UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

(Exact name of registrant as specified in charter)

301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101

Donald F. Crumrine
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101

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

Date of fiscal year end: November 30

Date of reporting period: November 30, 2011

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR 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 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. Reports to Stockholders.

The Report to Shareholders is attached herewith.

FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND

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

     We begin with some good news—the Fund ended the fiscal year with a bit of extra income, so shareholders of record on December 22, 2011 received a special one-time distribution of $0.055 per share. This was in addition to the regular monthly dividend of $0.1395 per share.

     During the fourth fiscal quarter of 2011¹, total return on net asset value² of the Fund was -1.3%; the return for the full fiscal year was +7.3%. Total return based on market price of Fund shares for the comparable periods was +1.6% and +11.4% respectively. The table below presents these and other performance measures of interest to investors.

TOTAL RETURN ON NET ASSET VALUE
FOR PERIODS ENDED NOVEMBER 30, 2011

		Actual Returns												Average Annualized Returns
		Three				Six				One				Three				Five				Life of
		Months				Months				Year				Years				Years				Fund(1)
Flaherty & Crumrine/Claymore Total Return Fund			-1.3	%			-3.7	%			7.3	%			37.9	%			4.4	%			5.5	%
Barclays Capital U.S. Aggregate Index(2)			0.8	%			3.5	%			5.5	%			7.7	%			6.1	%			5.5	%
S&P 500 Index(3)			2.9	%			-6.3	%			7.8	%			14.1	%			-0.2	%			4.8	%

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. In addition, NAV performance will vary from market price performance, and you may have a taxable gain or loss when you sell your shares.

     Financial markets have been highly volatile in recent months, driven largely by economic jitters in Europe and the United States. As reflected in the numbers above, the market for preferred securities has also been uneven. Despite these challenging conditions, the Fund is achieving its primary objective of high current income. The monthly dividend was raised twice during the fiscal year; as of November 30^th, the distribution rate stood at 9.2% based on market price of Fund shares.

     When the economic narrative of 2011 is ultimately written, it seems certain the focus will be on politics in the United States and Europe, and the terms “circus” and “dysfunction” will be prominent. We’ve known sovereign debt burdens in Europe and the U.S. are not sustainable without major, politically-difficult reforms. The only question was when that day of reckoning would arrive.

     In Europe, awareness of the sovereign debt crisis built slowly over the past two years, and political leaders dragged their feet during most of that time. They finally appear to have gotten serious and are quickening the pace of needed reforms, although much work remains to be done.

     The U.S. is also on a risky long-term budgetary path, with political expediencies of Washington D.C. thus far taking precedence over addressing the problem. In addition, without the “luxury” of running large deficits, state and local governments have been dramatically cutting spending to manage their own fiscal challenges. Businesses and households, on the other hand, continue to reduce their debt burdens and are fundamentally (though not uniformly) healthy. We expect this dichotomy between an improving private sector and a deteriorating public sector to persist in 2012, which is likely to keep market volatility elevated and dampen near-term economic growth.

     Prices on securities issued by European companies have been hit particularly hard. As of November 30^th, 12% of the Fund’s portfolio consisted of securities issued or guaranteed by banks and insurance companies based in Europe. As we’ve discussed previously, 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, but continued weakness in the Eurozone will be a challenge. Several of these positions declined in value during the quarter, contributing to the drop in NAV.

     In the U.S., stocks and bonds issued by financial institutions also have been under pressure. Slow economic growth and unresolved regulatory issues continue to have investors wary of the industry. In our view, expanded in the discussion section that follows, the credit quality of the industry is far better than at any time in the recent past. For the foreseeable future, we believe the best opportunities in the financial sector will be found in preferred securities.

     Once again we use the occasion of our annual report to dig more deeply into several topics of interest to shareholders. We hope you’ll read on and learn more about your Fund, as well as our thoughts on the factors important to its outlook. In addition, we encourage you to visit the Fund’s website www.fcclaymore.com for a more in-depth discussion of conditions in both preferred markets and the broader economy.

Sincerely,
Donald F. Crumrine		Robert M. Ettinger
Chairman		President
December 30, 2011

DISCUSSION TOPICS

The Fund’s Portfolio Results and Components of Total Return on NAV

     The table below reflects performance over both the recent six months and the Fund’s fiscal year of each element comprising total return of the Fund, namely: (a) investing in a portfolio of securities; (b) hedging that portfolio of securities against significant increases in long-term interest rates (see the following discussion on status of the Fund’s interest-rate hedging strategy); and (c) utilizing leverage to enhance returns to shareholders. Next, we compute the impact of the Fund’s operating expenses. All of the parts are summed to determine total return on NAV.

Components of FLC’s Total Return on NAV
for the Fiscal Year Ended November 30, 2011

		Six Months*				One Year
Total Return on Unleveraged Securities Portfolio (including principal and income)			-1.7	%			+6.3	%
Return from Interest Rate Hedging Strategy			N/A				N/A
Impact of Leverage (including leverage expense)			-1.2	%			+2.4	%
Expenses (excluding leverage expense)			-0.7	%			-1.4	%
Total Return on NAV			-3.6	%			+7.3	%

     For comparison, the following table displays returns over the same two time periods on four indices compiled by Bank of America Merrill Lynch, reflecting various segments of the preferred market. In addition, we have calculated and included a fifth measure—a composite of these four indices weighted by the size of each segment. In our view, this composite represents a broad measure of the entire preferred market. Because the index returns exclude all expenses and the impact of leverage, they compare most directly to the top line in the Fund’s performance table. As you can see, the Fund outperformed the composite by a substantial amount over the fiscal year, though the results have been much closer during the past six months.

Total Returns of Bank of America Merrill Lynch Preferred Securities Indices*
for Periods Ended November 30, 2011

		Six Months				One Year
BofA Merrill Lynch 8% Capped DRD Preferred Stock IndexSM			+2.0	%			+8.1	%
BofA Merrill Lynch 8% Capped Hybrid Preferred Securities IndexSM			-1.9	%			+3.2	%
BofA Merrill Lynch 8% Capped Corporate U.S. Capital Securities IndexSM			-4.1	%			+1.9	%
BofA Merrill Lynch Adjustable Preferred Stock, 7% Constrained IndexSM			-15.2	%			-8.4	%
Composite Preferred Market Benchmark Index			-2.4	%			+3.2	%

     Total return on NAV also includes the impact of expenses and leverage (the bottom line on the Fund performance table). When compared to the market indices, we reach a similar conclusion, though the differentials are greater for both measurement periods.

Total Return on Market Price of Fund Shares

     While our focus is primarily on managing the Fund’s investment portfolio, our shareholders’ actual return is comprised of the Fund’s monthly dividend payments plus changes in its market price. During the twelve months ending November 30, 2011, total return on market price of Fund shares was +11.4%.

     In a perfect world, the market price of Fund shares would closely track the Fund’s net asset value. As can be seen from the graph below, over the life of the Fund this often has not been the case. However, for almost all of the past year the Fund’s market price has been above its NAV (in market parlance, “trading at a premium”). Because the Fund began fiscal 2011 with its market price at only a modest premium to NAV and ended the fiscal year well above, the total return earned on market price materially exceeded the total return on NAV shown in the first on the previous page.

     Based on a closing price of $18.70 on December 30^th, the current annualized yield on market price of the Fund’s shares (assuming the current monthly distribution of $0.1395 does not change) is 9.0%. In our opinion, this distribution rate measures up favorably with most comparable investment opportunities.

Preferred Market Conditions

     Conditions in the market for preferred securities have been mixed recently, as participants sort through a great deal of conflicting information. Improving trends in credit quality have been countered by tepid economic growth and European sovereign risk concerns. Politicians and regulators have been slow to

resolve issues big and small, leaving investors with large unknowns in their decision-making processes. These uncertainties have sent many investors to the sidelines and pushed down prices of preferred securities.

     Trading volumes for most preferred securities have declined recently, but by most measures the markets remain healthy. Flows tend to be “lumpier,” indicating an increase in institutional trades along with a drop in retail activity. Price volatility remains stubbornly high for the traditionally sleepy preferred market. We expect this will persist over the near term given current uncertainties in both macroeconomic and political environments.

     New issue activity has been slow, and redemptions continue to outpace new supply. However, when new preferred securities have been issued, demand has been reasonably strong. Investors are cautious, but if an issue is structured and priced properly, demand has been high.

     Looking to the future, we believe investor concerns, while real, have gone too far. U.S. economic growth has improved following surprisingly slow growth in the first half of 2011, and our outlook is for continued, though modest growth.¹ We believe the risk of deflation has receded and economic growth should return to the 2-3% range. Although that’s slow for a “typical” recovery from recession, it should be fast enough to accommodate ongoing household and financial sector deleveraging and balance sheet improvement. It also should keep new issuance of preferred securities relatively light. We see this as a fundamentally constructive environment for preferreds.

     The major risk to this outlook is the sovereign debt crisis in Europe. From our perspective as preferred investors, we see three recent painful but ultimately positive developments that represent real progress toward a comprehensive solution to the crisis in Europe. First, markets over the second half of the year lost patience with the piecemeal actions taken previously in Europe, prompting policymakers to agree in July to an expansion of the European Financial Stability Facility (EFSF). Although additional funds from the European Central Bank (ECB) or elsewhere may prove necessary, this was a major step up from previous efforts. Second, policymakers recognized that the sovereign debt crisis has also become a banking crisis, given the sizable holdings of sovereign debt at European banks. Banks that need additional capital under recent stress tests are being required to raise it in the marketplace; if they are unable to do so, member states or the EFSF will provide the capital. In addition, the ECB has both eased monetary policy and expanded its lending facilities, offering ample liquidity to European banks. Third, European Monetary Union members recently agreed to a meaningful degree of fiscal union, which should help deliver greater fiscal discipline in the future. There is still much work to do in Europe, but things are finally moving in the right direction.

     In the U.S., credit trends in major sectors of the preferred market show ongoing improvement. Problem loans at banks are falling, with both new delinquencies and charge-offs declining. Earnings at banks are likely to remain under some pressure given falling net interest margins, rising costs of regulatory compliance and, for some banks, mortgage-related litigation. However, from a preferred investor’s perspective, we think this will be offset by greater balance sheet strength and more-focused, lower-risk business operations.

     Insurance company credit fundamentals remain healthy and business volumes generally have remained good. Property and casualty companies have had to pay sizable claims on recent natural disasters, but their balance sheets are very strong and premiums are rising. Life insurance companies are facing some earnings

stress and balance-sheet volatility, but most have comfortable capital cushions and solid earnings streams that can weather those near-term headwinds.

     Electric utilities have been an anchor of stability in recent years. While sales volumes are growing a little more slowly than expected, balance sheets are strong and earnings are rising modestly on incremental (but rarely transformational) capital expenditures. As preferred investors, we are satisfied with strong fixed-charge coverage and 9-10% return on equity, which is what we see at a number of utilities. Other sectors, including real estate investment trusts, pipeline, energy, and industrial companies show similar stable or improving credit profiles.

     On the two major bank regulatory fronts (Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel Committee on Banking Supervision), there has been only limited progress in recent months. Regulatory uncertainty has limited the amount of new issue supply in the preferred market, as banks cannot be sure that preferred stock issues sold today will qualify as Tier 1 capital in 2013 and beyond. We expect the supply pipeline to remain low until capital rules are clarified. The uncertainty, however, has not prevented issuers from redeeming certain preferred securities that are expensive in today’s low-yield environment.

     On balance, we expect continued improvement in credit fundamentals, partially offset — and sometimes overwhelmed — by nervousness over Europe. Although that probably will make for volatile markets, we still see good opportunity in preferred securities.

Bank Credit Quality and Ratings Diverge

     In the aftermath of the credit crisis, the three largest nationally-recognized statistical rating organizations — Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings — have lowered their ratings on preferred securities issued by banks. Although their reasoning varies (we are painting with a broad brush here), the rating agencies have cited two primary reasons for the lower ratings. First, they generally have lowered senior debt ratings on banks in recent years to reflect what they view as greater risk at these institutions and a lower likelihood that banks will receive government financial support in a crisis. Second, they often have lowered ratings on preferred securities relative to senior debt of the same issuer, in part reflecting a view that regulators will force preferred capital providers to absorb losses prior to receiving government financial support in any future crisis.

     These actions have resulted in lower ratings on a number of preferred securities held in the Fund’s portfolio. Although we base our investment decisions primarily on our own assessment of an issuer’s creditworthiness (along with an analysis of each issue’s particular terms and conditions), we still pay attention to the impact of these downgrades on the portfolio. That is because the Fund’s investment guidelines incorporate ratings thresholds, and we must manage within the rating guidelines for the Fund.

     This does not mean that we agree with these ratings. In particular, we believe that most U.S. banks are now considerably healthier than they were before the crisis, yet they are rated lower by the agencies. Part of that reflects agency ratings that often were too high prior to the crisis. However, we think many current bank preferred ratings underappreciate both the enormous increase in common equity capital and the lower risk profile at banks in the wake of financial reform legislation and upcoming capital requirements. For many U.S. bank preferreds today, lower agency credit ratings do not necessarily mean lower credit quality. Our job is to know which companies deserve the lower ratings and which do not.

Monthly Distributions to Fund Shareholders

     The Fund makes monthly distributions of income to shareholders consistent with its primary objective of providing high current income. Effectively, the Fund earns its income both by investing its assets in income-producing securities, such as preferred securities, and by employing leverage to borrow additional money and invest the proceeds in more income-producing securities.

     This use of leverage is an important part of the Fund’s strategy to produce high current income, because, over time, the cost of leverage typically is lower than the yield on the Fund’s portfolio. The difference between what the Fund earns on its investments and pays on the money it borrows increases the income available to common shareholders.

     This past year, leverage has had a particularly meaningful impact on the Fund’s distributions. First, the Fund twice lowered the rate it paid for leverage, and for the fiscal year paid a weighted-average interest rate of 1.202% on its borrowed money (versus much higher current yields generated by the Fund’s portfolio). Second, as the Fund’s net asset value improved during the year, the Fund was able to increase the amount of leverage employed. Both the lowering of rates and the increase in leverage balances supported the Fund’s two dividend increases during the year.

     Even though it would seem to be fairly straightforward, we believe there is a bit of art involved in setting dividend policy. One approach would be for the Fund to simply pay out its net earnings each month. Because of the uneven nature of the Fund’s income and expenses — and, over longer stretches of time, changes in the Fund’s cost of leverage — this approach would likely result in distribution rates that would change frequently. This has never seemed terribly appealing to us.

     We believe our shareholders are better served by a more stable level of monthly distributions. In striving for more stability, and to reflect inherent uncertainty in predicting future net earnings, in any particular month the Fund may pay out less than the amount earned for that same month; in other months, the distribution may be comprised of current month’s earnings plus income from prior months. Nonetheless, as a general matter, the Fund tries to set dividend rates that will result in it distributing to shareholders most of the net income it earns during a year.

     It is important, however, that shareholders understand the primary drivers behind dividend policy, and not confuse “stable dividend” with “constant dividend”. Broad trends in top-line portfolio income and changes in the cost of leverage (short-term rates) will require the Fund to modify the ongoing dividend rate periodically.

     This year the Fund ended up with a little bit of extra income at the end of year, mainly due to timing of leverage increases relative to timing of dividend adjustments. As in the past, the Fund has decided to make a small extra distribution of $0.055 per share and to carry over a bit of income for distribution in the next fiscal-year period.

Status of the Fund’s Hedging Strategy

     The Fund suspended its interest rate hedging program as the financial crisis intensified in the autumn of 2008. There were three principal reasons why we stopped hedging the long-term interest rate risk of the portfolio at that time. First, the relationship between preferred securities’ prices and the Fund’s hedging instruments (Treasury bond futures, interest rate swaps, or options on both) broke down during the financial crisis, and hedging lost its effectiveness. Second, the cost of hedging rose dramatically, as the yield curve steepened, volatility increased, and options prices rose. Finally, preferred securities became exceptionally cheap and were likely to offer high returns to shareholders even if long-term Treasury yields increased. We believed hedging simply would not work under market conditions existing at the time.

     Today, the correlation between preferred securities and our hedge instruments has improved, but it remains both weaker and significantly less stable than historical norms. A steep yield curve and high option-implied volatility continue to make hedging very expensive. And, the decline in preferred securities prices since mid-year makes them less sensitive to higher long-term Treasury or interest-rate swap yields. Although market conditions are not as extreme as they were in 2008, hedging still does not make sense to us.

     We will add another reason to the above list: the lower duration (i.e., interest rate sensitivity) of the portfolio today. Changes in regulation (especially for banks) and rating agency criteria combined with a sustained low-yield environment have substantially increased the probability that certain preferred securities will be called over the next several years. This has reduced the duration of the Fund’s portfolio, meaning it is less sensitive to higher long-term interest rates than it has been historically — reducing the need for interest-rate hedging. That may change in the future as issuers replace called securities with new, long-duration preferreds. If the portfolio’s interest rate sensitivity increases, we may be more willing to spend a bit on hedging, although the cost and anticipated effectiveness of doing so will always be important. We will continue to evaluate market conditions and the composition of the Fund’s portfolio, and we may reinstate the hedge if we judge that conditions warrant it.

Federal Tax Advantages of 2011 Calendar Year Distributions

     In 2011, the Fund passed on a portion of its income to individuals in the form of qualified dividend income or QDI. Under federal law, QDI is taxed at a maximum 15% rate instead of an individual’s ordinary income tax rate.

     In calendar year 2011, approximately 37.9% of distributions made by the Fund was eligible for QDI treatment. For an individual in the 28% marginal tax bracket, this means that the Fund’s total distributions will only be taxed at a blended 23.1% rate versus the 28% rate which would apply to distributions by a fund containing traditional corporate bonds. This tax advantage means that, all other things being equal, such an individual who held 100 shares of Common Stock of the Fund for the calendar year would have had to receive approximately $181.37 in distributions from a traditional corporate bond fund to net the same after-tax amount as the $169.75 distributions paid by the Fund.

     For detailed information about tax treatment of particular distributions received from the Fund, please see the Form 1099 you receive from either the Fund or your broker.

     Corporate shareholders also receive a federal tax benefit from the 15.2% distributions that were eligible for the inter-corporate dividends received deduction or DRD.

     It is important to remember that composition of the portfolio and income distributions can change from one year to the next, and that the QDI or DRD portions of 2012’s distributions may not be the same (or even similar) to 2011.

INVESTMENT POLICY MODIFICATION

     On February 3, 2011 the Fund announced the following changes to its investment policies. These changes were effective on April 4, 2011.

     Old Policy: At time of purchase, at least 80% of the securities that the Fund will acquire will be rated investment grade by either Moody’s Investors Services, Inc. (“Moody’s”) or Standard & Poor’s Corporation (“S&P”), or, if unrated, judged to be comparable in quality. In addition, the Fund may invest up to 20% of its assets at the time of purchase in securities rated below investment grade by both Moody’s and S&P, if (a) such securities are rated at least “Ba3” by Moody’s or “BB-” by S&P and (b) such securities are issued by an issuer having an outstanding class of senior debt rated investment grade at the time of purchase. Thus, the Fund may not invest in securities rated below “Ba3” by Moody’s and below “BB-” by S&P.

     New Policy: At time of purchase, at least 80% of the securities that the Fund will acquire will be rated investment grade by any one of Moody’s, S&P or Fitch Ratings Group (“Fitch”). In addition, the Fund may invest up to 20% of its assets at the time of purchase in securities rated below investment grade by all of Moody’s, S&P and Fitch, provided that (a) such securities are rated at least “Ba3” by Moody’s, “BB-” by S&P, or “BB-” by Fitch or (b) such securities are issued by an issuer having an outstanding class of senior debt rated investment grade by any one of Moody’s, S&P, or Fitch at the time of purchase. Thus, the Fund may invest in securities rated below “Ba3” by Moody’s, “BB-” by S&P and “BB-” by Fitch if the issuer has investment grade senior debt outstanding.

Impact of Changes:

	(1)		Fitch is now one of the approved ratings agencies for determining whether a security meets the definition of “investment grade” for purposes of the Fund’s policy of investing at least 80% of its assets in securities rated investment grade at the time of purchase or in securities of equivalent quality;
	(2)		The Fund may now purchase securities rated below Ba3/BB-/BB- by each of Moody’s, S&P and Fitch, respectively, as long as the senior debt of the same issuer is rated investment grade by any one of Moody’s, S&P or Fitch at the time of purchase; and
	(3)		If the senior debt of an issuer is unrated or it has no outstanding senior debt, the Fund may now purchase its preferred securities if they are rated at least Ba3/BB-/BB- by any one of Moody’s, S&P or Fitch, respectively.

     As a result of these changes, a security would be counted as investment grade if it had an investment grade rating by any one of Moody’s, S&P or Fitch, even if the other two rating agencies rated it below investment grade. The effect of this change would be to reduce the Fund’s holdings deemed below investment grade purchases, as of January 31, 2011, from 16.6% to 12.3%. In addition, the Fund would be authorized to purchase below Ba or BB securities of investment grade issuers, subject to an overall 20% limit on purchasing below investment grade securities. While this change would permit the Fund to acquire securities rated B and below, the Fund’s adviser has no current intention of doing so.

     As before, the Fund will apply the ratings criteria at the time of purchase and the Fund will not be required to dispose of securities if, after purchase, they are downgraded, although the adviser may take this into account in determining whether to retain the security. As a result, more than 20% of the Fund’s holdings at any time may be rated below investment grade or in equivalent securities. In addition, as before, the Fund may invest in unrated securities that the Fund’s investment adviser deems to be comparable in quality to rated issues in which the Fund is authorized to invest.

Risks of Investing in Securities Rated Below Ba3/BB-

     The Fund can purchase below-investment grade securities with ratings of at least Ba3 by Moody’s and BB- by S&P and Fitch; such ratings generally indicate an issuer that is less vulnerable to non-payment of its obligations than other speculative issuers. The issuer, however, faces major ongoing uncertainty or exposure to adverse business, financial or economic conditions that could lead to inadequate capacity to meet its financial commitments. Under the Fund’s new investment policy with respect to the investment grade rating of securities, the Fund may invest in securities with ratings below Ba3/BB- so long as the issuer of such securities has an outstanding class of senior debt rated investment grade by any one of Moody’s, S&P or Fitch. Although a company’s senior debt rating may be investment grade, an underlying security issued by such company in which the Fund may invest may have a lower than investment grade rating. A security with a rating below Ba3/BB- generally indicates the issuer of such security has a high degree of vulnerability of not paying its financial obligations. A security rated B1 to B3 by Moody’s, or B+ to B- by S&P or Fitch, for example, indicates an issuer that is more vulnerable to not paying its obligations than a Ba3 or BB- issuer; the issuer, however, currently has the capacity to meet its financial commitments, although adverse business, financial, or economic conditions will likely impair the issuer’s capacity or willingness to meet its financial commitments. Securities rated Caa by Moody’s or CCC by S&P or Fitch indicate an issuer that is highly speculative and likely to be in, or very near default with some prospects of recovery of principal and interest, although the issuer is dependent upon favorable business, financial, and economic conditions to meet its financial commitments. Securities rated below Caa or CCC generally indicate an issuer that is highly vulnerable to not paying its obligations or that has defaulted on an obligation.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OVERVIEW
November 30, 2011 (Unaudited)

Fund Statistics
Net Asset Value		$	17.06
Market Price		$	18.10
Premium			6.10	%
Yield on Market Price			9.25	%
Common Stock Shares
Outstanding			9,832,057

Moody’s Ratings		% of Net Assets†
A			6.7	%
BBB			71.9	%
BB			17.0	%
Below “BB”			1.8	%
Not Rated*			0.9	%
Below Investment Grade**			10.7	%

Industry Categories		% of Net Assets†

Top 10 Holdings by Issuer		% of Net Assets†
Liberty Mutual Group			5.1	%
Banco Santander, S.A.			4.5	%
Capital One Financial			4.0	%
Metlife			3.9	%
HSBC PLC			3.3	%
Georgia Power			3.0	%
Enbridge Energy Partners			2.8	%
Unum Group			2.8	%
Wells Fargo			2.7	%
Southern California Edison			2.4	%

		% of Net Assets***†
Holdings Generating Qualified Dividend Income (QDI) for Individuals			31	%
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)			20	%

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS
November 30, 2011

Shares/$ Par						Value
Preferred Securities — 89.9%
				Banking — 34.4%
				Astoria Financial:
$	4,850,000			Astoria Capital Trust I, 9.75% 11/01/29, Series B		$	5,054,476	(1)(2)
				Banco Bilbao Vizcaya Argentaria, S.A.:
$	2,050,000			BBVA International Preferred, 5.919%			1,240,250	**(1)(2)(3)
				Banco Santander, S.A.:
	439,755			Banco Santander, 10.50% Pfd., Series 10			11,549,066	**(1)(3)
				Bank of America:
	8,220			Bank of America Corporation, 8.20% Pfd.			181,251	*
	17,540			Bank of America Corporation, 8.625% Pfd.			389,388	*
$	1,000,000			BankAmerica Institutional, Series A, 8.07% 12/31/26, 144A****			925,000
	25,000			Countrywide Capital V, 7.00% Pfd. 11/01/36			504,063
$	500,000			Fleet Capital Trust II, 7.92% 12/11/26			461,250
$	965,000			MBNA Capital, 8.278% 12/01/26, Series A			903,481
$	2,325,000			NB Capital Trust IV, 8.25% 04/15/27			2,179,687
				Barclays Bank PLC:
$	3,600,000			Barclays Bank PLC, 6.278%			2,224,127	**(1)(3)
	1,900			Barclays Bank PLC, 7.75% Pfd., Series 4			41,230	**(3)
	126,900			Barclays Bank PLC, 8.125% Pfd., Series 5			2,880,630	**(1)(3)
				BB&T Corp.:
	18,321			BB&T Capital Trust VI, 9.60% Pfd. 08/01/64			479,460	(1)
				BNP Paribas:
$	3,000,000			BNP Paribas, 7.195%, 144A****			2,040,000	**(1)(3)
				Capital One Financial:
$	8,250,000			Capital One Capital III, 7.686% 08/15/36			8,219,062	(1)(2)
$	500,000			Capital One Capital V, 10.25% 08/15/39			521,875	(1)
$	1,643,000			Capital One Capital VI, 8.875% 05/15/40			1,660,337	(1)(2)
				Citigroup:
	7,050			Citigroup Capital XII, 8.50% Pfd. 03/30/40			177,741
	83,300			Citigroup Capital XIII, 7.875% Pfd. 10/30/40			2,142,376	(1)(2)
$	320,000			Citigroup Capital XXI, 8.30% 12/21/57			321,600
				Colonial BancGroup:
$	10,000,000			Colonial BancGroup, 7.114%, 144A****			300,000	(4)(5)††
				FBOP Corp.:
	7,000			FBOP Corporation, Adj. Rate Pfd., 144A****			3,500	*(4)(5)†
				Fifth Third Bancorp.:
$	2,150,000			Fifth Third Capital Trust IV, 6.50% 04/15/37			2,085,500	(1)
	13,150			Fifth Third Capital Trust V, 7.25% Pfd. 08/15/67			329,408
	133,051			Fifth Third Capital Trust VI, 7.25% Pfd. 11/15/67			3,355,387	(1)

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 2011

Shares/$ Par						Value
Preferred Securities — (Continued)
				Banking — (Continued)
				First Horizon:
	3,900			First Tennessee Bank, Adj. Rate Pfd., 3.75%(6), 144A****		$	2,366,812	*
	3			FT Real Estate Securities Company, 9.50% Pfd., 144A****			2,865,000
				First Republic Bank:
	2,000			First Republic Preferred Capital Corporation, 10.50% Pfd., 144A****			2,075,000
				Goldman Sachs Group:
$	865,000			Goldman Sachs, Capital I, 6.345% 02/15/34			740,547	(1)(2)
$	881,000			Goldman Sachs, Capital II, 5.793%			570,448	(1)(2)
	1,500			STRIPES Custodial Receipts, Adj. Rate, 10.70%, Pvt.(6)			313,500	*(4)(5)
				HSBC PLC:
	172,000			HSBC Holdings PLC, 8.00% Pfd., Series 2			4,461,938	**(1)(3)
$	1,000,000			HSBC USA Capital Trust II, 8.38% 05/15/27, 144A****			950,490	(1)(2)
	87,189			HSBC USA, Inc., 6.50% Pfd., Series H			2,130,681	*(1)
	1,828			HSBC USA, Inc., $2.8575 Pfd.			83,101	*
				ING Groep NV:
	24,975			ING Groep NV, 8.50% Pfd.			542,707	**(3)
	16,200			ING Groep NV, 7.05% Pfd.			288,887	**(3)
				JPMorgan Chase:
$	1,850,000			JPMorgan Chase Capital XVIII, 6.95% 08/17/36, Series R			1,868,500	(1)(2)
$	500,000			JPMorgan Chase Capital XXVII, 7.00% 11/01/39, Series AA			503,750	(1)(2)
				KeyCorp:
	72,900			Keycorp Capital X, 8.00% Pfd. 03/15/68			1,864,782	(1)
				Lloyds Banking Group PLC:
$	1,000,000			Lloyds Banking Group PLC, 6.657%, 144A****			535,000	**(3)†
				PNC Financial Services:
$	1,676,000			National City Preferred Capital Trust I, 12.00%			1,747,584
	39,995			PNC Financial Services, 9.875% Pfd., Series L			1,102,362	*(1)
$	1,000,000			PNC Preferred Funding Trust III, 8.70%, 144A****			1,020,372	(1)(2)
				Sovereign Bancorp:
	3,000			Sovereign REIT, 12.00% Pfd., Series A, 144A****			3,260,064
				SunTrust Banks:
	8,100			SunTrust Capital IX, 7.875% Pfd. 03/15/68			205,791
				Webster Financial:
$	2,800,000			Webster Capital Trust IV, 7.65% 06/15/37			2,732,943
				Wells Fargo:
$	600,000			First Union Capital II, 7.95% 11/15/29			625,324	(1)(2)

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 2011

Shares/$ Par						Value
Preferred Securities — (Continued)
				Banking — (Continued)
$	1,500,000			Wachovia Capital Trust III, Adj. Rate, 5.56975% (6)		$	1,273,125	*(1)
	43,526			Wachovia Preferred Funding, 7.25% Pfd., Series A			1,131,785	(1)
	2,325			Wells Fargo & Company, 7.50% Pfd., Series L			2,456,363	*(1)
	50,000			Wells Fargo & Company, 8.00% Pfd., Series J			1,398,500	*
							89,285,501
				Financial Services — 1.8%
				Ameriprise Financial:
$	250,000			Ameriprise Financial, Inc., 7.518% 06/01/66			250,625
				Credit Suisse Group:
$	1,300,000			Claudius, Ltd. — Credit Suisse AG, 7.875%, Series B			1,241,500	(3)
				Gulf Stream-Compass CLO:
$	3,000,000			Gulf Stream-Compass CLO 2005 Composite Notes, 144A****			2,151,360	(4)(5)
				HSBC PLC:
	45,011			HSBC Finance Corporation, 6.36% Pfd., Series B			932,245	*
				Lehman Brothers:
	20,000			Lehman Brothers Holdings, Inc., 5.67% Pfd., Series D			5,380	*††
	85,000			Lehman Brothers Holdings, Inc., 7.95% Pfd.			1,632	*††
							4,582,742
				Insurance — 20.1%
				Ace Ltd.:
$	1,550,000			Ace Capital Trust II, 9.70% 04/01/30			2,029,787	(1)(2)(3)
				Aon Corporation:
$	1,775,000			AON Corp, 8.205% 01/01/27			2,009,048	(1)
				Arch Capital Group:
	12,150			Arch Capital Group Ltd., 7.875% Pfd., Series B			307,547	**(1)(3)
				AXA SA:
$	1,196,000			AXA SA, 6.379%, 144A****			801,320	**(1)(2)(3)
$	114,000			AXA SA, 6.463%, 144A****			74,670	**(3)
				Axis Capital:
	66,600			Axis Capital Holdings, 7.50% Pfd., Series B			6,212,534	(1)(2)(3)
				Delphi Financial:
	160,000			Delphi Financial Group, 7.376% Pfd. 05/15/37			3,773,200	(1)
				Everest Re Group:
$	5,760,000			Everest Re Holdings, 6.60% 05/15/37			5,097,600	(1)(2)

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 2011

Shares/$ Par						Value
Preferred Securities — (Continued)
				Insurance — (Continued)
				Liberty Mutual Group:
$	8,300,000			Liberty Mutual Group, 10.75% 06/15/58, 144A****		$	10,084,500	(1)
				MetLife:
$	2,250,000			MetLife, Inc., 10.75% 08/01/39			2,915,341	(1)(2)
$	1,700,000			MetLife Capital Trust IV, 7.875% 12/15/37, 144A****			1,742,500	(1)(2)
$	4,900,000			MetLife Capital Trust X, 9.25% 04/08/38, 144A****			5,494,125	(1)
				Principal Financial:
	12,000			Principal Financial Group, 5.563% Pfd., Series A			1,135,126	*
	68,867			Principal Financial Group, 6.518% Pfd., Series B			1,786,238	*(1)
				Scottish Re:
	109,000			Scottish Re Group Ltd., 7.25% Pfd.			694,875	**(3)†
				StanCorp Financial Group:
$	1,750,000			Stancorp Financial Group, 6.90% 06/01/67			1,523,951	(1)
				The Travelers Companies:
$	3,615,000			USF&G Capital, 8.312% 07/01/46, 144A****			4,385,653	(1)(2)
				XL Group PLC:
$	2,550,000			XL Capital Ltd., 6.50%, Series E			2,001,750	(1)(3)
							52,069,765
				Utilities — 26.3%
				Alabama Power:
	40,198			Alabama Power Company, 6.45% Pfd.			1,118,007	*(1)
				Baltimore Gas & Electric:
	33,700			Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993			3,435,294	*(1)
				Commonwealth Edison:
$	3,700,000			COMED Financing III, 6.35% 03/15/33			3,044,242	(1)(2)
				Constellation Energy:
	20,170			Constellation Energy Group, 8.625% Pfd. 06/15/63, Series A			546,405	(1)
				Dominion Resources:
$	2,500,000			Dominion Resources Capital Trust I, 7.83% 12/01/27			2,535,112	(1)(2)
$	3,500,000			Dominion Resources, Inc., 7.50% 06/30/66			3,678,542	(1)(2)
				DTE Energy:
	52,500			DTE Energy Company, 6.50%, Pfd.			1,328,906
				Entergy Arkansas:
	83,000			Entergy Arkansas, Inc., 6.45% Pfd.			2,093,160	*(1)
				Entergy Louisiana:
	57,000			Entergy Louisiana, Inc., 6.95% Pfd.			5,676,847	*(1)

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 2011

Shares/$ Par						Value
Preferred Securities — (Continued)
				Utilities — (Continued)
				Georgia Power:
	72,297			Georgia Power Company, 6.50% Pfd., Series 2007A		$	7,857,780	*(1)
				Gulf Power:
	5,000			Gulf Power Company, 6.45% Pfd., Series 2007A			531,060	*
				Indianapolis Power & Light:
	30,445			Indianapolis Power & Light Company, 5.65% Pfd.			2,984,563	*(1)
				Integrys Energy Group:
$	2,640,000			WPS Resources Corporation, 6.11% 12/01/66			2,537,069	(1)(2)
				Interstate Power & Light:
	94,721			Interstate Power & Light Company, 8.375% Pfd., Series B			2,705,468	*(1)
				MidAmerican Energy Holdings:
	118,380			Calenergy Capital Trust III, 6.50% Pfd. 09/01/27			5,919,000
				Nextera Energy:
$	4,197,000			FPL Group Capital, Inc., 6.65% 06/15/67			4,180,779	(1)(2)
$	1,975,000			FPL Group Capital, Inc., 7.30% 09/01/67, Series D			2,056,396	(1)(2)
				Peco Energy:
$	4,000,000			PECO Energy Capital Trust IV, 5.75% 06/15/33			3,288,316	(1)(2)
				PPL Corp.:
$	1,200,000			PPL Capital Funding, 6.70% 03/30/67, Series A			1,159,270	(1)
	6,078			PPL Electric Utilities Corporation, 6.25% Pfd.			154,989	*
				Puget Energy:
$	5,175,000			Puget Sound Energy, Inc., 6.974% 06/01/67			5,138,578	(1)
				Southern California Edison:
	20,000			Southern California Edison, 6.00% Pfd., Series C			1,975,626	*(1)
	1,650			Southern California Edison, 6.125% Pfd., Series B			163,453	*
	40,600			Southern California Edison, 6.50% Pfd., Series D			4,212,250	*(1)
							68,321,112
				Energy — 5.1%
				Enbridge Energy Partners:
$	7,050,000			Enbridge Energy Partners LP, 8.05% 10/01/37			7,386,877	(1)(2)
				Enterprise Products Partners:
$	5,550,000			Enterprise Products Partners, 8.375% 08/01/66, Series A			5,860,872	(1)(2)
							13,247,749

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 2011

Shares/$ Par						Value
Preferred Securities — (Continued)
				Real Estate Investment Trust (REIT) — 0.1%
				PS Business Parks:
	10,000			PS Business Parks, Inc., 6.875% Pfd., Series R		$	259,500
							259,500
				Miscellaneous Industries — 2.1%
				Ocean Spray Cranberries:
	37,400			Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A****			3,267,825	*(1)
				Textron, Inc.:
$	2,850,000			Textron Financial Corporation, 6.00%, 02/15/67, 144A****			2,094,750
							5,362,575
				Total Preferred Securities
				(Cost $247,640,347)			233,128,944
Corporate Debt Securities — 8.4%
				Banking — 1.9%
				Goldman Sachs Group:
$	3,575,000			Goldman Sachs Group, 6.75% 10/01/37, Sub Notes			3,189,904	(1)(2)
				Regions Financial:
$	1,990,000			Regions Financial Corporation, 7.375%, 12/10/37, Sub Notes			1,646,725
							4,836,629
				Financial Services — 0.3%
				Lehman Brothers:
$	4,726,012			Lehman Brothers, Guaranteed Note, Variable Rate, 5.843%, 12/16/16, 144A****			899,833	(4)(5)††
							899,833
				Insurance — 4.0%
				Liberty Mutual Group:
$	3,400,000			Liberty Mutual Insurance, 7.697% 10/15/97, 144A****			3,116,715	(1)(2)
				Unum Group:
$	7,000,000			UnumProvident Corporation, 7.25% 03/15/28			7,364,217	(1)(2)
							10,480,932

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 2011

Shares/$ Par						Value
				Utilities — 1.2%
				Southern Union:
$	1,000,000			Southern Union Company, 7.60% 02/01/24		$	1,189,676	(1)
$	1,600,000			Southern Union Company, 8.25% 11/15/29			1,929,115	(1)(2)
							3,118,791
				Miscellaneous Industries — 0.9%
				Pulte Group Inc.:
	25,844			Pulte Homes, Inc., 7.375% 06/01/46			554,651
$	2,160,000			Pulte Homes, Inc., 7.875% 06/15/32			1,755,000	(1)
							2,309,651
				Communication — 0.1%
				Sprint Nextel:
	12,510			Corp-Backed Trust Certificates, 7.00% 11/15/28, Series Sprint			247,073	(1)
							247,073
				Total Corporate Debt Securities
				(Cost $25,521,511)			21,892,909
Common Stock — 0.5%
				Banking — 0.2%
				CIT Group:
	13,500			CIT Group, Inc.			457,110	*†
							457,110
				Utilities — 0.3%
				Exelon Corp.:
	7,840			Exelon Corporation			347,390	*
				PPL Corp.:
	11,653			PPL Corporation			349,823	*
							697,213
				Total Common Stock
				(Cost $3,163,176)			1,154,323

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 2011

Shares/$ Par										Value
Money Market Fund — 0.2%
				BlackRock Liquidity Funds:
	491,632			T-Fund						$	491,632
				Total Money Market Fund
				(Cost $491,632)							491,632
Total Investments (Cost $276,816,666***)							99.0	%			256,667,808
Other Assets And Liabilities (Net)							1.0	%			2,660,159
Total Managed Assets							100.0	%‡		$	259,327,967
Loan Principal Balance											(91,600,000	)
Total Net Assets Available To Common Stock										$	167,727,967

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

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2011

ASSETS:
Investments, at value (Cost $276,816,666)						$	256,667,808
Receivable for investments sold							1,117,227
Dividends and interest receivable							4,192,433
Prepaid expenses							42,787
Total Assets							262,020,255
LIABILITIES:
Loan Payable		$	91,600,000
Payable for investments purchased			2,348,486
Dividends payable to Common Stock Shareholders			54,647
Investment advisory fees payable			120,145
Administration, Transfer Agent and Custodian fees payable			43,533
Servicing agent fees payable			9,234
Professional fees payable			82,003
Directors’ fees payable			2,907
Accrued expenses and other payables			31,333
Total Liabilities							94,292,288
NET ASSETS AVAILABLE TO COMMON STOCK						$	167,727,967
NET ASSETS AVAILABLE TO COMMON STOCK consist of:
Undistributed net investment income						$	858,565
Accumulated net realized loss on investments sold							(44,600,987	)
Unrealized depreciation of investments							(20,148,858	)
Par value of Common Stock							98,321
Paid-in capital in excess of par value of Common Stock							231,520,926
Total Net Assets Available to Common Stock						$	167,727,967
NET ASSET VALUE PER SHARE OF COMMON STOCK:
Common Stock (9,832,057 shares outstanding)						$	17.06

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
STATEMENT OF OPERATIONS
For the Year Ended November 30, 2011

INVESTMENT INCOME:
Dividends†						$	9,016,605
Interest							10,995,016
Rehypothecation Income							8,444
Total Investment Income							20,020,065
EXPENSES:
Investment advisory fees		$	1,472,718
Servicing agent fees			114,544
Administrator’s fees			231,291
Professional fees			126,883
Insurance expenses			106,679
Transfer Agent fees			64,731
Directors’ fees			75,190
Custodian fees			35,650
Compliance fees			38,016
Interest expenses			1,088,169
Other			113,028
Total Expenses							3,466,899
NET INVESTMENT INCOME							16,553,166
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain on investments sold during the year							9,773,993
Change in net unrealized appreciation/depreciation of investments							(13,894,743	)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS							(4,120,750	)
NET INCREASE IN NET ASSETS TO COMMON STOCK RESULTING FROM OPERATIONS						$	12,432,416

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK

		Year Ended				Year Ended
		November 30, 2011				November 30, 2010
OPERATIONS:
Net investment income		$	16.553.166			$	15,650,390
Net realized gain/(loss) on investments sold during the year			9.773.993				6,514,560
Change in net unrealized appreciation/depreciation of investments			(13.894.743	)			22,570,858
Net increase in net assets resulting from operations			12,432,416				44,735,808
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(1)			(16,473,273	)			(14,515,278	)
Total Distributions to Common Stock Shareholders			(16,473,273	)			(14,515,278	)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan			500,665				458,224
Net increase in net assets available to Common Stock resulting from Fund share transactions			500,665				458,224
NET INCREASE/(DECREASE) IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD		$	(3,540,192	)		$	30,678,754
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of year		$	171,268,159			$	140,589,405
Net increase/(decrease) in net assets during the year			(3,540,192	)			30,678,754
End of year (including undistributed net investment income of $858,565 and $931,691 respectively)		$	167,727,967			$	171,268,159

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
STATEMENT OF CASH FLOWS
For the Year Ended November 30, 2011

INCREASE/(DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations		$	12,432,416
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Purchase of investment securities			(69,996,483	)
Proceeds from disposition of investment securities			58,539,994
Sale of short-term investment securities, net			103,327
Cash received from litigation claim			131,084
Increase in receivable for investments sold			(1,117,227	)
Increase in dividends and interest receivable			(325,945	)
Decrease in prepaid expenses			5,439
Net amortization/(accretion) of premium/(discount)			(243,320	)
Increase in payable for investments purchased			1,991,216
Increase in payables to related parties			5,886
Increase in accrued expenses and other liabilities			33,794
Change in net unrealized appreciation/depreciation on securities			13,894,743
Net realized gain from investments sold			(9,773,993	)
Net cash provided by operating activities			5,680,931
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan			10,300,000
Distributions paid (net of reinvestment of dividends and change in dividends payable) to common stock shareholders from net investment income			(15,980,931	)
Net cash used in financing activities			(5,680,931	)
Net increase/(decrease) in cash			—
CASH:
Beginning of the year			—
End of the year		$	—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year		$	1,088,580
Reinvestments of dividends			500,665
Decrease of dividends payable to common stock shareholders			8,323

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
FINANCIAL HIGHLIGHTS
For a Common Stock share outstanding throughout each year.

     Contained below is per share operating performance data, total investment returns, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements and market price data for the Fund’s shares.

		Year Ended November 30,
		2011				2010				2009				2008				2007
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year		$	17.47			$	14.38			$	9.00			$	19.71			$	23.29
INVESTMENT OPERATIONS:
Net investment income			1.69				1.60				1.43				1.91				2.24
Net realized and unrealized gain/(loss) on investments			(0.42	)			2.97				5.33				(10.62	)			(3.59	)
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income			—				—				(0.06	)			(0.44	)			(0.70	)
Total from investment operations			1.27				4.57				6.70				(9.15	)			(2.05	)
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income			(1.68	)			(1.48	)			(1.32	)			(1.53	)			(1.53	)
From return of capital			—				—				—				(0.03	)			—
Total distributions to Common Stock Shareholders			(1.68	)			(1.48	)			(1.32	)			(1.56	)			(1.53	)
Net asset value, end of year		$	17.06			$	17.47			$	14.38			$	9.00			$	19.71
Market value, end of year		$	18.10			$	17.84			$	13.10			$	7.28			$	17.00
Total investment return based on net asset value**			7.26	%			33.05	%			83.69	%			(48.17	%)			(8.71	%)
Total investment return based on market value**			11.44	%			49.14	%			106.87	%			(51.39	%)			(16.95	%)
RATIOS TO AVERAGE NET ASSETS AVAILABLE
TO COMMON STOCK SHAREHOLDERS:
Total net assets, end of year (in 000’s)		$	167,728			$	171,268			$	140,589			$	88,002			$	192,737
Operating expenses including interest expense(1)			1.98	%			2.08	%			2.92	%			2.67	%			—
Operating expenses excluding interest expense			1.36	%			1.36	%			1.70	%			1.91	%			1.51	%
Net investment income †			9.45	%			9.85	%			13.34	%			—				—
Net investment income, including payments to AMPS Shareholders †			—				—				12.76	%			9.37	%			6.94	%
SUPPLEMENTAL DATA: ††
Portfolio turnover rate			23	%			33	%			37	%			46	%			57	%
Total Managed Assets, end of year (in 000’s)		$	259,328			$	252,568			$	209,489			$	157,002			$	321,237
Ratio of operating expenses including interest expense(1)(2) to total managed assets			1.31	%			1.39	%			1.83	%			1.54	%			—
Ratio of operating expenses excluding interest expense(2) to total managed assets			0.90	%			0.91	%			1.07	%			1.10	%			0.95	%

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
FINANCIAL HIGHLIGHTS (Continued)
Per Share of Common Stock

		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
September 30, 2011			0.1395				17.21				17.42				17.21
October 31, 2011			0.1395				17.53				17.74				17.53
November 30, 2011			0.1395				17.06				18.10				17.20

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
FINANCIAL HIGHLIGHTS (Continued)

     Senior Securities

Involuntary

Asset

Liquidation

Total Debt

Asset

Coverage

Preference

Outstanding

Coverage Per

Total AMPS* Shares

Per AMPS

Per AMPS

End of Period

$1,000 of

Date

Outstanding (1)

Share (2)

Share (3)

(000s) (4)

Debt (5)

11/30/11

—

N/A

N/A

$

91,600

$

2,831

11/30/10

—

N/A

N/A

81,300

3,107

11/30/09

—

N/A

N/A

68,900

3,040

11/30/08

1,580

$

80,704

$

25,000

N/A

N/A

11/30/07

5,140

62,506

25,000

N/A

N/A

The accompanying notes are an integral part of the financial statements.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
NOTES TO FINANCIAL STATEMENTS

1. Organization

     Flaherty & Crumrine/Claymore Total Return Fund Incorporated (the “Fund”) was incorporated as a Maryland corporation on July 18, 2003, and commenced operations on August 29, 2003 as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s primary investment objective is to provide its common shareholders with high current income. The Fund’s secondary investment objective is capital appreciation.

2. Significant Accounting Policies

     The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements is in conformity with U.S. generally accepted accounting principles (“US GAAP”) and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

     Portfolio valuation: The net asset value of the Fund’s Common Stock is determined by the Fund’s Administrator no less frequently than on the last business day of each week and month in accordance with the policies and procedures approved by the Board of Directors of the Fund. It is determined by dividing the value of the Fund’s net assets available to Common Stock by the number of shares of Common Stock outstanding. The value of the Fund’s net assets available to Common Stock is deemed to equal the value of the Fund’s total assets less (i) the Fund’s liabilities and (ii) the aggregate liquidation value of any outstanding preferred stock.

     The Fund’s preferred and debt securities are valued on the basis of current market quotations provided by independent pricing services or dealers approved by the Board of Directors of the Fund. Each quotation is based on the mean of the bid and asked prices of a security. In determining the value of a particular preferred or debt security, a pricing service or dealer may use information with respect to transactions in such investments, quotations, market transactions in comparable investments, various relationships observed in the market between investments, and/or calculated yield measures based on valuation technology commonly employed in the market for such investments. Common stocks that are traded on stock exchanges are valued at the last sale price or official close price on the exchange, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available mean price. Futures contracts and option contracts on futures contracts are valued on the basis of the settlement price for such contracts on the primary exchange on which they trade. Investments in over-the-counter derivative instruments, such as interest rate swaps and options thereon (“swaptions”), are valued using prices supplied by a pricing service, or if such prices are unavailable, prices provided by a single broker or dealer that is not the counterparty or, if no such prices are available, at a price at which the counterparty to the contract would repurchase the instrument or terminate the contract. Investments for which market quotations are not readily available or for which management determines that the prices are not reflective of current market conditions are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including reference to valuations of other securities which are comparable in quality, maturity and type.

Flaherty & Crumrine/Claymore Total Return Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (Continued)

     Investments in money market instruments and all debt and preferred securities which mature in 60 days or less are valued at amortized cost. Investments in money market funds are valued at the net asset value of such funds.

     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 November 30, 2011 is as follows:

										Level 2				Level 3
		Total				Level 1				Significant				Significant
		Value at				Quoted				Observable				Unobservable
		November 30, 2011				Price				Inputs				Inputs
Preferred Securities
Banking		$	89,285,501			$	59,776,125			$	29,205,876			$	303,500
Financial Services			4,582,742				932,245				1,499,137				2,151,360
Insurance			52,069,765				28,800,076				23,269,689				—
Utilities			68,321,112				18,192,835				50,128,277				—
Energy			13,247,749				13,247,749				—				—
Real Estate Investment Trust (REIT)			259,500				259,500				—				—
Miscellaneous Industries			5,362,575				—				5,362,575				—
Corporate Debt Securities			21,892,909				7,110,419				13,882,657				899,833
Common Stock
Banking			457,110				457,110				—				—
Utilities			697,213				697,213				—				—
Money Market Fund			491,632				491,632				—				—
Total Investments		$	256,667,808			$	129,964,904			$	123,348,211			$	3,354,693