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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number       811-21380       

 

Flaherty & Crumrine Total Return Fund Incorporated

 

(Exact name of registrant as specified in charter)

 

301 E. Colorado Boulevard, Suite 800 

Pasadena, CA 91101

 

(Address of principal executive offices) (Zip code)

 

R. Eric Chadwick
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard, Suite 800 

Pasadena, CA 91101

 

(Name and address of agent for service)

 

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

 

Date of fiscal year end: November 30

 

Date of reporting period: November 30, 2022

 

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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 

 

 

 

Item 1. Reports to Stockholders.

 

(a)The Report to Shareholders is attached herewith.

 

Annual Report
November 30, 2022

www.preferredincome.com

Flaherty & Crumrine Total Return Fund

To the Shareholders of Flaherty & Crumrine Total Return Fund (“FLC”):

Fiscal 2022 came to an end on November 30, 2022, closing out a challenging year for preferred and income securities. Total return1 on net asset value (“NAV”) was -3.0% for the fourth fiscal quarter2 and -16.1% for the full fiscal year. Total return on market price of Fund shares over the same periods was -5.8% and -22.7%, respectively.

 

TOTAL RETURN ON NET ASSET VALUE
For Periods Ended November 30, 2022

(Unaudited)

 

Actual Returns

Average Annualized Returns

 

Three Months

Six Months

One Year

Three Years

Five Years

Ten Years

Life of Fund(1)

Flaherty & Crumrine Total Return Fund

-3.0%

-5.5%

-16.1%

-0.4%

2.7%

6.3%

7.1%

Bloomberg US Aggregate Bond Index(2)

-2.1%

-4.1%

-12.8%

-2.6%

0.2%

1.1%

3.2%

S&P 500 Index(3)

3.6%

-0.4%

-9.2%

10.9%

11.0%

13.3%

9.7%

  

(1)Since inception on August 29, 2003.

(2)The Bloomberg US Aggregate Bond Index is a broad-based index that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

(3)The S&P 500 is a capitalization-weighted index of 500 common stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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.

 

Markets in 2022 were defined by uncertainty, with a constant push and pull between rate hikes by the Federal Reserve and investor expectations about when the tide would turn and once again usher in lower interest rates (i.e., the Fed’s “pivot”). On one hand, the pace of Fed rate increases was the fastest since 1980-81, including four consecutive 0.75% hikes and a cumulative total of 4.25% since the first tightening in March 2022. The pace of hikes felt new for everyone, but many investors have never known higher interest rates or inflation much over 2% and have been conditioned by years of easy policy to “buy the dip” when markets weaken. Uncertainty is a market’s kryptonite, and markets faced plenty of it. The result this year was a high-correlation selloff in nearly all risk assets (equities, fixed income, loans, real estate) and more than one false-start recovery rally during the year.

In 2021, investors accepted that inflation would be “transitory” and lower interest rates were here to stay. In 2022, surprisingly high and persistent actual inflation caused a flat-footed Fed (and investment community) to play catch-up and repeatedly shift their rate expectations upward. Markets are forward looking, although often myopic, and much of the pain in 2022 resulted from market expectations leading up to surprise inflation. The 10-year Treasury ended 2021 at 1.50% and spent most of the prior two years well below this level (yield of 0.50% in August 2020). With little fear that higher interest rates would be necessary to push down inflation, credit spreads narrowed. Similarly, common stock prices rose in part on a rebound in earnings as the pandemic receded but also because discount rates were so low. Markets were priced for near perfection, and surprise inflation upended assumptions supporting risk assets.


1Following the methodology required by the Securities and Exchange Commission, total return assumes dividend reinvestment.

2September 1, 2022 – November 30, 2022

2

Portfolio performance in 2022 was driven by higher interest rates and wider credit spreads, along with broad-market macro factors that accompany most market selloffs, including fund outflows (de-risking), thinner trading markets, and investor de-leveraging. The Fund’s focus on intermediate duration and call protection—owning fixed-reset or fixed-to-float structures with healthy backend reset spreads and avoiding most low-coupon fixed-rate securities—resulted in less overall impact from higher rates than some other segments of preferred and credit markets. For comparison, the Bloomberg US Long Credit3 total return over the same fiscal period ending November 30, 2022, was -24.7%.

Credit quality remains a highlight of the preferred and contingent capital securities (CoCo) market, and investors are now earning much higher yields on these credits. Banks remain very well capitalized, highly regulated, and most are asset-sensitive—which means earnings should increase with higher interest rates. Insurance companies have been longing for higher interest rates to boost portfolio yields, and they finally have arrived. Higher interest rates should also reduce pressure on insurance liability calculations. Energy issuers, pipelines in the case of the Fund’s portfolio, have been buoyed by higher commodity prices and potential increases in usage because of a shifting energy landscape. This stands in contrast to securities of high-yield (junk) issuers, where higher interest rates are likely to be more concerning due to their weaker balance sheets and greater exposure to rising interest costs and slower economic growth.

While higher interest rates have impacted asset values, they have also squeezed the Fund’s distributable income. The Fund uses leverage to enhance distributable income, earning the positive spread between asset yields and leverage cost. A slow increase in short-term rates would have allowed for a measured transition, but the pace and size of rate hikes have caused leverage costs to increase materially and quickly. Leverage continues to provide more distributable income compared to no leverage, but the spread has narrowed, and incremental income from leverage declined. The Fund’s goal is to pay out dividends consistent with portfolio earnings, and not maintain an artificially high dividend that is actually a return of shareholders’ capital. Accordingly, we have adjusted the Fund’s dividend lower over the course of the year to reflect its lower distributable income.

Preferred and CoCo issuers, along with U.S. consumers broadly, appear to be in a strong position to weather this storm—but time is the only remedy for macro issues outside the Fed’s purview, such as supply chain bottlenecks or the war in Ukraine. Holding or adding to investments when markets are lower and sentiment weak can be uncomfortable for investors, but we believe there is opportunity in preferred and CoCo markets for long-term investors seeking income and solid credit quality.

Please read the discussion topics that follow for a broader discussion of our economic and credit outlook, and other matters of interest to shareholders.

Finally, we ask that shareholders elect their delivery preferences for shareholder reports. Electronic delivery is recommended and helps lower Fund expenses, but printed reports remain available.

Sincerely,

The Flaherty & Crumrine Portfolio Management Team

December 31, 2022


3The Bloomberg US Long Credit Index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with at least ten years to maturity. It is composed of a corporate and a non-corporate component that includes non-US agencies, sovereigns, supranationals and local authorities.

3

DISCUSSION TOPICS

(Unaudited)

Fund Performance

The table below presents a breakdown of the components that comprise the Fund’s total return on NAV over both the recent six months and the Fund’s fiscal year. These components include: (a) total return on the Fund’s portfolio of securities; (b) the impact of utilizing leverage to enhance returns to shareholders and accretive impact of the Fund’s at-the-market program (“ATM Program”); and (c) Fund operating expenses. When these components are added together, they comprise total return on NAV.

Components of FLC’s Total Return on NAV
for Periods Ended November 30, 2022

 

Six Months1

One Year

Total Return on Unleveraged Securities Portfolio (including principal change
and income)

-2.4%

-9.2%

Impact of Leverage (including leverage expense) and ATM Program

-2.4%

-5.6%

Expenses (excluding leverage expense)

-0.7%

-1.3%

1Actual, not annualizedTotal Return on NAV

-5.5%

-16.1%

For the six-month and one-year periods ended November 30, 2022, the ICE BofA 8% Constrained Core West Preferred & Jr Subordinated Securities Index (P8JC)1,2 returned -3.2% and -11.6%, respectively. This index reflects various segments of the preferred securities market constituting the Fund’s primary focus. Since this index return excludes all expenses and the impact of leverage, it compares most directly to the top line in the Fund’s performance table above (Total Return on Unleveraged Securities Portfolio).

While our focus is primarily on managing the Fund’s investment portfolio, a shareholder’s actual return is comprised of the Fund’s monthly dividend payments plus changes in the market price of Fund shares. The table and chart below depict total return on net asset value and total return on market price over the preceding 10 fiscal years.

Average Annual Total Returns as of 11/30/22

Average Annual

1-Year

5-Year

10-Year

FLC at NAV

-16.1%

2.7%

6.3%

FLC at Market Price

-22.7%

1.8%

5.7%

Benchmark

-11.6%

1.9%

4.5%

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 and taxable income when you receive distributions.


1The Fund’s Benchmark Index is the ICE BofA 8% Constrained Core West Preferred & Jr Subordinated Securities Index (P8JC), which includes U.S. dollar-denominated investment-grade or below investment-grade, fixed rate, floating rate or fixed-to-floating rate, retail or institutionally structured preferred securities of U.S. and foreign issuers with issuer concentration capped at 8%. For periods prior to 4/1/12, the benchmark was 50% of the monthly return on the ICE BofA Hybrid Preferred Securities 8% Constrained Index (P8HO) and 50% of the monthly return on the ICE BofA US Capital Securities US Issuers 8% Constrained Index (C8CT). P8HO includes taxable, fixed-rate, U.S. dollar denominated investment-grade, preferred securities listed on a U.S. exchange. C8CT includes investment grade fixed rate or fixed-to-floating rate $1,000 par securities that receive some degree of equity credit from the rating agencies or their regulators. All index returns include interest and dividend income, and, unlike the Fund’s returns, are unmanaged and do not reflect any expenses.

2The benchmarks from ICE Data Indices, LLC (“ICE Data”) are used with permission. ICE Data, its affiliates and their respective third-party suppliers disclaim any and all warranties and representations, express and/or implied, including any warranties of merchantability or fitness for a particular purpose or use, including the indices, index data and any data included in, related to, or derived therefrom. Neither ICE Data, its affiliates nor their respective third-party providers shall be subject to any damages or liability with respect to the adequacy, accuracy, timeliness or completeness of the indices or the index data or any component thereof, and the indices and index data and all components thereof are provided on an “as is” basis and your use is at your own risk. ICE Data, its affiliates and their respective third-party suppliers do not sponsor, endorse, or recommend Flaherty & Crumrine Incorporated, or any of its products or services.

4

In a more perfect world, the market price of Fund shares and its NAV would track more closely. If so, any premium or discount (calculated as the difference between these two inputs and expressed as a percentage) would remain relatively close to zero. However, as can be seen in the chart below, this often has not been the case.

Although divergence between NAV and market price of a closed-end fund is generally driven by supply/demand imbalances affecting its market price, we can only speculate about why the relationship between the Fund’s market price and NAV hasn’t been closer.

5

U.S. Economic & Credit Outlook

The U.S. economy rebounded in the second half of 2022 after contracting slightly in the first half. Although data for the fourth quarter is not yet available, we expect real GDP to expand by about 0.5% in 2022 (Q4/Q4), far below 2021’s 5.7% gain. Strong business investment and moderate gains in consumer spending offset a plunge in residential investment. Inflation intensified, reaching levels not seen since the early 1980s, and prompted the Federal Reserve to hike the federal funds rate by 4.25% from March through December. In turn, yields on Treasury securities rose sharply across maturities. Credit quality remained good, but recession fears pushed credit spreads wider. Higher interest rates and wider credit spreads combined to produce negative returns on corporate and high yield bonds and preferred and contingent capital securities in 2022.

Nonfarm payroll employment expanded by an average of 408,000 jobs per month over 12 months ending in November 2022—a very strong pace of job growth. Labor demand pushed up average hourly wages by 5.1% YoY in November, producing a 6.2% jump in wage and salary income, though a slowdown in other income categories and high inflation left real disposable personal income down 2.5%.

Personal consumer expenditure (PCE) rose 2.0% after inflation, as consumers tapped savings to support spending that outpaced income. With the savings rate at just 2.4%, we see little room for further cuts to savings and expect PCE growth to moderate in 2023, although continued strength in wage and salary income and lower inflation may keep real spending near its current pace in the first half.

Real business investment was a highlight, up 4.7% at an annual rate through the first three quarters of 2022. With workers hard to find and wages up, businesses increased investment to improve productivity. We expect growth in business investment to moderate in 2023 but remain positive.

In contrast, real residential investment plunged 16.6% annualized over the first three quarters of 2022 as two years of rapid home price gains starting in mid-2020 collided with higher mortgage rates in 2022, sharply reducing home affordability. Combined new and existing home sales in November were down by almost a third from December 2021. After peaking in June, home prices have declined and probably have further to go. However, although activity is down sharply, we do not expect a housing bust. Most borrowers bought their homes at significantly lower prices, locked in much lower mortgage rates, and were better qualified to service their debt than during the 2008-2009 financial crisis. Residential investment is likely to remain weak in 2023, but with home sales already down sharply, we expect the pace of decline to moderate over the year.

Other sectors of the economy were mixed. Real government spending was little changed through the first three quarters of 2022 as pandemic-related programs wound down. Net exports had almost no impact on GDP growth in the first half of 2022 but contributed most of Q3’s 3.2% gain. Finally, inventories were a consistent but modest drag on growth in 2022. Looking ahead, we expect moderate real growth in government spending in 2023, little contribution from inventories, and moderate drag from trade.

Inflation soared in 2022 to the highest levels since the early 1980s, accommodated by earlier expansive monetary and fiscal policy. Supply chain bottlenecks from the pandemic and a boom in demand from consumers pushed up goods prices in 2021 and early 2022. Services prices followed as consumers shifted spending back toward services in late 2021 and 2022, while the war in Ukraine boosted food and energy prices.

In response to both easing supply chain pressures and tighter monetary policy, inflation should decline significantly in 2023. Already, goods prices have slowed sharply, but services inflation has been stickier. While we are confident that goods inflation will slow quickly, labor supply remains tight, and it may take a recession to bring down services inflation more meaningfully, which we do not expect until the second half of 2023.

6

The Federal Reserve belatedly but aggressively reacted to inflation with the largest series of rate increases in four decades, raising the federal funds rate by some 425 bp. Moreover, Federal Open Market Committee (FOMC) members project a year-end 2023 fed funds rate of 5.1%, which implies another 75 bp or so of rate hikes ahead—and no easing until 2024. In response, ten-year Treasury yields rose by 236 bp to 3.88% and 30-year Treasuries rose by 206 bp to 3.97% from year-end 2021 to 2022.

Credit spreads widened as high inflation and rapid-fire rate hikes raised both benchmark interest rates and fears of credit defaults. However, credit quality, in contrast to credit spreads, remains favorable. Macroeconomic indicators such as business and consumer debt-to-GDP have continued to trend down; debt service ratios are up a bit but remain low; and business bankruptcy filings are near historic lows. Banks’ net interest margins have already increased meaningfully, and loan delinquencies and charge-offs are low and have shown no material deterioration in 2022. Insurance companies will benefit from higher yields on their investment portfolios. Admittedly, banks and insurers absorbed mark-to-market losses on their securities portfolios as yields rose, but we think financial companies have the capital, earnings, and reserves to manage strains that a recession might bring.

Looking ahead, we expect tighter monetary policy to push the U.S. economy into a mild recession in the second half of 2023, which should accelerate inflation’s decline toward the Fed’s 2% target. Core PCE inflation should fall below 3% in early 2024 and allow the Fed to begin easing monetary policy. Forward interest rates are more optimistic and suggest the Fed will start easing in the second half of 2023. We expect the fed funds rate to remain at a “terminal” rate of about 5% through year-end 2023 before falling in 2024. As a result, we think 10- and 30-year Treasury rates could move modestly higher as markets adjust to a later “pivot” by the FOMC. As interest rates fall and an economic recovery begins in 2024, credit fears should recede. Markets probably would start to anticipate that sometime in 2023. With inflation currently elevated, the Fed tightening monetary policy, the global economy slowing, and the war between Ukraine and Russia still raging, it may be too soon to expect a near-term rebound in credit markets. However, yields are up significantly from a year ago, and we think most of the adjustments to higher rates and wider credit spreads are behind us. We believe long-term investors can earn attractive yields on preferred and contingent capital securities today as they wait for better days ahead.

Federal Tax Advantages of 2022 Calendar Year Distributions

In calendar year 2022, approximately 87.7% of distributions made by the Fund were eligible for treatment as qualified dividend income, or QDI. Depending on an individual’s level of income, QDI can be taxed at a rate of 0%, 15% or 20%.

For an individual in the 32% marginal tax bracket, this means that the Fund’s total distributions will only be taxed at a blended 17.1% rate versus the 32% rate which would apply to distributions by a fund investing in traditional corporate bonds. This tax advantage means that, all other things being equal, for every $100 distribution that such individual receives from the Fund for the calendar year, the same individual would have had to receive approximately $122 in distributions from a fully-taxable bond fund to net the same after-tax amount as the 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 35.3% of 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 2023’s distributions may not be the same (or even similar) to 2022.

7

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OVERVIEW

November 30, 2022 (Unaudited)

 

Additional portfolio information of interest to shareholders is available on the Fund’s website at http://www.preferredincome.com

Fund Statistics

 

 

Net Asset Value

$

17.22

Market Price

$

16.19

Discount

5.98

%

Yield on Market Price†

7.67

%

Common Stock Shares Outstanding

10,456,821

November 2022 dividend of $0.1035 per share,
annualized, divided by Market Price.

Security Ratings*

 

% of Managed Assets

A

0.2%

BBB

44.4%

BB

35.9%

Below “BB”

1.3%

Not Rated**

16.3%

Portfolio Ratings Guidelines

 

% of Managed Assets

Security Rated Below
Investment Grade by All***

32.1%

Issuer or Senior Debt Rated Below

Investment Grade by All****

5.4%

*Ratings are from Moody’s Investors Service, Inc.

**“Not Rated” securities are those with no ratings available from Moody’s. Excludes common stock and money market fund investments and net other assets and liabilities of 1.9%.

***Security rating below investment grade by all of Moody’s, S&P Global Ratings, and Fitch Ratings.

****Security rating and issuer’s senior unsecured debt or issuer rating are below investment grade by all of Moody’s, S&P, and Fitch. The Fund’s investment policy currently limits such securities to 10% of Net Assets.

Industry Categories

% of Managed Assets

Top 10 Holdings by Issuer

% of Managed Assets

MetLife Inc

4.1%

Citigroup Inc

4.0%

Liberty Mutual Group

3.7%

Energy Transfer LP

3.2%

BNP Paribas

3.2%

Morgan Stanley

2.9%

Wells Fargo & Company

2.9%

Societe Generale SA

2.8%

JPMorgan Chase & Company

2.2%

Unum Group

2.0%


% of Managed Assets*****

Holdings Generating Qualified Dividend Income (QDI) for Individuals

65

%

Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)

42

%

*****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. See accompanying notes to financial statements for tax characterization of 2022 distributions.

The accompanying notes are an integral part of the financial statements.
8

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS

November 30, 2022 

 

Shares/$ Par

Value

Preferred Stock & Hybrid Preferred Securities§ — 73.8%

 

Banking — 34.8%

$675,000

American AgCredit Corporation, 5.25% to 06/15/26 then
T5Y + 4.50%, Series A, 144A****

 $576,281

*(1)

 

Bank of America Corporation:

$1,990,000

5.875% to 03/15/28 then 3ML + 2.931%, Series FF

 1,778,563

*(1)(2)(3)

$2,300,000

6.125% to 04/27/27 then T5Y + 3.231%, Series TT

 2,231,000

*(1)(2)(3)

23,546

Cadence Bank, 5.50%, Series A

 510,477

*(1)

 

Capital One Financial Corporation:

17,820

5.00%, Series I

 346,243

*(1)(2)

$1,180,000

3.95% to 09/01/26 then T5Y + 3.157%, Series M

 911,550

*(1)(2)

 

Citigroup, Inc.:

$600,000

3.875% to 02/18/26 then T5Y + 3.417%, Series X

 502,125

*(1)

$300,000

4.00% to 12/10/25 then T5Y + 3.597%, Series W

 260,687

*(1)

$450,000

4.15% to 11/15/26 then T5Y + 3.00%, Series Y

 364,500

*(1)

$450,000

4.70% to 01/30/25 then SOFRRATE + 3.234%, Series V

 380,416

*(1)

$1,120,000

5.95% to 05/15/25 then 3ML + 3.905%, Series P

 1,045,570

*(1)(2)

227,619

6.875% to 11/15/23 then 3ML + 4.13%, Series K

 5,697,304

*(1)(2)

151,138

7.125% to 09/30/23 then 3ML + 4.04%, Series J

 3,829,837

*(1)(2)

 

Citizens Financial Group, Inc.:

49,100

6.35% to 04/06/24 then 3ML + 3.642%, Series D

 1,238,793

*(1)(2)

$1,300,000

6.375% to 04/06/24 then 3ML + 3.157%, Series C

 1,205,750

*(1)(2)(3)

 

CoBank ACB:

17,500

6.20% to 01/01/25 then 3ML + 3.744%, Series H, 144A****

 1,732,500

*(1)(2)

$609,000

6.25% to 10/01/26 then 3ML + 4.66%, Series I, 144A****

 586,356

*(1)(2)

$1,150,000

Comerica, Inc., 5.625% to 10/01/25 then T5Y + 5.291%, Series A

 1,119,065

*(1)(2)(3)

$285,000

Compeer Financial ACA, 4.875% to 08/15/26 then
T5Y + 4.10%, Series B-1, 144A****

 252,581

*(1)

47,900

ConnectOne Bancorp, Inc., 5.25% to 09/01/26 then T5Y + 4.42%, Series A

 1,036,077

*(1)

39,000

Dime Community Bancshares, Inc., 5.50%, Series A

 812,760

*(1)

 

Fifth Third Bancorp:

67,291

6.00%, Series A

 1,559,132

*(1)(2)

169,409

6.625% to 12/31/23 then 3ML + 3.71%, Series I

 4,347,035

*(1)(2)

19,620

First Citizens BancShares, Inc., 5.375%, Series A

 392,204

*(1)

 

First Horizon Corporation:

21,200

6.50%, Series E

 527,032

*(1)

3

FT Real Estate Securities Company, 9.50% 03/31/31, Series B, 144A****

 3,921,000

875

First Horizon Bank, 3ML + 0.85% min 3.75%, 4.7587%(4), 144A****

 770,000

*(1)

22,000

First Republic Bank, 4.00%, Series M

 370,480

*(1)

11,400

Fulton Financial Corporation, 5.125%, Series A

 235,296

*(1)

The accompanying notes are an integral part of the financial statements.
9

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022

 

Shares/$ Par

Value

 

Goldman Sachs Group:

$300,000

4.95% to 02/10/25 then T5Y + 3.224%, Series R

$272,143

*(1)

$830,000

5.50% to 08/10/24 then T5Y + 3.623%, Series Q

 802,897

*(1)(2)

11,687

6.375% to 05/10/24 then 3ML + 3.55%, Series K

 297,083

*(1)(2)

42,600

Heartland Financial USA, Inc., 7.00% to 07/15/25 then T5Y + 6.675%, Series E

 1,129,752

*(1)

 

HSBC Holdings PLC:

$1,400,000

HSBC Capital Funding LP, 10.176% to 06/30/30 then 3ML + 4.98%, 144A****

 1,694,127

 

Huntington Bancshares, Inc.:

$405,000

4.45% to 10/15/27 then T7Y + 4.045%, Series G

359,460

*(1)

$1,175,000

5.625% to 07/15/30 then T10Y + 4.945%, Series F

 1,068,604

*(1)(2)

$1,400,000

5.70% to 04/15/23 then 3ML + 2.88%, Series E

 1,298,500

*(1)(2)(3)

 

JPMorgan Chase & Company:

$850,000

3.65% to 06/01/26 then T5Y + 2.85%, Series KK

 716,125

*(1)(2)

$465,000

5.00% to 08/01/24 then SOFRRATE + 3.38%, Series FF

 430,629

*(1)(2)

$750,000

6.00% to 08/01/23 then 3ML + 3.30%, Series R

 744,375

*(1)(2)

$4,791,000

6.75% to 02/01/24 then 3ML + 3.78%, Series S

 4,753,443

*(1)(2)(3)

 

KeyCorp:

78,103

6.125% to 12/15/26 then 3ML + 3.892%, Series E

 1,939,298

*(1)(2)

36,400

6.20% to 12/15/27 then T5Y + 3.132%, Series H

 903,084

*(1)(2)

 

M&T Bank Corporation:

$725,000

3.50% to 09/01/26 then T5Y + 2.679%, Series I

 556,728

*(1)

23,066

5.625% to 12/15/26 then 3ML + 4.02%, Series H

 527,981

*(1)

$3,500,000

6.45% to 02/15/24 then 3ML + 3.61%, Series E

 3,445,487

*(1)(2)(3)

21,000

Merchants Bancorp, 6.00% to 10/01/24 then 3ML + 4.569%, Series B

 458,010

*(1)

 

Morgan Stanley:

$540,000

5.30% to 03/15/23 then 3ML + 3.16%, Series N

 527,536

*(1)(2)(3)

213,700

5.85% to 04/15/27 then 3ML + 3.491%, Series K

 5,088,197

*(1)(2)

89,000

6.875% to 01/15/24 then 3ML + 3.94%, Series F

 2,257,930

*(1)(2)

35,823

7.125% to 10/15/23 then 3ML + 4.32%, Series E

 914,919

*(1)(2)

235,200

New York Community Bancorp, Inc., 6.375% to 03/17/27 then
3ML + 3.821%, Series A

 5,644,800

*(1)(2)

67,000

Northpointe Bancshares, Inc., 8.25% to 12/30/25 then
SOFRRATE + 7.99%, Series A

 1,623,075

*(1)

 

PNC Financial Services Group, Inc.:

$400,000

3.40% to 09/15/26 then T5Y + 2.595%, Series T

 308,801

*(1)

$1,450,000

6.00% to 05/15/27 then T5Y + 3.00%, Series U

 1,366,625

*(1)(2)(3)

$760,000

6.20% to 09/15/27 then T5Y + 3.238%, Series V

 735,300

*(1)(2)

 

Regions Financial Corporation:

125,350

5.70% to 08/15/29 then 3ML + 3.148%, Series C

 2,900,599

*(1)(2)

$65,000

5.75% to 09/15/25 then T5Y + 5.426%, Series D

 63,169

*(1)

63,000

Signature Bank, 5.00%, Series A

 1,093,050

*(1)(2)

The accompanying notes are an integral part of the financial statements.
10

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022 

 

Shares/$ Par

Value

 

SVB Financial Group:

$825,000

4.00% to 05/15/26 then T5Y + 3.202%, Series C

$540,911

*(1)

$400,000

4.10% to 02/15/31 then T10Y + 3.064%, Series B

 229,763

*(1)

55,500

Synchrony Financial, 5.625%, Series A

 1,029,525

*(1)(2)

91,848

Synovus Financial Corporation, 5.875% to 07/01/24 then T5Y + 4.127%, Series E

 2,213,537

*(1)(2)(3)

35,900

Texas Capital Bancshares Inc., 5.75%, Series B

 737,745

*(1)(2)

 

Truist Financial Corporation:

$870,000

4.95% to 12/01/25 then T5Y + 4.605%, Series P

 841,725

*(1)(2)

$585,000

5.10% to 09/01/30 then T10Y + 4.349%, Series Q

 527,085

*(1)

38,203

Valley National Bancorp, 3ML + 3.578%, 7.2521%(4), Series B

 977,233

*(1)(2)

25,000

Washington Federal, Inc., 4.875%, Series A

 471,500

*(1)

13,416

Webster Financial Corporation, 6.50%, Series G

 330,704

*(1)

 

Wells Fargo & Company:

53,000

4.25%, Series DD

899,940

*(1)(2)

41,000

4.70%, Series AA

 763,010

*(1)

325

7.50%, Series L

 386,796

*(1)

$925,000

3.90% to 03/15/26 then T5Y + 3.453%, Series BB

 806,484

*(1)(2)

81,100

5.85% to 09/15/23 then 3ML + 3.09%, Series Q

 1,883,142

*(1)(2)

$1,250,000

5.875% to 06/15/25 then 3ML + 3.99%, Series U

 1,226,750

*(1)(2)

106,200

6.625% to 03/15/24 then 3ML + 3.69%, Series R

 2,701,728

*(1)(2)

49,000

WesBanco, Inc., 6.75% to 11/15/25 then T5Y + 6.557%, Series A

 1,230,390

*(1)

25,300

Western Alliance Bancorp, 4.25% to 09/30/26 then T5Y + 3.452%, Series A

 541,420

*(1)

48,000

Wintrust Financial Corporation, 6.875% to 07/15/25 then T5Y + 6.507%, Series E

 1,209,600

*(1)

$1,800,000

Zions Bancorporation, 7.20% to 09/15/23 then 3ML + 4.44%, Series J

 1,827,000

*(1)(2)(3)

 

 103,838,329

 

Financial Services — 3.2%

$2,530,000

AerCap Holdings NV, 5.875% to 10/10/24 then T5Y + 4.535%, 10/10/79

 2,348,447

**(2)(5)

 

Ally Financial, Inc.:

$1,390,000

4.70% to 05/15/26 then T5Y + 3.868%, Series B

 1,011,225

*(1)(2)(3)

$925,000

4.70% to 05/15/28 then T7Y + 3.481%, Series C

 618,339

*(1)

$775,000

American Express Company, 3.55% to 09/15/26 then T5Y + 2.854%, Series D

 618,063

*(1)

15,400

Carlyle Finance LLC, 4.625% 05/15/61

 259,336

$880,000

Discover Financial Services, 6.125% to 09/23/25 then T5Y + 5.783%, Series D

 861,520

*(1)(2)

 

General Motors Financial Company:

$800,000

5.70% to 09/30/30 then T5Y + 4.997%, Series C

 695,000

*(1)(2)

$610,000

5.75% to 09/30/27 then 3ML + 3.598%, Series A

 518,359

*(1)(2)

$1,000,000

6.50% to 09/30/28 then 3ML + 3.436%, Series B

 869,621

*(1)(2)

21,000

Raymond James Financial, Inc., 6.375% to 07/01/26 then 3ML + 4.088%, Series B

 523,320

*(1)

 

Stifel Financial Corp.:

21,000

4.50%, Series D

376,740

*(1)

29,000

6.25%, Series B

 729,350

*(1)(2)

 

 9,429,320

The accompanying notes are an integral part of the financial statements.
11

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022

 

Shares/$ Par

Value

 

Insurance — 18.6%

67,000

American Equity Investment Life Holding Company, 5.95% to 12/01/24 then
T5Y + 4.322%, Series A

$1,455,240

*(1)(2)

$2,150,000

American International Group, Inc., 8.175% to 05/15/38 then
3ML + 4.195%, 05/15/58

 2,391,231

(2)(3)

25,000

Aspen Insurance Holdings Ltd., 5.625%

 497,500

**(1)(2)(5)

19,300

Assurant, Inc., 5.25% 01/15/61

 413,985

 

Athene Holding Ltd.:

28,800

4.875%, Series D

 530,208

**(1)(5)

120,000

6.35% to 06/30/29 then 3ML + 4.253%, Series A

 2,954,400

**(1)(2)(5)

$620,000

AXA SA, 6.379% to 12/14/36 then 3ML + 2.256%, 144A****

 602,848

**(1)(2)(5)

$880,000

AXIS Specialty Finance LLC, 4.90% to 01/15/30 then T5Y + 3.186%, 01/15/40

 723,298

(2)(5)

 

Chubb Ltd.:

$1,440,000

Ace Capital Trust II, 9.70% 04/01/30

 1,782,831

(2)(3)

16,100

CNO Financial Group, Inc., 5.125% 11/25/60

 291,571

224,200

Delphi Financial Group, 3ML + 3.19%, 7.7961%(4), 05/15/37

 4,960,425

(2)(3)

 

Enstar Group Ltd.:

61,000

7.00% to 09/01/28 then 3ML + 4.015%, Series D

1,411,540

**(1)(2)(5)

$720,000

Enstar Finance LLC, 5.50% to 01/15/27 then T5Y + 4.006%, 01/15/42

 581,728

(5)

$575,000

Enstar Finance LLC, 5.75% to 09/01/25 then T5Y + 5.468%, 09/01/40

 520,652

(5)

$150,000

Equitable Holdings, Inc., 4.95% to 12/15/25 then T5Y + 4.736%, Series B

 142,110

*(1)

$1,519,000

Everest Reinsurance Holdings, 3ML + 2.385%, 6.9911%(4), 05/15/37

 1,296,471

(2)(3)

$1,590,000

Global Atlantic Fin Company, 4.70% to 10/15/26 then
T5Y + 3.796%, 10/15/51, 144A****

 1,178,180

(2)(3)

$1,000,000

Kuvare US Holdings, Inc., 7.00% to 05/01/26 then
T5Y + 6.541%, 02/17/51, Series A, 144A****

 1,010,000

*

 

Liberty Mutual Group:

$6,351,000

7.80% 03/15/37, 144A****

 6,961,268

(2)(3)

$940,000

4.125% to 12/15/26 then T5Y + 3.315%, 12/15/51, 144A****

 743,495

(2)

 

Lincoln National Corporation:

21,200

9.00%, Series D

 561,164

*(1)

$530,000

9.25% to 03/01/28 then T5Y + 5.318%, Series C

 557,825

*(1)

 

MetLife, Inc.:

$5,335,000

9.25% 04/08/38, 144A****

 6,189,137

(2)(3)

$4,130,000

10.75% 08/01/39

 5,462,214

(2)(3)

$577,000

MetLife Capital Trust IV, 7.875% 12/15/37, 144A****

 621,717

(2)

$1,065,000

Prudential Financial, Inc., 6.00% to 09/01/32 then T5Y + 3.234%, 09/01/52

 983,790

(2)

61,000

Reinsurance Group of America, Inc., 7.125% to 10/15/27 then
T5Y + 3.456%, 10/15/52

1,599,420

(2)

10,400

RenaissanceRe Holdings Ltd., 5.75%, Series F

 235,144

**(1)(2)(5)

The accompanying notes are an integral part of the financial statements.
12

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022 

 

Shares/$ Par

Value

 

SBL Holdings, Inc.:

$1,500,000

6.50% to 11/13/26 then T5Y + 5.62%, Series B, 144A****

$1,143,750

*(1)(2)(3)

$1,300,000

7.00% to 05/13/25 then T5Y + 5.58%, Series A, 144A****

 1,067,979

*(1)(2)

 

Unum Group:

$5,803,000

Provident Financing Trust I, 7.405% 03/15/38

 6,059,812

(2)(3)

33,000

Voya Financial, Inc., 5.35% to 09/15/29 then T5Y + 3.21%, Series B

 723,360

*(1)(2)

 

 55,654,293

 

Utilities — 6.5%

 

Algonquin Power & Utilities Corporation:

$800,000

4.75% to 04/18/27 then T5Y + 3.249%, 01/18/82

 657,504

(2)(5)

54,010

6.20% to 07/01/24 then 3ML + 4.01%, 07/01/79, Series 2019-A

 1,214,145

(2)(5)

$900,000

CenterPoint Energy, Inc., 6.125% to 09/01/23 then 3ML + 3.27%, Series A

 851,281

*(1)(2)

 

Commonwealth Edison:

$3,394,000

COMED Financing III, 6.35% 03/15/33

 3,538,411

(2)(3)

$650,000

Dominion Energy, Inc., 4.35% to 04/15/27 then T5Y + 3.195%, Series C

 547,625

*(1)

 

Edison International:

$1,733,000

5.00% to 03/15/27 then T5Y + 3.901%, Series B

 1,433,345

*(1)(2)(3)

$560,000

5.375% to 03/15/26 then T5Y + 4.698%, Series A

 477,115

*(1)

$2,940,000

Emera, Inc., 6.75% to 06/15/26 then 3ML + 5.44%, 06/15/76, Series 2016A

 2,793,000

(2)(5)

17,800

Indianapolis Power & Light Company, 5.65%

 1,802,250

*(1)(2)

 

NiSource, Inc.:

$440,000

5.65% to 06/15/23 then T5Y + 2.843%, Series A

 411,400

*(1)

40,000

6.50% to 03/15/24 then T5Y + 3.632%, Series B

 980,800

*(1)(2)

 

Sempra Energy:

$1,000,000

4.125% to 04/01/27 then T5Y + 2.868%, 04/01/52

779,344

(2)(3)

$1,400,000

4.875% to 10/15/25 then T5Y + 4.55%, Series C

 1,302,000

*(1)(2)(3)

 

Southern California Edison:

$840,000

3ML + 4.199%, 8.6386%(4), Series E

 826,574

*(1)(2)(3)

176

SCE Trust II, 5.10%, Series G

 3,263

*(1)

44,140

SCE Trust V, 5.45% to 03/15/26 then 3ML + 3.79%, Series K

 871,765

*(1)(2)

$832,000

Southern Company, 3.75% to 09/15/26 then T5Y + 2.915%, 09/15/51, Series 2021-A

 669,469

(2)

$185,000

Vistra Corporation, 7.00% to 12/15/26 then T5Y + 5.74%, Series B, 144A****

 165,715

*(1)

 

 19,325,006

 

Energy — 6.3%

 

DCP Midstream LP:

$1,550,000

7.375% to 12/15/22 then 3ML + 5.148%, Series A

 1,554,185

(1)

5,200

7.875% to 06/15/23 then 3ML + 4.919%, Series B

129,740

(1)

$750,000

DCP Midstream LLC, 5.85% to 05/21/23 then 3ML + 3.85%, 05/21/43, 144A****

 735,178

 

Enbridge, Inc.:

$380,000

5.75% to 07/15/30 then T5Y + 5.314%, 07/15/80, Series 2020-A

338,854

(5)

$1,500,000

6.00% to 01/15/27 then 3ML + 3.89%, 01/15/77, Series 2016-A

 1,373,309

(2)(3)(5)

The accompanying notes are an integral part of the financial statements.
13

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022

 

Shares/$ Par

Value

 

Energy Transfer LP:

$2,071,000

7.125% to 05/15/30 then T5Y + 5.306%, Series G

$1,744,817

(1)(2)(3)

106,314

7.375% to 05/15/23 then 3ML + 4.53%, Series C

 2,457,980

(1)(2)

187,800

7.60% to 05/15/24 then 3ML + 5.161%, Series E

 4,326,912

(1)(2)

2,100

7.625% to 08/15/23 then 3ML + 4.738%, Series D

 48,888

(1)

$1,000,000

Enterprise Products Operating L.P., 5.25% to 08/16/27 then
3ML + 3.033%, 08/16/77, Series E

 812,354

(2)(3)

$2,120,000

MPLX LP, 6.875% to 02/15/23 then 3ML + 4.652%, Series B

 2,105,542

(1)(2)(3)

45,500

NuStar Logistics LP, 3ML + 6.734%, 10.8131%(4), 01/15/43

 1,143,870

(2)

 

Transcanada Pipelines, Ltd.:

$2,250,000

5.50% to 09/15/29 then SOFRRATE + 4.4156%, 09/15/79

 1,926,563

(2)(3)(5)

$300,000

5.875% to 08/15/26 then 3ML + 4.64%, 08/15/76, Series 2016-A

 282,334

(2)(3)(5)

 

 18,980,526

 

Communication — 1.1%

$900,000

British Telecommunications PLC, 4.875% to 11/23/31 then
T5Y + 3.493%, 11/23/81, 144A****

 728,125

(2)(5)

$1,860,000

Paramount Global, 6.375% to 03/30/27 then T5Y + 3.999%, 03/30/62

 1,540,848

(2)(3)

$900,000

Vodafone Group PLC, 7.00% to 04/04/29 then SW5 + 4.873%, 04/04/79

 897,732

(2)(5)

 

 3,166,705

 

Real Estate Investment Trust (REIT) — 1.4%

4,540

Annaly Capital Management, Inc., 3ML + 4.993%, 8.6671%(4), Series F

 110,776

(1)

 

Arbor Realty Trust, Inc.:

15,892

6.375%, Series D

 289,870

(1)

61,000

6.25% to 10/30/26 then SOFRRATE + 5.44%, Series F

 1,213,900

(1)(2)

95,536

KKR Real Estate Finance Trust, Inc., 6.50%, Series A

 1,695,764

(1)

30,000

New York Mortgage Trust, Inc., 6.875% to 10/15/26 then
SOFRRATE + 6.13%, Series F

 553,500

(1)

28,200

TPG RE Finance Trust, Inc., 6.25%, Series C

 467,835

(1)

 

 4,331,645

 

Miscellaneous Industries — 1.9%

$440,000

Apollo Management Holdings LP, 4.95% to 12/17/24 then
T5Y + 3.266%, 01/14/50, 144A****

373,121

 

Land O’ Lakes, Inc.:

$1,500,000

7.00%, Series C, 144A****

1,379,369

*(1)(2)

$4,350,000

7.25%, Series B, 144A****

 4,032,097

*(1)(2)

 

 5,784,587

 

Total Preferred Stock & Hybrid Preferred Securities
(Cost $237,463,212)

 220,510,411

 

The accompanying notes are an integral part of the financial statements.
14

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022 

 

Shares/$ Par

Value

Contingent Capital Securities — 21.2%

 

Banking — 19.1%

$2,550,000

Australia & New Zealand Banking Group Ltd., 6.75% to 06/15/26 then
ISDA5 + 5.168%, 144A****

$2,527,558

**(1)(2)(5)

 

Banco Bilbao Vizcaya Argentaria SA:

$3,000,000

6.125% to 11/16/27 then SW5 + 3.87%

 2,484,990

**(1)(2)(3)(5)

$1,000,000

6.50% to 03/05/25 then T5Y + 5.192%, Series 9

 948,382

**(1)(2)(5)

 

Banco Mercantil del Norte SA:

$800,000

6.625% to 01/24/32 then T10Y + 5.034%, 144A****

 647,600

**(1)(5)

$1,077,000

7.50% to 06/27/29 then T10Y + 5.47%, 144A****

 944,949

**(1)(2)(5)

$710,000

7.625% to 01/10/28 then T10Y + 5.353%, 144A****

 642,416

**(1)(5)

$6,200,000

Banco Santander SA, 4.75% to 05/12/27 then T5Y + 3.753%, 144A****

 4,823,768

**(1)(2)(3)(5)

 

Barclays Bank PLC:

$475,000

4.375% to 09/15/28 then T5Y + 3.41%

 350,261

**(1)(5)

$1,720,000

6.125% to 06/15/26 then T5Y + 5.867%

 1,554,278

**(1)(2)(3)(5)

$1,310,000

7.75% to 09/15/23 then SW5 + 4.842%

 1,260,875

**(1)(2)(5)

$2,285,000

8.00% to 06/15/24 then T5Y + 5.672%

 2,205,025

**(1)(2)(5)

$485,000

8.00% to 09/15/29 then T5Y + 5.431%

 458,325

**(1)(5)

$670,000

BBVA Bancomer SA, 5.875% to 09/13/29 then T5Y + 4.308%, 09/13/34, 144A****

 592,595

(2)(3)(5)

 

BNP Paribas:

$475,000

4.625% to 02/25/31 then T5Y + 3.34%, 144A****

 362,188

**(1)(5)

$560,000

7.00% to 08/16/28 then SW5 + 3.98%, 144A****

 519,071

**(1)(5)

$7,830,000

7.375% to 08/19/25 then SW5 + 5.15%, 144A****

 7,776,717

**(1)(2)(5)

$970,000

7.75% to 08/16/29 then T5Y + 4.899%, 144A****

 953,025

**(1)(2)(5)

 

Credit Agricole SA:

$480,000

4.75% to 09/23/29 then T5Y + 3.237%, 144A****

 377,270

**(1)(5)

$395,000

7.875% to 01/23/24 then SW5 + 4.898%, 144A****

 393,025

**(1)(5)

 

Credit Suisse Group AG:

$280,000

5.10% to 01/24/30 then T5Y + 3.293%, 144A****

 139,300

**(1)(5)

$1,500,000

6.375% to 08/21/26 then T5Y + 4.828%, 144A****

 963,450

**(1)(2)(5)

$1,000,000

7.25% to 09/12/25 then SW5 + 4.332%, 144A****

 672,450

**(1)(2)(5)

$1,100,000

7.50% to 07/17/23 then SW5 + 4.601%, 144A****

 855,030

**(1)(2)(3)(5)

 

HSBC Holdings PLC:

$500,000

6.00% to 05/22/27 then ISDA5 + 3.746%

443,850

**(1)(2)(5)

$4,265,000

6.50% to 03/23/28 then ISDA5 + 3.606%

 3,791,883

**(1)(2)(3)(5)

$775,000

ING Groep NV, 3.875% to 11/16/27 then T5Y + 2.862%

 553,874

**(1)(5)

$2,750,000

Lloyds Banking Group PLC, 7.50% to 09/27/25 then SW5 + 4.496%

 2,648,154

**(1)(2)(3)(5)

$730,000

Macquarie Bank Ltd., 6.125% to 03/08/27 then SW5 + 3.703%, 144A****

 616,706

**(1)(2)(5)

$425,000

NatWest Group PLC, 4.60% to 12/28/31 then T5Y + 3.10%

 299,022

**(1)(5)

The accompanying notes are an integral part of the financial statements.
15

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022

 

Shares/$ Par

Value

 

Societe Generale SA:

$1,000,000

4.75% to 05/26/26 then T5Y + 3.931%, 144A****

$835,120

**(1)(2)(5)

$1,000,000

5.375% to 11/18/30 then T5Y + 4.514%, 144A****

 787,600

**(1)(2)(5)

$6,000,000

6.75% to 04/06/28 then SW5 + 3.929%, 144A****

 5,240,220

**(1)(2)(3)(5)

$1,540,000

9.375% to 05/22/28 then T5Y + 5.385%, 144A****

 1,584,275

**(1)(5)

 

Standard Chartered PLC:

$450,000

4.75% to 07/14/31 then T5Y + 3.805%, 144A****

 327,192

**(1)(5)

$1,500,000

7.75% to 04/02/23 then SW5 + 5.723%, 144A****

 1,489,793

**(1)(2)(3)(5)

$2,420,000

7.75% to 02/15/28 then T5Y + 4.976%, 144A****

 2,309,138

**(1)(2)(5)

 

UBS Group AG:

$675,000

4.375% to 02/10/31 then T5Y + 3.313%, 144A****

 502,031

**(1)(5)

$850,000

4.875% to 02/12/27 then T5Y + 3.404%, 144A****

 716,324

**(1)(2)(5)

$2,500,000

UBS Group Funding Switzerland AG, 7.00% to 01/31/24 then
SW5 + 4.344%, 144A****

 2,468,750

**(1)(2)(3)(5)

 

 57,066,480

 

Financial Services — 0.1%

$400,000

Deutsche Bank AG, 6.00% to 04/30/26 then T5Y + 4.524%

 342,604

**(1)(5)

 

 342,604

 

Insurance — 2.0%

 

QBE Insurance Group Ltd.:

$675,000

5.875% to 05/12/25 then T5Y + 5.513%, 144A****

 620,960

**(1)(2)(5)

$5,300,000

7.50% to 11/24/23 then SW10 + 6.03%, 11/24/43, 144A****

 5,293,375

(2)(5)

 

 5,914,335

 

Total Contingent Capital Securities
(Cost $70,977,170)

 63,323,419

 

Corporate Debt Securities§ — 3.0%

 

Banking — 0.1%

10,900

Zions Bancorporation, 6.95% to 09/15/23 then
3ML + 3.89%, 09/15/28, Sub Notes

 277,078

 

 277,078

 

Insurance — 1.3%

$3,000,000

Liberty Mutual Insurance, 7.697% 10/15/97, 144A****

3,331,988

(2)(3)

$500,000

Universal Insurance Holdings, Inc., 5.625% 11/30/26

 441,600

 

 3,773,588

 

Energy — 0.3%

$940,000

Energy Transfer LP, 8.25% 11/15/29

 1,070,264

(2)(3)

 

 1,070,264

The accompanying notes are an integral part of the financial statements.
16

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022 

 

Shares/$ Par

Value

 

Communication — 0.5%

 

Qwest Corporation:

29,941

6.50% 09/01/56

$566,484

41,820

6.75% 06/15/57

 842,673

(2)

 

 1,409,157

 

Miscellaneous Industries — 0.8%

$2,160,000

Pulte Group, Inc., 7.875% 06/15/32

 2,378,359

(2)(3)

 

 2,378,359

 

Total Corporate Debt Securities
(Cost $8,559,121)

 8,908,446

 

Money Market Fund — 1.1%

 

BlackRock Liquidity Funds:

3,164,616

T-Fund, Institutional Class

 3,164,616

 

 

Total Money Market Fund
(Cost $3,164,616)

 3,164,616

 

Total Investments (Cost $320,164,119***)

99.1

%

 295,906,892

 

Other Assets and Liabilities, excluding Loan Payable (net)

0.9

%

2,624,201

 

Total Managed Assets

100.0

%

$298,531,093

 

Loan Principal Balance

(118,500,000

)

 

Net Assets Available To Common Stock

$180,031,093

The accompanying notes are an integral part of the financial statements.
17

 

Flaherty & Crumrine Total Return Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

November 30, 2022

 

  

§Date shown is maturity date unless referencing the end of the fixed-rate period of a fixed-to-floating rate security.

*Securities eligible for the Dividends Received Deduction and distributing Qualified Dividend Income (unaudited).

**Securities distributing Qualified Dividend Income only (unaudited).

***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. At November 30, 2022, these securities amounted to $85,778,708 or 28.7% of total managed assets.

(1)Perpetual security with no stated maturity date.

(2)All or a portion of this security is pledged as collateral for the Fund’s loan. The total value of such securities was $242,616,371 at November 30, 2022.

(3)All or a portion of this security has been rehypothecated. The total value of such securities was $110,045,656 at November 30, 2022.

(4)Represents the rate in effect as of the reporting date.

(5)Foreign Issuer.

A Contingent Capital Security is a hybrid security with contractual loss-absorption characteristics.

The percentage shown for each investment category is the total value of that category as a percentage of total managed assets.

ABBREVIATIONS:

3ML3-Month ICE LIBOR USD A/360

ISDA55-year USD ICE Swap Semiannual 30/360

SOFRRATESecured Overnight Funding Rate, Federal Reserve Bank of New York

SW55-year USD Swap Semiannual 30/360

SW1010-year USD Swap Semiannual 30/360

T5YFederal Reserve H.15 5-Yr Constant Maturity Treasury Semiannual yield

T7YFederal Reserve H.15 7-Yr Constant Maturity Treasury Semiannual yield

T10YFederal Reserve H.15 10-Yr Constant Maturity Treasury Semiannual yield

The accompanying notes are an integral part of the financial statements.
18

 

Flaherty & Crumrine Total Return Fund Incorporated

STATEMENT OF ASSETS AND LIABILITIES

November 30, 2022

 

ASSETS:

Investments, at value (Cost $320,164,119)

$295,906,892

Dividends and interest receivable

3,244,057

Prepaid expenses

163,191

Total Assets

299,314,140

 

LIABILITIES:

Loan Payable

$118,500,000

Interest expense payable

433,275

Dividends payable to Common Stock Shareholders

84,024

Investment advisory fees payable

133,655

Administration, Transfer Agent and Custodian fees payable

34,022

Servicing Agent fees payable

11,136

Professional fees payable

70,144

Accrued expenses and other payables

16,791

Total Liabilities

119,283,047

NET ASSETS AVAILABLE TO COMMON STOCK

$180,031,093

 

NET ASSETS AVAILABLE TO COMMON STOCK consist of:

Total distributable earnings (loss)

$(43,636,648

)

Par value of Common Stock

104,568

Paid-in capital in excess of par value of Common Stock

223,563,173

Net Assets Available to Common Stock

$180,031,093

 

NET ASSET VALUE PER SHARE OF COMMON STOCK:

Common Stock (10,456,821 shares outstanding)

$17.22

The accompanying notes are an integral part of the financial statements.
19

 

Flaherty & Crumrine Total Return Fund Incorporated

STATEMENT OF OPERATIONS

For the Year Ended November 30, 2022

 

INVESTMENT INCOME:

Dividends

$7,252,595

Interest

12,396,469

Rehypothecation Income

43,367

Total Investment Income

19,692,431

 

EXPENSES:

Investment advisory fees

$1,744,969

Interest expense

2,613,946

Administrator’s fees

264,573

Servicing Agent fees

147,588

Professional fees

126,006

Insurance expense

88,743

Transfer Agent fees

26,715

Directors’ fees

55,900

Custodian fees

33,772

Compliance fees

35,000

Other

84,334

Total Expenses

5,221,546

NET INVESTMENT INCOME

14,470,885

 

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS

Net realized gain on investments sold during the year

1,726,739

Change in unrealized appreciation/(depreciation) of investments

(52,936,175

)

NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS

(51,209,436

)

 

NET DECREASE IN NET ASSETS TO COMMON STOCK
RESULTING FROM OPERATIONS

$(36,738,551

)

 

For Federal income tax purposes, a significant portion of this amount may not qualify for the inter-corporate dividends received deduction (“DRD”) or as qualified dividend income (“QDI”) for individuals.

The accompanying notes are an integral part of the financial statements.
20

 

Flaherty & Crumrine Total Return Fund Incorporated

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK

 

 

 

Year Ended
November 30, 2022

 

Year Ended
November 30, 2021

OPERATIONS:

Net investment income

$14,470,885

$15,196,928

Net realized gain on investments sold during the year

1,726,739

1,181,436

Change in net unrealized appreciation/(depreciation) of investments

(52,936,175

)

1,043,918

Net increase/(decrease) in net assets resulting from operations

(36,738,551

)

17,422,282

 

DISTRIBUTIONS:

Dividends paid from distributable earnings to Common Stock
Shareholders
(1)

(15,001,058

)

(15,924,608

)

Total Distributions

(15,001,058

)

(15,924,608

)

 

FUND SHARE TRANSACTIONS:

Increase from shares issued under the Dividend Reinvestment
and Cash Purchase Plan

599,688

1,282,768

Increase from shares issued under the at-the-market program(2)

556,404

7,645,872

Net increase in net assets available to Common Stock
resulting from Fund share transactions

1,156,092

8,928,640

 

NET INCREASE/(DECREASE) IN NET ASSETS AVAILABLE TO
COMMON STOCK FOR THE YEAR

$(50,583,517

)

$10,426,314

 

NET ASSETS AVAILABLE TO COMMON STOCK:

Beginning of year

$230,614,610

$220,188,296

Net increase/(decrease) in net assets during the year

(50,583,517

)

10,426,314

End of year

$180,031,093

$230,614,610

 

(1)May include income earned, but not paid out, in prior fiscal year.

(2)Net of offering costs of $6,440 and $27,667 for the years ended November 30, 2022 and November 30, 2021, respectively.

The accompanying notes are an integral part of the financial statements.
21

 

Flaherty & Crumrine Total Return Fund Incorporated

STATEMENT OF CASH FLOWS

For the Year Ended November 30, 2022

 

INCREASE/(DECREASE) IN CASH

CASH FLOWS FROM OPERATING ACTIVITIES:

Net decrease in net assets resulting from operations

$(36,738,551

)

 

ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:

Purchase of investment securities

(23,410,033

)

Proceeds from disposition of investment securities

25,062,960

Net purchases of short-term investment securities

(2,898,552

)

Cash received from litigation claim

2,088

Increase in dividends and interest receivable

(166,790

)

Increase in prepaid expenses

(255

)

Net amortization/(accretion) of premium/(discount)

484,744

Increase in interest expense payable

345,603

Decrease in payables to related parties