/15/31........................................ 104,530
10,000 SunTrust Capital V, 7.05% Pfd. 12/15/31.......................................... 254,800
$ 5,050,000 Union Planters Capital Trust, 8.20% 12/15/26 Capital Security.................... 5,267,276
19,000 USB Capital V, 7.25% Pfd. 12/15/31............................................... 484,310
12,600 USB Capital VIII, 6.35% Pfd. 12/29/65............................................ 313,173
17,500 USB Capital X, 6.50% Pfd. 04/12/66............................................... 436,888
$ 5,000,000 Wachovia Capital Trust I, 7.64% 01/15/27 Capital Security, 144A****.............. 5,208,950
$ 670,000 Wachovia Capital Trust V, 7.965% 06/01/27 Capital Security, 144A****............. 700,723
217,200 Wachovia Preferred Funding, 7.25% Pfd., Series A................................. 6,097,890
$ 1,800,000 Washington Mutual Preferred Funding, Variable Rate Pfd., 144A****................ 1,766,727
$ 4,000,000 Webster Capital Trust I, 9.36% 01/29/27 Capital Security, 144A****............... 4,224,420
------------------------------------------------------------------------------------------------------------------
117,114,289
----------------
FINANCIAL SERVICES -- 3.0%
---------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc.:
50,000 Adj. Rate Pfd., Series D ..................................................... 1,278,750*
1,500 STRIPES Custodial Receipts, Pvt. ............................................. 1,596,000*
$ 3,000,000 Gulf Stream-Compass 2005 Composite Notes, 144A****............................... 3,011,340
4,500 Merrill Lynch Capital Trust III, 7.00% Pfd....................................... 115,200
3,000 Merrill Lynch Series II STRIPES Custodial Receipts, Pvt.......................... 3,072,000*
17,200 Morgan Stanley Capital Trust II, 7.25% Pfd....................................... 436,278
15,000 Morgan Stanley Capital Trust IV, 6.25% Pfd....................................... 369,375
9,100 Morgan Stanley Capital Trust V, 5.75% Pfd........................................ 210,893
19,200 Morgan Stanley Capital Trust VI, 6.60% Pfd....................................... 482,784
------------------------------------------------------------------------------------------------------------------
10,572,620
----------------
INSURANCE -- 13.8%
---------------------------------------------------------------------------------------------------------------------
15,000 AAG Holding Company, Inc., 7.25% Pfd. ........................................... 379,950
177,380 ACE Ltd., 7.80% Pfd., Series C .................................................. 4,581,725**(1)
30,000 Aegon NV, 6.50% Pfd. ............................................................ 751,200**(1)(2)
$ 4,920,000 AON Capital Trust A, 8.205% 01/01/27 Capital Security ........................... 5,625,307
5
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
------------ ------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
Arch Capital Group Ltd.:
28,650 7.875% Pfd., Series B.......................................................... $ 732,151**(1)
7,100 8.00% Pfd...................................................................... 183,393**(1)
Axis Capital Holdings:
116,150 7.25% Pfd., Series A........................................................... 2,965,890**(1)
27,900 Variable Rate Pfd., Series B................................................... 2,827,805(1)
53,400 Berkley W.R. Capital Trust II, 6.75% Pfd. 07/26/45 .............................. 1,314,708
84,800 Endurance Specialty Holdings, 7.75% Pfd. ........................................ 2,108,552**(1)
166,700 Everest Re Capital Trust II, 6.20% Pfd., Series B................................ 3,827,432(1)
5,800 Hartford Capital III, 7.45% Pfd. 10/31/50, Series C ............................. 147,320
$ 2,050,000 Oil Insurance Ltd., Variable Rate Pfd., 144A****................................. 2,091,123(1)
PartnerRe Ltd.:
10,000 6.50% Pfd., Series D........................................................... 243,950**(1)
33,000 6.75% Pfd., Series C........................................................... 823,845**(1)
86,000 Principal Financial Group, 6.518% Pfd. .......................................... 2,374,890*
$ 1,250,000 Renaissancere Capital Trust, 8.54% 03/01/27 Capital Security, Series B........... 1,316,381(1)
128,350 Renaissancere Holdings Ltd., 6.08% Pfd., Series C ............................... 2,857,071**(1)
109,000 Scottish Re Group Ltd., 7.25% Pfd. .............................................. 2,156,565**(1)
53,360 St. Paul Capital Trust I, 7.60% Pfd. 10/15/50 ................................... 1,355,344
$ 1,906,000 Sun Life Canada Capital Trust, 8.526% Capital Security, 144A****................. 2,011,554(1)
32,800 Torchmark Capital Trust III, 7.10% Pfd. ......................................... 835,252
$ 4,815,000 USF&G Capital, 8.312% 07/01/46 Capital Security, 144A**** ....................... 5,784,789
30,000 XL Capital Ltd., 7.625% Pfd., Series B .......................................... 770,550**(1)
------------------------------------------------------------------------------------------------------------------
48,066,747
----------------
UTILITIES -- 20.5%
---------------------------------------------------------------------------------------------------------------------
$ 357,000 AGL Capital Trust, 8.17% 06/01/37 Capital Security .............................. 377,767
45,700 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ....................... 4,759,655*
230,000 Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 ................................ 10,865,200
$ 500,000 COMED Financing II, 8.50% 01/15/27 Capital Security, Series B ................... 524,420
$ 2,375,000 COMED Financing III, 6.35% 03/15/33 Capital Security ............................ 2,103,906
$ 2,500,000 Dominion Resources Capital Trust I, 7.83% 12/01/27 Capital Security ............ 2,643,400
10,000 Dominion Resources Capital Trust II, 8.40% Pfd. 01/30/41 ........................ 255,350
$ 6,750,000 Dominion Resources Capital Trust III, 8.40% 01/15/31 Capital Security ........... 7,795,474
20,000 Duquesne Light Company, 6.50% Pfd. .............................................. 1,015,500*
145,000 Entergy Arkansas, Inc., 6.45% Pfd. .............................................. 3,727,950*
50,000 Entergy Louisiana, Inc., 6.95% Pfd., 144A**** ................................... 5,180,250*
83,500 FPC Capital I, 7.10% Pfd., Series A ............................................. 2,109,210
48,700 Georgia Power Capital Trust V, 7.125% Pfd. 03/31/42 ............................ 1,245,746
6
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
------------ ------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
$ 4,500,000 Houston Light & Power Capital Trust II, 8.257% 02/01/37 Capital Security ........ $ 4,727,812
30,445 Indianapolis Power & Light Company, 5.65% Pfd. .................................. 2,818,903*
Interstate Power & Light Company:
90,000 7.10% Pfd., Series C........................................................... 2,305,350*
38,600 8.375% Pfd., Series B.......................................................... 1,187,529*
$ 5,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 Capital Security ................... 4,393,475
16,200 PSEG Funding Trust II, 8.75% Pfd. ............................................... 426,627
$ 1,800,000 Puget Sound Energy Capital Trust, 8.231% 06/01/27 Capital Security, Series B .... 1,904,031
22,500 Southern California Edison, 6.00% Pfd. .......................................... 2,232,720*
151,100 Southern Union Company, 7.55% Pfd. .............................................. 3,926,333*
10,000 Southwest Gas Capital II, 7.70% Pfd. ............................................ 259,350
5,000 Union Electric Company, $7.64 Pfd. .............................................. 516,275*
5,000 Virginia Electric & Power Company, $6.98 Pfd. ................................... 513,300*
30,000 Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 .............................. 768,150
18,000 Vectren Utility Holdings, 7.25% Pfd. 10/15/31 ................................... 456,570
85,137 Wisconsin Power & Light Company, 6.50% Pfd. ..................................... 2,209,731*
------------------------------------------------------------------------------------------------------------------
71,249,984
----------------
OIL AND GAS -- 1.7%
---------------------------------------------------------------------------------------------------------------------
$ 2,793,000 Enterprise Products Partners, Variable Rate Pfd. ................................ 2,906,424
2,750 EOG Resources, Inc., 7.195% Pfd., Series B ...................................... 2,879,827*
------------------------------------------------------------------------------------------------------------------
5,786,251
----------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 7.4%
---------------------------------------------------------------------------------------------------------------------
BRE Properties, Inc.:
6,000 6.75% Pfd., Series C............................................................ 145,080
24,500 8.08% Pfd., Series B............................................................ 628,547
15,849 Duke Realty Corporation, 6.625% Pfd., Series J 388,776
20,000 Equity Office Property Trust, 7.75% Pfd., Series G 507,800
85,000 Equity Residential Properties, 8.29% Pfd., Series K.............................. 5,023,925
PS Business Parks, Inc.:
81,900 7.00% Pfd., Series H ........................................................... 2,038,900
124,620 7.20% Pfd., Series M ........................................................... 3,152,263
23,538 7.375% Pfd., Series O .......................................................... 601,514
44,500 7.60% Pfd., Series L ........................................................... 1,150,102
45,000 7.95% Pfd., Series K ........................................................... 1,172,250
7
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
------------ ------
PREFERRED SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
Public Storage, Inc.:
25,100 6.18% Pfd., Series D .......................................................... $ 595,623
122,850 6.45% Pfd., Series F .......................................................... 2,980,341
38,900 6.60% Pfd., Series C .......................................................... 962,192
30,000 6.85% Pfd., Series Y .......................................................... 730,650
120,000 7.25% Pfd., Series K .......................................................... 3,057,000
44,200 7.50% Pfd., Series V .......................................................... 1,141,244
5,100 7.625% Pfd., Series T ......................................................... 130,050
48,600 8.00% Pfd., Series R .......................................................... 1,236,627
-----------------------------------------------------------------------------------------------------------------
25,642,884
----------------
MISCELLANEOUS INDUSTRIES -- 1.5%
---------------------------------------------------------------------------------------------------------------------
1,395 Centaur Funding Corporation, 9.08% Pfd. 04/21/20 144A****........................ 1,606,663
40,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A****.............................. 3,470,400*
------------------------------------------------------------------------------------------------------------------
5,077,063
----------------
TOTAL PREFERRED SECURITIES
(Cost $278,656,959) ........................................................... 283,509,838
----------------
CORPORATE DEBT SECURITIES -- 17.3%
FINANCIAL SERVICES -- 1.6%
---------------------------------------------------------------------------------------------------------------------
$ 4,853,000 Lehman Brothers, Guaranteed Note, Variable Rate, 12/16/16, 144A****.............. 4,449,594
40,900 Saturns-GS, 6.00% 02/15/33, Series Goldman Sachs................................. 973,625
------------------------------------------------------------------------------------------------------------------
5,423,219
----------------
INSURANCE -- 4.9%
---------------------------------------------------------------------------------------------------------------------
20,000 American Financial Group, Inc., 7.125% 02/03/34, Senior Note..................... 515,900
$ 2,000,000 Farmers Exchange Capital, 7.20% 07/15/48, 144A****............................... 1,991,090
Liberty Mutual Insurance:
$ 914,000 7.50% 08/15/36, 144A**** ...................................................... 940,807
$ 6,638,000 7.697% 10/15/97, 144A****...................................................... 6,623,629
$ 7,000,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes.......................... 6,937,455
------------------------------------------------------------------------------------------------------------------
17,008,881
----------------
UTILITIES -- 5.1%
---------------------------------------------------------------------------------------------------------------------
27,200 Corp-Backed Trust Certificates, 7.875% 02/15/32, Series Duke Capital............. 707,608
$ 4,000,000 Duquesne Light Holdings, 6.25% 08/15/35.......................................... 3,707,400
5,000 Entergy Mississippi, Inc., 7.25%, 1st Mortgage................................... 128,150
$ 4,000,000 Interstate Power & Light Company, 6.45% 10/15/33, Senior Notes................... 4,015,960
8
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
------------ ------
CORPORATE DEBT SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
$ 2,070,000 Oncor Electric Delivery Company, 7.25% 01/15/33.................................. $ 2,315,844
62,000 PPL Energy Supply LLC, 7.00% 07/15/46............................................ 1,584,410
$ 1,200,000 TXU Corporation, 6.50% 11/15/24.................................................. 1,117,902
$ 4,000,000 Wisconsin Electric Power Company, 6.875% 12/01/95................................ 4,323,500
------------------------------------------------------------------------------------------------------------------
17,900,774
----------------
OIL AND GAS -- 3.2%
---------------------------------------------------------------------------------------------------------------------
$ 2,500,000 KN Energy, Inc., 7.45% 03/01/98.................................................. 2,208,737
356,200 Nexen, Inc., 7.35% Subordinated Notes............................................ 9,065,290(1)
------------------------------------------------------------------------------------------------------------------
11,274,027
----------------
MISCELLANEOUS INDUSTRIES -- 2.5%
---------------------------------------------------------------------------------------------------------------------
19,625 Ford Motor Company, 7.50% 06/10/43, Senior Notes................................. 366,399
$ 6,265,000 General Motors Corporation, 8.80% 03/01/21....................................... 5,274,378
Pulte Homes, Inc.:
25,844 7.375% 06/01/46................................................................ 661,477
$ 2,160,000 7.875% 06/15/32, Senior Notes.................................................. 2,374,726
------------------------------------------------------------------------------------------------------------------
8,676,980
----------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $62,508,351) ............................................................ 60,283,881
----------------
OPTION CONTRACTS -- 0.1%
281 December Call Options on December U.S. Treasury Bond Futures, Expiring 11/21/06.. 216,125+
1,757 December Put Options on December U.S. Treasury Bond Futures, Expiring 11/21/06... 192,172+
563 October Put Options on December U.S. Treasury Bond Futures, Expiring 09/22/06.... 8,797+
------------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $1,365,081) ............................................................. 417,094
----------------
9
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
------------ ------
MONEY MARKET FUND -- 0.1%
216,758 BlackRock Provident Institutional, TempFund .................................. $ 216,758
------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $216,758) .............................................................. 216,758
----------------
TOTAL INVESTMENTS (Cost $342,747,149***) .......................................... 99.1% 344,427,571
OTHER ASSETS AND LIABILITIES (Net) ................................................ 0.9% 3,177,862
-------- ----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK AND PREFERRED STOCK .................... 100.0%++ $ 347,605,433
-------- ----------------
AUCTION MARKET PREFERRED STOCK (AMPS) REDEMPTION VALUE ......................................... (128,500,000)
----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ..................................................... $ 219,105,433
================
-----------------------------
* 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. These securities have been
determined to be liquid under the guidelines established by the Board of
Directors.
(1) Foreign Issuer.
(2) All or a portion of this security has been pledged as collateral for
written option positions.
+ Non-income producing.
++ The percentage shown for each investment category is the total value of that
category as a percentage of net assets available to Common and Preferred Stock.
ABBREVIATIONS:
PFD. -- Preferred Securities
PVT. -- Private Placement Securities
REIT -- Real Estate Investment Trust
OPEN OPTION CONTRACTS WRITTEN
CONTRACTS CONTRACT DESCRIPTION VALUE
--------- -------------------- ------
225 December Call Options on December U.S. Treasury Bond Futures,
Expiring 11/21/06, Strike Price 108 ......................................... $ (752,344)
56 December Call Options on December U.S. Treasury Bond Futures,
Expiring 11/21/06, Strike Price 110 ......................................... (105,875)
------------------------------------------------------------------------------------------------------------------
TOTAL OPEN OPTION CONTRACTS WRITTEN (Cost $701,447) .......................... (858,219)
----------------
10
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
FOR THE PERIOD FROM DECEMBER 1, 2005 THROUGH AUGUST 31, 2006 (UNAUDITED)
------------------------------------------------------------------------
VALUE
--------
OPERATIONS:
Net investment income .................................................................... $ 14,701,693
Net realized gain/(loss) on investments sold during the period ........................... 1,525,817
Change in net unrealized appreciation/depreciation of investments held
during the period .................................................................... (4,342)
Distributions to AMPS* Shareholders from net investment income,
including changes in accumulated undeclared distributions ............................ (4,547,538)
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................... 11,675,630
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(2) ................ (11,584,954)
----------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ......................................... (11,584,954)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment
and Cash Purchase Plan ............................................................... --
----------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
RESULTING FROM FUND SHARE TRANSACTIONS .............................................. --
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK ----------------
FOR THE PERIOD ....................................................................... $ 90,676
================
------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period ...................................................................... $ 219,014,757
Net increase in net assets during the period ............................................. 90,676
----------------
End of period ............................................................................ $ 219,105,433
================
--------------------------------------------------------
* Auction Market Preferred Stock.
(1) These tables summarize the nine months ended August 31, 2006 and should be
read in conjunction with the Fund's audited financial statements, including
footnotes, in its Annual Report dated November 30, 2005.
(2) May include income earned, but not paid out, in prior fiscal year.
11
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
FINANCIAL HIGHLIGHTS(1)
FOR THE PERIOD FROM DECEMBER 1, 2005 THROUGH AUGUST 31, 2006 (UNAUDITED)
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT THE PERIOD.
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................................................ $ 22.40
-------------
INVESTMENT OPERATIONS:
Net investment income ....................................................................... 1.50
Net realized and unrealized gain/(loss) on investments ...................................... 0.17
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income .................................................................. (0.47)
From net realized capital gains ............................................................. --
-------------
Total from investment operations ............................................................ 1.20
-------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income .................................................................. (1.19)
From net realized capital gains ............................................................. --
-------------
Total distributions to Common Stock Shareholders ............................................ (1.19)
-------------
Net asset value, end of period .............................................................. $ 22.41
=============
Market value, end of period ................................................................. $ 20.44
=============
Common Stock shares outstanding, end of period .............................................. 9,776,333
=============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income+ ...................................................................... 6.21%**
Operating expenses .......................................................................... 1.53%**
--------------------------------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ..................................................................... 52%***
Total net assets available to Common and Preferred Stock, end of period (in 000's) .......... $ 347,605
Ratio of operating expenses to total average net assets available to
Common and Preferred Stock .............................................................. 0.96%**
(1) These tables summarize the nine months ended August 31, 2006 and should be
read in conjunction with the Fund's audited financial statements, including
footnotes, in its Annual Report dated November 30, 2005.
* Auction Market Preferred Stock.
** Annualized.
*** Not annualized.
+ The net investment income ratios reflect income net of operating expenses and
payments to AMPS* Shareholders.
++ Information presented under heading Supplemental Data includes AMPS*.
12
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
FINANCIAL HIGHLIGHTS (CONTINUED)
PER SHARE OF COMMON STOCK (UNAUDITED)
-------------------------------------
TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE(1)
---------- ---------- -------------- --------------
December 31, 2005 .............................. $0.1400 $22.59 $19.16 $19.39
January 31, 2006................................ 0.1400 22.58 20.43 20.52
February 28, 2006 .............................. 0.1400 22.62 20.69 20.87
March 31, 2006 ................................. 0.1275 22.41 19.81 19.89
April 30, 2006 ................................. 0.1275 22.18 19.45 19.62
May 31, 2006 ................................... 0.1275 22.15 19.60 19.80
June 30, 2006 .................................. 0.1275 21.93 19.12 19.39
July 31, 2006 .................................. 0.1275 21.87 19.73 19.88
August 31, 2006 ................................ 0.1275 22.41 20.44 20.59
--------------------
(1) Whenever the net asset value per share of the Fund's Common Stock is less
than or equal to the market price per share on the payment date, new shares
issued will be valued at the higher of net asset value or 95% of the then
current market price. Otherwise, the reinvestment shares of Common Stock
will be purchased in the open market.
13
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------
1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES
At August 31, 2006, the aggregate cost of securities for federal income tax
purposes was $343,750,843, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $6,312,354,
and the aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $6,493,845.
14
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[GRAPHIC OMITTED]
LIGHTHOUSE ART
FLAHERTY & CRUMRINE/CLAYMORE
============================
TOTAL RETURN FUND
QUARTERLY
REPORT
AUGUST 31, 2006
WWW.FCCLAYMORE.COM
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
Nicholas Dalmaso
Vice President and Assistant Secretary
Christopher D. Ryan, CFA
Vice President
Laurie C. Lodolo
Assistant Compliance Officer,
Assistant Treasurer and
Assistant Secretary
INVESTMENT ADVISER
Flaherty & Crumrine Incorporated
e-mail: flaherty@pfdincome.com
SERVICING AGENT
Claymore Securities, Inc.
1-866-233-4001
QUESTIONS CONCERNING YOUR SHARES OF FLAHERTY &
CRUMRINE/CLAYMORE TOTAL RETURN FUND?
o If your shares are held in a Brokerage
Account, contact your Broker.
o If you have physical possession of your shares
in certificate form, contact the Fund's Transfer
Agent --
PFPC Inc. 1-800-331-1710
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.