FLAHERTY & CRUMRINE/CLAYMORE TOTAL RETURN FUND
Dear Shareholder:
The Flaherty & Crumrine/Claymore Total Return Fund ("FLC") produced a total
return on Net Asset Value ("NAV") of 3.2%(1) during the three month period
ending August 31, 2004. Since the beginning of the fiscal year on December 1,
2003, the total return on NAV has been 3.7%.
The NAV returns are consistent with our expectations for how the Fund
should perform during periods of volatile long-term interest rates. As can be
seen from the chart below, the yield on the 30 year U.S. Treasury bond has
changed direction in each of the first three fiscal quarters of 2004 (changes in
the value of the Fund's assets and hedge positions are closely correlated to the
performance of this bond). The decline in rates during the first fiscal quarter
contributed to strong returns for the period. The subsequent jump in rates
during the second fiscal quarter resulted in negative returns for the period, as
the Fund's hedges only partially offset the drop in value of the Fund's
investment portfolio.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
--------------------------------------------------------------------------------
YIELD ON LONG-TERM U.S. TREASURY BOND
Date Yield
12/01/03 5.155%
12/05/03 5.047%
12/12/03 5.090%
12/19/03 4.959%
12/26/03 4.969%
01/02/04 5.170%
01/09/04 4.964%
01/16/04 4.892%
01/23/04 4.938%
01/30/04 4.965%
02/06/04 4.928%
02/13/04 4.916%
02/20/04 4.954%
02/27/04 4.855%
03/05/04 4.743%
03/12/04 4.707%
03/19/04 4.718%
03/26/04 4.771%
04/02/04 4.972%
04/09/04 5.028%
04/16/04 5.174%
04/23/04 5.246%
04/30/04 5.281%
05/07/04 5.462%
05/14/04 5.500%
05/21/04 5.460%
05/28/04 5.345%
06/04/04 5.461%
06/11/04 5.474%
06/18/04 5.374%
06/25/04 5.336%
07/02/04 5.205%
07/09/04 5.213%
07/16/04 5.121%
07/23/04 5.171%
07/30/04 5.203%
08/06/04 5.034%
08/13/04 5.008%
08/20/04 5.027%
08/27/04 5.016%
08/31/04 4.935%
As we began the most recent fiscal quarter, the Fund's hedge positions had
appreciated significantly and were offsetting changes in value of the investment
portfolio almost dollar-for-dollar. Following the weakness in March and April we
were unwilling to risk further declines in NAV, so we maintained the existing
hedge position. If interest rates had continued to rise, the NAV of the Fund
should have remained reasonably stable. That is exactly how the Fund's safety
net hedging strategy is intended to work!
Shortly after the start of the third quarter, long-term interest rates
reversed course and began a steady DECLINE, despite the fact that the Federal
Reserve began INCREASING short-term rates in June (for a more detailed
discussion of the economic conditions driving interest rates, see the "3rd
Quarter Economic Update" on the Fund's website: WWW.FCCLAYMORE.COM). As
expected, the Fund's preferred securities and corporate bonds appreciated
throughout the period, while the hedge fell in value, dragging down overall
performance. Initially this drag was substantial, but it lessened as rates
continued to fall.
The Fund also benefited from a modest, favorable move in the relationship
between the Fund's preferred securities and U.S. Treasuries. Simply stated, the
price of our preferreds rose by more than the price of corresponding Treasury
bonds during the quarter. This was the opposite of conditions in the previous
quarter.
--------------------------
(1) Based on monthly data provide by Lipper Inc. Distributions are assumed
to be reinvested at NAV in accordance with Lipper's practice.
NAV investment performance is comprised of principal change and income. The
discussion to this point has focused on factors that impact the principal
change. Let's turn to the other component of performance -- income. The Fund's
investment portfolio continues to produce sufficient amounts of dividend and
interest income to support the current monthly dividend. There are, however,
some potential warning flags on the horizon.
The Federal Reserve's present policy of raising short-term interest rates
directly affects the Fund by increasing the cost of its leverage. The Fed's
policy has been in place for some time now, and we have factored it into our
management strategy. However, changes in long-term interest rates and the
resulting impact on income are more difficult to plan for. If long-term interest
rates rise, the Fund's hedges should appreciate and enable the Fund to purchase
additional income-producing securities; this additional income should tend to
offset the higher leverage expense.
Things get more challenging if long-term rates decline. This so-called
"bull flattening" scenario (short-term rates rise while long-term rates
decline), initially puts a strain on distributable income. Once again, the cost
of LEVERAGE goes up along with higher short-term rates, but now the income
generated by the investment portfolio may at some point actually fall if issuers
retire older securities with relatively high coupons and replace them with new
issues that pay a lower rate (the issuer is analogous to a homeowner refinancing
a mortgage when interest rates drop).
Fortunately, there is a bright side to this scenario -- as the yield curve
flattens, the cost of the Fund's HEDGING strategy falls. The mathematics behind
this are fairly complicated, but the concept is quite simple. Hedging a
long-term security creates a package that closely resembles a short-term
security. The market imposes a "charge" for this transformation, the amount of
which is closely tied to the difference between long-term and short-term
interest rates. The larger the difference, the more expensive it is to hedge.
Therefore, the cost of hedging declines when the yield curve flattens and the
interest rate differential shrinks. The benefits to the Fund don't materialize
immediately, but they can be significant over time.
Changes in investment income, leverage expense and the cost of hedging (as
well as other factors like realized gains or losses) mean that setting the
dividend rate entails both science and art. We carefully monitor all of these
moving parts, and do our best to set a rate that is sustainable under current
market conditions.
Readers will notice some changes to the appearance of the information that
follows. These changes are in accordance with recent changes to the SEC rules on
shareholder reporting. The biggest change is the inclusion of a complete listing
of the investment portfolio (previous reports for the Fund's first and third
fiscal quarters did not include a portfolio listing). In addition, we've
included a page entitled "Portfolio Overview" that contains a number of
schedules summarizing important measures of the Fund's investments.
We hope you will also continue to visit the Fund's web site at
www.fcclaymore.com where a broad range of information about the Fund is updated
regularly. We also encourage you to visit www.preferredstockguide.com. It
contains useful information about most of the issues that make up the preferred
securities universe.
Sincerely,
/S/DONALD F. CRUMRINE /S/ROBERT M. ETTINGER
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
October 11, 2004
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OVERVIEW
AUGUST 31, 2004
-----------------------------------------------------------
FUND STATISTICS ON 8/31/04
---------------------------------------------
Net Asset Value $ 23.71
Market Price $ 23.46
Premium/Discount -1.05%
Yield on Market Price 8.31%
Common Shares
Outstanding 9,744,666
MOODY'S RATINGS % OF PORTFOLIO
---------------------------------------------
AAA 1.1%
AA 2.1%
A 37.0%
BBB 46.6%
BB 8.8%
Not Rated 3.5%
---------------------------------------------
Below by Investment Grade* 7.9%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND
S&P
INDUSTRY CATEGORIES % OF PORTFOLIO
---------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Banks 34%
Utilities 27%
Insurance 18%
REITs 7%
Financial Services 6%
Other 5%
Oil and Gas 3%
TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
---------------------------------------------
J.P. Morgan Chase 5.4%
Wachovia Corp 4.8%
Duke Energy 3.9%
HSBC Holdings PLC 3.8%
Prudential Holdings 3.6%
Lehman Brothers 3.5%
Florida Power & Light 2.6%
Nexen, Inc. 2.6%
OneAmerica Financial 2.5%
HBOS PLC 2.3%
% OF PORTFOLIO**
---------------------------------------------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income (QDI) for Individuals 17%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD) 13%
---------------------------------------------------------------------------------------------------------------------
** 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
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2004 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- 70.6%
BANKING -- 34.2%
---------------------------------------------------------------------------------------------------------------------------
28,000 ABN AMRO Capital Fund Trust VII, 6.08% Pfd. ..................................... $ 685,440**(1)
1,000 ABN AMRO North America, Inc., 6.59% Pfd., 144A**** .............................. 1,063,315*
$4,500,000 Astoria Capital Trust I, 9.75% 11/01/29 Capital Security, Series B .............. 5,642,752
38,800 BAC Capital Trust I, 7.00% Pfd. ................................................. 1,034,796
25,000 BAC Capital Trust III, 7.00% Pfd. ............................................... 666,250
10,900 BAC Capital Trust V, 7.00% Pfd. ................................................. 288,741
4,700 Bank One Capital Trust I, 8.00% Pfd. ............................................ 118,957
50,900 Bank One Capital Trust VI, 7.20% Pfd. ........................................... 1,351,649
$1,000,000 BT Preferred Capital Trust II, 7.875% 02/25/27 Capital Security ................. 1,115,910(1)
$10,000,000 Chase Capital I, 7.67% 12/01/26 Capital Security ................................ 10,920,350
79,300 Chase Capital VII, 7.00% Pfd., Series G ......................................... 2,005,497
19,400 Chase Capital XI, 5.875% Pfd. 06/15/33 .......................................... 469,868
30,000 Citigroup, Inc., 6.231% Pfd., Series H .......................................... 1,581,600*
40,000 Cobank, ACB, 7.00% Pfd., 144A**** ............................................... 2,166,600*
20,000 Colonial Capital Trust IV, 7.875% Pfd. .......................................... 532,600
11,000 Comerica (Imperial) Capital Trust I, 7.60% Pfd. ................................. 295,020
$2,000,000 First Chicago NBD Capital A, 7.95% 12/01/26 Capital Security, 144A**** .......... 2,222,950
$400,000 First Empire Capital Trust I, 8.234% 02/01/27 Capital Security .................. 450,164
$1,900,000 First Hawaiian Capital I, 8.343% 07/01/27 Capital Security, Series B ............ 2,176,241(1)
$2,000,000 First Midwest Capital Trust I, 6.95% Pfd. 12/01/33, Capital Security ............ 2,134,340
$1,500,000 First Tennessee Capital Trust II, 6.30% 04/15/34 Capital Security, Series B ..... 1,487,677
$2,000,000 First Union Institutional Capital II, 7.85% 01/01/27 Capital Security ........... 2,220,330
18,000 Fleet Capital Trust VII, 7.20% Pfd. ............................................. 480,870
2 FT Real Estate Securities Company, 9.50% Pfd., 144A**** ......................... 2,685,636
$2,795,000 Great Western Finance Trust II, 8.206% 02/01/27 Capital Security, Series A ...... 3,119,905
$6,000,000 GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security ..................... 6,925,290
$8,000,000 HBOS Capital Funding LP, 6.85% Pfd. ............................................. 8,209,240(1)
$6,820,000 HSBC Capital Funding LP, 10.176% 144A**** ....................................... 10,191,365(1)
$855,000 HSBC Capital Trust II, 8.38% 05/15/2027 Capital Security, 144A**** .............. 960,486(1)
$3,000,000 Haven Capital Trust I, 10.46% 02/01/27 Capital Security ......................... 3,514,320
4,200 Household Capital Trust VI, 8.25% Pfd. .......................................... 114,303
1,940,000 J.P. Morgan Capital Trust I, 7.54% 01/15/27 Capital Security .................... 2,113,892
6,455 J.P. Morgan Chase & Co., 6.625% Pfd., Series H .................................. 344,245*
$5,000,000 KeyCorp Institutional Capital A, 7.826% 12/01/26 Capital Security, Series A ..... 5,478,675
10 Marshall & Ilsley Investment II, 8.875% Pfd., 144A**** .......................... 1,110,883
$2,500,000 North Fork Capital Trust I, 8.70% 12/15/26 Capital Security ..................... 2,848,325
$810,000 North Fork Capital Trust II,8.00% 12/15/27 Capital Security ..................... 911,748
$4,000,000 RBS Capital Trust B, 6.80% Pfd. ................................................. 4,116,520**(1)
4
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
2,100 Regions Financial Trust I, 8.00% Pfd. ........................................... $ 56,994
$1,600,000 Republic New York Capital I, 7.75% 11/15/26 Capital Security .................... 1,761,624(1)
$716,000 Republic New York Capital II, 7.53% 12/04/26 Capital Security ................... 781,392(1)
20 Roslyn Real Estate, 8.95% Pfd., Pvt., Series C, 144A**** ........................ 2,112,718
20,000 Royal Bank of Scotland Group PLC, 6.40% Pfd., Series M .......................... 504,800**(1)
$5,050,000 Union Planters Capital Trust, 8.20% 12/15/26 Capital Security ................... 5,662,414
19,000 USB Capital V, 7.25% Pfd. ....................................................... 507,585
$5,000,000 Wachovia Capital Trust I, 7.64% 01/15/27 Capital Security, 144A**** ............. 5,432,300
350,000 Wachovia Preferred Funding, 7.25% Pfd., Series A ................................ 9,698,500
7,900 Wells Fargo Capital Trust IV, 7.00% Pfd. ........................................ 206,862
100,000 Wells Fargo Capital Trust IX, 5.625% Pfd. ....................................... 2,375,000
-------------------------------------------------------------------------------------------------------------------
122,856,939
----------------
FINANCIAL SERVICES -- 3.9%
------------------------------------------------------------------------------------------------------------------------
9,900 The Bear Stearns Companies Inc., 5.49% Pfd., Series G ........................... 473,616*
Lehman Brothers Holdings, Inc.:
50,000 5.94% Pfd., Series C .......................................................... 2,491,250*
192,100 6.50% Pfd., Series F .......................................................... 5,007,086*
9,700 Merrill Lynch Capital Trust III, 7.00% Pfd. ..................................... 257,826
168,650 Merrill Lynch Capital Trust V, 7.28% Pfd. ....................................... 4,551,864
17,200 Morgan Stanley Capital Trust II, 7.25% Pfd. ..................................... 452,102
30,000 Morgan Stanley Capital Trust III, 6.25% Pfd. .................................... 748,500
6,000 Morgan Stanley Capital Trust V, 5.75% Pfd. ...................................... 141,480
-------------------------------------------------------------------------------------------------------------------
14,123,724
----------------
INSURANCE -- 9.9%
------------------------------------------------------------------------------------------------------------------------
15,000 AAG Holding Company, Inc., 7.25% Pfd ............................................ 377,400
177,380 ACE Ltd., 7.80% Pfd., Series C .................................................. 4,774,182**(1)
$6,420,000 AON Capital Trust A, 8.205% 01/01/27 Capital Security ........................... 7,361,204
189,400 Everest Re Capital Trust II, 6.20% Pfd., Series B ............................... 4,516,243(1)
ING Groep NV:
36,000 7.05% Pfd. .................................................................... 946,800**(1)
125,000 7.20% Pfd. .................................................................... 3,327,500**(1)
40,000 St. Paul Capital Trust I, 7.60% Pfd. ............................................ 1,058,000
$4,815,000 USF&G Capital, 8.312% 07/01/46 Capital Security, 144A**** ....................... 5,698,938
30,000 XL Capital Ltd., 7.625% Pfd., Series B .......................................... 817,650**(1)
6,675 Zurich RegCaPS Funding Trust, 6.58% Pfd., 144A**** .............................. 6,916,168*
-------------------------------------------------------------------------------------------------------------------
35,794,085
----------------
5
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- 13.9%
------------------------------------------------------------------------------------------------------------------------
225,000 Alabama Power Company, 5.30% Pfd. ............................................... $ 5,429,250*
45,700 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ....................... 4,788,446*
$2,750,000 COMED Financing II, 8.50% 01/15/27 Capital Security, Series B ................... 3,124,907
Duke Energy Corporation:
50,214 7.04% Pfd., Series Y .......................................................... 5,186,102*
22,934 7.85% Pfd., Series S .......................................................... 2,378,829*
37,000 Duquesne Light Company, 6.50% Pfd. .............................................. 1,904,760*
20,000 Energy East Capital Trust I, 8.25% Pfd. ......................................... 532,700
758 Entergy Arkansas, Inc., 7.40% Pfd. .............................................. 78,927*
70,000 Florida Power Company, FPC Capital I, 7.10% Pfd., Series A ...................... 1,761,900
$4,500,000 Houston Light & Power, Capital Trust II, 8.257%, 02/01/37 Capital Security ...... 4,751,820
30,445 Indianapolis Power & Light Company, 5.65% Pfd. .................................. 2,752,989*
Interstate Power & Light Company:
90,000 7.10% Pfd., Series C .......................................................... 2,412,900*
38,600 8.375% Pfd., Series B ......................................................... 1,229,024*
$5,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 Capital Security ................... 4,704,800
16,200 PSEG Funding Trust II, 8.75% Pfd. ............................................... 446,229
30,000 Public Service Electric & Gas, 4.30% Pfd., Series C ............................. 2,342,700*
120,000 Southern Union Company, 7.55% Pfd. .............................................. 3,283,800*
10,000 Southwest Gas Capital II, 7.70% Pfd. ............................................ 266,200
5,000 Union Electric Company, $7.64 Pfd. .............................................. 522,350*
82,717 Wisconsin Power & Light Company, 6.50% Pfd. ..................................... 2,132,858*
-------------------------------------------------------------------------------------------------------------------
50,031,491
----------------
OIL AND GAS -- 0.8%
------------------------------------------------------------------------------------------------------------------------
2,750 EOG Resources, Inc., 7.195% Pfd., Series B ...................................... 3,010,329*
-------------------------------------------------------------------------------------------------------------------
3,010,329
----------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 6.6%
------------------------------------------------------------------------------------------------------------------------
16,020 AMB Property Corporation, 6.75% Pfd., REIT, Series M ............................ 395,534
40,000 BRE Properties, Inc., 6.75% Pfd., REIT, Series C ................................ 978,000
38,750 Carramerica Realty Corporation, 7.50% Pfd., REIT, Series E ...................... 997,231
Duke Realty Corporation:
19,549 6.625% Pfd., REIT, Series J ................................................... 480,319
50,000 6.50% Pfd., REIT, Series K .................................................... 1,211,000
Equity Residential Properties:
18,962 6.48% Pfd., REIT, Series N .................................................... 467,887
85,000 8.29% Pfd., REIT, Series K .................................................... 5,208,375
100,000 Health Care Property Investment, 7.10% Pfd., REIT, Series F ..................... 2,535,500
6
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
PREFERRED SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
PS Business Parks, Inc.:
57,000 6.875% Pfd., REIT, Series I ................................................... $ 1,341,780
34,500 7.60% Pfd., REIT, Series L .................................................... 874,575
45,000 7.95% Pfd., REIT, Series K .................................................... 1,171,575
Public Storage, Inc.:
44,200 7.50% Pfd., REIT, Series V .................................................... 1,189,643
1,400 7.625% Pfd., REIT, Series T ................................................... 37,072
48,600 8.00% Pfd., REIT, Series R .................................................... 1,305,639
125,000 Regency Centers Corporation, 7.25% Pfd., REIT ................................... 3,160,625
95,000 Weingarten Realty Investment, 6.95% Pfd., REIT .................................. 2,434,375
-------------------------------------------------------------------------------------------------------------------
23,789,130
----------------
MISCELLANEOUS INDUSTRIES -- 1.3%
------------------------------------------------------------------------------------------------------------------------
65,300 Delphi Trust I, 8.25% Pfd. ...................................................... 1,738,613
34,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ............................. 2,827,100*
-------------------------------------------------------------------------------------------------------------------
4,565,713
----------------
TOTAL PREFERRED SECURITIES
(Cost $246,712,653) 254,171,411
----------------
CORPORATE DEBT SECURITIES -- 25.1%
FINANCIAL SERVICES -- 1.7%
------------------------------------------------------------------------------------------------------------------------
45,000 Corp-Backed Trust Certificates, 5.80% Pfd., Series Goldman Sachs ................ 1,089,450
$5,000,000 Lehman Brothers, Guaranteed Note, Variable Rate, 12/16/16, 144A**** ............. 5,025,000
-------------------------------------------------------------------------------------------------------------------
6,114,450
----------------
INSURANCE -- 8.1%
------------------------------------------------------------------------------------------------------------------------
20,000 American Financial Group, Inc., 7.125% 02/03/34, Senior Note .................... 504,500
$8,700,000 OneAmerica Financial Partners, 7.00% 10/15/33, 144A**** ......................... 8,911,497
$10,455,000 Prudential Holdings LLC, 8.695% 12/18/23, 144A**** .............................. 12,980,719
$7,000,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes ......................... 6,655,495
-------------------------------------------------------------------------------------------------------------------
29,052,211
----------------
OIL AND GAS -- 2.6%
------------------------------------------------------------------------------------------------------------------------
356,200 Nexen, Inc., 7.35% Subordinated Notes ........................................... 9,254,076(1)
-------------------------------------------------------------------------------------------------------------------
9,254,076
----------------
7
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
CORPORATE DEBT SECURITIES -- (CONTINUED)
UTILITIES -- 10.4%
------------------------------------------------------------------------------------------------------------------------
$2,000,000 AEP Texas Central Company, 6.65% 02/15/33, Senior Notes, Series E ............... $ 2,154,360
$6,100,000 Constellation Energy Group, 7.60% Pfd., 04/1/32, Senior Notes ................... 7,071,761
Duke Capital Corporation:
27,200 7.875% 02/15/32, Corp-Backed Trust ............................................ 710,056
$5,000,000 8.00% 10/01/19 Senior Notes ................................................... 5,902,275
5,000 Entergy Mississippi, Inc., 7.25%, 1st Mortgage .................................. 131,925
75,000 Georgia Power Company, 6.00% Pfd., FGIC Insured ................................. 1,899,000
$4,000,000 Indianapolis Power & Light Company, 6.60% 01/01/34, 1st Mortgage, 144A**** ...... 4,233,500
$4,000,000 Interstate Power & Light Company, 6.45% 10/15/33, Senior Notes .................. 4,236,700
$5,670,000 Oncor Electric Delivery Company, 7.25% 01/15/33, Secured ........................ 6,607,109
$4,000,000 Wisconsin Electric Power Company, 6.875% 12/01/95 ............................... 4,450,240
-------------------------------------------------------------------------------------------------------------------
37,396,926
----------------
MISCELLANEOUS -- 2.3%
------------------------------------------------------------------------------------------------------------------------
35,325 Ford Motor Company, 7.50% 06/10/43, Senior Notes ................................ 912,091
$6,265,000 General Motors Corporation, 8.80% 03/01/21 ...................................... 6,911,078
25,300 Maytag Corporation, 7.875% 08/01/31 ............................................. 671,209
-------------------------------------------------------------------------------------------------------------------
8,494,378
----------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $88,274,341) ............................................................ 90,312,041
----------------
CONVERTIBLE SECURITIES -- 2.8%
INSURANCE -- 0.2%
------------------------------------------------------------------------------------------------------------------------
36,000 XL Capital Ltd., 6.50% Mandatory Convertible, 05/15/07 .......................... 854,100(1)
-------------------------------------------------------------------------------------------------------------------
854,100
----------------
UTILITIES -- 2.6%
------------------------------------------------------------------------------------------------------------------------
161,500 FPL Group, Inc., 8.50% Mandatory Convertible, Series A 02/16/05 9,299,978
-------------------------------------------------------------------------------------------------------------------
9,299,978
----------------
TOTAL CONVERTIBLE SECURITIES
(Cost $10,034,398) ............................................................ 10,154,078
----------------
OPTION CONTRACTS -- 0.1%
2,475 October Put Options on December U.S. Treasury Bond Futures, Expiring 9/25/04 .... 249,609+
-------------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $1,875,470) ............................................................. 249,609
----------------
8
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2004 (UNAUDITED)
-----------------------------------------------------------
SHARES/$ PAR VALUE
-------------- -------
MONEY MARKET FUND -- 0.6%
2,059,710 BlackRock Provident Institutional, TempFund $ 2,059,710
-------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $2,059,710) ............................................................. 2,059,710
----------------
TOTAL INVESTMENTS (Cost $348,956,572***) .......................................... 99.2% 356,946,849
OTHER ASSETS AND LIABILITIES (Net) ................................................ 0.8% 2,725,646
--------- ----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK AND PREFERRED STOCK .................... 100.0%++ $ 359,672,495
--------- ----------------
AUCTION MARKET PREFERRED STOCK (AMPS) REDEMPTION VALUE ........................................ (128,500,000)
ACCUMULATED UNDECLARED DISTRIBUTIONS TO AMPS .................................................. (80,759)
----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK .................................................... $ 231,091,736
================
-----------------------------
* 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.
(1) Foreign issuer.
+ 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
Capital Securities are treated as debt instruments for financial statement purposes and the
amounts shown in the Shares/$ Par column are dollar amounts of par value.
9
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
FINANCIAL DATA
PER SHARE OF COMMON STOCK (UNAUDITED)
----------------------------------------------
TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE (1)
--------- --------- ------------- ------------
December 31, 2003 - Extra ........ $0.0400 $24.41 $25.85 $24.56
December 31, 2003 ................ 0.1625 24.41 25.85 24.56
January 31, 2004 ................. 0.1625 24.65 25.80 24.65
February 29, 2004 ................ 0.1625 24.72 25.86 24.72
March 31, 2004 ................... 0.1625 24.84 25.93 24.84
April 30, 2004 ................... 0.1625 24.02 23.24 23.47
May 31, 2004 ..................... 0.1625 23.45 23.48 23.45
June 30, 2004 .................... 0.1625 23.22 22.25 22.94
July 31, 2004 .................... 0.1625 23.28 22.69 22.89
August 31, 2004 .................. 0.1625 23.71 23.46 23.68
--------------------
(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.
10
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Flaherty & Crumrine/Claymore Total Return Fund Incorporated
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
FOR THE PERIOD FROM DECEMBER 1, 2003 THROUGH AUGUST 31, 2004 (UNAUDITED)
------------------------------------------------------------------------
VALUE
(000'S)
--------
OPERATIONS:
------------------------------------------------------------------------------------------------------------------------
Net investment income ......................................................................... $ 13,940
Net realized loss on investments sold during the period ....................................... (5,197)
Change in net unrealized appreciation of investments held during the period ................... 1,063
Distributions to Auction Market Preferred Stock (AMPS) Shareholders from net
investment income, including changes in accumulated undeclared distributions .............. (1,267)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................................ 8,539
DISTRIBUTIONS:
------------------------------------------------------------------------------------------------------------------------
Dividends paid from net investment income to Common Stock Shareholders(2) ..................... (14,611)
------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS .......................................... (14,611)
FUND SHARES TRANSACTIONS:
------------------------------------------------------------------------------------------------------------------------
Increase from Common Stock Transactions ....................................................... 1,665
------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS ................................... 1,665
NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE
------------
PERIOD ........................................................................................ (4,407)
============
NET ASSETS AVAILABLE TO COMMON STOCK:
---------------------------------------------------------------------------------------------------------------------------
Beginning of period ........................................................................... 235,499
Net decrease during the period ................................................................ (4,407)
------------
End of period ................................................................................. $ 231,092
============
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(1) These tables summarize the nine months ended August 31, 2004 and should be read in conjunction with the Fund's
audited financial statements, including footnotes, in its Annual Report dated November 30, 2003.
(2) Includes 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, 2003 THROUGH AUGUST 31,2004 (UNAUDITED)
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD.
-----------------------------------------------------
PERSHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .......................................................... $ 24.33
-------------
INVESTMENT OPERATIONS:
Net investment income ......................................................................... 1.43
Net realized loss and unrealized depreciation on investments .................................. (0.42)
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income .................................................................... (0.13)
From net realized capital gains ............................................................... --
-------------
Total from investment operations .............................................................. 0.88
-------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income .................................................................... (1.50)
From net realized capital gains ............................................................... --
-------------
Total distributions to Common Shareholders .................................................... (1.50)
-------------
Net asset value, end of period ................................................................ $ 23.71
=============
Market value, end of period ................................................................... $ 23.46
=============
Common shares outstanding, end of period ...................................................... 9,744,666
=============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income + ....................................................................... 7.22%**
Operating expenses ............................................................................ 1.56%**
--------------------------------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ....................................................................... 70%***
Total net assets available to Common and Preferred Stock, end of period (in 000's) ............ $ 359,672
Ratio of operating expenses to total average net assets available to Common and
Preferred Stock .......................................................................... 1.01%**
(1) These tables summarize the nine months ended August 31, 2004 and should be read in conjunction with the Fund's audited
financial statements, including footnotes, in its Annual Report dated November 30, 2003.
* 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*.
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[BEGIN SIDEBAR]
DIRECTORS
Martin Brody
Donald F. Crumrine, CFA
Nicholas Dalmaso
David Gale
Morgan Gust
Robert F. Wulf, CFA
OFFICERS
Donald F. Crumrine, CFA
Chairman of the Board
and Chief Executive Officer
Robert M. Ettinger, CFA
President
R. Eric Chadwick, CFA
Chief Financial Officer,
Vice President, Treasurer
and Secretary
Peter C. Stimes, CFA
Chief Compliance
Officer and Vice President
Nicholas Dalmaso
Vice President
Bradford S. Stone
Vice President
Laurie 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.
[END SIDEBAR]
[GRAPHIC OMITTED]
LIGHTHOUSE
Flaherty & Crumrine/Claymore
============================
Total Return Fund
Quarterly
Report
August 31, 2004
web site: www.fcclaymore.com