UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

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, 2011

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:

     During the third fiscal quarter of 2011¹, total return on net asset value² of the Fund was -2.4%; the fiscal year-to-date return was a more pleasing +8.7%. Prior to this most recent quarter, the Fund had nine consecutive quarters of positive returns.

     There was good news on the Fund’s dividend during the quarter — a combination of very low borrowing cost on the Fund’s leverage and relatively high income earned from the Fund’s investment portfolio led to another increase in your monthly dividend. The new rate of $0.1395 (beginning in August) is 3.3% higher than the previous level.

     The Federal Reserve has indicated short-term interest rates are likely to stay at present levels at least through mid-2013. The Fund’s borrowing rate is not directly tied to the Fed’s short-term rate target, but the correlation is high, so borrowing costs should remain at or near current levels over the same period.

     On the flip side, however, the task of projecting portfolio income has become more difficult, due both to the sharp decline in interest rates and changes in the regulatory environment in which many preferred issuers operate. For instance, bank regulators here and abroad have yet to issue final guidelines for bank capital; until they do, it is hard to predict when issuers may call outstanding preferreds. We think eventually portfolio income could fall (as higher dividend paying securities are called), but we are working hard to minimize the impact.

     Conditions in financial markets are largely a tale of two houses — an ongoing economic drag from the residential housing market and a struggle of governments to get their financial houses in order. While there is a detailed discussion of these topics in our Quarterly Economic Update on the Fund’s website, our thoughts are summarized here.

     The drop in home prices and rise in foreclosures have eroded household wealth, pushed up savings, and slowed consumer spending, thus short-circuiting the cyclical recovery the economy normally would experience coming out of a deep recession. The resulting sluggish economic growth has encouraged companies to focus on reducing debt, lowering costs, and improving productivity. This has led to an unusual combination of strong profit growth and improving credit quality for corporations, but little improvement in employment. Finally, rising savings, limited demand for new investment, and highly accommodative monetary policy have pushed US Treasury rates to 60-year lows. As long as households seek to reduce indebtedness, which we expect will continue for some time, these conditions are likely to persist.

     At the same time, the deleveraging that began in the household sector has spread to the government sector. Investors are questioning governments’ ability and willingness to sustain current budgets and obligations, most visibly in the sovereign debt crisis boiling over in Europe. The uncertainty over how that situation will be resolved — and its short and long-term impact on the global economy — has sent many investors to the sidelines and out of risky assets. Although politicians are moving toward resolution of these issues, the solutions are often unpopular, and progress is likely to be slow.

     As of August 31, 12% of the Fund’s portfolio consisted of securities issued or guaranteed by banks and insurance companies based in Europe. Each of these companies has operations throughout the world, but is tied most closely to economic conditions in the Eurozone. We believe these issuers are well capitalized and well managed, and therefore better able to handle market turbulence.

     At the end of the day, we believe long-term investors will continue to earn attractive returns on preferred securities, although there may be some bumps along the way. We will continue to manage the Fund as we always have — in quiet times and in crisis — with a disciplined eye on credit fundamentals, relative value and risk management.

     We encourage you to visit the Fund’s website www.fcclaymore.com for a more in-depth discussion of conditions in the preferred markets as well as the broader economy.

     Sincerely,

		Donald F. Crumrine		Robert M. Ettinger
		Chairman		President
		October 14, 2011

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OVERVIEW

August 31, 2011 (Unaudited)

Fund Statistics
Net Asset Value		$	17.71
Market Price		$	18.25
Premium			3.05	%
Yield on Market Price			9.17	%
Common Stock Shares Outstanding			9,822,790

Moody’s Ratings		% of Net Assets†
A			7.5	%
BBB			73.3	%
BB			15.1	%
Below “BB”			1.7	%
Not Rated*			0.6	%
Below Investment Grade**			9.0	%

Industry Categories		% of Net Assets†

Top 10 Holdings by Issuer		% of Net Assets†
Liberty Mutual Group			5.1	%
Banco Santander			4.5	%
Capital One Financial			4.0	%
Metlife			3.8	%
HSBC Plc			3.4	%
Georgia Power			3.0	%
Unum Group			2.9	%
Enbridge Energy Partners			2.8	%
Wells Fargo			2.8	%
Axis Capital			2.5	%

		% of Net Assets***†
Holdings Generating Qualified Dividend Income (QDI) for Individuals			34	%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD)			22	%

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS

August 31, 2011 (Unaudited)

Shares/$ Par						Value
Preferred Securities — 91.8%
				Banking — 35.8%
$	4,850,000			Astoria Capital Trust I, 9.75% 11/01/29, Series B		$	5,054,010	(1)
	439,755			Banco Santander, 10.50% Pfd., Series 10			12,052,057	**(1)(2)
				Bank of America Corporation:
	8,220			8.20% Pfd.			204,678	*
	17,540			8.625% Pfd.			442,008	*
$	1,000,000			BankAmerica Institutional, Series A, 8.07% 12/31/26, 144A****			1,000,000
				Barclays Bank PLC:
$	3,600,000			6.278%			2,666,250	**(1)(2)
	1,900			7.75% Pfd., Series 4			46,113	**(2)
	126,900			8.125% Pfd., Series 5			3,130,623	**(1)(2)
	8,700			BB&T Capital Trust V, 8.95% Pfd. 09/15/63			234,085
	57,157			BB&T Capital Trust VI, 9.60% Pfd. 08/01/64			1,539,238	(1)
$	2,050,000			BBVA International Preferred, 5.919%			1,517,875	**(1)(2)
$	3,000,000			BNP Paribas, 7.195%, 144A****			2,610,000	**(1)(2)
$	7,250,000			Capital One Capital III, 7.686% 08/15/36			7,268,125	(1)
$	1,500,000			Capital One Capital V, 10.25% 08/15/39			1,566,525	(1)
$	1,643,000			Capital One Capital VI, 8.875% 05/15/40			1,672,893	(1)
	83,300			Citigroup Capital XIII, 7.875% Pfd. 10/30/40			2,171,006	(1)
$	10,000,000			Colonial BancGroup, 7.114%, 144A****			387,500(3)	††
	7,000			FBOP Corporation, Adj. Rate Pfd., 144A****			5,460	*(3)(4)†
$	2,150,000			Fifth Third Capital Trust IV, 6.50% 04/15/37			2,004,875	(1)
	13,150			Fifth Third Capital Trust V, 7.25% Pfd. 08/15/67			330,328
	133,051			Fifth Third Capital Trust VI, 7.25% Pfd. 11/15/67			3,334,591	(1)
	2,000			First Republic Preferred Capital Corporation, 10.50% Pfd., 144A****			2,042,500
	3,900			First Tennessee Bank, Adj. Rate Pfd., 3.75%(5), 144A****			2,531,344	*
$	600,000			First Union Capital II, 7.95% 11/15/29			612,790	(1)
$	500,000			Fleet Capital Trust II, 7.92% 12/11/26			493,750
	3			FT Real Estate Securities Company, 9.50% Pfd., 144A****			2,875,500
				Goldman Sachs:
$	865,000			Capital I, 6.345% 02/15/34			802,397	(1)
$	881,000			Capital II, 5.793%			638,725	(1)
	1,500			STRIPES Custodial Receipts, Adj. Rate, 10.70%(5), Pvt.			711,000	*(3)(4)
	172,000			HSBC Holdings PLC, 8.00% Pfd., Series 2			4,587,670	**(1)(2)
$	1,000,000			HSBC USA Capital Trust II, 8.38% 05/15/27, 144A****			1,018,027	(1)
				HSBC USA, Inc.:
	100,000			6.50% Pfd., Series H			2,505,150	*(1)
	1,828			$2.8575 Pfd.			85,516	*
	41,175			ING Groep NV, 8.50% Pfd.			1,008,376	**(2)
$	1,850,000			JPMorgan Chase Capital XVIII, 6.95% 08/17/36, Series R			1,831,770	(1)

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2011 (Unaudited)

Shares/$ Par						Value
Preferred Securities — (Continued)
				Banking — (Continued)
$	500,000			JPMorgan Chase Capital XXVII, 7.00% 11/01/39, Series AA		$	501,899	(1)
	72,935			Keycorp Capital IX, 6.75% Pfd. 12/15/66			1,859,843	(1)
	72,900			Keycorp Capital X, 8.00% Pfd. 03/15/68			1,877,904	(1)
$	1,000,000			Lloyds Banking Group PLC, 6.657%, 144A****			575,000	**(2)†
$	775,000			MBNA Capital, 8.278% 12/01/26, Series A			777,906
$	1,676,000			National City Preferred Capital Trust I, 12.00%			1,821,792
$	1,150,000			NB Capital Trust IV, 8.25% 04/15/27			1,158,625
	39,995			PNC Financial Services, 9.875% Pfd., Series L			1,127,359	*(1)
$	1,000,000			PNC Preferred Funding Trust III, 8.70%, 144A****			1,025,250	(1)
	3,000			Sovereign REIT, 12.00% Pfd., Series A, 144A****			3,671,535
	8,100			SunTrust Capital IX, 7.875% Pfd. 03/15/68			205,841
$	1,500,000			Wachovia Capital Trust III, Adj. Rate, 5.56975%(5)			1,318,125	*(1)
	51,737			Wachovia Preferred Funding, 7.25% Pfd., Series A			1,344,257	(1)
$	2,800,000			Webster Capital Trust IV, 7.65% 06/15/37			2,850,417
				Wells Fargo & Company:
	2,325			7.50% Pfd., Series L			2,420,255	*(1)
	50,000			8.00% Pfd., Series J			1,450,000	*
$	160,000			Wells Fargo Capital XV, 9.75%			166,000
							95,134,763
				Financial Services — 3.5%
$	250,000			Ameriprise Financial, Inc., 7.518% 06/01/66			253,125
$	1,300,000			Claudius, Ltd. — Credit Suisse AG, 7.875%, Series B			1,293,500	(2)
$	3,000,000			Gulf Stream-Compass 2005 Composite Notes, 144A****			2,150,370	(3)(4)
				Heller Financial, Inc.:
	39,000			6.687% Pfd., Series C			3,890,250	*(1)
	7,750			6.95% Pfd., Series D			784,446	*
	32,200			HSBC Finance Corporation, 6.36% Pfd., Series B			741,002	*
				Lehman Brothers Holdings, Inc.:
	20,000			5.67% Pfd., Series D			6,200	*††
	85,000			7.95% Pfd.			2,380	*††
							9,121,273
				Insurance — 20.1%
$	1,550,000			Ace Capital Trust II, 9.70% 04/01/30			2,076,978	(1)(2)
$	1,775,000			AON Corporation, 8.205% 01/01/27			2,039,324	(1)
	12,150			Arch Capital Group Ltd., 7.875% Pfd., Series B			309,066	**(1)(2)

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2011 (Unaudited)

Shares/$ Par						Value
Preferred Securities — (Continued)
				Insurance — (Continued)
				AXA SA:
$	1,196,000			6.379%, 144A****		$	932,880	**(1)(2)
$	114,000			6.463%, 144A****			88,920	**(2)
	66,600			Axis Capital Holdings, 7.50% Pfd., Series B			6,508,072	(1)(2)
	160,000			Delphi Financial Group, 7.376% Pfd. 05/15/37			3,830,000	(1)
$	5,760,000			Everest Re Holdings, 6.60% 05/15/37			5,256,000	(1)
$	8,300,000			Liberty Mutual Group, 10.75% 06/15/58, 144A****			10,292,000	(1)
$	1,700,000			MetLife Capital Trust IV, 7.875% 12/15/37, 144A****			1,742,500	(1)
$	4,330,000			MetLife Capital Trust X, 9.25% 04/08/38, 144A****			5,131,050	(1)
$	2,250,000			MetLife, Inc., 10.75% 08/01/39			3,090,431	(1)
				Principal Financial Group:
	12,000			5.563% Pfd., Series A			1,161,376	*
	87,800			6.518% Pfd., Series B			2,244,388	*(1)
	109,000			Scottish Re Group Ltd., 7.25% Pfd.			1,004,849	**(2)†
$	1,750,000			Stancorp Financial Group, 6.90% 06/01/67			1,560,228	(1)
$	3,615,000			USF&G Capital, 8.312% 07/01/46, 144A****			4,467,312	(1)
$	1,800,000			XL Capital Ltd., 6.50%, Series E			1,606,500	(1)(2)
							53,341,874
				Utilities — 26.1%
	62,243			Alabama Power Company, 6.45% Pfd.			1,731,133	*(1)
	33,700			Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993			3,390,011	*(1)
	118,380			Calenergy Capital Trust III, 6.50% Pfd. 09/01/27			5,859,810	(1)
$	3,700,000			COMED Financing III, 6.35% 03/15/33			3,285,493	(1)
	20,170			Constellation Energy Group, 8.625% Pfd. 06/15/63, Series A			545,195	(1)
$	2,500,000			Dominion Resources Capital Trust I, 7.83% 12/01/27			2,525,477	(1)
$	3,500,000			Dominion Resources, Inc., 7.50% 06/30/66			3,591,094	(1)
	83,000			Entergy Arkansas, Inc., 6.45% Pfd.			2,075,000	*(1)
	57,000			Entergy Louisiana, Inc., 6.95% Pfd.			5,612,722	*(1)
				FPL Group Capital, Inc.:
$	4,197,000			6.65% 06/15/67			4,065,374	(1)
$	1,975,000			7.30% 09/01/67, Series D			2,041,644	(1)
	75,000			Georgia Power Company, 6.50% Pfd., Series 2007A			8,025,000	*(1)
	5,000			Gulf Power Company, 6.45% Pfd., Series 2007A			537,856	*
	30,445			Indianapolis Power & Light Company, 5.65% Pfd.			2,850,413	*(1)
	95,000			Interstate Power & Light Company, 8.375% Pfd., Series B			2,784,688	*(1)
$	4,000,000			PECO Energy Capital Trust IV, 5.75% 06/15/33			3,506,192	(1)
$	825,000			PPL Capital Funding, 6.70% 03/30/67, Series A			797,032	(1)
	64,500			PPL Electric Utilities Corporation, 6.25% Pfd.			1,630,644	*

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2011 (Unaudited)

Shares/$ Par						Value
Preferred Securities — (Continued)
				Utilities — (Continued)
$	5,175,000			Puget Sound Energy, Inc., 6.974% 06/01/67		$	5,237,819	(1)
				Southern California Edison:
	17,000			6.00% Pfd., Series C			1,671,845	*(1)
	41,000			6.50% Pfd., Series D			4,137,158	*(1)
$	3,615,000			WPS Resources Corporation, 6.11% 12/01/66			3,456,113	(1)
							69,357,713
				Energy — 5.0%
$	7,050,000			Enbridge Energy Partners LP, 8.05% 10/01/37			7,400,491	(1)
$	5,550,000			Enterprise Products Partners, 8.375% 08/01/66, Series A			5,812,493	(1)
							13,212,984
				Real Estate Investment Trust (REIT) — 0.1%
	10,000			PS Business Parks, Inc., 6.875% Pfd., Series R			255,000
							255,000
				Miscellaneous Industries — 1.2%
	37,400			Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A****			3,260,812	*(1)
							3,260,812
				Total Preferred Securities (Cost $244,890,021)			243,684,419
Corporate Debt Securities — 6.4%
				Banking — 0.2%
$	635,000			Goldman Sachs Group, 6.75% 10/01/37, Sub Notes			604,547	(1)
							604,547
				Financial Services — 0.3%
$	4,726,012			Lehman Brothers, Guaranteed Note, Variable Rate, 5.843%, 12/16/16, 144A****			800,114	(3)(4)††
							800,114
				Insurance — 4.1%
$	3,400,000			Liberty Mutual Insurance, 7.697% 10/15/97, 144A****			3,153,520	(1)
$	7,000,000			UnumProvident Corporation, 7.25% 03/15/28			7,678,139	(1)
							10,831,659

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2011 (Unaudited)

Shares/$ Par						Value
Corporate Debt Securities — (Continued)
				Utilities — 0.8%
				Southern Union Company:
$	1,000,000			7.60% 02/01/24, Senior Notes		$	1,217,807	(1)
$	700,000			8.25% 11/15/29, Senior Notes			864,101	(1)
							2,081,908
				Miscellaneous Industries — 1.0%
	16,500			Corp-Backed Trust Certificates, 7.00% 11/15/28, Series Sprint			408,705	(1)
				Pulte Homes, Inc.:
	25,844			7.375% 06/01/46			570,442
$	2,160,000			7.875% 06/15/32			1,857,600	(1)
							2,836,747
				Total Corporate Debt Securities (Cost $20,254,781)			17,154,975
Common Stock — 0.4%
				Banking — 0.2%
	13,500			CIT Group, Inc.			466,695	*†
							466,695
				Utilities — 0.2%
	7,840			Exelon Corporation			338,061	*
	11,653			PPL Corporation			336,539	*
							674,600
				Total Common Stock (Cost $3,163,176)			1,141,295
Money Market Fund — 0.1%
	162,893			BlackRock Liquidity Funds, T-Fund			162,893
				Total Money Market Fund (Cost $162,893)			162,893

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2011 (Unaudited)

						Value
Total Investments (Cost $268,470,871***)			98.7	%		$	262,143,582
Other Assets And Liabilities (Net)			1.3	%			3,404,853
Total Managed Assets			100.0	%‡		$	265,548,435
Loan Principal Balance							(91,600,000	)
Total Net Assets Available To Common Stock						$	173,948,435

ABBREVIATIONS:

Pfd.		—		Preferred Securities
Pvt.		—		Private Placement Securities
REIT		—		Real Estate Investment Trust
STRIPES		—		Structured Residual Interest Preferred Enhanced Securities

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

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

For the period from December 1, 2010 through August 31, 2011 (Unaudited)

		Value
OPERATIONS:
Net investment income		$	12,093,494
Net realized gain/(loss) on investments sold during the period			2,681,135
Change in net unrealized appreciation/depreciation of investments			(73,174	)
Net increase in net assets resulting from operations			14,701,455
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(2)			(12,359,862	)
Total Distributions to Common Stock Shareholders			(12,359,862	)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan			338,683
Net increase in net assets available to Common Stock resulting from Fund share transactions			338,683
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD		$	2,680,276
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period		$	171,268,159
Net increase in net assets during the period			2,680,276
End of period		$	173,948,435

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

FINANCIAL HIGHLIGHTS⁽¹⁾

For the period from December 1, 2010 through August 31, 2011 (Unaudited)
For a Common Stock share outstanding throughout the period.

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period		$	17.47
INVESTMENT OPERATIONS:
Net investment income			1.23
Net realized and unrealized gain/(loss) on investments			0.27
Total from investment operations			1.50
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income			(1.26	)
Total distributions to Common Stock Shareholders			(1.26	)
Net asset value, end of period		$	17.71
Market value, end of period		$	18.25
Common Stock shares outstanding, end of period			9,822,790
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income†			9.12	%*
Operating expenses including interest expense			1.99	%*
Operating expenses excluding interest expense			1.36	%*
SUPPLEMENTAL DATA:††
Portfolio turnover rate			10	%**
Total managed assets, end of period (in 000’s)		$	265,548
Ratio of operating expenses including interest expense to total managed assets			1.33	%*
Ratio of operating expenses excluding interest expense to total managed assets			0.91	%*

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, 2010 - Extra		$	0.0400			$	17.44			$	17.26			$	17.26
December 31, 2010			0.1350				17.44				17.26				17.26
January 31, 2011			0.1350				17.66				17.51				17.64
February 28, 2011			0.1350				18.02				17.87				17.99
March 31, 2011			0.1350				18.04				18.33				18.04
April 29, 2011			0.1350				18.38				18.58				18.38
May 31, 2011			0.1350				18.55				19.32				18.55
June 30, 2011			0.1350				18.23				19.17				18.23
July 29, 2011			0.1350				18.34				17.89				18.33
August 31, 2011			0.1395				17.71				18.25				17.71

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited)

1. Aggregate Information for Federal Income Tax Purposes

     At August 31, 2011, the aggregate cost of securities for federal income tax purposes was $268,814,273, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $24,315,077 and the aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $30,985,768.

2. Additional Accounting Standards

     Fair Value Measurement: The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy 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, 2011 is as follows:

										Level 2				Level 3
		Total				Level 1				Significant				Significant
		Value at				Quoted				Observable				Unobservable
		August 31, 2011				Price				Inputs				Inputs
Preferred Securities
Banking		$	95,134,763			$	65,446,024			$	29,295,779			$	392,960
Financial Services			9,121,273				741,002				6,229,901				2,150,370
Insurance			53,341,874				29,250,784				24,091,090				—
Utilities			69,357,713				17,281,140				52,076,573				—
Energy			13,212,984				13,212,984				—				—
Real Estate Investment Trust (REIT)			255,000				255,000				—				—
Miscellaneous Industries			3,260,812				—				3,260,812				—
Corporate Debt Securities Common Stock			17,154,975				3,665,602				12,689,259				800,114
Banking			466,695				466,695				—				—
Utilities			674,600				674,600				—				—
Money Market Fund			162,893				162,893				—				—
Total Investments		$	262,143,582			$	131,156,724			$	127,643,414			$	3,343,444

     The Fund did not have any significant transfers in and out of Level 1 and Level 2 during the period.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

     The valuation of the Fund’s investments in Level 2 and Level 3 is based primarily on market information, where available. This includes, but is not limited to, prices provided by third-party providers, observable trading activity (including the recency, depth, and consistency of such information with quoted levels), and the depth and consistency of broker-quoted prices. In the event market information is not directly available, comparable information may be observed for securities that are similar in many respects to those being valued. The Fund may employ an income approach for certain securities that also takes into account credit risk, interest rate risk, and potential recovery prospects.

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

						Preferred Securities
										Financial				Corporate Debt
		Total Investments				Banking				Services				Securities
Balance as of 11/30/10		$	2,137,752			$	30,968			$	1,457,430			$	649,354
Accrued discounts/premiums			—				—				—				—
Realized gain/(loss)			—				—				—				—
Change in unrealized appreciation/ (depreciation)			818,692				(25,008	)			692,940				150,760
Purchases			—				—				—				—
Sales			—				—				—				—
Transfers in			387,000				387,000	(1)			—				—
Transfers out			—				—				—				—
Balance as of 8/31/11		$	3,343,444			$	392,960			$	2,150,370			$	800,114

     For the period ended August 31, 2011, total change in unrealized gain/(loss) on Level 3 securities still held at period-end and included in the change in net assets was $818,692.

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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 10/25/11

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 10/25/11
By (Signature and Title)*		/s/ R. Eric Chadwick   R. Eric Chadwick, Chief Financial Officer, Treasurer and Vice President
		(principal financial officer)
Date 10/25/11