FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND
To the Shareholders of the Flaherty & Crumrine/Claymore Total Return Fund
("FLC"):
The first fiscal quarter of 2006 was a mixed bag for FLC. On the plus
side, for the three-month period ended February 28, 2006, the Fund produced a
total return on net asset value of +2.9%. Despite this strong investment
performance, net income available to shareholders has declined, and the Fund
reduced its monthly dividend by 8.9% (from $0.14/share to $0.1275/share)
beginning with the March distribution. The primary focus of the Fund is income,
so the decision to reduce the dividend was difficult, but necessary.
The total return calculation mentioned above has two basic components--net
income earned and net change in principal value. Recently, the latter has done
well while the former has come under some pressure.
Net income earned, the amount of investment income left over after
payments on the Fund's Auction Market Preferred Stock ("AMPS") and other
expenses, is what the Fund can pay out in monthly distributions to common
shareholders. Although investment income has increased recently, payments to
AMPS Shares have risen at a faster pace. As a result, the Fund could not
continue to distribute common dividends at the same rate.
The AMPS rate is closely correlated to other short-term interest rates,
all of which have moved up in concert with the Federal Reserve's efforts to
influence the pace of economic activity. Two years ago, the Fund was paying
roughly 1% to "borrow" money via its AMPS shares; these rates are now closer to
4.7%. Despite this jump in rates, the use of leverage continues to add
incremental income for common shares because the money we obtain from leverage
is being invested in securities with much higher yields.
The other component of total return, principal change, normally is not
distributed to common shareholders, but instead is reflected by changes in the
Fund's net asset value. During the fiscal period, the Fund's NAV rose 1.0%.
One last comment on total return--whatever the breakdown between net
income and principal change, the entire amount belongs to common shareholders.
In addition, the two tend to "merge" over time. For example, if principal value
increases and the Fund can realize gains, the Fund will have more money to
invest and can generate additional income. Or, shareholders can use the income
they receive to purchase additional shares via the Dividend Reinvestment Plan to
increase the value of their investment.
As readers may recall from previous discussions of market conditions, the
preferred securities market has two main segments--issues that pay interest and
those that pay dividends. We refer to the first type as "hybrid" preferred
securities and the second as "traditional" preferred stock.
Demand for hybrid preferred securities has been strong for some time; the
supply of new issues, however, has been plentiful. During the period there were
thirty new issues with a market value of $13.2 BILLION. As expected, many of
these new issues were structured like the "ECAP" issues we discussed in our last
letter (and on the Fund's website). Even with this sizable amount of new supply,
the performance of this segment kept pace with most other types of fixed-income
securities during the quarter.
Many of the recent hybrid preferred securities have terms and features
that require very close scrutiny. While the basic structure of the enhanced
capital security is now fairly well established, with each new issue we are
observing small but important differences. This evolutionary process is typical
of new structures--our job is to dissect each issue until we fully understand
every twist and turn.
Investor demand for traditional preferred stock has also been consistently
strong for some time now; however new issue supply has not kept up--during the
fiscal quarter there were only two new issues totaling a meager $300 million. As
a result of this imbalance, this segment has slowly and steadily outperformed
other types of fixed-income securities. The traditional preferred component of
FLC is relatively small, but it made a meaningful contribution to overall
investment performance.
The Fund's hedge positions are intended to provide shareholders with some
protection against significant increases in long-term interest rates. Over the
course of the fiscal quarter, long-term interest rates barely moved, so the
hedging strategy had little impact on the Fund's performance. The Fund's hedging
strategy did benefit from the "flat" U.S. Treasury yield curve, since the cost
of our hedges tends to be lower in this environment.
We hope investors will take advantage of the Fund's website,
WWW.FCCLAYMORE.COM. It contains a wide range of useful and up-to-date
information about the Fund. In addition, some of the topics mentioned above are
analyzed in greater depth in the Frequently Asked Questions section of the
website.
Sincerely,
/s/ Donald F. Crumrine /s/ Robert M. Ettinger
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
April 17, 2006
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OVERVIEW
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
FUND STATISTICS ON 02/28/06
--------------------------------------------------------------------------------
Net Asset Value $ 22.62
Market Price $ 20.69
Discount 8.53%
Yield on Market Price 8.12%
Common Shares Outstanding 9,776,333
MOODY'S RATINGS % OF PORTFOLIO
--------------------------------------------------------------------------------
AAA 0.3%
AA 1.7%
A 28.2%
BBB 48.8%
BB 13.2%
B 1.6%
Not Rated 5.4%
--------------------------------------------------------------------------------
Below Investment Grade* 14.2%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
INDUSTRY CATEGORIES % OF PORTFOLIO
--------------------------------------------------------------------------------
Banks 32%
Utilities 26%
Insurance 18%
REITs 9%
Financial Services 6%
Other 5%
Oil and Gas 4%
TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
--------------------------------------------------------------------------------
Wachovia Corp 4.2%
J.P. Morgan Chase 3.8%
North Fork Bancorporation 3.2%
Dominion Resources 3.1%
PS Business Parks 2.9%
Nexen, Inc. 2.6%
Interstate Power 2.3%
TXU Corp 2.2%
Merrill Lynch 2.2%
UnumProvident 2.1%
% OF PORTFOLIO**
-----------------------------------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income (QDI) for Individuals 21%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD) 15%
-----------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
** 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
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- 77.1%
BANKING -- 32.2%
------------------------------------------------------------------------------------------------------------------------
$ 5,750,000 Astoria Capital Trust I, 9.75% 11/01/29 Capital Security, Series B ............. $ 6,747,452
10,900 BAC Capital Trust II, 7.00% Pfd. ............................................... 277,732
25,000 BAC Capital Trust III, 7.00% Pfd. .............................................. 639,625
50,900 Bank One Capital Trust VI, 7.20% Pfd. .......................................... 1,299,477
$ 2,500,000 Barclays Bank PLC, Adj. Rate Pfd. .............................................. 2,522,125**(1)
$ 6,500,000 Chase Capital I, 7.67% 12/01/26 Capital Security ............................... 6,853,730
40,000 Cobank, ACB, 7.00% Pfd., 144A**** .............................................. 2,075,400*
20,000 Colonial Capital Trust IV, 7.875% Pfd. ......................................... 524,200
11,000 Comerica (Imperial) Capital Trust I, 7.60% Pfd. ................................ 280,995
4,000 FBOP Corporation, Adj. Rate Pfd., 144A**** ..................................... 4,030,000*
$ 2,000,000 First Chicago NBD Capital A, 7.95% 12/01/26 Capital Security, 144A**** ......... 2,113,000
$ 400,000 First Empire Capital Trust I, 8.234% 02/01/27 Capital Security ................. 426,276
$ 1,900,000 First Hawaiian Capital I, 8.343% 07/01/27 Capital Security, Series B ........... 2,041,103(1)
$ 2,000,000 First Midwest Capital Trust I, 6.95% Pfd. 12/01/33, Capital Security ........... 2,185,710
160,000 First Republic Bank, 6.25% Pfd. ................................................ 3,955,200*
$ 1,000,000 Fleet Capital Trust II, 7.92% 12/11/26 Capital Security ........................ 1,057,770
18,000 Fleet Capital Trust VII, 7.20% Pfd. ............................................ 461,340
2 FT Real Estate Securities Company, 9.50% Pfd., 144A**** ........................ 2,885,012
$ 7,100,000 GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security .................... 7,713,049
$ 4,500,000 HBOS Capital Funding LP, 6.85% Pfd. ............................................ 4,543,403(1)
$ 855,000 HSBC Capital Trust II, 8.38% 05/15/27 Capital Security, 144A**** ............... 917,864(1)
$ 3,000,000 Haven Capital Trust I, 10.46% 02/01/27 Capital Security ........................ 3,285,060
4,200 Household Capital Trust VI, 8.25% Pfd. ......................................... 105,903
$ 2,944,000 J.P. Morgan Capital Trust I, 7.54% 01/15/27 Capital Security ................... 3,106,435
$ 6,000,000 Keycorp Institutional Capital A, 7.826% 12/01/26 Capital Security, Series A .... 6,333,060
10 Marshall & Ilsley Investment II, 8.875% Pfd., 144A**** ......................... 1,055,634
$ 2,500,000 North Fork Capital Trust I, 8.70% 12/15/26 Capital Security .................... 2,664,613
$ 810,000 North Fork Capital Trust II, 8.00% 12/15/27 Capital Security ................... 873,488
141,059 PFGI Capital Corporation, 7.75% Pfd. ........................................... 3,749,348
$ 4,000,000 RBS Capital Trust B, 6.80% Pfd. ................................................ 4,044,080**(1)
$ 1,600,000 Republic New York Capital I, 7.75% 11/15/26 Capital Security ................... 1,682,904(1)
$ 716,000 Republic New York Capital II, 7.53% 12/04/26 Capital Security .................. 753,801(1)
Roslyn Real Estate:
25 8.95% Pfd., Series C, 144A**** ............................................... 2,781,713
10 Adj. Rate Pfd., Series D, 144A**** ........................................... 1,022,500
$ 5,050,000 Union Planters Capital Trust, 8.20% 12/15/26 Capital Security .................. 5,346,334
19,000 USB Capital V, 7.25% Pfd. ...................................................... 488,110
6,500 USB Capital VIII, 6.35% Pfd., 12/29/65 ......................................... 164,645
$ 5,000,000 Wachovia Capital Trust I, 7.64% 01/15/27 Capital Security, 144A**** ............ 5,282,075
4
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
$ 670,000 Wachovia Capital Trust V, 7.965% 06/01/27 Capital Security, 144A**** ........... $ 716,418
307,500 Wachovia Preferred Funding, 7.25% Pfd., Series A ............................... 8,583,863
$ 2,500,000 Washington Mutual Preferred Funding, Variable Rate Pfd. 03/29/49, 144A**** ..... 2,471,050
$ 4,000,000 Webster Capital Trust I, 9.36% 01/29/27 Capital Security, 144A**** ............. 4,287,700
7,900 Wells Fargo Capital Trust IV, 7.00% Pfd. ....................................... 199,475
-------------------------------------------------------------------------------------------------------------------
112,548,672
-------------
FINANCIAL SERVICES -- 4.4%
------------------------------------------------------------------------------------------------------------------------
84,500 CIT Group Inc., 6.35% Pfd., Series A ........................................... 2,218,547*
$ 3,000,000 Gulf Stream-Compass 2005 Composite Notes, 144A**** ............................. 2,995,500
9,700 Merrill Lynch Capital Trust III, 7.00% Pfd. .................................... 252,055
162,750 Merrill Lynch Capital Trust V, 7.28% Pfd. ...................................... 4,297,414(2)
3,000 Merrill Lynch Series II STRIPES Custodial Receipts, Pvt. ....................... 3,120,000*
17,200 Morgan Stanley Capital Trust II, 7.25% Pfd. .................................... 435,934
15,000 Morgan Stanley Capital Trust IV, 6.25% Pfd. .................................... 375,150
66,800 Morgan Stanley Capital Trust VI, 6.60% Pfd. .................................... 1,692,712
-------------------------------------------------------------------------------------------------------------------
15,387,312
-------------
INSURANCE -- 13.8%
------------------------------------------------------------------------------------------------------------------------
15,000 AAG Holding Company, Inc., 7.25% Pfd. .......................................... 384,225
177,380 ACE Ltd., 7.80% Pfd., Series C ................................................. 4,636,713**(1)
30,000 Aegon NV, 6.50% Pfd. ........................................................... 757,200**(1)
$ 5,920,000 AON Capital Trust A, 8.205% 01/01/27 Capital Security .......................... 7,076,946
30,600 Arch Capital Group Ltd., 8.00% Pfd. ............................................ 778,311**(1)
Axis Capital Holdings:
25,550 7.25% Pfd., Series A ......................................................... 643,221**(1)
27,900 Variable Rate Pfd., Series B ................................................. 2,875,792(1)
70,900 Berkley W.R. Capital Trust II, 6.75% 07/26/45 .................................. 1,769,309
29,400 Endurance Specialty Holdings, 7.75% Pfd. ....................................... 737,646**(1)
191,700 Everest Re Capital Trust II, 6.20% Pfd., Series B .............................. 4,488,655(1)
ING Groep NV:
36,000 7.05% Pfd. ................................................................... 923,940**(1)
67,500 7.20% Pfd. ................................................................... 1,747,238**(1)
10,000 PartnerRe Ltd., 6.50% Pfd., Series D ........................................... 244,350**(1)
200,000 Principal Financial Group, 6.518% Pfd. ......................................... 5,517,000*
120,600 Renaissancere Holdings Ltd., 6.08% Pfd., Series C .............................. 2,670,084**(1)
119,000 Scottish Re Group Ltd., 7.25% Pfd. ............................................. 3,035,095**(1)
40,000 St. Paul Capital Trust I, 7.60% Pfd. ........................................... 1,019,400
5
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
$ 1,906,000 Sun Life Canada Capital Trust, 8.526% Capital Security, 144A**** .............. $ 2,046,758(1)
$ 4,815,000 USF&G Capital, 8.312% 07/01/46 Capital Security, 144A**** ..................... 6,109,128
30,000 XL Capital Ltd., 7.625% Pfd., Series B 773,550**(1)
-------------------------------------------------------------------------------------------------------------------
48,234,561
-------------
UTILITIES -- 16.0%
------------------------------------------------------------------------------------------------------------------------
$ 357,000 AGL Capital Trust, 8.17% 06/01/37 Capital Security ............................. 381,969
45,700 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ...................... 4,749,829*
$ 2,750,000 COMED Financing II, 8.50% 01/15/27 Capital Security, Series B .................. 2,926,990
$ 2,500,000 Dominion Resources Capital Trust I, 7.83% 12/01/27 Capital Security ............ 2,662,537
$ 6,750,000 Dominion Resources Capital Trust III, 8.40% 01/15/31 ........................... 8,100,371
20,000 Duquesne Light Company, 6.50% Pfd. ............................................. 1,035,000*
20,000 Energy East Capital Trust I, 8.25% Pfd. ........................................ 509,600
1,008 Entergy Arkansas, Inc., 7.40% Pfd. ............................................. 104,716*
50,000 Entergy Louisiana, Inc., 6.95% Pfd., 144A**** .................................. 5,174,500*
70,000 FPC Capital I, 7.10% Pfd., Series A ............................................ 1,761,200
$ 4,500,000 Houston Light & Power Capital Trust II, 8.257%, 02/01/37 Capital Security ...... 4,768,538
30,445 Indianapolis Power & Light Company, 5.65% Pfd. ................................. 2,923,786*
Interstate Power & Light Company:
90,000 7.10% Pfd., Series C ......................................................... 2,449,800*
38,600 8.375% Pfd., Series B ........................................................ 1,284,801*
$ 5,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 Capital Security .................. 4,639,900
16,200 PSEG Funding Trust II, 8.75% Pfd. .............................................. 433,188
Puget Sound Energy Capital Trust:
$ 1,800,000 8.231% 06/01/27 Capital Security, Series B ................................... 1,927,251
14,100 8.40% Pfd. 06/30/41 .......................................................... 360,890
22,500 Southern California Edison, 6.00% Pfd. ......................................... 2,291,681*
151,100 Southern Union Company, 7.55% Pfd. ............................................. 3,992,062*
10,000 Southwest Gas Capital II, 7.70% Pfd. ........................................... 264,900
5,000 Union Electric Company, $7.64 Pfd. ............................................. 517,900*
18,000 Vectren Utility Holdings, 7.25% Pfd. 10/15/31 .................................. 457,830
85,137 Wisconsin Power & Light Company, 6.50% Pfd. .................................... 2,122,891*
-------------------------------------------------------------------------------------------------------------------
55,842,130
-------------
OIL AND GAS -- 0.8%
------------------------------------------------------------------------------------------------------------------------
2,750 EOG Resources, Inc., 7.195% Pfd., Series B ..................................... 2,894,402*
-------------------------------------------------------------------------------------------------------------------
2,894,402
-------------
6
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- 9.0%
------------------------------------------------------------------------------------------------------------------------
35,000 AMB Property Corporation, 7.00% Pfd., REIT, Series O ........................... $ 889,700
BRE Properties, Inc.:
6,000 6.75% Pfd., REIT, Series C ................................................... 150,390
44,000 6.75% Pfd., REIT, Series D ................................................... 1,100,660
38,750 Carramerica Realty Corporation, 7.50% Pfd., REIT, Series E ..................... 982,312
Duke Realty Corporation:
45,000 6.50% Pfd., REIT, Series K ................................................... 1,108,125
6,700 6.60% Pfd., REIT, Series L ................................................... 166,796
15,849 6.625% Pfd., REIT, Series J .................................................. 393,451
53,050 6.95% Pfd., REIT, Series M ................................................... 1,341,369
85,000 Equity Residential Properties, 8.29% Pfd., REIT, Series K ...................... 5,125,925
PS Business Parks, Inc.:
57,000 6.875% Pfd., REIT, Series I .................................................. 1,387,665
81,900 7.00% Pfd., REIT, Series H ................................................... 2,029,891
174,500 7.20% Pfd., REIT, Series M ................................................... 4,307,533
44,500 7.60% Pfd., REIT, Series L ................................................... 1,136,308
45,000 7.95% Pfd., REIT, Series K ................................................... 1,180,575
Public Storage, Inc.:
25,100 6.18% Pfd. REIT, Series D .................................................... 597,506
122,850 6.45% Pfd., REIT, Series F ................................................... 2,989,555
32,400 6.60% Pfd., REIT, Series C ................................................... 803,358
6,500 7.125% Pfd., REIT ............................................................ 168,708
44,200 7.50% Pfd., REIT, Series V ................................................... 1,142,570
1,400 7.625% Pfd., REIT, Series T .................................................. 35,910
48,600 8.00% Pfd., REIT, Series R ................................................... 1,244,646
125,000 Regency Centers Corporation, 7.25% Pfd., REIT .................................. 3,139,375
5,000 Vornado Realty Trust, 6.625% Pfd., REIT, Series I .............................. 122,275
-------------------------------------------------------------------------------------------------------------------
31,544,603
-------------
MISCELLANEOUS INDUSTRIES -- 0.9%
------------------------------------------------------------------------------------------------------------------------
40,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ............................ 3,297,600*
-------------------------------------------------------------------------------------------------------------------
3,297,600
-------------
TOTAL PREFERRED SECURITIES
(Cost $263,017,332) .......................................................... 269,749,280
-------------
7
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
CORPORATE DEBT SECURITIES -- 21.6%
FINANCIAL SERVICES -- 1.3%
------------------------------------------------------------------------------------------------------------------------
$ 4,902,500 Lehman Brothers, Guaranteed Note, Variable Rate, 12/16/16, 144A**** ............ $ 4,617,542
-------------------------------------------------------------------------------------------------------------------
4,617,542
-------------
INSURANCE -- 4.4%
------------------------------------------------------------------------------------------------------------------------
20,000 American Financial Group, Inc., 7.125% 02/03/34, Senior Note ................... 509,300
$ 107,000 Liberty Mutual Group, 6.50% 03/15/35, 144A**** ................................. 107,125
$ 2,984,000 Liberty Mutual Insurance, 7.697% 10/15/97 144A**** ............................. 3,231,657
$ 3,700,000 OneAmerica Financial Partners, 7.00% 10/15/33, 144A**** ........................ 4,059,603
$ 7,000,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes ........................ 7,352,205
-------------------------------------------------------------------------------------------------------------------
15,259,890
-------------
OIL AND GAS -- 2.6%
------------------------------------------------------------------------------------------------------------------------
356,200 Nexen, Inc., 7.35% Subordinated Notes .......................................... 9,214,894(1)
-------------------------------------------------------------------------------------------------------------------
9,214,894
-------------
UTILITIES -- 10.0%
------------------------------------------------------------------------------------------------------------------------
27,200 Corp-Backed Trust Certificates, 7.875% 02/15/32, Series Duke Capital ........... 709,512
$ 5,000,000 Duke Capital Corporation, 8.00% 10/01/19, Senior Notes ......................... 5,972,875
$ 4,000,000 Duquesne Light Holdings, 6.25% 08/15/35 ........................................ 3,941,180
5,000 Entergy Mississippi, Inc., 7.25%, 1st Mortgage ................................. 128,325
$ 4,000,000 Indianapolis Power & Light Company, 6.60% 01/01/34, 1st Mortgage, 144A**** ..... 4,333,380
$ 4,000,000 Interstate Power & Light Company, 6.45% 10/15/33, Senior Notes ................. 4,257,460
$ 5,670,000 Oncor Electric Delivery Company, 7.25% 01/15/33 ................................ 6,659,784
$ 2,500,000 PSEG Power LLC, 8.625% 04/15/31 ................................................ 3,333,337
$ 1,200,000 TXU Corporation, 6.50% 11/15/24 ................................................ 1,145,532
$ 4,000,000 Wisconsin Electric Power Company, 6.875% 12/01/95 .............................. 4,594,580
-------------------------------------------------------------------------------------------------------------------
35,075,965
-------------
MISCELLANEOUS -- 3.3%
------------------------------------------------------------------------------------------------------------------------
19,625 Ford Motor Company, 7.50% 06/10/43, Senior Notes ............................... 334,214
$ 6,265,000 General Motors Corporation, 8.80% 03/01/21 ..................................... 4,367,050
42,300 Maytag Corporation, 7.875% 08/01/31 ............................................ 1,056,654(3)
8
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
CORPORATE DEBT SECURITIES -- (CONTINUED)
MISCELLANEOUS -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
Pulte Homes, Inc.:
$ 3,550,000 6.375% 05/15/33, Senior Notes ................................................ $ 3,380,203
$ 1,450,000 7.875% 06/15/32, Senior Notes ................................................ 1,633,498
$ 605,000 Verizon Maryland, 7.15% 05/01/23 ............................................... 633,680
-------------------------------------------------------------------------------------------------------------------
11,405,299
-------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $76,071,341) ........................................................... 75,573,590
-------------
OPTION CONTRACTS -- 0.5%
375 April Put Options on June U.S. Treasury Bond Futures, Expiring 03/24/06 ........ 773,437+
345 June Call Options on June U.S. Treasury Bond Futures, Expiring 05/26/06 ........ 150,938+
585 June Put Options on June U.S. Treasury Bond Futures, Expiring 05/26/06 ......... 109,688+
1,370 June Put Options on June U.S. Treasury Bond Futures, Expiring 05/26/06 ......... 599,375+
-------------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $1,960,292) ............................................................ 1,633,438
-------------
9
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2006 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
MONEY MARKET FUND -- 0.3%
1,005,768 BlackRock Provident Institutional, TempFund ...................................... $ 1,005,768
-------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $1,005,768) .............................................................. 1,005,768
-------------
SECURITIES LENDING COLLATERAL -- 0.3%
1,099,800 Institutional Money Market Trust .................................................. 1,099,800
-------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES LENDING COLLATERAL
(Cost $1,099,800) .............................................................. 1,099,800
-------------
TOTAL INVESTMENTS (Cost $343,154,533***) ......................................... 99.8% 349,061,876
OTHER ASSETS AND LIABILITIES (Net) ............................................... 0.2% 618,529
-------- -------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK AND PREFERRED STOCK ................... 100.0%++ $ 349,680,405
-------- -------------
AUCTION MARKET PREFERRED STOCK (AMPS) REDEMPTION VALUE ......................................... (128,500,000)
-------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ..................................................... $ 221,180,405
=============
-------------
* 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.
(3) Security on loan.
+ 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:
REIT -- Real Estate Investment Trust
PFD. -- Preferred Securities
PVT. -- Private Placement Securities
OPEN OPTION CONTRACTS WRITTEN
CONTRACTS CONTRACT DESCRIPTION VALUE
------------ -------------------- -------------
345 June Call Options on June U.S. Treasury Bond Futures,
Expiring 05/26/06, Strike Price 112 ............................................ $ (716,953)
-------------------------------------------------------------------------------------------------------------------
TOTAL OPEN OPTION CONTRACTS WRITTEN (premiums received: $737,628) .............. (716,953)
-------------
10
--------------------------------------------------------------------------------
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 FEBRUARY, 2006 (UNAUDITED)
-----------------------------------------------------------------------
VALUE
-------------
OPERATIONS:
Net investment income .................................................................. $ 4,788,313
Net realized gain/(loss) on investments sold during the period ......................... (1,557,835)
Change in net unrealized appreciation/depreciation of investments held
during the period .................................................................. 4,400,025
Distributions to Auction Market Preferred Stock (AMPS) Shareholders from net
investment income, including changes in accumulated undeclared distributions ....... (1,358,795)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................... 6,271,708
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(2) .............. (4,106,060)
-------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ....................................... (4,106,060)
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 ..................................................................... $ 2,165,648
=============
----------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period .................................................................... $ 219,014,757
Net increase in net assets during the period ........................................... 2,165,648
-------------
End of period .......................................................................... $ 221,180,405
=============
----------
(1) These tables summarize the three months ended February 28, 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 FEBRUARY 28, 2006 (UNAUDITED)
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD.
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................................................... $ 22.40
-----------
INVESTMENT OPERATIONS:
Net investment income ................................................................... 0.49
Net realized and unrealized gain/(loss) on investments .................................. 0.29
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income .............................................................. (0.14)
From net realized capital gains ......................................................... --
-----------
Total from investment operations ........................................................ 0.64
-----------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income .............................................................. (0.42)
From net realized capital gains ......................................................... --
-----------
Total distributions to Common Stock Shareholders ........................................ (0.42)
-----------
Net asset value, end of period .......................................................... $ 22.62
===========
Market value, end of period ............................................................. $ 20.69
===========
Common shares outstanding, end of period ................................................ 9,776,333
===========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income+ .................................................................. 6.22%**
Operating expenses ...................................................................... 1.50%**
-----------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ................................................................. 19%***
Total net assets available to Common and Preferred Stock, end of period (in 000's) ...... $ 349,680
Ratio of operating expenses to total average net assets available to
Common and Preferred Stock .......................................................... 0.95%**
(1) These tables summarize the three months ended February 28, 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
----------
(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
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------
1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES
At February 28, 2006, the aggregate cost of securities for federal income
tax purposes was $344,122,046, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost was $8,840,392
and the aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $4,617,515.
14
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[LOGO] Flaherty & Crumrine/Claymore
============================
TOTAL RETURN FUND
Quarterly
Report
February 28, 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
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 & Shareholder Servicing Agent --
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
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.