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 811-21455
Claymore Dividend & Income Fund
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(Exact name of registrant as specified in charter)
2455 Corporate West Drive
Lisle, IL 60532
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(Address of principal executive offices) (Zip code)
J. Thomas Futrell
2455 Corporate West Drive
Lisle, IL 60532
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 505-3700
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2009
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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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), is as follows:
ANNUAL
REPORT
October 31, 2009
|
CLAYMORE | DCS
DIVIDEND & INCOME FUND |
photo
logo: CLAYMORE(R)
WWW.CLAYMORE.COM/DCS
... YOUR PATH TO THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
CLAYMORE DIVIDEND & INCOME FUND
The shareholder report you are reading right now is just the beginning of the
story. Online at
WWW.CLAYMORE.COM/DCS, you will find:
o Daily, weekly and monthly data on share prices, net asset values,
distributions and more
o Monthly portfolio overviews and performance analyses
o Announcements, press releases and special notices
o Fund and adviser contact information
We are constantly updating and expanding shareholder information services on
the Fund's website, in an ongoing effort to provide you with the most current
information about how your Fund's assets are managed, and the results of our
efforts. It is just one more small way we are working to keep you better
informed about your investment in the Fund.
2 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund
Dear SHAREHOLDER |
This report covers the performance of the Claymore Dividend & Income Fund (the
"Fund," previously known as the Dreman/Claymore Dividend & Income Fund) for the
fiscal year ended October 31, 2009.
The Fund's primary investment objective is to provide a high level of current
income, with a secondary objective of capital appreciation. Equities are
selected for the portfolio using a highly disciplined approach to identifying
stocks of companies with substantial free cash flow relative to their market
capitalization, with emphasis on companies that pay a significant portion of
free cash flow back to shareholders in the form of dividends.
Claymore Advisors, LLC ("Claymore" or the "Adviser"), is the Adviser to the
Fund. As of September 30, 2009, Claymore entities have provided supervision,
management, or servicing on approximately $13.3 billion in assets. The Fund's
investment sub-adviser, Manning & Napier Advisors, Inc. ("Manning & Napier" or
the "Sub-Adviser") is responsible for day-to-day management of the Fund's
investments. Founded in 1970, Manning & Napier is an employee-owned firm that
manages more than $20 billion in client assets as of October 31, 2009.
During the 2009 fiscal year, Claymore recommended the appointment of a new
Investment Sub-Adviser to the Fund. Manning & Napier began serving as the
Fund's Investment Sub-Adviser under an interim sub-advisory agreement on June
17, 2009 (the "Initial Interim Sub-Advisory Agreement"). The Initial Interim
Sub-Advisory Agreement took effect on June 17, 2009, and would terminate upon
the earlier of: (a) 150 calendar days after June 17, 2009, or (b) the approval
of a new investment sub-advisory agreement by the shareholders of the Fund.
Prior to June 17, 2009, Dreman Value Management, LLC, served as the Fund's
sub-adviser.
On July 17, 2009, Claymore Group Inc., the parent company of the Adviser,
entered into an Agreement and Plan of Merger by and among Claymore Group Inc.,
Claymore Holdings, LLC and GuggClay Acquisition, Inc., (with the latter two
entities being wholly-owned, indirect subsidiaries of Guggenheim Partners, LLC
("Guggenheim")) whereby GuggClay Acquisition, Inc. would merge into Claymore
Group Inc., which would be the surviving entity. This transaction was completed
on October 14, 2009 (the "Effective Date") and resulted in a change-of-control
whereby Claymore Group Inc., and its subsidiaries, including the Adviser,
became indirect, wholly-owned subsidiaries of Guggenheim. The transaction is
not expected to negatively affect the daily operations of the Funds or the
investment management activities of the Adviser.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"), the
consummation of this transaction resulted in the automatic termination of the
Fund's advisory agreement and Initial Interim Sub-Advisory Agreement.
Accordingly, on September 23, 2009, the Board of Trustees approved an interim
investment advisory agreement between the Fund and the Adviser (the "Interim
Advisory Agreement") and a subsequent interim sub-advisory agreement among the
Fund, the Adviser, and Manning & Napier (the "Subsequent Interim Sub-Advisory
Agreement" and together with the Interim Advisory Agreement, the "Interim
Agreements"). The Interim Advisory Agreement took effect as of the Effective
Date and would terminate upon the earlier of: (a) 150 calendar days after the
Effective Date or (b) the approval of a new investment advisory agreement by
the shareholders of the Fund. The Subsequent Interim Sub-Advisory Agreement
took effect as of the Effective Date and would terminate upon the earlier of:
(a) 150 calendar days after approval by the Board of the Initial Interim
Sub-Advisory Agreement on June 17, 2009, or (b) the approval of the new
investment sub-advisory agreement by shareholders of the Fund. In addition, the
advisory and sub-advisory fees earned by the Adviser and Sub-Adviser pursuant
to the Interim Agreements would be held in an interest-bearing escrow account
with the Fund's custodian during the terms of the Interim Agreements. Other
than the effective dates and the provisions set forth above regarding the
advisory and
Annual Report | October 31, 2009 | 3
DCS | Claymore Dividend & Income Fund | DEAR SHAREHOLDER continued
sub-advisory fees' placement into escrow accounts, the terms and conditions of
the Interim Agreements are substantively identical to those of the original
advisory agreement and the Initial Interim Sub-Advisory Agreement.
Subsequent to the end of the Fund's fiscal year, at its reconvened 2009 annual
meeting of shareholders held on November 4, 2009, shareholders of the Fund
approved the new investment advisory agreement between the Fund and Claymore,
and the new investment sub-advisory agreement among the Fund, Claymore and
Manning & Napier.
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the fiscal year ending
October 31, 2009, the Fund generated a total return based on market price of
3.50% and a return of -19.99% based on NAV. As of October 31, 2009, the Fund's
market price of $14.25 represented a discount of 4.10% to NAV of $14.86. As of
October 31, 2008, the Fund's market price of $14.90 represented a discount of
24.17% to NAV of $19.65. A one-for-five reverse share split of the Fund's
common shares became effective prior to the opening of trading on the New York
Stock Exchange on June 5, 2009. As a result of the reverse share split, every
five of the Fund's outstanding common shares were converted into one common
share. The total number of common shares of the Fund outstanding was reduced
from 45,399,424 shares to 9,079,884 shares, and there was a proportional
increase in the NAV per common share. An objective of the reverse share split
was to increase the Fund's market price per common share, thereby reducing the
per share transaction costs associated with buying or selling the Fund's common
shares in the secondary market on the New York Stock Exchange.
From the period between June 17, 2009, when Manning & Napier assumed
responsibility for managing the Fund's portfolio, and the end of the fiscal
year, the Fund's return was 18.56% based on NAV and 41.62% based on market
price. For the same period, return of the Standard & Poor's 500 Index (the S&P
500), a widely used measure of broad market performance, was 14.61%, and return
of the Russell 1000 Value Index was 15.32% .
During the 2009 fiscal year, the Fund paid (split adjusted) quarterly dividends
of $0.225 per share in November 2008 and February 2009 and quarterly dividends
of $0.100 in May and August. The most recent quarterly dividend represented an
annualized distribution rate of 2.81% based upon the closing market price of
$14.25 on October 31, 2009.
We encourage shareholders to consider the opportunity to reinvest their
distributions from the Fund through the Dividend Reinvestment Plan ("DRIP"),
which is described in detail on page 32 of the Fund's annual report. When
shares trade at a discount to NAV, the DRIP takes advantage of the discount by
reinvesting the quarterly dividend distribution in common shares of the Fund
purchased in the market at a price less than NAV. Conversely, when the market
price of the Fund's common shares is at a premium above NAV, the DRIP reinvests
participants' dividends in newly-issued common shares at NAV, subject to an IRS
limitation that the purchase price cannot be more than 5% below the market
price per share. The DRIP provides a cost-effective means to accumulate
additional shares and enjoy the potential benefits of compounding returns over
time.
4 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | DEAR SHAREHOLDER continued
As of October 31, 2008, the Fund's leverage was $125 million. The drop in the
value of the Fund's assets made it necessary to reduce the Fund's
leverage.At-par redemptions of the Fund's outstanding Auction Market Preferred
Shares ("AMPS(SM)") totaling $60 million were announced on November 26, 2008,
January 30, 2009, and February 26, 2009. On July 24, 2009, the Fund announced a
voluntary partial refinancing and at-par redemption of an additional $35
million of its outstanding AMPS. With the completion of this redemption, the
Fund has successfully redeemed or refinanced approximately 93% of its AMPS. In
August 2009, the Fund obtained a new financing facility through BNP Paribas, a
leading European bank. The redemption of the AMPS was financed in part by the
proceeds of this credit facility. As of October 31, 2009, the Fund's
outstanding leverage was $60 million, consisting of $30 million of debt via the
credit facility and $30 million of AMPS.
On September 14, 2009, the Fund announced plans to conduct an in-kind tender
offer to purchase up to 40%-45% of the Fund's outstanding common shares as part
of its continuing efforts to increase shareholder value. On December 1, 2009,
the Fund made an Offer to Repurchase up to 4,085,947 (approximately 45%) of the
Fund's issued and outstanding common shares at 99.5% of NAV in exchange for a
pro rata portion of the securities held by the Fund, subject to certain
conditions. The Offer will expire at 11:59 p.m. (Eastern time) on January 4,
2010, unless it is extended. For full details, please see the Offer to
Repurchase, which is available on the Fund's website at www.claymore.com/dcs.
To learn more about the Fund's performance and investment strategy, we
encourage you to read the Questions & Answers section of the report, which
begins on page 6. You will find information about Manning & Napier's investment
philosophy and discipline, its views on the market environment and how it
structured the Fund's portfolio based on its views.
We appreciate your investment and look forward to serving your investment needs
in the future. For the most up-to-date information on your investment, please
visit the Fund's website at www.claymore.com/dcs.
Sincerely,
/s/ J. Thomas Futrell
J. Thomas Futrell
Chief Executive Officer
Claymore Dividend & Income Fund
Annual Report | October 31, 2009 | 5
DCS | Claymore Dividend & Income Fund
QUESTIONS & ANSWERS |
During the 2009 fiscal year for the Claymore Dividend & Income Fund (the
"Fund," previously known as the Dreman/Claymore Dividend & Income Fund ), ended
October 31, 2009, Claymore Advisors, LLC, the Fund's investment adviser
("Claymore"), recommended the appointment of a new Investment Sub-Adviser to
the Fund. Manning & Napier Advisors, Inc. ("Manning & Napier") began serving as
the Fund's Investment Sub-Adviser on June 17, 2009. Prior to this date, Dreman
Value Management, LLC, served as the Fund's sub-adviser. Subsequent to the end
of the Fund's fiscal year, at its reconvened 2009 annual meeting of
shareholders held on November 4, 2009, shareholders of the Fund approved the
new investment advisory agreement between the Fund and Claymore, and a new
investment sub-advisory agreement among the Fund, Claymore and Manning &
Napier.
The investment team at Manning & Napier responsible for managing the Fund
includes Jeffrey S. Coons, PHD, CFA, Co-Director of Research; Jack Bauer,
Managing Director of Fixed Income; Christopher Petrosino, CFA, Senior Analyst,
Quantitative Strategies Group; and, Keith Harwood, Senior Fixed Income Analyst.
In the following discussion, members of the team provide insight into the
Fund's strategies and results during the fiscal year ended October 31, 2009.
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1. PLEASE DESCRIBE THE FUND'S OBJECTIVE AND MANAGEMENT STRATEGIES.
The Fund's investment objective is to provide a high level of current income,
with a secondary objective of capital appreciation.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in dividend-paying or other income-producing securities, and at least
65% of the Fund's total assets will consist of investments in dividend-paying
common and preferred stocks. The Fund's investments are focused on securities
considered to be undervalued or inexpensive relative to other investments.
The Fund may invest up to 40% of its total assets, with the percentage measured
at the time of the investment, in U.S. dollar-denominated securities of foreign
issuers. (Prior to August 17, 2009, the Fund was permitted to invest up to 20%
of assets in securities of foreign issuers. The increase in potential foreign
exposure did not require shareholder approval.) There is no minimum credit
rating for preferred stocks and debt securities in which the Fund may invest,
although the Fund will not invest more than 10% of its total assets in
non-convertible fixed-income securities of below investment-grade quality. In
addition, the Fund may purchase and sell certain derivative instruments,
including, but not limited to, options, futures contracts and options on
futures contracts, for various portfolio management purposes including to seek
income or capital appreciation, facilitate portfolio management and mitigate
risks.
Manning & Napier's approach to value investing is bottom-up, meaning the
majority of research efforts are focused on individual companies. The process
is also opportunistic and is characterized by the shift of investment dollars
toward areas of the market that are generally undervalued and away from areas
that are over-valued. In order to be truly opportunistic, it is important to
take a global view of investment opportunities, since roughly 75% of potential
investment opportunities are located outside the U.S.
Equities are selected for the portfolio using a highly disciplined approach to
identifying stocks of companies with substantial free cash flow relative to
their market capitalization. Free cash flow is defined as earnings before
taxes, depreciation and amortization, but after capital expenditures.
Recognizing that companies have many choices of how to use their free cash
flow, Manning & Napier emphasizes companies that pay a substantial portion of
their free cash flow back to shareholders in the form of dividends, unlocking
shareholder value. This means that the equity portion of the Fund's portfolio
will generally have a higher dividend yield than the overall stock market. Also
important is that a company under consideration has a low risk of bankruptcy,
in other words, a financially sound balance sheet.
The equity portfolio is examined and adjusted on an ongoing basis as
fundamentals change. In addition, once a year, generally in April, near the
middle of the Fund's fiscal year, there is a major rebalancing. In the
rebalancing process, companies in the portfolio that no longer meet the
valuation criteria described previously are generally eliminated and replaced
with other companies that meet the criteria described by these screens.
Free cash flow yield is the amount of free cash flow per share divided by the
market price of stock. When a company's stock price is low relative to free
cash flow, the free cash flow yield is high. If a stock price appreciates
sharply without a major increase in free cash flow, causing the free cash flow
yield to go lower than is considered desirable, a company would be screened out
of the portfolio when it is rebalanced. This discipline has a tendency to move
the portfolio into more undervalued sectors of the market and away from higher
risk sectors where the ratio of stock price to cash flow is high. It is a
process that continuously moves the portfolio toward companies that are very
solid, that are paying dividends, and where the stock price has not appreciated
dramatically relative to free cash flow.
Historically, this strategy tends to produce a portfolio that holds up well in
down markets and participates nicely in up markets, providing good balance in a
wide variety of market conditions. However, when a market moves into a
speculative phase, this strategy will typically underperform more
momentum-driven indices like the S&P 500 Index. Historical data indicates that
this
6 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | QUESTIONS & ANSWERS continued
approach provides attractive returns over a full market cycle; however, past
performance is no guarantee of future results.
The Fund has historically been focused on value and identifying value
opportunities. The approach used by Manning & Napier continues this focus on
value and income orientation in a way that is consistent with the value
philosophy used in the past, while bringing a disciplined approach to selecting
companies that generate cash beyond their requirements for capital spending and
not paying too much for that free cash flow generation.
The strategy for the fixed income portion of the portfolio, which is
approximately 20% of the Funds total assets, is a bottom-up,
fundamentally-driven approach that seeks to invest in high quality companies
that generate good cash flow and have good prospects. Bond investments may
include securities with yields that seem high relative to their prospects,
often because the issuing companies are out of favor. In the fixed income
portion of the portfolio, various sectors, such as treasury securities,
corporate bonds, mortgage-backed securities, and non-U.S. based bonds will be
emphasized, depending on the relative value offered by each. In selecting
bonds, the research of Manning & Napier's 30-plus team of industry specialists
is a significant factor, as they use their disciplined approach to evaluating
company and industry fundamentals to assist the credit analysts in identifying
companies that meet the value-oriented total return criteria for selecting bond
investments. The goal is always to generate an attractive level of income,
while taking only the level of risk that is warranted by the expected return.
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2. PLEASE TELL US ABOUT THE ECONOMIC AND MARKET ENVIRONMENT OVER THE LAST
YEAR.
A year ago, as the Fund's fiscal year began, U.S. and world markets were facing
a financial crisis. Fannie Mae and Freddie Mac had been forced into
conservatorship; Lehman Brothers Holdings Inc. had declared bankruptcy; and
American International Group Inc. (AIG) had been bailed out by the federal
government. Those events led to a credit crisis that enveloped the world during
the fourth quarter of 2008 and created a prevailing sense of pessimism in
financial markets. This pessimism continued through most of the first quarter
of 2009, when perceptions began to change and markets, anticipating an economic
recovery, began to move up.
The result of the recovery that began in March 2009 was positive returns of most
market measures for the Fund's fiscal year ended October 31, 2009. The Standard
& Poor's 500 Index, which is generally regarded as a good indicator of the broad
stock market, returned 9.80% for the 12 months ended October 31, 2009. The
recovery in international markets was generally more pronounced than in the
U.S.; the Morgan Stanley Capital International ("MSCI") World Index, which
measures performance of world equity markets, returned 19.92% for the same
12-month period. The Barclays Capital US Aggregate Bond Index, which measures
the return of the high-quality U.S. bond market as a whole, returned 13.79% for
the 12 months ended October 31, 2009.
In late October, the Bureau of Economic Analysis of the U.S. Department of
Commerce reported positive growth in real gross domestic product for the third
quarter of 2009. "Economic activity has picked up following its severe
downturn," according to the Federal Reserve, whose recent meeting minutes
specify that "conditions in financial markets have improved further, and
activity in the housing sector has increased."
Although the economy seems to be stabilizing, components of economic growth
point toward a slow and subdued recovery. The labor markets in particular
remain troublesome, with an unemployment rate that recently reached 10%.
Elevated unemployment combined with declining wage growth does not bode well
for consumers, who will likely struggle with heavy debts for some time. U.S.
consumers do not appear to be in a position to drive a recovery; consumer
credit continues to contract substantially, and banks remain hesitant to lend.
Most of the recent economic improvements in the U.S. seem to be related to
exports or government stimulus.
World economies appear to be somewhat stronger. While industrial production
across the European Union as a whole is still contracting, this manufacturing
measure has expanded in several European countries, with France and Italy
posting impressive gains. Japan has been one of the weakest economies during
this downturn, but tentative hints of less deterioration are emerging. China
remains an economic growth engine; its gross domestic product rose sharply in
both the second and third quarters of 2009. With the initial stages of a
recovery becoming apparent, the global growth appears increasingly
sustainable.
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3. HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the fiscal year ended
October 31, 2009, the Fund generated a total return based on market price of
3.50% and a return of -19.99% based on NAV. As of October 31, 2009, the Fund's
market price of $14.25 represented a discount of 4.10% to NAV of $14.86. As of
October 31, 2008, the Fund's market price of $14.90 represented a discount of
24.17% to NAV of $19.65. A one-for-five reverse share split of the Fund's
common shares became effective prior to the opening of trading on the New York
Stock Exchange on June 5, 2009. Share prices prior to this date have been
adjusted to reflect the reverse share split. As a result of the reverse share
split, every five of the Fund's outstanding common shares were converted into
one common
Annual Report | October 31, 2009 | 7
DCS | Claymore Dividend & Income Fund | QUESTIONS & ANSWERS continued
share. The total number of common shares of the Fund outstanding was reduced
from 45,399,424 shares to 9,079,884 shares, and there was a proportional
increase in the NAV per common share. An objective of the reverse share split
was to increase the Fund's market price per common share, thereby reducing the
per share transaction costs associated with buying or selling the Fund's common
shares in the secondary market on the New York Stock Exchange.
From the period between June 17, 2009, when Manning & Napier assumed
responsibility for managing the Fund's portfolio, and the end of the fiscal
year, the Fund's return was 18.56% based on NAV and 41.62% based on market
price. For the same period, return of the Standard & Poor's 500 Index (the S&P
500), a widely used measure of broad market performance, was 14.61%, and return
of the Russell 1000 Value Index was 15.32% . The market value of the Fund's
shares fluctuates from time to time, and it may be higher or lower than the
Fund's NAV. The current discount to NAV may provide an opportunity for suitable
investors to purchase shares of the Fund at prices below the market value of
the securities in the underlying portfolio.
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4. WHAT CHANGES HAVE BEEN MADE IN THE FUND'S PORTFOLIO IN RECENT MONTHS?
Since June 17, 2009, when Manning & Napier assumed responsibility for
day-to-day management of the Fund, there have been substantial changes in the
Fund's holdings. These changes were made in order to bring the portfolio in
line with the disciplined approach to identifying stocks of companies with
substantial free cash flow described above.
One notable change is a reduction in the Fund's position in the financial
sector. As of April 30, 2009, financials represented 34.9% of long-term
investments; that percentage was reduced to 7.7% as of October 31, 2009. Many
definitions of value, such as low price-earnings ratio and low price to book
value ratio tend to have a bias toward companies in the financial sector. One
advantage of Manning & Napier's definition of value, which is based on cash
flow, is that, in contrast to value investing indices such as the Russell
1000Value Index, Manning & Napier's definition avoids a bias toward companies
in the financial sector. Financial stocks tend to be cyclical investments; they
can look attractive because of high dividend yields and low price-to-earnings
at a cyclical peak, but they can prove to be unstable in difficult financial
times. Many of the stocks and bonds of financial companies have been eliminated
from the portfolio.
A major overweight in the equity portion of the portfolio is in health care,
which represented approximately 20% of the equity portfolio as of October 31,
2009, compared with approximately 9% of the Russell 1000 Value Index. Health
care companies such as Johnson & Johnson (2.8% of long-term investments), which
produces a variety of health care products, and GlaxoSmithKline PLC (2.9% of
long-term investments), a global health care company based in the U.K., have
generated solid cash flow and have strong balance sheets, and they are
relatively immune to economic and market cycles. There has been some investor
concern about the health care sector because of potential health care
legislation; the eventual passage of a bill may remove some of the uncertainty.
Many health care companies are multinational, therefore, they are positioned to
benefit from global growth.
Another interesting area of emphasis is technology, which is overweighted in
the Fund's equity portfolio relative to the Russell 1000 Value Index. That
emphasis on technology provides another example of how the focus on free cash
flow generation causes the portfolio to differ from typical value benchmarks
such as Russell 1000 Value Index and from many value-oriented portfolios.
One distinctive feature of Manning & Napier's approach is the ability to invest
in foreign stocks; as of October 31, 2009, approximately one-third of the
equity portfolio is invested in foreign companies. Beyond that, in the domestic
portion of the portfolio, many of the companies derive a substantial portion of
their revenue from overseas markets. In the current environment, considering
the U.S. consumer is not likely to be a strong engine of growth for the
foreseeable future, it seems prudent to invest in companies with earnings that
are not tied to the U.S. consumer.
In the bond portion of the portfolio, a major goal over the last few months has
been to improve liquidity, working slowly to realize as much value as possible
from the securities sold. This portion of the portfolio has held up relatively
well, and it is much more liquid than it was a year ago.
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5. HOW DOES THE FUND IMPLEMENT ITS LEVERAGE STRATEGY?
The Fund's leverage has been achieved through the issuance of Auction Market
Preferred Shares ("AMPS(SM)"). AMPS holders receive a dividend that is reset
typically every seven or 28 days, depending on the series. The drop in value of
the Fund's assets made it necessary to reduce leverage by redeeming a portion
of the outstanding AMPS.
As of October 31, 2008, the Fund's leverage was $125 million.At-par redemptions
of the Fund's outstanding AMPS totaling $60 million were announced on November
26, 2008, January 30, 2009, and February 26, 2009. On July 24, 2009, the Fund
announced a voluntary partial refinancing and at-par redemption of an
additional $35 million of its outstanding AMPS. With the completion of this
redemption, the Fund has successfully redeemed or refinanced approximately 93%
of its AMPS. In August 2009, the Fund obtained a new financing facility
through
8 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | QUESTIONS & ANSWERS continued
BNP Paribas, a leading European bank. The redemption of the AMPS was financed
in part by the proceeds of this credit facility. As of October 31, 2009, the
Fund's outstanding leverage was $60 million, consisting of $30 million of debt
via the credit facility and $30 million of AMPS.
Manning & Napier's leverage strategy is to adjust the amount of leverage based
on the market environment, reducing leverage when there appears to be greater
risk in the market and increasing leverage when appropriate to take advantage
of attractive investment opportunities in weaker markets.
There is no guarantee that the Fund's leverage strategy will be successful, and
the Fund's use of leverage may cause the Fund's NAV and market price of common
shares to be more volatile. During the recent market volatility, leverage has
been a handicap as leverage adds value only when the return on securities
purchased exceeds the cost of leverage.
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6. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE SECURITIES MARKETS IN THE
COMING MONTHS?
A major consideration is that consumer spending represents approximately 70% of
U.S. economy and about 20% of the global economy. As consumers struggle with
high unemployment, high levels of debt, and weak home prices, it is unlikely
that they will provide a major growth engine for some time to come. The most
attractive investment opportunities are, therefore, likely to be in companies
that are not highly dependent on U.S. consumers. With slow growth expected for
the U.S. economy, and more robust growth in other world markets, it seems
likely that many of the best investment opportunities over the next few years
will be found in other parts of the world. Also important in a slow growth
environment with limited availability of outside financing is to focus on the
strongest companies, those that are not highly dependent on leverage.
On the fixed income side, it appears that excess capacity, not only in the U.S.
but globally, will limit the risk of inflation in the near future. With high
unemployment and sluggish demand, it may be a long time before companies or
labor have pricing power. This means that it is a good time to be a yield
investor because today's yields will maintain their value as these
disinflationary forces persist.
Using a fundamental, bottom-up investment approach, Manning & Napier continues
to identify strong companies trading at discounts to their fair value. In
addition to disciplined investment strategies, many economic, valuation, and
liquidity indicators are signaling that opportunities in equities remain
favorable. In the fixed income markets, sectors outside of U.S. Treasuries
continue to present opportunities. Both investment grade corporate bonds and
below investment grade corporate bonds remain relatively attractive.
--------------------------------------------------------------------------------
INDEX DEFINITIONS:
Indices are unmanaged and it is not possible to invest directly in an index.
S&P 500 Index is a capitalization-weighted index of 500 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.
MSCI World Index is a free float-adjusted market capitalization index that
measures global developed market equity performance of the developed market
country indices of Europe, Australasia, the Far East, the U.S. and Canada.
The Barclays Capital US Aggregate Bond Index covers the U.S.
dollar-denominated, investment-grade, fixed rate, taxable bond market of
SEC-registered securities. The Index includes bonds from the Treasury,
government-related, corporate, mortgage-backed securities (agency fixed-rate
and hybrid ARM passthroughs), asset-backed securities and collateralized
mortgage-backed securities sectors. U.S. Agency Hybrid Adjustable Rate Mortgage
(ARM) securities were added to the U.S. Aggregate Index on April 1, 2007 but
are not eligible for the Global Aggregate Index.
The Russell 1000 Value Index measures performance of companies with lower
price-to-book ratios and lower forecasted growth values than the overall
market.
--------------------------------------------------------------------------------
DCS RISKS AND OTHER CONSIDERATIONS
The views expressed in this report reflect those of the Portfolio Managers and
Claymore only through the report period as stated on the cover. These views are
subject to change at any time, based on market and other conditions and should
not be construed as a recommendation of any kind. The material may also contain
forward-looking statements that involve risk and uncertainty, and there is no
guarantee they will come to pass. There can be no assurance that the Fund will
achieve its investment objectives. The value of the Fund will fluctuate with
the value of the underlying securities. Historically, closed-end funds often
trade at a discount to their net asset value. Past performance does not
guarantee future results.
NOT A COMPLETE INVESTMENT PROGRAM. The Fund is intended for investors seeking a
high level of current income and capital appreciation over the long term. The
Fund is not meant to provide a vehicle for those who wish to play short-term
swings in the stock market. An investment in the Common Shares of the Fund
should not be considered a complete investment program. Each Common Shareholder
should take into account the Fund's investment objectives as well as the Common
Shareholder's other investments when considering an investment in the Fund.
EQUITY RISK. Substantially all of the Fund's assets will be invested in common
stocks and preferred equity securities, and therefore a principal risk of
investing in the Fund is equity risk. Equity risk is the risk that securities
held by the Fund will fall due to general market or economic conditions,
perceptions regarding the industries in which the issuers of securities held by
the Fund participate, and the particular circumstances and performance of
particular companies whose securities the Fund holds. For example, an adverse
event, such as an unfavorable earnings report, may depress the value of equity
securities of an issuer held by the Fund; the price of common stock of an
issuer may be particularly sensitive to general movements in the stock market;
or a drop in the stock market may depress the price of most or all of the
common stocks and other equity securities held by the Fund. In addition, common
stock of an issuer in the Fund's portfolio may decline in price if the issuer
fails to make anticipated dividend payments because, among other reasons, the
issuer of the security experiences a decline in its financial condition. Common
equity securities in which the Fund will invest are structurally subordinated
to preferred stocks, bonds and other debt instruments in a company's capital
structure, in terms of priority
Annual Report | October 31, 2009 | 9
DCS | Claymore Dividend & Income Fund | QUESTIONS & ANSWERS continued
to corporate income, and therefore will be subject to greater dividend risk
than preferred stocks or debt instruments of such issuers. In addition, while
broad market measures of commons stocks have historically generated higher
average returns than fixed income securities, common stocks have also
experienced significantly more volatility in those returns.
PREFERRED SECURITIES RISK.There are special risks associated with investing in
preferred securities, including: Deferral. Preferred securities may include
provisions that permit the issuer, at its discretion, to defer distributions
for a stated period without any adverse consequences to the issuer. If the Fund
owns a preferred security that is deferring its distributions, the Fund may be
required to report income for tax purposes although it has not yet received
such income. Non-Cumulative Dividends. Some preferred stocks are
non-cumulative, meaning that the dividends do not accumulate and need not ever
be paid. A portion of the portfolio may include investments in non-cumulative
preferred securities, whereby the issuer does not have an obligation to make up
any arrearages to its shareholders. Should an issuer of a non-cumulative
preferred stock held by the Fund determine not to pay dividends on such stock,
the amount of dividends the Fund pays may be adversely affected. There is no
assurance that dividends or distributions on non-cumulative preferred stocks in
which the Fund invests will be declared or otherwise made payable.
Subordination. Preferred securities are subordinated to bonds and other debt
instruments in a company's capital structure in terms of priority to corporate
income and liquidation payments, and therefore will be subject to greater
credit risk than more senior debt instruments. Liquidity. Preferred securities
may be substantially less liquid than many other securities, such as common
stocks or U.S. government securities. Limited Voting Rights. Generally,
preferred security holders (such as the Fund) have no voting rights with
respect to the issuing company unless preferred dividends have been in arrears
for a specified number of periods, at which time the preferred security holders
may have the right to elect a number of directors to the issuer's board.
Generally, once all the arrearages have been paid, the preferred security
holders no longer have voting rights. Special Redemption Rights. In certain
varying circumstances, an issuer of preferred securities may redeem the
securities prior to a specified date. For instance, for certain types of
preferred securities, a redemption may be triggered by a change in federal
income tax or securities laws. As with call provisions, a redemption by the
issuer may negatively impact the return of the security held by the Fund.
INCOME RISK. The income Common Shareholders receive from the Fund is based
primarily on the dividends and interest it earns from its investments, which
can vary widely over the short- and long term. If prevailing market interest
rates drop, distribution rates of the Fund's portfolio holdings of preferred
securities and debt securities may decline which then may adversely affect the
Fund's distributions on Common Shares as well. The Fund's income also would
likely be affected adversely when prevailing short-term interest rates increase
and the Fund is utilizing Financial Leverage.
"VALUE INVESTING" RISK. The Fund focuses its investments on dividend paying or
other income producing securities that the Investment Manager believes are
undervalued or inexpensive relative to other investments. These types of
securities may present risks in addition to the general risks associated with
investing in securities. These securities generally are selected on the basis
of an issuer's fundamentals relative to current market price. Such securities
are subject to the risk of misestimation of certain fundamental factors. In
addition, during certain time periods market dynamics may strongly favor
"growth'' securities of issuers that do not display strong fundamentals
relative to market price based upon positive price momentum and other factors.
Disciplined adherence to a ''value'' investment mandate during such periods can
result in significant underperformance relative to overall market indices and
other managed investment vehicles that pursue growth style investments and/or
flexible style mandates.
INTEREST RATE RISK. Interest rate risk is the risk that fixed income securities
such as preferred and debt securities will decline in value because of changes
in market interest rates. When market interest rates rise, the market value of
such securities generally will fall. The Fund's investment in such securities
means that the net asset value and market price of the Common Shares will tend
to decline if market interest rates rise. During periods of declining interest
rates, the issuer of a security may exercise its option to prepay principal
earlier than scheduled, forcing the Fund to reinvest in lower yielding
securities. This is known as call or prepayment risk. Preferred and debt
securities frequently have call features that allow the issuer to repurchase
the security prior to its stated maturity. An issuer may redeem such a security
if the issuer can refinance it at a lower cost due to declining interest rates
or an improvement in the credit standing of the issuer. During periods of
rising interest rates, the average life of certain types of securities may be
extended because of slower than expected principal payments. This may lock in a
below market interest rate, increase the security's duration and reduce the
value of the security. This is known as extension risk. In typical interest
rate environments, prices of fixed income securities with longer maturities
generally fluctuate more in response to changes in interest rates than do the
prices of fixed income securities with shorter-term maturities. Because the
Fund may invest a portion of its assets in fixed-income securities without
regard to their maturities, to the extent the Fund invests in fixed income
securities with longer maturities, the net asset value and market price of the
Common Shares would fluctuate more in response to changes in interest rates
than if the Fund were to invest such portion of its assets in shorter-term
fixed income securities. Market interest rates for investment grade fixed
income securities in which the Fund may invest have recently declined
significantly below the recent historical average rates for such securities.
This decline may have increased the risk that these rates will rise in the
future (which would cause the value of the Fund's net assets to decline) and
the degree to which asset values may decline in such events.
INFLATION RISK. Inflation risk is the risk that the value of assets or income
from investments will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the Common Shares and
distributions thereon can decline. In addition, during any periods of rising
inflation, the interest or dividend rates payable by the Fund on any Financial
Leverage the Fund may have issued would likely increase, which would tend to
further returns to holders of Common Shares.
LOWER GRADE SECURITIES. The Fund may invest up to 10% of its total assets in
non-convertible fixed income securities of below investment grade quality. The
prices of these lower grade securities are more sensitive to negative
developments, such as a decline in the issuer's revenues or a general economic
downturn, than are the prices of higher-grade securities. Securities of below
investment grade quality are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal when due and therefore
involve a greater risk of default and are commonly referred to as "junk
bonds".
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated securities
of foreign issuers, including, but not limited to American Depositary Receipts
("ADRs"). The prices of such U.S. dollar-denominated securities of foreign
issuers may be affected by factors not present with securities traded in the
U.S. markets, including, political and economic conditions, less stringent
regulation and higher volatility. As a result, such securities may be less
liquid and more volatile than U.S. securities.
DERIVATIVES RISK. The Fund may participate in certain derivative transactions,
such as futures contracts, options or swap transactions. Such transactions
entail certain execution, market, liquidity, hedging and tax risks.
Participation in these markets involves investment risks and transaction costs
to which the Fund would not be subject absent the use of these strategies. If
the Investment Manager's prediction of movements in the direction of the
securities and
10 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | QUESTIONS & ANSWERS continued
interest rate markets is inaccurate, the consequences to the Fund may leave the
Fund in a worse position than if it had not used such strategies.
ILLIQUID SECURITIES RISK. The Fund may invest in securities for which there is
no readily available trading market or that are otherwise illiquid. It may be
difficult to sell such securities at a price representing the fair value and,
where registration of such securities is required, a considerable period may
elapse between a decision to sell the securities and the time when the Fund
would be permitted to sell.
FUND DISTRIBUTION RISK. Pursuant to its distribution policy, the Fund intends
to make regular quarterly distributions on its Common Shares. In order to make
such distributions, the Fund may have to sell a portion of its investment
portfolio at a time when independent investment judgment may not dictate such
action. In addition, the Fund's ability to make distributions more frequently
than annually from any net realized capital gains by the Fund is subject to the
Fund obtaining exemptive relief from the Securities and Exchange Commission,
which cannot be assured. To the extent the total quarterly distributions for a
year exceed the Fund's net investment company income and net realized capital
gain for that year, the excess will generally constitute a return of the Fund's
capital to its Common Shareholders. Such return of capital distributions
generally are tax-free up to the amount of a Common Shareholder's tax basis in
the Common Shares (generally, the amount paid for the Common Shares). In
addition, such excess distributions will decrease the Fund's total assets and
may increase the Fund's expense ratio.
MARKET DISCOUNT RISK. Whether investors will realize gains or losses upon the
sale of Common Shares of the Fund will depend upon the market price of the
Common Shares at the time of sale, which may be less or more than the Fund's
net asset value per Common Share. Since the market price of the Common Shares
will be affected by such factors as the relative demand for and supply of the
Common Shares in the market, general market and economic conditions and other
factors beyond the control of the Fund, the Fund cannot predict whether the
Common Shares will trade at, below or above net asset value or at, below or
above the public offering price. Shares of closed-end funds often trade at a
discount to their net asset values and the Fund's Common Shares may trade at
such a discount. This risk may be greater for investors expecting to sell their
Common Shares of the Fund soon after completion of the public offering. The
Common Shares of the Fund were designed primarily for long-term investors, and
investors in the Common Shares should not view the Fund as a vehicle for
trading purposes.
INDUSTRY CONCENTRATION RISK. The Fund may invest up to 25% of its total assets
in the securities of companies principally engaged in a single industry. In the
event the Fund makes substantial investments in a single industry, the Fund
would become more susceptible to adverse economic or regulatory occurrences
affecting that industry.
OTHER INVESTMENT COMPANIES. The Fund may invest up to 10% of the Fund's total
assets in securities of other open- or closed-end investment companies that
invest primarily in securities of the types in which the Fund may invest
directly. The Fund expects that these investments will be primarily in exchange
traded funds. As a stockholder in an investment company, the Fund will bear its
ratable share of that investment company's expenses, and would remain subject
to payment of the Fund's investment management fees with respect to the assets
so invested. Common Shareholders would therefore be subject to duplicative
expenses to the extent the Fund invests in other investment companies. In
addition, the securities of other investment companies may also be leveraged
and will therefore be subject to the same leverage risks.
NON-DIVERSIFIED STATUS. The Fund is classified as a"non-diversified" investment
company under the 1940 Act, which means the Fund is not limited by the 1940 Act
in the proportion of its assets that may be invested in the securities of a
single issuer. As a non-diversified investment company, the Fund may invest in
the securities of individual issuers to a greater degree than a diversified
investment company. However, the Fund intends to conduct its operations so as to
qualify as a regulated investment company for purposes of the Code, which
generally will relieve the Fund of any liability for U.S. federal income tax to
the extent its earnings are distributed to shareholders. To so qualify, among
other requirements, the Fund must comply with the diversification requirements
of the Code applicable to regulated investment companies. See"Taxation." Because
the Fund, as a non-diversified investment company, may invest in a smaller
number of individual issuers than a diversified investment company, the Fund may
be more vulnerable to events affecting a single issuer and therefore, subject to
greater volatility than a fund that is more broadly diversified. Accordingly, an
investment in the Fund may present greater risk to an investor than an
investment in a diversified company.
FINANCIAL LEVERAGE. Although the use of Financial Leverage by the Fund may
create an opportunity for increased net income and capital appreciation for the
Common Shares, it also results in additional risks and can magnify the effect
of any losses. If the income and gains earned on securities purchased with
Financial Leverage proceeds are greater than the cost of Financial Leverage,
the Fund's return will be greater than if Financial Leverage had not been used.
Conversely, if the income or gain from the securities purchased with such
proceeds does not cover the cost of Financial Leverage, the return to the Fund
will be less than if Financial Leverage had not been used. There is no
assurance that a leveraging strategy will be successful. Financial Leverage
involves risks and special considerations for shareholders including: o the
likelihood of greater volatility of net asset value and market price of and
dividends on the Common Shares than a comparable portfolio without leverage; o
the risk that fluctuations in interest rates on borrowings and short-term debt
or in the dividend rates on any Financial Leverage that the Fund must pay will
reduce the return to the holders of Common Shares; and o the effect of
Financial Leverage in a declining market, which is likely to cause a greater
decline in the net asset value of the Common Shares than if the Fund were not
leveraged, which may result in a greater decline in the market price of the
Common Shares. It is also possible that the Fund will be required to sell
assets, possibly at a loss, in order to redeem or meet payment obligations on
any leverage. Such a sale would reduce the Fund's net asset value and also make
it difficult for the net asset value to recover. The Fund in its best judgment
nevertheless may determine to continue to use Financial Leverage if it expects
that the benefits to the Fund's shareholders of maintaining the leveraged
position will out-weigh the current reduced return. The Fund's use of Financial
Leverage may also impair the ability of the Fund to maintain its qualification
for federal income tax purposes as a regulated investment company.
MANAGEMENT RISK. The Fund is subject to management risk because it is an
actively managed portfolio. The Investment Adviser has not previously served as
an investment adviser to an investment company, although an affiliate of the
Investment Adviser acts as servicing agent to various investment companies. In
addition, the Investment Manager, in acting as investment manager of the Fund's
portfolio securities, will apply investment techniques and risk analyses in
making investment decisions for the Fund, but there can be no guarantee that
these will produce the desired results.
CURRENT DEVELOPMENTS. As a result of the terrorist attacks on the World Trade
Center and the Pentagon on September 11, 2001, some of the U.S. securities
markets were closed for a four-day period. These terrorist attacks, the war in
Iraq and its aftermath and other geopolitical events have led to, and may in
the future lead to, increased short-term market volatility and may have
long-term effects on U.S. and world economies and markets. Similar events in
the future or other disruptions of financial markets could affect interest
rates, securities exchanges, auctions, secondary trading, rating, credit risk,
inflation and other factors relating to the Common Shares.
ANTI-TAKEOVER PROVISIONS. The Fund's Governing Documents include provisions
that could limit the ability of other entities or persons to acquire control of
the Fund or convert the Fund to an open-end fund.
Annual Report | October 31, 2009 | 11
DCS | Claymore Dividend & Income Fund | QUESTIONS & ANSWERS continued
RISKS OF INVESTING IN AMPS.There also risks associated with investing in
Auction Market Preferred Shares or AMPS. The AMPS are redeemable, in whole or
in part, at the option of the Fund on any dividend payment date for the AMPS,
and will be subject to mandatory redemption in certain circumstances. The AMPS
will not be listed on an exchange. You may only buy or sell AMPS through an
order placed at an auction with or through a broker-dealer that has entered
into an agreement with the auction agent and the Fund or in a secondary market
maintained by certain broker-dealers. These broker-dealers are not required to
maintain this market, and it may not provide you with liquidity. Visit
Preferred Share Daily Rates for more Fund information and additional risk on
investing in AMPS.
In addition to the risks described above, the Fund is also subject to: Market
Discount Risk, Industry Concentration Risk, Other Investment Companies Risk,
Non-Diversified Status Risk, Financial Leverage Risk, Management Risk , Current
Developments Risk, Anti-Takeover Provisions, and Market Disruption Risk. Please
see www.claymore.com/dcs for a more detailed discussion about Fund risks and
considerations.
12 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund
Fund SUMMARY | AS OF OCTOBER 31, 2009 (unaudited)
FUND STATISTICS
--------------------------------------------------------------------------------
Share Price $14.25
Common Share Net Asset Value $14.86
Premium/Discount to NAV -4.1%
Net Assets Applicable to Common Shares ($000) $134,883
--------------------------------------------------------------------------------
TOTAL RETURNS
--------------------------------------------------------------------------------
(INCEPTION 1/27/04) MARKET NAV
--------------------------------------------------------------------------------
One Year 3.50% -19.99%
Three Year - average annual -44.97% -46.80%
Five Year - average annual -25.43% -26.44%
Since Inception - average annual -23.50% -23.07%
--------------------------------------------------------------------------------
% OF LONG-TERM
SECTOR BREAKDOWN* INVESTMENTS
--------------------------------------------------------------------------------
Energy 19.7%
Health Care 17.9%
Consumer Staples 14.6%
Industrials 12.0%
Consumer Discretionary 9.8%
Materials 7.8%
Financials 7.7%
Information Technology 7.3%
Utilities 1.7%
Telecommunication Services 1.5%
--------------------------------------------------------------------------------
% OF LONG-TERM
COUNTRY BREAKDOWN INVESTMENTS
--------------------------------------------------------------------------------
United States 70.1%
United Kingdom 14.6%
France 3.2%
Australia 2.7%
Taiwan 1.8%
Canada 1.5%
Switzerland 0.9%
Brazil 0.9%
Cayman Islands 0.8%
Spain 0.7%
Ireland 0.6%
South Africa 0.4%
Luxembourg 0.4%
Netherlands 0.4%
Mexico 0.2%
Greece 0.2%
Philippines 0.2%
Bermuda 0.1%
Hungary 0.1%
Israel 0.1%
New Zealand 0.1%
--------------------------------------------------------------------------------
Past performance does not guarantee future results. All portfolio data is
subject to change daily. For more current information, please visit
www.claymore.com/dcs.The above summaries are provided for informational purposes
only and should not be viewed as recommendations.
* Securities are classified by sectors that represent broad groupings of
related industries
% OF LONG-TERM
TOP TEN ISSUERS INVESTMENTS
--------------------------------------------------------------------------------
BP PLC 3.6%
Chevron Corp. 3.3%
Coca-Cola Co. (The) 3.3%
Royal Dutch Shell PLC 3.3%
Total SA 3.2%
Intel Corp. 3.0%
PepsiCo, Inc. 2.9%
GlaxoSmithKline PLC 2.9%
Johnson & Johnson 2.8%
BHP Billiton Ltd. 2.7%
--------------------------------------------------------------------------------
SHARE PRICE & NAV PERFORMANCE
--------------------------------------------------------------------------------
Line chart:
10/31/08 14.9 19.65
15.4 19.75
16 21.9
15.55 20.35
14.65 17.95
14.75 18.55
13.85 18.15
13.1 17.05
11.8 14.8
12.4 16.8
12.05 15.75
11 14.85
11.15 14.55
10.05 12.85
8.6 9.2
7.5 10.35
8.45 12.75
8.65 13.1
9.3 13.95
9.25 14.05
8.4 11.45
8.8 11.85
8.5 12.1
8.05 11.25
8.35 10.9
8.6 11.95
8.55 11.9
8.65 12.6
8.85 12.4
8.8 11.95
8 11.95
8.25 12.75
8.35 12.7
8.05 12
8.15 12.35
8.15 11.7
8.05 11.5
8.05 11.55
8.4 11.8
8.35 12.25
8.9 12.55
9.45 12.8
10.1 13.7
10.5 14.25
11.4 15.1
11.05 14.65
11.1 14.85
10.8 14.3
10.35 13.55
10.3 13.8
9.7 13
9.5 12.7
9.6 12.65
9 11.3
9.45 12.05
9.15 11.5
9.35 11.8
9.4 12
9.5 12.05
10 12.6
9.6 12.15
9.4 11.85
9.5 11.45
9.45 11.6
9.25 11.5
9.5 11.6
9.55 11.9
9.55 12.1
9.35 11.3
9.35 11.05
9.15 10.9
8.65 10.9
8.1 9.8
7.8 9.6
7.1 9.5
6.7 9.15
6.25 8.55
6.75 8.85
6.5 8.7
6.9 8.85
6.45 8.6
6.1 7.65
5.7 7.6
5.8 7.65
5.45 7.15
5.05 7.05
4.95 7.1
5.3 7.7
5.5 7.7
5.95 8.1
6 8.3
6.05 8.55
6.55 8.75
6.55 9.25
6.7 9.35
6.55 9.2
7.3 10.25
7.4 10.05
7.7 10.25
7.9 10.45
7.65 10.1
7.1 9.55
7.25 9.75
7.4 10.05
7.85 10.55
8.15 10.7
8.05 10.6
7.7 10.3
7.85 10.45
8.5 11.35
8.65 11.65
8.65 11.3
8.85 11.6
9.15 11.75
9.4 11.9
8.95 11.05
9.1 11.45
9.1 11.2
9.1 11.35
9.15 11.75
9.1 11.45
9.1 11.35
9.25 11.55
9.15 11.5
9.25 11.6
9.55 12.4
9.65 12.3
10.1 13.05
10.15 13
10.65 13.6
10.45 13
10.35 12.95
9.8 12.35
9.85 12.5
9.6 12.2
9.9 12.75
10 12.7
9.85 12.6
9.6 12.35
9.5 12.25
9.7 12.7
9.6 12.4
9.8 12.65
9.9 12.85
10.2 13.25
10.35 13.25
10.25 12.85
10.4 13.1
10.47 13.05
10.42 13.06
10.54 13.2
10.5 13.11
10.73 13.21
10.49 13.21
10.32 12.81
10.14 12.62
9.95 12.59
10.05 12.73
10.1 12.63
9.75 12.09
9.76 12.09
9.79 12.16
10.01 12.5
9.96 12.61
10.22 12.75
10.28 12.63
10.35 12.81
10.2 12.42
10.16 12.46
10.02 12.18
9.93 12.22
10.12 12.17
10.09 12.15
10.18 12.44
10.22 12.53
10.5 12.92
10.58 13.1
10.73 13.09
10.89 13.31
11.1 13.44
11.09 13.42
11.25 13.73
11.47 13.81
11.48 13.86
11.45 13.78
11.39 13.71
11.5 13.84
11.76 13.98
12.04 14.1
12.21 14.16
12.16 14.05
12.23 13.98
12.5 14.12
12.49 14.09
12.4 14.02
12.43 13.97
12.46 14.04
12.4 13.9
12.07 13.61
12.18 13.75
12.26 13.9
12.47 14.01
12.62 14.34
12.82 14.49
13.04 14.5
13.04 14.51
13.03 14.57
13.08 14.55
13 14.43
12.76 14.07
12.67 14.1
12.72 14.15
12.88 14.32
13.06 14.51
13.13 14.66
13.28 14.85
13.51 14.89
13.48 14.95
13.96 14.92
14.14 14.97
14 14.99
14.05 15.03
14 14.96
14.07 15.07
14.04 14.94
13.9 14.7
13.77 14.69
13.88 14.97
13.95 14.96
13.96 14.92
13.72 14.54
13.64 14.46
13.87 14.74
14.12 15
14.2 15
14.31 15.18
14.47 15.19
14.5 15.27
14.48 15.26
14.71 15.55
14.83 15.66
14.83 15.66
15.19 15.88
15.19 15.8
15.09 15.62
15.23 15.77
14.98 15.49
14.77 15.29
14.69 15.36
14.51 14.96
14.63 15.23
10/31/09 14.25 14.86
Pie chart:
PORTFOLIO COMPOSITION (% of Total Investments)
ASSET CLASS
--------------------------------------------------------------------------------
Common Stocks 79.7%
Corporate Bonds 16.0%
Short-Term Investments 2.2%
Preferred Stocks 1.0%
Convertible Preferred Stocks 0.8%
Income Trusts 0.2%
Limited Partnership 0.1%
Annual Report | October 31, 2009 | 13
DCS | Claymore Dividend & Income Fund
Portfolio of INVESTMENTS | OCTOBER 31, 2009
NUMBER
OF SHARES VALUE
--------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS - 141.2%
COMMON STOCKS - 115.0%
CONSUMER DISCRETIONARY - 8.6%
8,029 Fortune Brands, Inc. $ 312,730
8,694 Genuine Parts Co. 304,203
101,663 Home Depot, Inc. (e) 2,550,725
7,617 JC Penney Co., Inc. 252,351
20,138 Johnson Controls, Inc. (e) 481,701
9,211 Leggett & Platt, Inc. 178,049
19,735 Limited Brands, Inc. 347,336
19,989 Mattel, Inc. 378,392
67,180 McDonald's Corp. (e) 3,937,420
18,100 McGraw-Hill Cos., Inc. (The) 520,918
7,356 Nordstrom, Inc. 233,774
22,576 Pearson PLC, ADR (United Kingdom) 307,259
35,945 Thomson Reuters Corp. (Canada) 1,137,659
6,607 VF Corp. 469,361
2,517 Whirlpool Corp. 180,192
--------------------------------------------------------------------------------
11,592,070
--------------------------------------------------------------------------------
CONSUMER STAPLES - 20.7%
110,679 Altria Group, Inc. (e) 2,004,397
13,444 Avon Products, Inc. 430,880
16,145 Campbell Soup Co. 512,604
118,061 Coca-Cola Co. (The) (e) 6,293,832
33,856 Diageo PLC, ADR (United Kingdom) (e) 2,201,317
13,901 General Mills, Inc. 916,354
13,027 Hershey Co. (The) 492,290
16,672 HJ Heinz Co. 670,881
4,177 JM Smucker Co. (The) 220,253
17,486 Kellogg Co. 901,228
22,876 Kimberly-Clark Corp. 1,399,096
45,744 Kraft Foods, Inc. - Class A 1,258,875
5,100 Lorillard, Inc. 396,372
5,560 McCormick & Co., Inc. 194,656
91,932 PepsiCo, Inc. (e) 5,566,483
62,478 Philip Morris International, Inc. (e) 2,958,958
45,908 Sara Lee Corp. 518,301
34,714 Sysco Corp. 918,185
--------------------------------------------------------------------------------
27,854,962
--------------------------------------------------------------------------------
ENERGY - 26.1%
120,533 BP PLC, ADR (United Kingdom) (e) 6,824,578
83,119 Chevron Corp. (e) 6,361,928
76,397 ConocoPhillips (e) 3,833,601
24,238 EnCana Corp. (Canada) 1,342,543
22,395 Marathon Oil Corp. 715,968
52,496 Repsol YPF SA, ADR (Spain) 1,396,394
NUMBER
OF SHARES VALUE
--------------------------------------------------------------------------------
ENERGY (CONTINUED)
104,927 Royal Dutch Shell PLC, ADR (United Kingdom) (e) $ 6,233,713
20,928 Sasol Ltd., ADR (South Africa) 782,498
3,857 Sunoco, Inc. 118,796
19,601 Tenaris SA, ADR (Luxembourg) 698,188
100,530 Total SA, ADR (France) (e) 6,038,837
49,123 Williams Cos., Inc. (The) 925,969
--------------------------------------------------------------------------------
35,273,013
--------------------------------------------------------------------------------
FINANCIALS - 1.0%
5,854 Federated Investors, Inc. - Class B 153,667
12,294 Invesco Ltd. (Bermuda) 260,018
24,931 Marsh & McLennan Cos., Inc. 584,881
7,567 Plum Creek Timber Co., Inc. - REIT 236,771
3,566 Waddell & Reed Financial, Inc. - Class A 100,062
--------------------------------------------------------------------------------
1,335,399
--------------------------------------------------------------------------------
HEALTH CARE - 23.1%
66,469 Abbott Laboratories (e) 3,361,337
82,124 AstraZeneca PLC, ADR (United Kingdom) (e) 3,688,189
5,056 Biovail Corp. (Canada) 68,054
107,524 Bristol-Myers Squibb Co. (e) 2,344,023
62,082 Eli Lilly & Co. (e) 2,111,409
134,713 GlaxoSmithKline PLC, ADR (United Kingdom) (e) 5,544,787
90,622 Johnson & Johnson 5,351,229
113,393 Merck & Co., Inc. (e) 3,507,245
302,601 Pfizer, Inc. (e) 5,153,295
--------------------------------------------------------------------------------
31,129,568
--------------------------------------------------------------------------------
INDUSTRIALS - 13.6%
40,772 3M Co. (e) 2,999,596
5,307 Avery Dennison Corp. 189,195
19,586 Caterpillar, Inc. 1,078,405
10,683 Cooper Industries PLC - Class A (Ireland) 413,325
5,757 Dover Corp. 216,924
8,856 Eaton Corp. 535,345
45,361 Emerson Electric Co. 1,712,378
5,755 Empresa Brasileira de Aeronautica SA, ADR (Brazil) (a) 116,539
2,525 Harsco Corp. 79,512
23,128 Honeywell International, Inc. 830,064
2,752 Hubbell, Inc. - Class B 117,043
29,135 Illinois Tool Works, Inc. 1,337,879
9,847 Ingersoll-Rand PLC (Ireland) 311,067
26,273 Koninklijke Philips Electronics NV (Netherlands) 659,190
22,769 Masco Corp. 267,536
11,270 Norfolk Southern Corp. 525,407
10,509 Northrop Grumman Corp. 526,816
4,280 Pentair, Inc. 124,548
13,040 Pitney Bowes, Inc. 319,480
See notes to financial statements.
14 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | PORTFOLIO OF INVESTMENTS continued
NUMBER
OF SHARES VALUE
--------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
4,686 Rockwell Automation, Inc. $ 191,892
11,227 RR Donnelley & Sons Co. 225,438
2,654 Snap-On, Inc. 96,951
4,607 Stanley Works (The) 208,375
13,048 Tyco International Ltd. (Switzerland) 437,760
59,844 United Parcel Service, Inc. - Class B (e) 3,212,426
53,573 Waste Management, Inc. 1,600,761
--------------------------------------------------------------------------------
18,333,852
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY - 8.8%
16,201 Analog Devices, Inc. 415,232
27,356 AU Optronics Corp., ADR (Taiwan) 241,553
29,167 Automatic Data Processing, Inc. 1,160,847
302,181 Intel Corp. (e) 5,774,679
12,583 Linear Technology Corp. 325,648
8,899 Maxim Integrated Products, Inc. 148,346
10,340 Microchip Technology, Inc. 247,746
20,763 Paychex, Inc. 589,877
284,095 Taiwan Semiconductor Manufacturing Co. Ltd.,
ADR (Taiwan) (e) 2,710,266
13,922 Tyco Electronics Ltd. (Switzerland) 295,843
--------------------------------------------------------------------------------
11,910,037
--------------------------------------------------------------------------------
MATERIALS - 10.0%
5,297 Bemis Co., Inc. 136,822
78,722 BHP Billiton Ltd., ADR (Australia) (e) 5,162,589
24,829 Cia Siderurgica Nacional SA, ADR (Brazil) 823,330
13,900 CRH PLC, ADR (Ireland) 343,747
58,283 Dow Chemical Co. (The) 1,368,485
4,250 Eastman Chemical Co. 223,167
53,315 EI Du Pont de Nemours & Co. (e) 1,696,483
1,301 Greif, Inc. - Class A 69,630
3,712 International Flavors & Fragrances, Inc. 141,390
3,710 Lubrizol Corp. 246,938
10,507 Nucor Corp. 418,704
9,897 PPG Industries, Inc. 558,488
11,012 Rio Tinto PLC, ADR (United Kingdom) (e) 1,960,466
3,706 RPM International, Inc. 65,300
5,882 Sonoco Products Co. 157,344
5,374 Steel Dynamics, Inc. 71,958
--------------------------------------------------------------------------------
13,444,841
--------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 1.9%
2,926 Cellcom Israel Ltd. (Israel) 88,043
3,165 CenturyTel, Inc. 102,736
29,014 Chunghwa Telecom Co. Ltd., ADR (Taiwan) 504,263
54,477 Hellenic Telecommunications Organization SA,
ADR (Greece) 461,965
12,029 Magyar Telekom Telecommunications PLC, ADR (Hungary) 257,421
8,409 Partner Communications Co. Ltd., ADR (Israel) 158,510
NUMBER
OF SHARES VALUE
--------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (CONTINUED)
5,952 Philippine Long Distance Telephone Co., ADR
(Philippines) $ 317,242
22,028 Telecom Corp. of New Zealand Ltd., ADR (New Zealand) 197,371
28,513 Telefonos de Mexico SAB de CV, ADR (Mexico) 473,601
--------------------------------------------------------------------------------
2,561,152
--------------------------------------------------------------------------------
UTILITIES - 1.2%
6,427 Cia de Saneamento Basico do Estado de Sao Paulo,
ADR (Brazil) 247,568
3,506 DPL, Inc. 88,842
9,282 MDU Resources Group, Inc. 192,601
4,625 National Fuel Gas Co. 209,698
29,227 Public Service Enterprise Group, Inc. 870,965
1,515 WGL Holdings, Inc. 50,086
--------------------------------------------------------------------------------
1,659,760
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS - 115.0%
(Cost $137,198,706) 155,094,654
--------------------------------------------------------------------------------
PREFERRED STOCKS - 1.5%
FINANCIALS - 1.2%
445,342 Scottish Re Group Ltd., 7.250% (Cayman Islands) (c) 1,558,697
--------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 0.2%
10,768 Brasil Telecom SA, ADR (Brazil) 277,276
--------------------------------------------------------------------------------
UTILITIES - 0.1%
11,119 Cia Energetica de Minas Gerais, ADR (Brazil) 175,569
--------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS - 1.5%
(Cost $11,493,551) 2,011,542
--------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 1.1%
FINANCIALS - 1.1%
473 Fannie Mae, 5.375%
(Cost $46,537,240) 1,517,147
--------------------------------------------------------------------------------
PRINCIPAL OPTIONAL
AMOUNT CALL PROVISIONS VALUE
--------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 23.2%
CONSUMER DISCRETIONARY - 5.2%
$ 750,000 British Sky Broadcasting Group PLC, BBB, 9.500%, 11/15/18
(United Kingdom) (b) N/A 957,124
750,000 Comcast Corp., BBB+, 6.550%, 7/1/39 N/A 784,182
750,000 Fortune Brands, Inc., BBB-, 6.625%, 7/15/28 N/A 718,186
750,000 Home Depot, Inc., BBB+, 5.875%, 12/16/36 N/A 734,023
750,000 International Game Technology, BBB, 7.500%, 6/15/19 N/A 830,348
750,000 Kohl's Corp., BBB+, 6.875%, 12/15/37 N/A 859,363
750,000 Pinnacle Entertainment, Inc., B, 7.500%, 6/15/15 6/15/11 @ 103.75 678,750
500,000 Time Warner, Inc., BBB, 7.700%, 5/1/32 N/A 566,475
750,000 Walt Disney Co. (The), A, 7.000%, 3/1/32 N/A 913,600
--------------------------------------------------------------------------------------------------------
7,042,051
--------------------------------------------------------------------------------------------------------
ENERGY - 1.4%
750,000 Anadarko Petroleum Corp., BBB-, 8.700%, 3/15/19 N/A 919,713
See notes to financial statements.
Annual Report | October 31, 2009 | 15
DCS | Claymore Dividend & Income Fund | PORTFOLIO OF INVESTMENTS continued
PRINCIPAL OPTIONAL
AMOUNT CALL PROVISIONS VALUE
--------------------------------------------------------------------------------------------------------
ENERGY (CONTINUED)
$ 750,000 Weatherford International Ltd., BBB+, 9.625%, 3/1/19 (Switzerland) N/A $ 930,038
--------------------------------------------------------------------------------------------------------
1,849,751
--------------------------------------------------------------------------------------------------------
FINANCIALS - 7.5%
250,000 American Express Co., BB, 6.800%, 9/1/66 (c) 9/1/16 @ 100.00 221,250
750,000 American Express Co., BBB+, 8.125%, 5/20/19 N/A 899,094
750,000 American International Group, Inc., A-, 5.375%, 10/18/11 N/A 721,348
250,000 Bank of America Corp., B, 8.000%, 12/31/49 (c) 1/30/18 @ 100.00 225,145
750,000 Caterpillar Financial Services Corp., A, 7.150%, 2/15/19 N/A 882,205
750,000 Citigroup, Inc., A, 8.500%, 5/22/19 N/A 878,162
250,000 General Electric Capital Corp., A+, 6.375%,
11/15/67 ( c) 11/15/17 @ 100.00 217,201
750,000 General Electric Capital Corp., AA+, 6.750%, 3/15/32 N/A 790,577
250,000 Goldman Sachs Capital II, BBB, 5.793%, 12/29/49 (c) 6/1/12 @ 100.00 187,187
750,000 Goldman Sachs Group, Inc. (The), A-, 6.750%, 10/1/2037 N/A 792,492
500,000 Hughes Network Systems LLC/HNS Finance Corp., B,
9.500%, 4/15/14 4/15/10 @ 104.75 511,250
250,000 JPMorgan Chase & Co., BBB+, 7.900%, 4/29/49 (c) 4/30/18 @ 100.00 252,184
750,000 JPMorgan Chase & Co., A+, 6.300%, 4/23/19 N/A 824,616
750,000 Manufacturers & Traders Trust Co., A-, 6.625%, 12/4/17 N/A 778,274
500,000 Merrill Lynch & Co., Inc., A-, 6.110%, 1/29/37 N/A 474,127
500,000 Morgan Stanley, A, 5.550%, 4/27/17 N/A 503,990
750,000 PNC Bank NA, A, 5.250%, 1/15/17 N/A 755,931
250,000 Wells Fargo & Co., A-, 7.980%, 3/15/49 (c) 3/15/18 @ 100.00 235,312
--------------------------------------------------------------------------------------------------------
10,150,345
--------------------------------------------------------------------------------------------------------
HEALTH CARE - 2.3%
750,000 Aetna, Inc., A-, 6.750%, 12/15/37 N/A 791,188
750,000 Inverness Medical Innovations, Inc., B-, 9.000%,
5/15/16 5/15/13 @ 104.50 763,125
750,000 UnitedHealth Group, Inc., A-, 6.500%, 6/15/37 N/A 764,004
750,000 WellPoint, Inc., A-, 5.950%, 12/15/34 N/A 729,477
--------------------------------------------------------------------------------------------------------
3,047,794
--------------------------------------------------------------------------------------------------------
INDUSTRIALS - 3.4%
750,000 CSX Corp., BBB-, 6.000%, 10/1/36 N/A 758,483
750,000 Delta Air Lines, Inc., BB-, 9.500%, 9/15/14 (b) 9/15/11 @ 107.125 768,750
750,000 FedEx Corp., BBB, 8.000%, 1/15/19 N/A 910,165
750,000 Southwest Airlines Co., BBB, 5.125%, 3/1/17 N/A 713,243
500,000 Textron, Inc., BBB-, 7.250%, 10/1/19 N/A 510,108
750,000 Waste Management, Inc., BBB, 7.375%, 3/11/19 N/A 875,903
--------------------------------------------------------------------------------------------------------
4,536,652
--------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY - 1.4%
500,000 Corning, Inc., BBB+, 6.625%, 5/15/19 N/A 552,409
750,000 Dell, Inc., A-, 5.875%, 6/15/19 N/A 808,767
500,000 Oracle Corp., A, 6.125%, 7/8/39 N/A 552,085
--------------------------------------------------------------------------------------------------------
1,913,261
--------------------------------------------------------------------------------------------------------
MATERIALS - 1.0%
500,000 Alcoa, Inc., BBB-, 6.750%, 7/15/18 N/A 509,303
750,000 International Paper Co., BBB, 7.500%, 8/15/21 N/A 822,958
--------------------------------------------------------------------------------------------------------
1,332,261
--------------------------------------------------------------------------------------------------------
PRINCIPAL OPTIONAL
AMOUNT CALL PROVISIONS VALUE
--------------------------------------------------------------------------------------------------------
UTILITIES - 1.0%
$ 750,000 Exelon Generation Co. LLC, BBB, 6.200%, 10/1/17 N/A $ 814,938
500,000 Southwestern Electric Power Co., BBB, 6.450%, 1/15/19 N/A 542,633
--------------------------------------------------------------------------------------------------------
1,357,571
--------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS - 23.2%
(Cost $29,393,523) 31,229,686
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------------------------------------------------------------------------------------------------------
LIMITED PARTNERSHIP - 0.1%
REAL ESTATE - 0.1%
400,000 Kodiak Funding, LP (d)
(Cost $3,522,000) 184,000
--------------------------------------------------------------------------------------------------------
INCOME TRUSTS - 0.3%
ENERGY - 0.3%
5,369 Enerplus Resources Fund (Canada) 116,615
15,092 Penn West Energy Trust (Canada) 248,263
--------------------------------------------------------------------------------------------------------
(Cost $302,857) 364,878
--------------------------------------------------------------------------------------------------------
Total Long-Term Investments - 141.2% 190,401,907
(Cost $228,447,877)
--------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 3.1%
4,244,781 Dreyfus Money Market Bond Fund
(Cost $4,244,781) 4,244,781
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 144.3%
(Cost $232,692,658) 194,646,688
Other Assets in excess of Liabilities - 0.1% 236,199
Preferred Shares, at Liquidation Value - (-22.2% of Net Assets Applicable
to Common Shares or -15.4% of Total Investments) (30,000,000)
Borrowings - (22.2%) (30,000,000)
--------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100.0% $ 134,882,887
========================================================================================================
ADR - American Depositary Receipt
LLC - Limited Liability Company
LP - Limited Partnership
NV - Publicly Limited Liability Corporation
PLC - Public Limited Company
REIT - Real Estate Investment Trust
SA - Corporation
SAB de CV - Variable Capital Company
(a) Non-income producing security.
(b) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
2009, these securities amounted to 1.3% of Net Assets Applicable to Common
Shares.
(c) Floating or variable rate security.
(d) Security is valued in accordance with Fair Valuation procedures established
in good faith by the Board of Trustees. The total market value of such
securities is $184,000 which represents 0.1% of Net Assets Applicable to
Common Shares.
(e) All or a portion of these securities were segregated as collateral for the
borrowings. As of October 31, 2009, the total amount segregated was
$69,459,090.
Ratings (unaudited) shown are per Standard & Poor's; securities classified NR
are not rated by Standard & Poor's.
All percentages shown in the Portfolio of Investments are based on Net Assets
Applicable to Common Shares unless otherwise noted.
See notes to financial statements.
16 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund
Statement of ASSETS AND LIABILITIES | OCTOBER 31, 2009
ASSETS
Investments in securities, at value (cost $232,692,658) $ 194,646,688
Dividends and interest receivable 698,874
Other assets 42,017
----------------------------------------------------------------------------------------------------------------------
Total assets 195,387,579
----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Borrowings 30,000,000
Advisory fee payable 129,915
Dividends payable - preferred shares 6,731
Administrative fee payable 4,135
Due to custodian 37,888
Interest due on borrowings 33,917
Accrued expenses and other liabilities 292,106
----------------------------------------------------------------------------------------------------------------------
Total liabilities 30,504,692
----------------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT REDEMPTION VALUE
Auction Market Preferred Shares $.01 par value per share; 1,200 authorized,
issued and outstanding at $25,000 per share liquidation preference 30,000,000
----------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 134,882,887
----------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
Common stock, $.01 par value per share; unlimited number of shares authorized, 9,079,884*
shares issued and outstanding $ 90,799
Additional paid-in capital 843,707,569
Accumulated net unrealized depreciation on investments (38,045,972)
Accumulated net realized loss on investments, futures, options and currency transactions (672,328,276)
Accumulated undistributed net investment income 1,458,767
----------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 134,882,887
======================================================================================================================
NET ASSET VALUE APPLICABLE TO COMMON SHAREHOLDERS
(based on 9,079,884* common shares outstanding) $ 14.86
======================================================================================================================
* Reflects 1 for 5 reverse stock split that occurred on June 5, 2009.
See notes to financial statements.
Annual Report | October 31, 2009 | 17
DCS | Claymore Dividend & Income Fund
Statement of OPERATIONS | FOR THE YEAR ENDED OCTOBER 31, 2009
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $300,233) $ 7,941,551
Interest (net of foreign withholding taxes of $37,785) 3,436,834
----------------------------------------------------------------------------------------------------------------------
Total income $ 11,378,385
----------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fee 1,666,629
Professional fees 585,681
Trustees'fees and expenses 238,066
Auction agent fee - preferred shares 217,225
Printing expenses 133,841
Fund accounting 76,882
NYSE listing fee 54,464
Administrative fee 53,117
Custodian fee 51,035
Transfer agent fee 33,473
Insurance expense 30,473
Rating agency fee 23,013
Miscellaneous 45,082
Interest expense 125,332
----------------------------------------------------------------------------------------------------------------------
Total expenses 3,334,313
----------------------------------------------------------------------------------------------------------------------
Advisory fees waived (110,574)
----------------------------------------------------------------------------------------------------------------------
Net expenses 3,223,739
----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,154,646
----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES TRANSACTIONS
Net realized gain (loss) on:
Investments (396,888,440)
Options (48,177,765)
Foreign currency transactions 5,542
Futures 4,559,567
Net change in unrealized appreciation (depreciation) on:
Investments 341,794,256
Options 57,714,499
Foreign currency transactions (232)
Futures (2,705,311)
----------------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS, OPTIONS, FOREIGN CURRENCY TRANSACTIONS, AND FUTURES (43,697,884)
----------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS (35,543,238)
DISTRIBUTIONS TO PREFERRED SHARES FROM
Net investment income (1,895,225)
----------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $ (37,438,463)
======================================================================================================================
See notes to financial statements.
18 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund
Statement of CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS |
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2009 OCTOBER 31, 2008
------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS RESULTING FROM OPERATIONS
Net investment income $ 8,154,646 $ 61,443,761
Net realized loss on investments, futures, options and currency transactions (440,501,096) (234,296,949)
Net change in unrealized appreciation (depreciation) on investments,
futures, options and currency transactions 396,803,212 (605,798,588)
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM
Net investment income (1,895,225) (18,702,569)
------------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets applicable to common shareholders resulting from operations (37,438,463) (797,354,345)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (5,901,925) (42,936,009)
Return of capital -- (16,083,242)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to common shareholders (5,901,925) (59,019,251)
------------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets applicable to common shareholders (43,340,388) (856,373,596)
NET ASSETS
Beginning of period 178,223,275 1,034,596,871
------------------------------------------------------------------------------------------------------------------------------------
End of period (including accumulated undistributed net investment income (loss) of $1,458,767 and
($195,416), respectively) $ 134,882,887 $ 178,223,275
====================================================================================================================================
See notes to financial statements.
Annual Report | October 31, 2009 | 19
DCS | Claymore Dividend & Income Fund
Statement of CASH FLOWS | FOR THE YEAR ENDED OCTOBER 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ ( 35,543,238)
------------------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO
NET CASH USED IN OPERATING AND INVESTING ACTIVITIES:
Net change in unrealized appreciation on investments (341,794,256)
Net change in unrealized appreciation on options (57,714,499)
Net realized loss on investments 396,888,440
Net realized loss on options 48,177,765
Purchase of long-term investments (331,021,445)
Proceeds from sale of long-term investments 422,788,591
Cost of written options closed (41,835,432)
Exercise of written put options (7,131,514)
Amortization of premium and other 115,586
Net sales of short-term investments 197,824,636
Decrease in dividends and interest receivable 2,383,002
Decrease in receivable for securities sold 226,635
Increase in other assets (22,925)
Decrease in receivable for variation margin 15,478
Decrease in advisory fee payable (165,338)
Decrease in dividends payable - preferred shares (410,562)
Decrease in administrative fee payable (3,528)
Decrease in accrued expenses and other liabilities (51,722)
Increase in interest expense payable 33,917
Increase in due to custodian payable 37,559
------------------------------------------------------------------------------------------------------------------
Net Cash Provided in Operating and Investing Activities 252,797,150
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of auction market preferred shares (275,000,000)
Distributions to preferred shareholders (1,895,225)
Dividends paid to common shareholders (5,901,925)
Proceeds from borrowings 30,000,000
------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities (252,797,150)
------------------------------------------------------------------------------------------------------------------
Net decrease in cash --
CASH AT BEGINNING OF PERIOD --
------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ --
------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR INTEREST $ 91,415
==================================================================================================================
See notes to financial statements.
20 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund
Financial HIGHLIGHTS |
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
PER SHARE OPERATING PERFORMANCE OCTOBER 31, CTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD* 2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.65 $ 113.95 $ 119.55 $ 103.10 $ 94.45
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) 0.90 6.75 7.70 7.09 6.00
Net realized and unrealized gain (loss) on
investments, futures and swap transactions (4.83) (92.50) (4.30) 18.08 10.55
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From net investment income and return of capital
(common share equivalent basis) (0.21) (2.05) (2.50) (2.22) (1.40)(e)
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.14) (87.80) 0.90 4.59 15.15
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (0.65) (4.73)(h) (6.50) (6.50) (6.50)
Return of capital -- (1.77)(h) -- -- 0.00(d)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Shareholders (0.65) (6.50) (6.50) (6.50) (6.50)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.86 $ 19.65 $ 113.95 $ 119.55 $ 103.10
====================================================================================================================================
MARKET VALUE, END OF PERIOD $ 14.25 $ 14.90 $ 98.10 $ 108.05 $ 91.00
====================================================================================================================================
TOTAL INVESTMENT RETURN (b)
Net asset value (19.99)% (81.30)% 0.67% 23.05% 16.24%
Market value 3.50% (83.31)% (3.53)% 26.97% 8.97%
RATIOS AND SUPPLEMENTAL DATA
Net assets, applicable to common shareholders,
end of period (thousands) $ 134,883 $ 178,223 $ 1,034,697 $ 1,085,306 $ 936,010
Preferred Shares, at liquidation value ($25,000
per share liquidation preference) (thousands) $ 30,000 $ 125,000 $ 425,000 $ 425,000 $ 425,000
Preferred Shares asset coverage per share $ 137,402 $ 60,645 $ 85,859 $ 88,842 $ 80,059
Ratios to Average Net Assets applicable to
Common Shares:
Total expenses, including interest expense and
net of fee waiver. 2.77%(f) 1.76%(f) 1.42%(f) 1.47% 1.50%
Total expenses, including interest expense and
before fee waiver. 2.86% 1.76% 1.42% 1.47% 1.50%
Interest expense 0.11% 0.00% 0.00% 0.00% 0.00%
Net investment income, after fee waiver, prior to
effect of dividends to preferred shares 7.00% 9.15% 6.47% 6.41% 5.82%
Net investment income, before fee waiver, prior to
effect of dividends to preferred shares 6.91% 9.15% 6.47% 6.41% 5.82%
Net investment income, after fee waiver, after
effect of dividends to preferred shares 5.38% 6.36% 4.36% 4.40% 4.45%
Net investment income, before fee waiver, after
effect of dividends to preferred shares 5.28% 6.36% 4.36% 4.40% 4.45%
Ratios to Average Managed Assets: (c)
Total expenses including interest expense and
net of fee waiver. 1.64%(f) 1.08%(f) 1.02%(f) 1.03% 1.03%
Total expenses, including interest expense and
before fee waiver. 1.70% 1.08% 1.02% 1.03% 1.03%
Interest expense 0.06% 0.00% 0.00% 0.00% 0.00%
Net investment income, after fee waiver, prior to
effect of dividends to preferred shares 4.16% 5.62% 4.64% 4.50% 4.00%
Net investment income, before fee waiver, prior to
effect of dividends to preferred shares 4.10% 5.62% 4.64% 4.50% 4.00%
Portfolio turnover 172%(i) 68% 57% 25% 17%
Senior Indebtedness
Total Borrowings outstanding (in thousands) $ 30,000 $ -- $ -- $ -- $ --
Asset coverage per $1,000 of indebtedness (g) $ 6,496 $ -- $ -- $ -- $ --
* Reflects 1 for 5 reverse stock split that occurred on June 5, 2009.
(a) Based on average shares outstanding during the period.
(b) Total investment return is calculated assuming a purchase of a common share
at the beginning of the period and a sale on the last day of the period
reported either at net asset value ("NAV") or market price per share.
Dividends and distri- butions are assumed to be reinvested at NAV for NAV
returns or the prices obtained under the Fund's Dividend Reinvestment Plan
for market value returns.Total investment return does not reflect brokerage
commissions. A return calculated for a period of less than one year is not
annualized.
(c) Managed assets is equal to net assets applicable to common shareholders
plus outstanding leverage, such as the liquidation value of preferred
shares.
(d) Amount is less than $.01.
(e) Distributions partially from return of capital.
(f) Expense ratio does not reflect fees and expenses incurred indirectly by the
Fund as a result of its investments in shares of other investment
companies. If these fees were included in the expense ratio, the net impact
to the expense ratio would be approximately 0.00% for the year ended
October 31, 2009, and 0.02% for the years ended October 31, 2008, and
October 31, 2007. The impact to the expense ratio as a result of
investments in other investment companies was not required prior to 2007.
As a result, the impact has not been disclosed for the years prior to 2007.
(g) Calculated by subtracting the Fund's total liabilities (not including
borrowings) from the Fund's total assets and dividing by the total
borrowings.
(h) Subsequent to October 31, 2008, a reclassification was required that
resulted in a recharacterization of the distributions for the October 31,
2009, financial reporting period. This resulted in a $0.03 reclassification
between distributions paid to common shareholders from and in excess of net
investment income and distributions paid to common shareholders from return
of capital.
(i) The increase in the portfolio turnover compared to prior years is the
result of the change in the Fund's Sub-Adviser.
See notes to financial statements.
Annual Report | October 31, 2009 | 21
DCS | Claymore Dividend & Income Fund
Notes to FINANCIAL STATEMENTS | OCTOBER 31, 2009
Note 1 -- ORGANIZATION:
Claymore Dividend & Income Fund (formerly Dreman/Claymore Dividend & Income
Fund) (the "Fund") was organized as a Delaware statutory trust on October 20,
2003. The Fund is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended.
The Fund's primary investment objective is to provide a high level of current
income, with a secondary objective of capital appreciation. The Fund will
pursue its investment objectives by investing its assets primarily in
dividend-paying common and preferred stocks. There can be no assurance that the
Fund will achieve its investment objectives. The Fund's investment objectives
are considered fundamental and may not be changed without shareholder
approval.
Note 2 -- ACCOUNTING POLICIES:
The preparation of the financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
In June 2009, the Financial Accounting Standards Board ("FASB") established the
FASB Accounting Standards Codification(TM) ("ASC") as the single source of
authoritative accounting principles reorganized by the FASB in preparation of
financial statements in conformity with GAAP. The ASC superseded existing
non-grandfathered, non-U.S. Securities and Exchange Commission ("SEC")
accounting and reporting standards. The ASC did not change GAAP but rather
organized it into a hierarchy where all guidance with the ASC carried an equal
level of authority. The ASC became effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The
implementation of ASC did not have a material effect of the Fund's financial
statements.
The following is a summary of significant accounting policies consistently
followed by the Fund.
(a) VALUATION OF INVESTMENTS
The Fund values equity securities at the last reported sale price on the
principal exchange or in the principal OTC market in which such securities are
traded, as of the close of regular trading on the NYSE on the day the
securities are being valued or, if there are no sales, at the mean between the
last available bid and asked prices on that day. Securities traded on NASDAQ
are valued at the NASDAQ Official Closing Price. Debt securities are valued by
independent pricing services or dealers using the mean of the closing bid and
asked prices for such securities or, if such prices are not available, at
prices for securities of comparable maturity, quality and type. For those
securities where quotations or prices are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. Futures contracts are valued using the settlement price
established each day on the exchange on which they are traded. Interest rate
swaps are valued at closing prices for such contracts established by the
exchange or dealer market on which they are traded. Exchange traded options are
valued at the mean between the bid and asked prices on the principal exchange
on which it is traded. The Fund values money market funds at net asset value.
Short-term securities with maturities of 60 days or less at time of purchase
are valued at amortized cost, which approximates market value.
For those securities where quotations or prices are not available, the
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Valuations in accordance with these procedures
are intended to reflect each security's (or asset's) "fair value". Such "fair
value" is the amount that the Fund might reasonably expect to receive for the
security (or asset) upon its current sale. Each such determination should be
based on a consideration of all relevant factors, which are likely to vary from
one pricing context to another. Examples of such factors may include, but are
not limited to: (i) the type of security, (ii) the initial cost of the
security, (iii) the existence of any contractual restrictions on the security's
disposition, (iv) the price and extent of public trading in similar securities
of the issuer or of comparable companies, (v) quotations or evaluated prices
from broker-dealers and/or pricing services, (vi) information obtained from the
issuer, analysts, and/or the appropriate stock exchange (for exchange traded
securities), (vii) an analysis of the company's financial statements, and
(viii) an evaluation of the forces that influence the issuer and the market(s)
in which the security is purchased and sold (e.g. the existence of pending
merger activity, public offerings or tender offers that might affect the value
of the security).
The Fund adopted ASC 820, Fair Value Measurements and Disclosures ("ASC820")
(formerly known as the Statement of Financial Accounting Standard ("FAS") No.
157) effective November 1, 2008. In accordance with ASC820, fair value is
defined as the price that the Fund would receive to sell an investment or pay
to transfer a liability in an orderly transaction with an independent buyer in
the principal market, or in the absence of a principal market the most
advantageous market for the investment or liability. ASC820 establishes three
different categories for valuations. Level 1 valuations are those based upon
quoted prices in active markets. Level 2 valuations are those based upon quoted
prices in inactive markets or based upon significant observable inputs (e.g.
yield curves; benchmark interest rates; indices). Level 3 valuations are those
based upon unobservable inputs (e.g. discounted cash flow analysis; non-market
based methods used to determine fair valuation). The
22 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | NOTES TO FINANCIAL STATEMENTS
continued
following table represents the Funds' investments carried on the Statement of
Assets and Liabilities by caption and by level within the fair value hierarchy
as of October 31, 2009:
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------
(value in $000s)
Assets:
Common Stocks:
Consumer Discretionary $ 11,592 $ -- $ -- $ 11,592
Consumer Staples 27,855 -- -- 27,855
Energy 35,273 -- -- 35,273
Financials 1,335 -- -- 1,335
Health Care 31,130 -- -- 31,130
Industrials 18,334 -- -- 18,334
Information Technology 11,910 -- -- 11,910
Materials 13,445 -- -- 13,445
Telecommunication Services 2,561 -- -- 2,561
Utilities 1,660 -- -- 1,660
Preferred Stocks: -- --
Financials 1,559 -- -- 1,559
Telecommunication Services 277 -- -- 277
Utilities 175 -- -- 175
Convertible Preferred Stocks: -- --
Financials 1,517 -- -- 1,517
Corporate Bonds -- 31,230 -- 31,230
Limited Partnership -- -- 184 184
Income Trusts 365 -- -- 365
Money Market Fund 4,245 -- -- 4,245
--------------------------------------------------------------------------------
Total $163,233 $31,230 $184 $194,647
================================================================================
LEVEL 3 HOLDINGS SECURITIES DERIVATIVES TOTAL
--------------------------------------------------------------------------------
(value in $000s)
Beginning Balance at 10/31/08 $2,900 $ -- $ 2,900
Total Realized Gain/Loss (5,633) -- (5,633)
Change in Unrealized Gain/Loss 4,784 -- 4,784
Net Purchases and Sales (1,867) -- (1,867)
Net Transfers In/Out -- -- --
--------------------------------------------------------------------------------
Ending Balance at 10/31/09 $ 184 $ -- $ 184
================================================================================
(b) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Dividend
income is recorded net of applicable withholding taxes on the ex-dividend date
and interest income is recorded on an accrual basis. Discounts or premiums on
debt securities purchased are accreted or amortized to interest income over the
lives of the respective securities using the effective interest method.
(c) SWAPS
A swap is an agreement to exchange the return generated by one instrument for
the return generated by another instrument. The Fund may enter into swap
agreements to manage its exposure to interest rates or to manage the duration of
its portfolio. The swaps are valued at current market value and any unrealized
gain or loss is included in the Statement of Operations. The Fund accrues for
the interim payments on swap contracts on a daily basis, with the net amount
recorded within unrealized appreciation/depreciation of swap contracts on the
Statement of Assets and Liabilities. Once the interim payments are settled in
cash, the net amount is recorded as realized gain/loss on swaps, in addition to
realized gain/loss recorded upon the termination of swap contracts on the
Statement of Operations. During the period that the swap agreement is open, the
Fund may be subject to risk from the potential inability of the counterparty to
meet the terms of the agreement. The swaps involve elements of both market and
credit risk in excess of the amounts reflected on the Statement of Assets and
Liabilities. As of October 31, 2009, there were no swaps outstanding.
Annual Report | October 31, 2009 | 23
DCS | Claymore Dividend & Income Fund | NOTES TO FINANCIAL STATEMENTS
continued
(d) FUTURES
A futures contract is an agreement to buy or sell a financial instrument at a
particular price on a stipulated future date. Upon entering into a futures
contract, the Fund is required to make an initial margin deposit established by
the exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the counterparty an amount of cash equal
to the daily fluctuation in the value of the contract. Such receipt or payment
is known as the variation margin and is recorded by the Fund as unrealized
appreciation or depreciation. The Fund bears the market risk that arises from
the change in the value of these financial instruments. The Fund may use futures
contracts in an attempt to enhance the Fund's investment returns, as an
efficient way to gain broad market exposure with reduced transaction costs
and/or to hedge against market and other risks in the Fund's portfolio. There
are a number of risks associated with the use of futures contracts. A purchase
or sale of a futures contract may result in losses in excess of the amount
invested in the futures contract. If futures are used for hedging, there can be
no guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. The Fund is
subject to equity price risk when utilizing futures contracts. The Fund bears
the risk of security prices moving unexpectedly in which case, the Fund may not
achieve the anticipated benefits of the futures contracts and may realize a
loss. As of October 31, 2009, there were no futures contracts outstanding.
(e) OPTIONS
The Fund may purchase or sell (write) options on securities and securities
indices which are listed on a national securities exchange or in the
over-the-counter ("OTC") market as a means of achieving additional return or of
hedging the value of the Fund's portfolio. An option on a security is a
contract that gives the holder of the option, in return for a premium, the
right to buy from (in the case of a call) or sell to (in the case of a put) the
writer of the option the security underlying the option at a specified exercise
or "strike" price. The writer of an option on a security has an obligation upon
exercise of the option to deliver the underlying security upon payment of the
exercise price (in the case of a call) or to pay the exercise price upon
delivery of the underlying security (in the case of a put). There are several
risks associated with transactions in options on securities. The Fund is
subject to equity price risk when utilizing option contracts. As the writer of
a covered call option, the Fund forgoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the strike price of
the call but has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fill its obligation as writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver the underlying security at the exercise price. As of October 31, 2009,
there were no outstanding option contracts.
(f) DISTRIBUTIONS
The Fund intends to declare quarterly dividends to common shareholders at a
fixed rate per common share based on its projected performance, which rate may
be adjusted from time to time. Accordingly, for U.S. generally accepted
accounting principles, the Fund may declare and pay dividends in excess of its
net investment income on the Statement of Operations. However, the ultimate
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted
accounting principles. Permanent differences relating to the difference between
book and tax characterization of distributions have been reclassed on the
Statement of Assets and Liabilities.
(g) CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the mean of the bid and asked price of the respective exchange
rates on the last day of the period. Purchases and sales of investments
denominated in foreign currencies are translated at the exchange rate on the
date of the transaction.
Foreign exchange gain or loss resulting from holding of a foreign currency,
expiration of a currency exchange contract, difference in the exchange rates
between the trade date and settlement date of an investment purchased or sold,
and the difference between dividends actually received compared to the amount
shown in a Fund's accounting records on the date of receipt are included as net
realized gains or losses on foreign currency forwards and currency transactions
in the Fund's Statement of Operations.
Foreign exchange gain or loss on assets and liabilities, other than
investments, is included in unrealized appreciation (depreciation) on foreign
currency transactions.
(h) SUBSEQUENT EVENTS
Effective October 31, 2009, the Fund adopted ASC855, Subsequent Events
("ASC855") (formerly known as Statement of Financial Accounting Standards No.
165 ("SFAS No. 165")). ASC855 requires an entity to recognize in the financial
statements the effects of all subsequent events that provide additional
evidence about conditions that existed at the date of the statement of assets
and liabilities. ASC855 is intended to establish general standards of
accounting and for disclosure of events that occur after the statement of
assets and liabilities date but before the financial statements are issued or
are available to be issued. The Fund has performed an evaluation of subsequent
events through December 23, 2009, which is the date the financial statements
were issued.
Note 3 -- INVESTMENT ADVISORY AGREEMENT, SUB-ADVISORY AGREEMENT AND OTHER
AGREEMENTS:
Pursuant to an Investment Advisory Agreement (the "Agreement") between the Fund
and Claymore Advisors, LLC (the "Adviser"), the Adviser furnished offices,
necessary facilities and equipment, provided administrative services, oversaw
the activities of Dreman Value Management, LLC ("DVM") (through June 17, 2009)
and Manning & Napier (subsequent to June 17, 2009), provided personnel
including certain officers required for the Fund's administrative management
and
24 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | NOTES TO FINANCIAL STATEMENTS
continued
compensated all officers and trustees of the Fund who are its affiliates. As
compensation for these services, the Fund paid the Adviser a fee, payable
monthly, in an amount equal to 0.85% of the Fund's average managed assets (net
assets applicable to common shareholders plus any assets attributable to
financial leverage).
The Adviser previously entered into a Sub-Advisory Agreement with DVM. Pursuant
to the terms of this agreement, DVM, under the supervision of the Fund's Board
of Trustees and the Adviser, provided a continuous investment program for the
Fund's portfolio; provided investment research and made and executed
recommendations for the purchase and sale of securities; and provided certain
facilities and personnel, including officers required for the Fund's
administrative management, and compensation of all officers and trustees of the
Fund who are its affiliate. For these services, the Adviser paid DVM an
aggregate amount equal to 60% of the investment advisory fees paid to the
Adviser by the Fund, net of any additional compensation payments to
underwriters of the common share offering. Effective January 27, 2009, the
Advisor agreed to waive 0.08% of its investment advisory fees. The 0.08% waiver
was assumed by DVM.
On June 17, 2009, the Fund's Board of Trustees approved the termination of
DVM's investment sub-advisory agreement with the Fund. The sub-advisory
agreement with DVM was no longer in effect as of close of business on August
17, 2009. On June 17, 2009, the Board of Trustees of the Fund approved the
appointment of a new investment sub-adviser to the Fund, Manning & Napier
Advisors, Inc. ("Manning & Napier"). Pursuant to this change, Manning & Napier
entered into an interim investment sub-advisory agreement with Claymore
Advisors, LLC, the Fund's investment adviser, and the Fund (the "Initial
Interim Sub-Advisory Agreement"). Under the Initial Interim Sub-Advisory
Agreement, the Adviser agreed to pay Manning & Napier 0.42% of the Fund's
managed assets as compensation for its services. The Adviser is waiving 0.09%
of the investment advisory fee and this waiver has been assumed by Manning &
Napier.
On July 17, 2009, Claymore Group Inc., the parent of the Adviser, entered into
an Agreement and Plan of Merger between and among Claymore Group Inc., Claymore
Holdings, LLC and GuggClay Acquisition, Inc., (with the latter two entities
being wholly-owned, indirect subsidiaries of Guggenheim Partners, LLC
("Guggenheim")) whereby GuggClay Acquisition, Inc. merged into Claymore Group
Inc., which is the surviving entity (the "Transaction"). This transaction was
completed on October 14, 2009 (the "Effective Date") and resulted in a
change-of-control whereby Claymore Group Inc. and its subsidiaries, including
the Adviser, became indirect, wholly-owned subsidiaries of Guggenheim. The
transaction is not expected to affect the daily operations of the Funds or the
investment management activities of the Adviser.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"), the
consummation of this transaction resulted in the automatic termination of the
Fund's advisory agreement and Initial Interim Sub-Advisory Agreement.
Accordingly, on September 23, 2009, the Board of Trustees approved an interim
investment advisory agreement between the Fund and the Adviser (the "Interim
Advisory Agreement") and a subsequent interim sub-advisory agreement among the
Fund, the Adviser, and Manning & Napier (the "Subsequent Interim Sub-Advisory
Agreement" and together with the Interim Advisory Agreement, the "Interim
Agreements"). The Interim Advisory Agreement took effect as of the Effective
Date and would terminate upon the earlier of: (a) 150 calendar days after the
Effective Date or (b) the approval of a new investment advisory agreement by
the shareholders of the Fund. The Subsequent Interim Sub-Advisory Agreement
took effect as of the Effective Date and would terminate upon the earlier of:
(a) 150 calendar days after approval by the Board of the Initial Interim
Sub-Advisory Agreement on June 17, 2009, or (b) the approval of the new
investment sub-advisory agreement by shareholders of the Fund. In addition, the
advisory and sub-advisory fees earned by the Adviser and Sub-Adviser pursuant
to the Interim Agreements would be held in an interest-bearing escrow account
with the Fund's custodian during the terms of the Interim Agreements. Other
than the effective dates and the provisions set forth above regarding the
advisory and sub-advisory fees' placement into escrow accounts, the terms and
conditions of the Interim Agreements are substantively identical to those of
the original advisory agreement and the Initial Interim Sub-Advisory
Agreement.
On September 23, 2009, the Board of Trustees approved a new investment advisory
agreement between the Fund and the Adviser (the "New Advisory Agreement") and a
new investment sub-advisory agreement among the Fund, the Adviser and Manning &
Napier (the "New Sub-Advisory Agreement" and together with the New Advisory
Agreement, the "New Agreements"). Further, on September 23, 2009, the Board of
Trustees recommended that the New Agreements be submitted to the shareholders
of the Fund for their approval. The New Agreements would take effect with
respect to the Fund upon their approval by the shareholders of the Fund and
would have an initial term of one year. Thereafter, the New Agreements would
continue in effect only if their continuance is approved by the Board of
Trustees. Other than effective dates, there are no material differences between
the terms of the New Advisory Agreement and those of the previous Advisory
Agreement and between the terms of the New Sub-Advisory Agreement and those of
the Initial Interim Sub-Advisory Agreement.
On November 4, 2009, Shareholders of the Fund approved the New Advisory
Agreement between the Fund and Claymore Advisors LLC, and the New Sub-Advisory
Agreement among the Fund, Claymore Advisors LLC, and Manning & Napier Advisors,
Inc.
Under a separate Fund Administration agreement, the Adviser provides fund
administration services to the Fund.
The Adviser receives a fund administration fee payable monthly at the annual
rate set forth below as a percentage of the average daily managed assets of the
Fund.
MANAGED ASSETS RATE
--------------------------------------------------------------------------------
First $200,000,000 0.0275%
Next $300,000,000 0.0200%
Next $500,000,000 0.0150%
Over $1,000,000,000 0.0100%
--------------------------------------------------------------------------------
For the year ended October 31, 2009 the Fund recognized expenses of
approximately $53,117 for these services.
Annual Report | October 31, 2009 | 25
DCS | Claymore Dividend & Income Fund | NOTES TO FINANCIAL STATEMENTS
continued
The Bank of New York Mellon ("BNY") acts as the Fund's custodian, accounting
agent, transfer agent and auction agent. As custodian, BNY is responsible for
the custody of the Fund's assets. As accounting agent BNY is responsible for
maintaining the books and records of the Fund's securities and cash. As
transfer agent, BNY is responsible for performing transfer agency services for
the Fund. As auction agent, BNY is responsible for conducting the auction of
the preferred shares.
Note 4 -- FEDERAL INCOME TAXES:
The Fund intends to comply with the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies. Accordingly, no provision for U.S. federal income taxes is required.
In addition, by distributing substantially all of its ordinary income and
long-term capital gains, if any, during each calendar year, the Fund intends
not to be subject to U.S. federal excise tax.
Due to inherent differences in the recognition of income, expenses, and
realized gains/losses under U.S. generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax basis
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities. A permanent book and tax difference relating to the
distributions received from real estate investment trusts, royalty trusts,
partnerships, and trust preferred securities totaling $1,451,191 was
reclassified from accumulated net investment income to accumulated net realized
loss. A permanent book and tax difference relating to gains on foreign currency
transactions in the amount of $5,542 was reclassified from accumulated net
realized loss to accumulated net investment loss. Subsequent to the October 31,
2008, reporting period, it was determined that a reclassification of $160,046
was required between ordinary income and return of capital, resulting in a
recharacterization between distributions paid from ordinary income and
distributions paid from return of capital. This reclassification related to
real estate investment trusts, royalty trusts and partnerships held by the Fund
and was the result of information becoming available on the investments after
the prior year-end.
Information on the components of net assets on a tax basis as of October 31,
2009 is as follows:
NET TAX UNDISTRIBUTED UNDISTRIBUTED
NET TAX UNREALIZED ORDINARY LONG-TERM
COST OF GROSS TAX GROSS TAX UNREALIZED DEPRECIATION ON INCOME/ GAINS/
INVESTMENTS UNREALIZED UNREALIZED DEPRECIATION ON DERIVATIVES AND (ACCUMULATED) (ACCUMULATED)
FOR TAX PURPOSES APPRECIATION DEPRECIATION INVESTMENTS FOREIGN CURRENCY ORDINARY LOSS) CAPITAL LOSS)
-------------------------------------------------------------------------------------------------------------------
$232,737,059 $20,199,618 ($58,289,989) ($38,090,371) ($2) $1,216,117 ($672,041,225)
-------------------------------------------------------------------------------------------------------------------
The difference between book and tax basis unrealized appreciation/(depreciation)
is attributable to the tax deferral of losses on wash sales, income
reclassifications from real estate investment trusts, royalty trusts,
partnerships and investments in preferred securities.
For the years ended October 31, 2009 and 2008, the tax character of
distributions paid to common and preferred shareholders as reflected in the
statement of changes in net assets was as follows:
At October 31, 2009, for federal income tax purposes, the Fund had a capital
loss carryforward of $672,041,225 available to offset possible future capital
gains. Of the capital loss carryforward $228,735,354 is set to expire on
October 31, 2016, and $443,305,871 is set to expire on October 31, 2017.
DISTRIBUTIONS PAID FROM: 2009 2008
--------------------------------------------------------------------------------
Capital gain - common shares $ -- $ 377,304*
Capital gain - preferred shares -- 164,966*
Ordinary income - common shares 5,901,925 42,558,705
Ordinary income -- preferred shares 1,895,225 18,537,603
Return of capital- common shares -- 16,083,242
--------------------------------------------------------------------------------
$7,797,150 $77,721,820
================================================================================
* The Fund hereby designates these distributions as long term capital gains
according to IRC Section 852(b)(3)(C).
For all open tax years and all major jurisdictions, management of the Fund has
concluded that there are no significant uncertain tax positions that would
require recognition in the financial statements. Open tax years are those that
are open for examination by taxing authorities (i.e. generally the last four
tax year ends and the interim tax period since then). Furthermore, management
of the Fund is also not aware of any tax positions for which it is reasonably
possible that the total amounts of unrecognized tax benefits will significantly
change in the next twelve months.
Note 5 -- INVESTMENTS IN SECURITIES:
For the year ended October 31, 2009, the cost of purchases and proceeds from
sales of investments, excluding options and short-term securities, were
$331,021,445 and $422,788,591, respectively.
26 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | NOTES TO FINANCIAL STATEMENTS
continued
Transactions in option contracts during the year ended October 31, 2009 were as
follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------------------------------------------------------------------------------
Options outstanding, beginning of year 40,208 $15,628,765
Options written during the period -- --
Options expired during the period -- --
Options closed during the period (23,200) (8,497,251)
Options assigned during the period (17,008) (7,131,514)
--------------------------------------------------------------------------------
Options outstanding, end of period -- $ --
--------------------------------------------------------------------------------
Note 6 -- CAPITAL:
COMMON SHARES
The Fund has an unlimited amount of common shares, $0.01 par value, authorized
and 9,079,884 (reflecting the 1 for 5 reverse stock split that occurred prior
to the opening of trading on the New York Stock Exchange on June 5, 2009)
issued and outstanding. In connection with the Fund's dividend reinvestment
plan, the Fund did not issue any shares during the years ended October 31, 2009
and 2008.
PREFERRED SHARES
On March 23, 2004, the Fund issued 3,400 shares of Preferred Shares Series M7,
3,400 shares of Preferred Shares Series T28, 3,400 shares of Preferred Shares
Series W7, 3,400 shares of Preferred Shares Series TH28 and 3,400 shares of
Preferred Shares Series F7 each with a net asset and liquidation value of
$25,000 per share plus accrued dividends. On September 29, 2008 and October 20,
2008, the Fund announced redemptions of 1,200 shares of each series of Auction
Market Preferred Shares ("AMPS"), respectively. On November 26, 2008, January
30, 2009 and February 26, 2009, the Fund announced redemptions of 80 shares,
120 shares and 280 shares of each series respectively. On July 24, 2009, the
Fund announced redemptions of 120 shares from each series M7, W7 and F7 and 520
shares from each of series T28 and TH28, which fully redeemed series T28 and
TH28. The Bank of New York Mellon is the auction agent and provides
administrative, transfer agency, and dividend distribution services for the
preferred shares. Dividends are accumulated daily at an annual rate set through
auction procedures. As of October 31, 2009, there were 400 shares outstanding
of each series M7, W7 and F7.
The broad auction-rate preferred securities market, including the Fund's AMPS,
has continued to experience considerable disruption since February 2008. The
result has been failed auctions on nearly all auction-rate preferred shares,
including the Fund's AMPS.A failed auction is not a default, nor does it
require the redemption of the Fund's AMPS. Provisions in the offering documents
of the Fund's AMPS provide a mechanism to set a maximum rate in the event of a
failed auction. This maximum rate is LIBOR + 1.25% or LIBOR x 125%, whichever
is greater. On November 26, 2008, Fitch Ratings, one of the two rating agencies
that provide credit ratings to the Fund's AMPS, downgraded the rating assigned
to the AMPS issued by the Fund to 'AA' from 'AAA'. Due to the downgrade, the
maximum rates were based on a spread of 150 basis points over the applicable
LIBOR rates.
Dividends are accumulated daily at an annual rate set through auction
procedures.
For the year ended October 31, 2009, the annualized dividend rates ranged
from:
HIGH LOW AT OCTOBER 31, 2009
--------------------------------------------------------------------------------
Series M7 3.29% 1.73% 1.73%
Series T28 5.39% 1.79% N/A
Series W7 3.27% 1.72% 1.72%
Series TH28 4.51% 1.78% N/A
Series F7 2.57% 1.72% 1.72%
N/A -- Not applicable as this series was fully redeemed during the period.
The Fund is subject to certain limitations and restrictions while AMPS are
outstanding. Failure to comply with these limitations and restrictions could
preclude the Fund from declaring any dividends or distributions to common
shareholders or repurchasing common shares and/or could trigger the mandatory
redemption of AMPS at their liquidation value.
AMPS, which are entitled to one vote per share, generally vote with the common
stock but vote separately as a class to elect Class I Trustees and on any
matters affecting the rights of the AMPS.
Note 7 -- BORROWINGS:
On August 5, 2009, the Fund entered into a $30,000,000 committed credit
facility agreement whereby the counterparty has agreed to provide secured
financing to the Fund and the Fund will provide pledged collateral to the
counterparty. Interest on the amount borrowed is based on the 3-month LIBOR
plus 0.95% . An unused commitment fee of 0.85% is charged on the difference
between the $30,000,000 credit agreement and the amount borrowed. An
origination fee of $37,500 was paid by the Fund and is reflected in Interest
Expense on the Statement of Operations. As of October 31, 2009, there was
$30,000,000 outstanding in connection
Annual Report | October 31, 2009 | 27
DCS | Claymore Dividend & Income Fund | NOTES TO FINANCIAL STATEMENTS
continued
with the Fund's credit facility. The average daily amount of the borrowings on
the credit facility during the year ended October 31, 2009 was $27,197,674 with
a related average interest rate of 1.37% . The maximum amount outstanding
during the period was $30,000,000.
Note 8 -- INDEMNIFICATIONS:
In the normal course of business, the Fund enters into contracts that contain a
variety of representations, which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown, as this would require
future claims that may be made against the Fund that have not yet occurred.
However, the Fund expects the risk of loss to be remote.
Note 9 -- ACCOUNTING PRONOUNCEMENTS:
The Fund adopted ASC 815, Derivatives and Hedging ("ASC815") (formerly known as
FAS No. 161), effective October 31, 2009. ASC815 is intended to improve
financial reporting about derivative instruments by requiring enhanced
disclosures to enable investors to better understand: a) how and why a fund
uses derivative instruments, b) how derivatives instruments and related hedge
fund items are accounted for, and c) how derivative instruments and related
hedge items affect a fund's financial position, results of operations and cash
flows.
The following table presents the effect of Derivative Instruments on the
Statement of Operations for the year ended October 31, 2009:
AMOUNT OF REALIZED GAIN/(LOSS) ON DERIVATIVES (value in 000s)
--------------------------------------------------------------------------------
Foreign Currency
Options Transactions Futures Total
--------------------------------------------------------------------------------
Equity risk ($48,178) $ -- $4,560 ($43,618)
Foreign exchange risk -- 5 -- 5
--------------------------------------------------------------------------------
Total ($48,178) $ 5 $4,560 ($43,613)
--------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION ON DERIVATIVES (value in 000s)
--------------------------------------------------------------------------------
Foreign Currency
Options Transactions Futures Total
--------------------------------------------------------------------------------
Equity risk $57,714 $-- ($2,705) $55,009
Foreign exchange risk -- -- -- --
--------------------------------------------------------------------------------
Total $57,714 $-- ($2,705) $55,009
--------------------------------------------------------------------------------
Transactions in futures contracts during the year ended October 31, 2009 were as
follows:
NUMBER OF
CONTRACTS
--------------------------------------------------------------------------------
Futures outstanding, beginning of year 38
--------------------------------------------------------------------------------
Futures opened --
Futures closed (38)
--------------------------------------------------------------------------------
Futures outstanding, end of period --
================================================================================
The transactions in options contracts for the year ended October 31, 2009, is
disclosed in Note 5.
Note 10 -- SUBSEQUENT EVENT:
On November 2, 2009, the Board of Trustees declared a quarterly dividend of
$0.100 per common share. This dividend was payable on November 30, 2009, to
shareholders of record on November 13, 2009.
On November 3, 2009, the Fund fell out of compliance with NYSE corporate
governance listing standards as a result of not completing its shareholder
meeting within the fiscal year ended October 31, 2009. The Fund cured such
non-compliance as of November 4, 2009, the date the Fund completed its
shareholder meeting.
On November 4, 2009, shareholders of the Fund approved the new investment
advisory agreement between the Fund and Claymore Advisors LLC, and the new
investment sub-advisory agreement among the Fund, Claymore Advisors LLC, and
Manning & Napier Advisors, Inc.
On December 1, 2009, the Fund, as a part of its continuing efforts to increase
shareholder value, offered to purchase up to approximately 45% of the Fund's
outstanding common shares in exchange for a pro-rata portion of the Fund's
portfolio securities, subject to certain adjustments, at 99.5% of the net asset
value ("NAV") per common share. The in-kind tender commenced on December 1,
2009. The offer will expire at 11:59 p.m., Eastern Time, on January 4, 2010
(the "Expiration Date"), unless the offer is extended. The Tender Pricing Date
is expected to be January 5, 2010. The offer is being made upon the terms and
subject to the conditions set forth in the Offer to Repurchase, which will be
mailed on or about December 1, 2009, to record holders of common shares as of
November 24, 2009.
On December 16, 2009, the Board of Trustees declared a supplemental dividend of
$0.161 per share. This dividend was payable on December 29, 2009, to
shareholders of record on December 23, 2009.
28 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund
Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF CLAYMORE DIVIDEND & INCOME FUND
We have audited the accompanying statement of assets and liabilities of
Claymore Dividend & Income Fund (the "Fund"), including the portfolio of
investments, as of October 31, 2009, and the related statements of operations
and cash flows for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of October 31, 2009, by correspondence with
the custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position Claymore
Dividend & Income Fund at October 31, 2009, and the results of its operations
and its cash flows for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
December 23, 2009
Annual Report | October 31, 2009 | 29
DCS | Claymore Dividend & Income Fund
Supplemental INFORMATION | (unaudited)
FEDERAL INCOME TAX INFORMATION
The Fund recognized qualified dividend income of $6,749,652 during the fiscal
year ended October 31, 2009. The Fund intends to designate the maximum amount
of dividends that qualify for the reduced tax rate pursuant to the Jobs and
Growth Tax Relief Reconciliation Act of 2003.
For corporate shareholders, $3,752,556 of investment income qualifies for the
dividends-received deduction.
In January 2010, you will be advised on IRS Form 1099 DIV or substitute 1099
DIV as to the federal tax status of the distributions received by you in the
calendar year 2009.
RESULT OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Fund was held on October 23, 2009,
and reconvened on November 4, 2009. Common and preferred shareholders voted on
the election of Trustees and the proposal for a new Investment Advisory
Agreement and Investment Sub Advisory agreement. With regard to the election of
the following Trustees by common and preferred shareholders of the Fund and the
proposal for the new Investment Advisory Agreement and Investment Sub Advisory
Agreement:
# OF SHARES # OF SHARES
IN FAVOR WITHHELD
--------------------------------------------------------------------------------
Roman Friedrich III 4,244,128 514,152
--------------------------------------------------------------------------------
Ronald A. Nyberg 4,244,095 514,185
--------------------------------------------------------------------------------
New Investment Advisory Agreement 4,282,113 202,764
--------------------------------------------------------------------------------
New Investment Sub Advisory Agreement 4,273,510 207,142
--------------------------------------------------------------------------------
The other Trustees of the Fund whose terms did not expire in 2009 are Richard
L. Crandall, David C. Hooten and Ronald E. Toupin, Jr.
TRUSTEES
The Trustees of the Claymore Dividend & Income Fund and their principal
occupations during the past five years:
NAME, ADDRESS*, YEAR TERM OF OFFICE** PRINCIPAL OCCUPATIONS DURING NUMBER OF PORTFOLIOS OTHER
OF BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND IN THE FUND COMPLEX*** DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
------------------------------------------------------------------------------------------------------------------------------------
Richard L. Crandall Since 2004 Managing Partner of Aspen Partners, 1 Chairman, Novell,
Year of birth: 1944 LLC since 2003, Founding Co-Partner Inc., and Pelstar,
Trustee of Arbor Venture Partners, LLC LLC Director,
since 2000, and Chairman of Diebold, Inc.,
Enterprise Software Roundtable iTRACS Corp.
since 1994. Formerly, Director and
Special Advisor of GIGA Information
Group (1995-2003) and Chairman of
GIGA Information Group (2002-2003),
Founder and ex-Chairman and CEO of
Comshare, Inc. (1966-1994).
------------------------------------------------------------------------------------------------------------------------------------
Roman Friedrich III Since 2004 Founder of Roman Friedrich & 1 Director, StrataGold
Year of birth: 1946 Company, which specializes in the Corp.; Gateway Gold
Trustee provision of financial advisory Corp. and GFM
services to corporations in the Resources Ltd.
resource sector. Previously,
Managing Director at TD Securities.
Managing Director Lancaster
Financial Ltd.; Wood Gundy; Burns
Fry Ltd.; President, Chase
Manhattan Bank (Canada) Ltd.
------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Since 2004 Partner of Nyberg & Cassioppi, LLC, 47 None
Year of birth: 1953 a law firm specializing in
Trustee corporate law, estate planning and
business transactions from
2000-present. Formerly, Executive
Vice President, General Counsel and
Corporate Secretary of Van Kampen
Investments (1982-1999).
------------------------------------------------------------------------------------------------------------------------------------
Ronald E. Toupin, Jr. Since 2004 Retired. Formerly, Vice President, 44 None
Year of birth: 1958 Manager and Portfolio Manager of
Trustee Nuveen Asset Management
(1998-1999), Vice President of
Nuveen Investment Advisory Corp.
(1992-1999), Vice President and
Manager of Nuveen Unit Investment
Trusts (1991-1999), and Assistant
Vice President and Portfolio
Manager of Nuveen Unit Investment
Trusts (1988-1999), each of John
Nuveen & Company, Inc. (1982-1999).
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
------------------------------------------------------------------------------------------------------------------------------------
David C. Hooten+ Since 2008 Chairman of the Board of Directors 1 None
Year of birth: 1962 and Chief Executive Officer
Trustee (2001-present) of Claymore Group
------------------------------------------------------------------------------------------------------------------------------------
* Address for all Trustees unless otherwise noted: 2455 Corporate West Drive,
Lisle, IL 60532
** After a Trustee's initial term, each Trustee is expected to serve a
three-year term concurrent with the class of Trustees for which he serves:
-Mr. Toupin, as a Class II Trustee, is expected to stand for
re-election at the Fund's 2010 annual meeting of the shareholders.
-Messrs. Crandall and Hooten, as Class III Trustees, are expected to
stand for re-election at the Fund's 2011 annual meeting of
shareholders.
-Messrs. Friedrich and Nyberg, as Class I Trustees, are expected to
stand for re-election at the Fund's 2012 annual meeting of the
shareholders.
*** The Claymore Fund Complex consists of U. S. registered investment companies
advised or serviced by Claymore Advisors, LLC or Claymore Securities, Inc.
+ Mr. Hooten is an "interested person" (as defined in section 2(a)(19) of the
1940 Act) of the Fund because he is an officer of the Adviser and certain
of its affiliates.
30 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | SUPPLEMENTAL INFORMATION (unaudited)
continued
OFFICERS
The officers of the Claymore Dividend & Income Fund and their principal
occupations during the past five years:
NAME, ADDRESS*, YEAR OF BIRTH AND TERM OF OFFICE** AND PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS
POSITION(S) HELD WITH REGISTRANT LENGTH OF TIME SERVED AND OTHER AFFILIATIONS
------------------------------------------------------------------------------------------------------------------
OFFICERS:
------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell Effective Senior Managing Director and Chief Investment
Year of birth: 1955 June 5, 2008 Officer of Claymore Advisors, LLC and Claymore
Chief Executive Officer Securities Inc. (2008-Present). Formerly, Managing
Director of Research, Nuveen Asset Management
(2000-2007).
------------------------------------------------------------------------------------------------------------------
Kevin Robinson Effective Senior Managing Director and General Counsel of
Year of birth: 1959 June 5, 2008 Claymore Advisors, LLC and Claymore Group, Inc.
Chief Legal Officer, Secretary (2007-present). Formerly, Associate General
Counsel and Assistant Corporate Secretary of NYSE
Euronext, Inc. (2000-2007).
------------------------------------------------------------------------------------------------------------------
Steven M. Hill Since 2004 Senior Managing Director of Claymore Advisors, LLC
Year of birth: 1964 and Claymore Securities, Inc. (2005-present).
Chief Accounting Officer, Formerly, Chief Financial Officer of Claymore
Chief Financial Officer and Treasurer Group Inc. (2005-2006); Managing Director of
Claymore Advisors, LLC and Claymore Securities,
Inc. (2003-2005). Treasurer of Henderson Global
Funds and Operations Manager for Henderson Global
Investors (NA) Inc., (2002-2003). Managing
Director, FrontPoint Partners LLC (2001-2002).
------------------------------------------------------------------------------------------------------------------
Bruce Saxon Since 2006 Vice President, Fund Compliance Officer of
Year of birth: 1957 Claymore Advisors, LLC (2006 to present). Chief
Chief Compliance Officer Compliance Officer/Assistant Secretary of Harris
Investment Management, Inc. (2003-2006).
Director-Compliance of Harrisdirect LLC
(1999-2003).
------------------------------------------------------------------------------------------------------------------
Mark E. Mathiasen Since 2008 Vice President; Assistant General Counsel of
Year of birth: 1978 Claymore Group Inc. (2007-present). Secretary of
Assistant Secretary certain funds in the Fund Complex. Previously, Law
Clerk, Idaho State Courts (2003-2006).
------------------------------------------------------------------------------------------------------------------
* Address for all Officers: 2455 Corporate West Drive, Lisle, IL 60532
** Officers serve at the pleasure of the Board of Trustees and until his or
her successor is appointed and qualified or until his or her earlier
resignation or removal.
Annual Report | October 31, 2009 | 31
DCS | Claymore Dividend & Income Fund
Dividend Reinvestment PLAN | (unaudited)
Unless the registered owner of common shares elects to receive cash by
contacting the Plan Administrator, all dividends declared on common shares of
the Fund will be automatically reinvested by The Bank of New York Mellon (the
"Plan Administrator"), Administrator for shareholders in the Fund's Dividend
Reinvestment Plan (the "Plan"), in additional common shares of the Fund.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by notice if received and processed by the
Plan Administrator prior to the dividend record date; otherwise such
termination or resumption will be effective with respect to any subsequently
declared dividend or other distribution. Some brokers may automatically elect
to receive cash on your behalf and may re-invest that cash in additional common
shares of the Fund for you. If you wish for all dividends declared on your
common shares of the Fund to be automatically reinvested pursuant to the Plan,
please contact your broker.
The Plan Administrator will open an account for each common shareholder under
the Plan in the same name in which such common shareholder's common shares are
registered. Whenever the Fund declares a dividend or other distribution
(together, a "Dividend") payable in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the equivalent in common
shares. The common shares will be acquired by the Plan Administrator for the
participants' accounts, depending upon the circumstances described below,
either (i) through receipt of additional unissued but authorized common shares
from the Fund ("Newly Issued Common Shares") or (ii) by purchase of outstanding
common shares on the open market ("Open-Market Purchases") on the New York
Stock Exchange or elsewhere. If, on the payment date for any Dividend, the
closing market price plus estimated brokerage commission per common share is
equal to or greater than the net asset value per common share, the Plan
Administrator will invest the Dividend amount in Newly Issued Common Shares on
behalf of the participants. The number of Newly Issued Common Shares to be
credited to each participant's account will be determined by dividing the
dollar amount of the Dividend by the net asset value per common share on the
payment date; provided that, if the net asset value is less than or equal to
95% of the closing market value on the payment date, the dollar amount of the
Dividend will be divided by 95% of the closing market price per common share on
the payment date. If, on the payment date for any Dividend, the net asset value
per common share is greater than the closing market value plus estimated
brokerage commission, the Plan Administrator will invest the Dividend amount in
common shares acquired on behalf of the participants in Open-Market Purchases.
If, before the Plan Administrator has completed its Open-Market Purchases, the
market price per common share exceeds the net asset value per common share, the
average per common share purchase price paid by the Plan Administrator may
exceed the net asset value of the common shares, resulting in the acquisition
of fewer common shares than if the Dividend had been paid in Newly Issued
Common Shares on the Dividend payment date. Because of the foregoing difficulty
with respect to Open-Market Purchases, the Plan provides that if the Plan
Administrator is unable to invest the full Dividend amount in Open-Market
Purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Administrator may cease
making Open-Market Purchases and may invest the uninvested portion of the
Dividend amount in Newly Issued Common Shares at net asset value per common
share at the close of business on the Last Purchase Date provided that, if the
net asset value is less than or equal to 95% of the then current market price
per common share; the dollar amount of the Dividend will be divided by 95% of
the market price on the payment date.
The Plan Administrator maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Common shares in the
account of each Plan participant will be held by the Plan Administrator on
behalf of the Plan participant, and each shareholder proxy will include those
shares purchased or received pursuant to the Plan. The Plan Administrator will
forward all proxy solicitation materials to participants and vote proxies for
shares held under the Plan in accordance with the instruction of the
participants.
There will be no brokerage charges with respect to common shares issued
directly by the Fund. However, each participant will pay a pro rata share of
brokerage commission incurred in connection with Open-Market Purchases. The
automatic reinvestment of Dividends will not relieve participants of any
Federal, state or local income tax that may be payable (or required to be
withheld) on such Dividends.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan; however,
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants.
All correspondence or questions concerning the Plan should be directed to the
Plan Administrator, BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh
PA 15252-8015; Attention: Shareholder Services Department, Phone Number: (866)
488-3559.
32 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund
Board Approval of Manning & Napier SUB-ADVISORY AGREEMENT
On June 17, 2009, the Board, including those trustees who are not interested
persons as defined by the 1940 Act (the "Independent Trustees"), considered the
approval of a new Sub-Advisory Agreement (the "Manning & Napier Sub-Advisory
Agreement"). As part of its review process, the Nominating & Governance
Committee of the Board (sometimes referred to as the "Committee" and consisting
solely of the Independent Trustees) was represented by independent legal
counsel. The Board reviewed materials received from the Adviser, Manning &
Napier and independent legal counsel in connection with the Board meeting held
on June 17, 2009, and in connection with Board meetings held on April 1, 2009,
and May 7, 2009.
During these meetings, the Board had considered various strategic alternatives
available to the Fund as a result of the Fund's significant underperformance
relative to broad market benchmarks and the decline in the value of the Fund's
assets. Among the alternatives considered by the Board were the liquidation of
the Fund, merging the Fund with another fund, retaining Dreman Value
Management, LLC ("DVM") as the Fund's sub-adviser and replacing DVM with
another sub-adviser. The Board noted that, after evaluating available
alternatives, the Adviser had recommended replacing DVM with another
sub-adviser as the best strategic alternative available to the Fund. The Board
also considered that the Fund has a significant capital loss carry-forward for
federal income tax purposes and that such carry-forward is available to offset
future capital gains through October 31, 2016. The Board considered that the
Adviser had identified several concerns that had led to its recommendation to
replace DVM as sub-adviser to the Fund, including the Fund's significant
underperformance, increasing evidence that shareholders of the Fund had lost
confidence in DVM and certain matters identified by DVM to the Board related to
DVM's internal advisory compliance procedures and practices.
Based upon its review, the Committee concluded that it was in the best
interests of the Fund to approve the termination of the DVM Sub-Advisory
Agreement and to approve the Manning & Napier Sub-Advisory Agreement and to
recommend these actions to the Board, which the Board subsequently approved. In
reaching this conclusion for the Fund, no single factor was determinative in
the Board's analysis, but rather the Board considered a variety of factors.
On September 23, 2009, in connection with its consideration of the Transaction
and its approval of the Interim Advisory Agreement and New Advisory Agreement,
the Board, including the Independent Trustees, considered the Subsequent
Interim Sub-Advisory Agreement and the New Sub-Advisory Agreement. The Board
noted that while the closing of the Transaction may result in the automatic
termination of the Initial Interim Sub-Advisory Agreement pursuant to its
terms, Manning & Napier was not involved in the Transaction and the operations
of Manning & Napier and services to be provided to the Fund by Manning & Napier
would be unaffected by the Transaction. The Board noted that there were no
material differences between the terms of the Initial Interim Sub-Advisory
Agreement, the Subsequent Interim Sub-Advisory Agreement and the New
Sub-Advisory Agreement, except with respect to those provisions required by
Rule 15a-4. The Board noted that the factors previously considered with respect
to approval of the Initial Interim Sub-Advisory Agreement continued to support
the approval of the Subsequent Interim Sub-Advisory Agreement and New
Sub-Advisory Agreement. Based upon its review, the Board concluded that it was
in the best interests of the Fund to approve the Subsequent Interim
Sub-Advisory Agreement and the New Sub-Advisory Agreement. The Board approved
the New Sub-Advisory Agreement for a one-year term. However, the Board also
determined to consider the continuation of the New Sub-Advisory Agreement
during the course of the one-year term by conducting a thorough review of the
various information that is part of the Board's regular annual consideration of
the continuation of the Fund's advisory agreements.
The Board considered the following factors, and made certain findings and
conclusions with regard thereto, for the Fund in approving the Manning & Napier
Sub-Advisory Agreement.
Nature, Quality and Extent of Services. The Board considered the nature, quality
and extent of services anticipated to be provided under the Manning & Napier
Sub-Advisory Agreement. The Board considered the reputation, qualifications and
background of Manning & Napier, investment approach of Manning & Napier, the
experience and skills of Manning & Napier's investment personnel who would be
responsible for the day-to-day management of the Fund, and the resources made
available to such personnel. In addition, the Board considered the quantitative
screening process undertaken by the Adviser in identifying and recommending
Manning & Napier as a replacement sub-adviser for the Fund and the Adviser's
review of Manning & Napier's compliance program.
Investment Performance. The Board reviewed the historical performance of
Manning & Napier as compared to other domestic equity managers categorized by
Zephyr as "Large Value" managers. The Board noted that, after analyzing the
performance of the universe of "Large Value" managers using a variety of
quantitative metrics, including total returns over a variety of short-term and
long-term timeframes, upside and downside market capture and annualized
standard deviation over a five-year timeframe, the Adviser determined that
Manning & Napier represented the best potential replacement for DVM as
sub-adviser to the Fund. The Board concluded, based on this information, that
investment performance with Manning & Napier as sub-adviser was expected to be
satisfactory.
Fees and Expenses. The Board considered that the subadvisory fee proposed to be
paid to Manning & Napier was intended to equal the subadvisory fee paid to DVM,
with Manning & Napier agreeing to continue fee waivers previously agreed to by
DVM, although the method by which the fee is calculated differs. The Board
considered that the subadvisory fee rate was negotiated at arm's length between
the Adviser and Manning & Napier and that the Adviser would compensate Manning
& Napier from its fees. As a result, the Board considered that the total
advisory fee to be paid by the Fund would not change. The Board also considered
that Manning & Napier had agreed to waive its subadvisory fees for the initial
two months following the effectiveness of the Manning & Napier Sub-Advisory
Agreement and to set off costs associated with the change of the Fund's
subadviser in an amount not to exceed $50,000 against amounts owed by the
Adviser to Manning & Napier under the Manning & Napier Sub-Advisory Agreement,
provided that the Fund's shareholders approve the Manning & Napier Sub-Advisory
Agreement. On the basis of the information provided, the Board concluded that
the proposed subadvisory fee schedule for the Fund was reasonable.
Profitability. The Board concluded that Manning & Napier's anticipated
profitability would not be unreasonable. In reaching this conclusion, the Board
determined that they need not review the estimated level of profits to Manning
& Napier. They based this decision on the facts that the proposed subadvisory
fees were determined to be reasonable and that the Adviser proposed to
compensate Manning & Napier from its own fees, having negotiated the Manning &
Napier Sub-Advisory Agreement with Manning & Napier at arm's-length.
Economies of Scale. The Board considered whether there are economies of scale
with respect to the subadvisory services proposed to be provided to the Fund
under the Manning & Napier Sub-Advisory Agreement. The Board considered the
Adviser's statement that it believes the appointment of Manning & Napier has
the potential to improve the Fund's performance, thereby increasing the Fund's
assets and spreading its fixed costs over a larger asset base. The Board
concluded that the fee schedule reflects an appropriate recognition of
economies of scale at currently anticipated asset levels.
Other Benefits to Manning & Napier. The Board considered other benefits
expected to be derived by Manning & Napier from its proposed relationship with
the Fund, including Manning & Napier's use of soft dollars.
Overall Conclusions. After considering various strategic options available to
the Fund, the Board determined that entering into the Manning & Napier
Sub-Advisory Agreement was in the best interests of the Fund. Based upon all of
the information considered and the conclusions reached, the Board determined
that the proposed terms of the Manning & Napier Sub-Advisory Agreement were
fair and reasonable.
Annual Report | October 31, 2009 | 33
DCS | Claymore Dividend & Income Fund
Interim Advisory Agreement and NEW ADVISORY AGREEMENT
The Board, including the Independent Trustees, approved each of the
Interim Advisory Agreement and the New Advisory Agreement. The Board reviewed
materials received from the Adviser, Guggenheim and independent legal counsel.
The Board also had previously received, throughout the year, Board meeting
information regarding performance and operating results of the Fund. In early
2009, the Adviser informed the Board that it was in discussions with Guggenheim
concerning a strategic transaction, including a potential sale of a controlling
interest in the Adviser (the "Transaction"). The Board requested and received
periodic reports from the Adviser as to the status and nature of such
discussions with Guggenheim and the Adviser's operating and financial results.
In the spring of 2009, the Adviser informed the Board that Guggenheim had
arranged up to $20 million of subordinated loans to Claymore Group as interim
financing for working capital and for inventory purchases in connection with
its business of creating, distributing and supervising unit investment trusts
and other investment products.
Following the execution of a merger agreement between Claymore and
Guggenheim (the "Merger Agreement"), on July 28, 2009, a telephonic meeting was
held and attended by board chairs and other representatives of the boards of
trustees of the registered investment companies for which the Adviser acts as
investment adviser, the chief executive officer of Claymore Group and the chief
executive officer of Guggenheim. Mr. Friedrich, the chairman of the Board of
the Fund, attended such meeting on behalf of the Board. Such executive officers
summarized the principal terms of the Merger Agreement, and described the
Transaction, the business plans for the Adviser following the consummation of
the Transaction and answered such questions as were raised at the meeting.
Representatives of such Claymore-advised investment companies, including the
Fund, requested additional information regarding the Transaction, Guggenheim,
subsidiaries created for the purposes of completing the Transaction (the
"Acquisition Subsidiaries") and the impact of the Transaction on the
shareholders of such investment companies.
During August and September 2009, the Fund's Nominating and Governance
Committee (the "Committee") received reports from the Adviser on the progress
of the Transaction, including the Debt Financing and additional equity
financing arranged by Guggenheim. As part of its review process, the Committee
was represented by independent legal counsel. The Committee reviewed materials
received from the Adviser, Guggenheim and independent legal counsel. The
Adviser and Guggenheim provided, among other information, information regarding
the terms of the Transaction and potential benefits to the Adviser from the
Transaction. The information provided regarding Guggenheim included (i)
financial information, (ii) information regarding senior executives of the
firm, (iii) information regarding other Guggenheim affiliated investment
managers, (iv) information regarding litigation and regulatory matters and (v)
potential conflicts of interest. The Adviser and Guggenheim also provided
information regarding Guggenheim's and the Adviser's intentions for the
business, operations and personnel of the Adviser following the Closing of the
Transaction.
The Board met and discussed the Transaction and the Interim Advisory
Agreement and the New Advisory Agreement on September 11, 2009, and September
23, 2009. The Committee also met and discussed these matters on September 15,
2009. At the meeting held on September 23, 2009, representatives from the
Adviser and Guggenheim discussed the Transaction with the Committee and
answered questions from the Committee. The Committee also met in executive
session to discuss the Transaction and the information provided at the
meetings. The Committee requested additional supplemental information regarding
the Transaction and Guggenheim, which was provided by the Adviser and
Guggenheim.
The Board met in person to consider the Interim Advisory Agreement and
the New Advisory Agreement on September 23, 2009. The Committee concluded that
it was in the best interest of the Fund to approve the Interim Advisory
Agreement and the New Advisory Agreement and, accordingly, recommend to the
Board the approval of the Interim Advisory Agreement and the New Advisory
Agreement. The Board subsequently approved the Interim Advisory Agreement and
the New Advisory Agreement. The Board approved the New Advisory Agreement for a
one-year term. However, the Board also determined to consider the continuation
of the New Advisory Agreement during the course of the one-year term by
conducting a thorough review of the various information that is part of the
Board's regular annual consideration of the continuation of the Fund's advisory
agreement. In reaching the conclusion to approve the Interim Advisory Agreement
and the New Advisory Agreement for the Fund, no single factor was determinative
in the Board's analysis, but rather the Board considered a variety of factors.
In connection with the Board's consideration of the Interim Advisory
Agreement and the New Advisory Agreement, the Trustees considered, among other
information, the following factors:
o within the last year, the Board had engaged in a thorough review of the
various factors, including fees and performance, that are part of the
decision whether to continue an advisory agreement;
o Board approval of each Fund's New and Interim Advisory Agreement were
conditions to the closing of the Transaction;
o Claymore's statement that the manner in which the Fund's assets were
managed will not change as a result of the Transaction;
o the aggregate management fee rate payable by the Fund would not change
under the Interim Advisory Agreement or New Advisory Agreement;
o there were no material differences between the terms of the Interim
Advisory Agreement and the New Advisory Agreement and the terms of the
Previous Advisory Agreement;
o the qualifications of the Adviser's personnel who would provide advisory
and administrative services to the Fund were not expected to change, and
the key personnel who currently provide advisory and administrative
services the Fund were expected to continue to do so after the Transaction;
o the assurance from the Adviser and Guggenheim that following the
Transaction there would not be any diminution in the nature, quality and
extent of services provided to the Fund;
o the Adviser's current financial condition;
o the impact of the Transaction on the Adviser's day-to-day operations;
o the reputation, capabilities, experience, organizational structure and
financial resources of Guggenheim;
o the long-term business goals of Guggenheim and the Adviser with regard to
the business and operations of the Adviser;
o that Fund shareholders would not bear any costs in connection with the
Transaction; and
o that the Adviser and the Acquisition Subsidiaries agreed to refrain from
imposing or seeking to impose, for a period of two years after the Closing,
any"unfair burden" (within the meaning of Section 15(f) of 1940 Act) on the
Fund.
34 | Annual Report | October 31, 2009
DCS | Claymore Dividend & Income Fund | INTERIM ADVISORY AGREEMENT AND NEW
ADVISORY AGREEMENT continued
Nature, Extent and Quality of Services Provided by the Adviser. The
Board noted that key investment and management personnel servicing the Fund are
expected to remain with the Adviser following the Transaction and that the
Adviser and Guggenheim intend for the Adviser to continue to attract talented
and experienced personnel and that the services provided to the Fund by the
Adviser are not expected to change. The Board also considered the Adviser's and
Guggenheim's representations to the Board that Guggenheim intends for the
Adviser to continue to operate following the closing of the Transaction in much
the same manner as it operates today, and that the impact of the Transaction on
the day-to-day operations of the Adviser would be neutral or positive. The
Board also considered Guggenheim's statement that the Adviser's compliance
policies and procedures, disaster recovery plans, information security controls
and insurance program would not change materially following consummation of the
Transaction. Based on this review, the Board concluded that the range and
quality of services provided by the Adviser to the Fund were expected to
continue under the Interim Advisory Agreement and the New Advisory Agreement at
the same or improved levels.
Advisory Fees. The Board also considered the fact that the advisory fees
payable to the Adviser would be the same under the Interim Advisory Agreement
and the New Advisory Agreement as they are under the Current Advisory Agreement
which had within the last year been determined to be reasonable. The Board
concluded that these factors supported approved of the Interim Advisory
Agreement and the New Advisory Agreement.
Performance. With respect to the performance of the Fund, the Board
considered that the Adviser had delegated responsibility for the management of
the Fund's portfolio to Manning & Napier and that Manning & Napier would
continue to manage the portfolio following the closing of the Transaction,
pending shareholder approval of the New Sub-Advisory Agreement. The Board also
noted that it had recently concluded that the Fund's performance with Manning &
Napier as sub-adviser was expected to be satisfactory. The Board concluded that
these factors supported approval of the Interim Advisory Agreement and the New
Advisory Agreement.
Profitability. Because the Adviser's fees under the Interim Advisory
Agreement and the New Advisory Agreement were the same as those assessed under
the Previous Advisory Agreement, and in light of the capital infusion provided
by Guggenheim to support the Adviser's operations, the Board concluded that the
profits to be realized by the Adviser under the Interim Advisory Agreement and
the New Advisory Agreement and from other relationships between the Fund and
the Adviser, if any, were not expected to be unreasonable. The Board further
noted that, although it is not possible to predict how the Transaction may
affect the Adviser's future profitability from its relationship with the Fund,
this matter would be given further consideration on an annual basis going
forward.
Economies of Scale. The Board noted its prior determination that any
economies of scale were appropriately reflected in the advisory fees and
considered any potential economies of scale that may result from the
Transaction. The Board further noted Guggenheim's statement that no economies
of scale were anticipated from the Transaction. The Board concluded that any
economies of scale that can currently be identified are appropriately reflected
in the current advisory fees.
Other Benefits. The Board noted its prior determination that the
advisory fees were reasonable, taking into consideration other benefits to the
Adviser (including the receipt by Claymore of an administrative fee). The Board
also considered other benefits to the Adviser, Guggenheim and their affiliates
expected to be derived from their relationships with the Fund as a result of
the Transaction and noted that no additional benefits were reported by the
Adviser or Guggenheim as a result of the Transaction. Therefore, the Board
concluded that the advisory fees continued to be reasonable, taking into
consideration other benefits.
Annual Report | October 31, 2009 | 35
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DCS | Claymore Dividend & Income Fund
Fund INFORMATION |
BOARD OF TRUSTEES
Richard L. Crandall
Roman Friedrich III, Chairman
David C. Hooten*
Ronald A. Nyberg
Ronald E. Toupin, Jr.
* Trustee is an "interested person" of the Fund as defined in the Investment
Company Act of 1940, as amended.
OFFICERS
J.Thomas Futrell
Chief Executive Officer
Kevin Robinson
Chief legal Officer
Steven M. Hill
Chief Accounting Officer, Chief
Financial Officer and Treasurer
Bruce Saxon
Chief Compliance Officer
Mark E. Mathiasen
Assistant Secretary
Melissa J. Nguyen
Assistant Secretary
INVESTMENT SUB-ADVISER
Manning & Napier Advisors, Inc.
Fairport, New York
INVESTMENT ADVISER AND
ADMINISTRATOR
Claymore Advisors, LLC
Lisle, Illinois
CUSTODIAN AND
TRANSFER AGENT
The Bank of New York Mellon
New York, New York
PREFERRED STOCK --
DIVIDEND PAYING AGENT
The Bank of New York Mellon
New York, New York
LEGAL COUNSEL
Skadden, Arps, Slate,
Meagher & Flom LLP
Chicago, Illinois
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, Illinois
PRIVACY PRINCIPLES OF CLAYMORE DIVIDEND & INCOME FUND FOR SHAREHOLDERS
The Fund is committed to maintaining the privacy of its shareholders and to
safeguarding its non-public personal information. The following information is
provided to help you understand what personal information the Fund collects,
how we protect that information and why, in certain cases, we may share
information with select other parties.
Generally, the Fund does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information
of its shareholders may become available to the Fund. The Fund does not
disclose any non-public personal information about its shareholders or former
shareholders to anyone except as permitted by law or as is necessary in order
to service shareholder accounts (for example, to a transfer agent or third
party administrator).
The Fund restricts access to non-public personal information about the
shareholders to Claymore Advisors, LLC employees with a legitimate business
need for the information. The Fund maintains physical, electronic and
procedural safeguards designed to protect the non-public personal information
of its shareholders.
QUESTIONS CONCERNING YOUR SHARES OF CLAYMORE DIVIDEND & INCOME 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 Custodian and Transfer Agent:
The Bank of New York Mellon, 101 Barclay 11W, New York, New York 10286
(866) 488-3559
This report is sent to shareholders of Claymore Dividend & Income Fund 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.
A description of the Fund's proxy voting policies and procedures related to
portfolio securities is available without charge, upon request, by calling the
Fund at (866) 392-3004.
Information regarding how the Fund voted proxies for portfolio securities, if
applicable, during the most recent 12-month period ended June 30, is also
available, without charge and upon request by calling (866) 392-3004, by
visiting Claymore's website at www.claymore.com/dcs or by accessing the Fund's
Form N-PX on the U.S. Securities and Exchange Commission's (SEC) website at
www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q
is available on the SEC website at www.sec.gov or www.claymore.com/dcs. The
Fund's Form N-Q may also be viewed and copied at the SEC's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
In November 2009, the Fund submitted a CEO annual certification to the New York
Stock Exchange ("NYSE") in which the Fund's principal executive officer
certified that he was not aware, as of the date of the certification, of any
violation by the Fund of the NYSE's Corporate Governance listing standards. In
addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and
related SEC rules, the Fund's principal executive and principal financial
officers have made quarterly certifications, included in filings with the SEC
on Forms N-CSR and N-Q, relating to, among other things, the Fund's disclosure
controls and procedures and internal control over financial reporting.
NOTICE TO SHAREHOLDERS
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Fund from time to time may purchase
shares of its common and preferred stock in the open market or in private
transactions.
Annual Report | October 31, 2009 | 39
DCS | Claymore Dividend & Income Fund
About the FUND MANAGER |
MANNING & NAPIER ADVISORS, INC.
Manning & Napier Advisors, Inc. serves as the Fund's Investment Sub-Adviser.
Manning & Napier has been a registered investment adviser since 1970. For
nearly 40 years, Manning & Napier has focused on managing clients' investments
through a variety of market conditions, including five bear markets. The firm
managed over $20 billion for individuals, corporations, defined benefit pension
plans, 401(k) choice plans, Taft-Hartley accounts, endowments, foundations and
municipal retirement plans as of September 30, 2009. It remains an
employee-owned firm, with 100% of the firm owned by full-time employees.
INVESTMENT PHILOSOPHY AND PROCESS
The Claymore Dividend & Income Fund invests primarily in a systematic equity
approach designed to offer a diversified equity portfolio of high-yielding
securities, with portfolio expectations of providing competitive returns in
positive market environments, but also provides protection during both market
downturns and periods of falling interest rates. Stocks are selected from a
broad universe based on high free cash flow yields and high dividend yields,
and are also screened in an effort to exclude acute bankruptcy risk.
Manning & Napier believes that a focus on companies with high free cash flow
yields and high dividend yields allows for investment in financially sound
companies at attractive valuations. Because they believe both free cash flow
and dividend yields are intrinsic signs of fundamental value that should be
recognized over time by the market, the portfolio is uniquely positioned to
take advantage of these long-term fundamental trends.
MANNING & NAPIER ADVISORS, INC.
290 Woodcliff Drive
Fairport, NY 14450
NOT FDIC-INSURED | NOT BANK- GUARANTEED | MAY LOSE VALUE
DCS
LISTED
NYSE
DCS-AR-1009
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions (the "Code of Ethics").
(b) No information need be disclosed pursuant to this paragraph.
(c) The registrant has not amended its Code of Ethics during the period covered
by the report presented in Item 1 hereto.
(d) The registrant has not granted a waiver or an implicit waiver to its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions from a provision
of its Code of Ethics during the period covered by this report.
(e) Not applicable.
(f) (1) The registrant's Code of Ethics is attached hereto as an exhibit.
(2) Not applicable.
(3) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that it has at least one audit
committee financial expert serving on its audit committee (the "Audit
Committee"), Ronald E. Toupin, Jr. Mr. Toupin is an "independent" Trustee, as
defined in Item 3 of Form N-CSR. Mr. Toupin qualifies as an audit committee
financial expert by virtue of his experience obtained as a portfolio manager and
research analyst, which included review and analysis of offering documents and
audited and un-audited financial statements using GAAP to show accounting
estimates, accruals and reserves.
(Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for the purposes of Section 11 of the Securities
Act of 1933, as a result of being designated or identified as an audit committee
financial expert. The designation or identification of a person as an audit
committee financial expert does not impose on such person any duties,
obligations, or liabilities that are greater than the duties, obligations, and
liabilities imposed on such person as a member of the Audit Committee and Board
of Trustees in the absence of such designation or identification. The
designation or identification of a person as an audit committee financial expert
pursuant to this Item does not affect the duties, obligations or liability of
any other member of the Audit Committee or Board of Trustees.)
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
a). Audit Fees: the aggregate fees billed for professional services rendered by
the principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements
were $33,300 and $39,000 for the fiscal years ended October 31, 2009, and
October 31, 2008, respectively.
b). Audit-Related Fees: the aggregate fees billed for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph 4(a), were $6,300 and $16,300 for the fiscal years
ended October 31, 2009, and October 31, 2008, respectively. These fees were for
services performed under agreed upon procedures associated with the registrant's
Auction Market Preferred Shares.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
c). Tax Fees: the aggregate fees billed for professional services rendered by
the principal accountant for tax compliance, tax advice and tax planning,
including federal, state and local income tax return preparation and related
advice and determination of taxable income and miscellaneous tax advice were
$6,000 and $6,000 for the fiscal years ended October 31, 2009, and October 31,
2008, respectively.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
d). All Other Fees: the aggregate fees billed for products and services provided
by the principal accountant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 and $0 for the fiscal years ended October 31,
2009, and October 31, 2008, respectively.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
(e) (1) The Audit Committee reviews, and in its sole discretion, pre-approves,
pursuant to written pre-approval procedures (A) all engagements for audit and
non-audit services to be provided by the principal accountant to the registrant
and (B) all engagements for non-audit services to be provided by the principal
accountant (1) to the registrant's investment adviser (not including a
sub-adviser whose role is primarily portfolio management and is sub-contracted
or overseen by another investment adviser) and (2) to any entity controlling,
controlled by or under common control with the registrant's investment adviser
that provides ongoing services to the registrant; but in the case of the
services described in subsection (B)(1) or (2), only if the engagement relates
directly to the operations and financial reporting of the registrant; provided
that such pre-approval need not be obtained in circumstances in which the
pre-approval requirement is waived under rules promulgated by the Securities and
Exchange Commission or New York Stock Exchange listing standards. Sections
IV.C.2 and IV.C.3 of the Audit Committee's revised Audit Committee Charter
contain the Audit Committee's Pre-Approval Policies and Procedures and such
sections are included below.
IV.C.2 Pre-approve any engagement of the independent auditors to
provide any non-prohibited services to the I Trust, including the
fees and other compensation to be paid to the independent auditors
(unless an exception is available under Rule 2-01 of Regulation
S-X).
(a) The Chairman or any member of the Audit Committee may
grant the pre-approval of services to the Fund for
non-prohibited services up to $10,000. All such delegated
pre-approvals shall be presented to the Audit Committee no
later than the next Audit Committee meeting.
IV.C.3 Pre-approve any engagement of the independent auditors,
including the fees and other compensation to be paid to the
independent auditors, to provide any non-audit services to the
Adviser (or any "control affiliate" of the Adviser providing ongoing
services to the Trust), if the engagement relates directly to the
operations and financial reporting of the Trust (unless an exception
is available under Rule 2-01 of Regulation S-X).
(a) The Chairman or any member of the Audit Committee may
grant the pre-approval for non-audit services to the Adviser
up to $10,000. All such delegated pre-approvals shall be
presented to the Audit Committee no later than the next Audit
Committee meeting.
(2) None of the services described in each of Items 4(b) through (d)
were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
(f) The percentage of hours expended on the principal accountant's engagement to
audit the registrant's financial statements for the most recent fiscal year
attributable to work performed by persons other than the principal accountant's
full-time, permanent employees was 0%.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, the registrant's investment adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted with or overseen by another investment adviser) and/or any entity
controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant that directly related to the
operations and financial reporting of the registrant were $12,300 and $22,300
for the fiscal years ended October 31, 2009, and October 31, 2008, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Audit Committee was established in accordance with Section 3(a)(58)(A)
of the Securities Exchange Act of 1934. The Audit Committee of the
registrant is comprised of: Richard L. Crandall, Roman Friedrich III,
Ronald A. Nyberg and Ronald E. Toupin, Jr.
(b) Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included as part of Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant has delegated the voting of proxies relating to its voting
securities to its investment sub-adviser, Manning & Napier Advisors, Inc. (the
"Sub-Adviser"). The Sub-Adviser's Proxy Voting Policies and Procedures are
included as an exhibit hereto.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) Manning & Napier Advisors, Inc. tasks its Senior Research Group to
establish the broad investment policies and guidelines used in the management of
its investment portfolios. For the Claymore Dividend & Income Fund, two
designated Research Teams are responsible for implementing the investment
policies and guidelines as well as monitoring the registrant's investment
portfolio. The Equity Research Team runs quantitative screens to identify stocks
for inclusion in the portfolio in line with the Senior Research Group's policies
and guidelines. The resulting portfolio of stocks meeting the quantitative
criteria is reviewed and approved by the members of the Equity Research Team. No
specific member of the Team is required to approve equity purchases and sales.
The Fixed Research Team, led by Jack Bauer, constructs and monitors the fixed
income securities in the registrant's investment portfolio. The Fixed Research
Team develops an interest rate overview and a credit approved list that is
reviewed by the Senior Research Group. The following provides information
regarding the Senior Research Group and designated Research Team members as of
October 31, 2009:
----------------------------- ---------------- -----------------------------------------------------------
NAME SINCE PROFESSIONAL EXPERIENCE
----------------------------- ---------------- -----------------------------------------------------------
Christian A. Andreach, CFA(R) 1999 Senior Analyst/Managing Director of Consumer Group.
Joined the Sub-Advisor in 1999. Current position held
since 1999. Member of Senior Research Group since 2002.
----------------------------- ---------------- -----------------------------------------------------------
Jack W. Bauer 1990 Analyst/Managing Director of Fixed Income Group. Joined
the Sub-Advisor in 1990. Member of Senior Research Group.
----------------------------- ---------------- -----------------------------------------------------------
Jeffrey S. Coons, Ph.D., 1993 Co-Director of Research/Managing Director of Quantitative
CFA(R) Strategies Group. Joined the Sub-Advisor in 1993.
Current position held since 2002. Co-Director of Research
since 2002. Member of Senior Research Group since 1993.
Executive Group Member* since 1999. Member of Dividend
Focus Series Research Team since 2008.
----------------------------- ---------------- -----------------------------------------------------------
Jeffrey W. Donlon, CFA(R) 1998 Senior Analyst/Managing Director of Technology Group.
Joined the Sub-Advisor in 1998. Current position held
since 1998. Member of Senior Research Group since 2004.
----------------------------- ---------------- -----------------------------------------------------------
----------------------------- ---------------- -----------------------------------------------------------
Brian P. Gambill, CFA(R) 1997 Senior Analyst/Managing Director of Capital Goods &
Materials Group. Joined the Sub-Advisor in 1997. Current
position held since 1997. Member of Senior Research Group
since 2002.
----------------------------- ---------------- -----------------------------------------------------------
R. Keith Harwood 1997 Senior Analyst in Fixed Income Group. Joined the
Sub-Advisor in 1997.
----------------------------- ---------------- -----------------------------------------------------------
Jeffrey A. Herrmann, CFA(R) 1986 Co-Director of Research /Managing Director of Themes and
Overviews Group. Joined the Sub-Advisor in 1986. Current
position held since 1988. Co-Director of Research since
1992. Member of Senior Research Group since 1992.
Executive Group Member* since 2002.
----------------------------- ---------------- -----------------------------------------------------------
Brian W. Lester, CFA(R) 1998 Senior Analyst/Managing Director of Life Sciences Group.
Joined the Sub-Advisor in 1998. Current position held
since 2001. Member of Senior Research Group since 2009.
----------------------------- ---------------- -----------------------------------------------------------
Michael J. Magiera, CFA(R) 1988 Senior Analyst/Managing Director of Real Estate Group.
Joined the Sub-Advisor in 1988. Current position held
since 1999. Member of Senior Research Group since 1992.
----------------------------- ---------------- -----------------------------------------------------------
Christopher F. Petrosino, 2001 Analyst. Joined the Sub-Advisor in 2001. Current
CFA(R) position held since 2002. Member of Dividend Focus Series
Research Team since 2008.
----------------------------- ---------------- -----------------------------------------------------------
Marc Tommasi 1986 Senior Analyst/Managing Director of Global Strategies
Group. Joined the Sub-Advisor in 1986. Current position
held since 1988. Member of Senior Research Group since
1992.
----------------------------- ---------------- -----------------------------------------------------------
Virge J. Trotter, III, CFA(R) 1997 Senior Analyst/Managing Director of Services Group.
Joined the Sub-Advisor in 1997. Current position held
since 1997. Member of Senior Research Group since 2009.
----------------------------- ---------------- -----------------------------------------------------------
*The Executive Group, consisting of senior executive employee-owners, performs
the duties of the Office of the Chief Executive of the Sub-Advisor.
(a) (2) (i-iii) Other accounts managed.
Manning & Napier Advisors, Inc. does not use a portfolio manager-based structure
for the management of investment portfolios. Instead, the Sub-Advisor manages
mutual funds, other commingled funds and separate accounts using an
analyst-driven process. For funds and separate accounts, the investment
recommendations made by an equity analyst will be applied to all portfolios with
investment objectives for which the recommendation is appropriate. As a result,
the investment professionals involved in managing the Claymore Dividend & Income
Fund that invest in equities are also responsible for managing all other
portfolios for clients of the Sub-Advisor that pursue similar investment
objectives ("Similarly Managed Accounts").
Accordingly, each portfolio manager listed below has been assigned portfolio
management responsibility for portions of the Sub-Advisor's Similarly Managed
Accounts. The Senior Research Group sets broad investment guidelines, and the
individual analysts, select individual securities subject to a peer review
process. Because the portfolio management role of these individuals extends
across all the Sub-Advisor's Similarly Managed Accounts that hold equities, the
information for each portfolio manager listed below relates to all the Similarly
Managed Accounts. None of these accounts is subject to a performance-based fee.
This information is as of October 31, 2009.
Christopher Petrosino has portfolio management responsibility only for the
Claymore Income & Dividend Fund and for the Sub-Advisor's separately-managed
accounts with the same investment objectives.
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
------------------------ --------------------------- -----------------------
# OF TOTAL # OF TOTAL # OF TOTAL
NAME ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
---------------------- -------- ------------ --------- ------------ -------- ----------
Christian A. Andreach 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Jeffrey S. Coons 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Jeffrey W. Donlon 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Brian P. Gambill 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Jeffrey A. Herrmann 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Brian W. Lester 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Michael J. Magiera 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Christopher F. 26 $ 9.50 19 $ 2.04 8494 $ 15.25
Petrosino billion billion billion
Marc Tommasi 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
Virge J. Trotter, III 26 $ 9.50 19 $ 2.04 8494 $ 15.25
billion billion billion
--------------------------------------------------------------------------------------------------------
*At times assets of the Other Accounts in column 3 may be invested in these
registered investment companies.
The Sub-Advisor's fixed income portfolio managers manage the fixed income
portion of the Claymore Dividend & Income Fund, separate accounts with fixed
income objectives, and the fixed income portions of mixed asset class investment
accounts, other pooled investment vehicles, and separate accounts. Because the
portfolio management role of these individuals extends across all the
Sub-Advisor's accounts that hold fixed income securities, the information for
each portfolio manager listed below relates to all the other accounts under the
Sub-Advisor's management. None of these accounts is subject to a
performance-based fee. This information is as of October 31, 2009.
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
------------------------ --------------------------- -----------------------
# OF TOTAL # OF TOTAL # OF TOTAL
NAME ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
---------------------- -------- ------------ --------- ------------ -------- ----------
Jack W. Bauer 16 $ 2.85 16 $ 1.94 7679 $ 10.01
billion billion billion
R. Keith Harwood 16 $ 2.85 16 $ 1.94 7679 $ 10.01
billion billion billion
*At times assets of the Other Accounts in column 3 may be invested in these
registered investment companies.
(a) (2) (iv) Conflicts of Interest. The equity portion of the Claymore Dividend
& Income Fund is managed using quantitative security selection screens. The
Sub-Advisor also manages separately-managed accounts using the same stock
selection approach. The compensation of the portfolio management team and the
Senior Research Group is not dependent on the performance of the Claymore
Dividend & Income Fund or separate accounts managed in a similar style. The
Sub-Advisor has established policies and procedures to ensure that the purchase
and sale of securities among all accounts it manages are fairly and equitably
allocated.
For the Claymore Dividend & Income Fund, other pooled investment vehicles, and
Other Accounts that have authorized it to do so, the Sub-Advisor trades equities
and most fixed income securities on an aggregate basis to increase efficiency of
execution. In the event of a partially filled order, the Sub-Advisor uses a
computer-generated randomizer to objectively assign the order of execution among
accounts. Each account that participates in an aggregated order on a particular
day will participate at the average security price for that day with all
transaction costs shared on a pro-rata basis.
The Sub-Advisor's trading function for equities and most fixed income
investments (other than certain fixed income investments, such as new bond
issues, as discussed below) is separate from its research function; that is, the
individuals recommending and approving security purchases are not the same
individuals responsible for executing the trades. For equity and most fixed
income security trades, traders exercise individual discretion in order to get
the Sub-Advisor's clients the best possible execution on trades, but guidelines
as to security, position size, and price are set by the analysts
recommending the security. Proprietary and third-party reporting systems monitor
implementation of trading programs across the account base.
Occasionally, such as when purchasing new bond issues, the Sub-Advisor's Fixed
Income Group identifies the securities to be purchased and a member of the team
executes the trades. With respect to any account of the Sub-Advisor not
receiving a full allocation, the Sub-Advisor may purchase more bonds on behalf
of such account in the secondary market. In such case, the purchase price of
such bonds will likely be higher or lower than that of the initial issue.
To remove the incentive for unauthorized trading and speculation in client
accounts, traders are not compensated for profits generated, since investment
directives are issued from outside the trading area and then merely implemented
by the traders. In addition, the compensation program for individuals
recommending securities purchases are based on the returns of the particular
security recommended, rather than on the performance of any individual account.
(a) (3) Compensation Structure. In return for the services it provides to the
Claymore Dividend & Income Fund, the Sub-Advisor receives an annual management
fee of 0.33% of the registrant's average daily net assets, which is computed
daily and payable monthly by the registrant.
Portfolio Manager Compensation
Analyst compensation is provided in two basic forms: base salary and bonus.
Bonuses may be several times the level of base salary for successful analysts.
The analyst bonus system has been established to provide a strong incentive for
analysts to make investment decisions in the best interest of the Sub-Advisor's
clients, including the Claymore Dividend & Income Fund.
For other investment vehicles managed by the Senior Research Group, the
Sub-Advisor has a bonus system based on the performance of individual
securities. In the analyst bonus system, the gains/losses of securities
recommended and reviewed by an analyst are measured over trailing 12-month,
24-month and 36-month time periods and compared to several hurdles. In the case
of equity analysts, those hurdles include 0% (i.e., positive returns) and the
gain/loss of the S&P 500 Index(R). A bonus rate is established for each time
period based upon the number of hurdles surpassed by the analyst. The bonus rate
could result in a negative, zero, or positive bonus for the period, generally
depending upon whether no hurdles, one hurdle, or multiple hurdles are surpassed
by an analyst. Bonuses are calculated by multiplying the analyst's total
gain/loss and the bonus rate for each time period and summed over the three time
periods. If this calculation results in a negative bonus (e.g., returns below 0%
and the benchmark index), then the negative is carried forward until the analyst
achieves a positive bonus to offset the negative balance.
In total, the bonus system provides incentives to pursue both downside
protection and competitive returns versus benchmarks.
Additional compensation may be provided to certain research analysts in the form
of fixed bonuses determined by the Co-Directors of Research or based on a
portion of the bonuses paid in the analyst bonus system described above. Also,
certain employees may be selected to purchase equity in the Sub-Advisor based
upon a combination of performance and tenure. Equity ownership in the
Sub-Advisor represents an important incentive for senior investment
professionals and serves as another method to align the long-term interest of
employees with the best interest of our clients. The Sub-Advisor may utilize a
bonus when recruiting new research employees to help defray relocation costs, if
applicable. The compensation of the Claymore Dividend & Income Fund's portfolio
management team and the Senior Research Group is not dependent on the
performance of the Fund.
(a) (4) Securities ownership. Purchases of any third party registered closed-end
investment companies that Manning & Napier sub-advises are prohibited by the
Manning & Napier Investment Advisor Code of Ethics.
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not made any material changes to the procedures by which
shareholders may recommend nominees to the registrant's Board of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act) as of a date within 90 days
of this filing and have concluded based on such evaluation, as required by Rule
30a-3(b) under the Investment Company Act, that the registrant's disclosure
controls and procedures were effective as of that date in ensuring that
information required to be disclosed by the registrant in this Form N-CSR was
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that
occurred during the registrant's second fiscal quarter of the period covered by
this report that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics for Chief Executive and Financial Officer.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Rule30a-2(a) of the Investment Company Act.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(b) of the Investment Company Act and Section 906
of the Sarbanes-Oxley Act of 2002.
(c) Proxy Voting Policies and Procedures.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Claymore Dividend & Income Fund
--------------------------------------------------------------------
By: /s/ J. Thomas Futrell
-----------------------------------------------------------------------------
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: December 30, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ J. Thomas Futrell
-----------------------------------------------------------------------------
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: December 30, 2009
By: /s/ Steven M. Hill
-----------------------------------------------------------------------------
Name: Steven M. Hill
Title: Treasurer and Chief Financial Officer
Date: December 30, 2009