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 811-21582
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Madison / Claymore Covered Call & Equity Strategy Fund
-------------------------------------------------------------------------
(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
Madison / Claymore Covered Call & Equity Strategy Fund
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: December 31
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Date of reporting period: December 31, 2008
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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 MADISON/CLAYMORE | MCN
December 31, 2008 COVERED CALL & EQUITY STRATEGY FUND |
[PHOTO]
Logo: MADISON INVESTMENT ADVISORS
Logo: CLAYMORE(SM)
WWW.MADISONCLAYMORE.COM/MCN
... YOUR ROAD TO THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
MADISON/CLAYMORE COVERED CALL & EQUITY STRATEGY FUND
MCN Madison/Claymore
LISTED Covered Call &
NYSE Equity Strategy
Fund
Logo: MADISON INVESTMENT ADVISORS
Logo: CLAYMORE(SM)
The shareholder report you are reading right now is just the beginning of the
story. Online at WWW.MADISONCLAYMORE.COM/MCN, you will find:
o Daily, weekly and monthly data on share prices, distributions and more
o Portfolio overviews and performance analyses
o Announcements, press releases and special notices
o Fund and adviser contact information
Madison Asset Management and Claymore are continually 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 way we are working
to keep you better informed about your investment in the Fund.
2 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Dear SHAREHOLDER |
We thank you for your investment in the Madison/Claymore Covered Call & Equity
Strategy Fund (the "Fund"). This report covers the Fund's performance for the
fiscal year ended December 31, 2008. This has been an extraordinarily difficult
time for most investors, and we are disappointed to report that the Fund's
return was negative for the period.
Madison Asset Management, LLC ("MAM"), a wholly-owned subsidiary of Madison
Investment Advisors, Inc. ("Madison"), is the Fund's investment manager. Founded
in 1974, Madison is an independently owned firm that, with its affiliates,
manages more than $7 billion in individual, corporate, pension, insurance,
endowment, and mutual fund assets. Claymore Advisors, LLC is the investment
adviser to the Fund.
The Fund's Board of Trustees recently approved a revision to the Fund's
previously effective non-fundamental investment policy that the Fund may invest
up to 10% of the Fund's total assets in securities of other open- or closed-end
investment companies, including ETFs, that invest primarily in securities of the
types in which the Fund may invest directly. The revision to the previously
effective non-fundamental investment policy authorizes the Fund to invest an
unlimited amount of its uninvested cash in shares of money market funds in
accordance with Rule 12d1-1 under the Investment Company Act of 1940. It is
expected that the revised non-fundamental investment policy will provide the
Fund with additional flexibility in managing its cash balances.
The Fund's primary investment objective is to provide a high level of current
income and current gains, with a secondary objective of long-term capital
appreciation. The Fund pursues its investment objectives by investing in a
portfolio consisting primarily of high-quality, large-capitalization common
stocks that are, in the view of the Fund's investment manager, selling at a
reasonable price in relation to their long-term earnings growth rates. On an
ongoing and consistent basis, the Fund sells covered call options to seek to
generate a reasonably steady return from option premiums. There can be no
assurance that the Fund will achieve its investment objectives.
Under normal market conditions, the Fund allocates at least 80% of its total
assets to an integrated investment strategy pursuant to which the Fund invests
in a portfolio of equity securities and writes (sells) covered call options on a
portion of the equity securities held in the Fund's portfolio. Pending
investment in equity securities or as covered call options, the assets of the
Fund allocated to its integrated investment strategy are held in cash or cash
equivalents. The Fund invests, under normal market conditions, at least 65% of
its investments in equity securities in common stocks of large-capitalization
issuers that meet the Fund's selection criteria.
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the 12 months ended
December 31, 2008, the Fund provided a total return based on market price of
-38.12% and a total return of -34.53% based on NAV. As of December 31, 2008, the
Fund's market price of $6.21 represented a discount of 18.72% to NAV of $7.64.
Past performance is not a guarantee of future results.
The market value and NAV of the Fund's shares fluctuate from time to time, and
the Fund's market value may be higher or lower than its NAV. The current
discount to NAV may provide
Annual Report | December 31, 2008 | 3
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | DEAR SHAREHOLDER
continued
an opportunity for suitable investors to purchase shares of the Fund below the
market value of the securities in the underlying portfolio. We believe that,
over the long term, the progress of the NAV will be reflected in the market
price return to shareholders.
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 25 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 benefits of compounding returns over time. Since the Fund
endeavors to maintain a steady monthly distribution rate, the DRIP plan
effectively provides an income averaging technique, which causes shareholders to
accumulate a larger number of Fund shares when the market price is depressed
than when the price is higher.
During 2008 the Fund paid quarterly dividends of $0.33 on February 29 and May
30, $0.28 on August 29, and $0.24 on November 28. The latest quarterly dividend
represents an annualized distribution rate of 15.46%, based on the Fund's
closing market price of $6.21 on December 31, 2008. However, there is no
guarantee that this level of distribution will be maintained.
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
5. You will find information about MAM'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/mcn.
Sincerely,
/s/ J. Thomas Futrell
-------------------------------
J. Thomas Futrell
Madison/Claymore Covered Call & Equity Strategy Fund
4 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
QUESTIONS & ANSWERS |
We at Madison Asset Management, LLC are pleased to address the progress of our
Fund, the Madison/Claymore Covered Call & Equity Strategy Fund (the "Fund" or
"MCN") for the period ending December 31, 2008. Introduced in July of 2004, the
Fund continues to pursue its objectives by investing in high-quality,
large-capitalization common stocks that are, in our view, selling at a
reasonable price with respect to their long-term earnings growth rates. Our
option-writing strategy seeks to provide a consistent income from option
premiums, which we expect to help achieve our goal of providing a high level of
current income and current gains with a secondary objective of long-term capital
appreciation.
Madison Asset Management, LLC, (MAM) a wholly-owned subsidiary of Madison
Investment Advisors, Inc., with its affiliates, manages more than $7 billion in
individual, corporate, pension, insurance, endowment, and mutual fund assets.
This past year has been an extremely trying one for virtually all equity
portfolios and the Fund has been no exception. While we have always looked to
invest in the equity securities of what we believe to be high-quality companies,
the stock market was indiscriminate in its downslide in 2008 and, although
option income was a positive contributor, we could not maintain the Fund's net
asset value ("NAV") in the past year's environment as it was overshadowed by the
negative equity markets. That said, we should recognize that we invest for the
future and cannot change the past, and we see some encouraging signs for the
Fund. First of all, the potential to generate income from covered call option
writing in 2009 looks as bright now as any time in the Fund's history, and we
like the valuations we are obtaining for the Fund's underlying securities. We
have confidence that the historic, massive interventions in the economy by the
U.S. federal government will eventually gain traction and we should see better
investment returns in 2009 than in 2008.
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WHAT HAPPENED IN THE MARKET OF 2008?
This 12-month period has already been memorialized as one of the worst calendar
years for stocks in history, as the S&P 500 (1) returned -37.0%, its second
worst annual loss in its history. Unlike some previous market drops, such as the
dot. com crash of 2000-2002, this decline was broad and relatively
indiscriminate, affecting all market sectors and capitalization ranges.
Equity indices around the world were negatively impacted in 2008 in the wake of
broad economic problems, while a flight to safety concentrated positive returns
among the most secure assets, primarily securities issued by the U.S. Treasury.
The stock market hit its 2008 peak in January, but it was far from clear at that
time that 2008 was going to be as bad as it turned out. At first, it appeared
that the credit problems sparked by the subprime loan crisis might be contained,
and by May 19, 2008, the market was nipping at new annual highs in the wake of a
bailout plan for investment bank Bear Stearns & Co. Inc. However, as the year
progressed, the problems that began in the subprime mortgage area bloomed into a
full-fledged credit crisis, with the signature event being the collapse of
investment bank Lehman Brothers Inc. in September. The credit crisis sent
unexpected shock waves into virtually all areas of the global economy, sparking
a worldwide economic slowdown and recession. As credit froze, highly leveraged
firms began to experience liquidity problems, and many financial and industrial
firms with household names found themselves on the brink--or over the brink--of
insolvency.
Countering the crisis in the financial sector was a series of significant, even
historically unprecedented, interventions by the U.S. federal government.
Beginning in January 2008, the Federal Reserve implemented the first of a series
of cuts to the target Federal Funds Rate, which by December 2008 had been
lowered to a range of 0% to 0.25%, the lowest in modern history. In addition to
rate cuts, the U.S. federal government has injected massive stimulus into the
financial system in order to provide a solid base from which to repair balance
sheets and normalize credit markets. These interventions made headlines
throughout the year, including the bailout of Bear Stearns, what amounted to a
federal acquisition of mortgage companies Fannie Mae and Freddie Mac, and the
Congressional creation of the $700 billion Troubled Asset Relief Program. An
additional large stimulus package is expected under the new administration.
----------
Indices are unmanaged and it is not possible to invest directly in an index.
(1) The S&P 500 is an unmanaged, 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.
Annual Report | December 31, 2008 | 5
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS & ANSWERS
continued
The S&P 500 hit its 2008 low on November 20 and rallied into the New Year with a
20% rise off the low, but still closed the year 37% lower than it opened. All in
all, it was one of the most tumultuous years ever for the U.S. financial system
and markets, and the result was widespread fear among investors and considerable
uncertainty about the direction of the U.S. economy.
--------------------------------------------------------------------------------
HOW DID THE FUND PERFORM GIVEN THE MARKETPLACE CONDITIONS DURING 2008?
We are pleased to report that MCN generated sufficient income in 2008 to return
$1.18 per share to our shareholders in dividends. We continued to find ample
opportunities to write call options at attractive premiums. The Fund's NAV per
share decreased $5.38 in 2008 from $13.02 to $7.64, as most of the Fund's stocks
participated in the market's decline in value in 2008. MCN's market value per
share at year end was $6.21, and the Fund's common shares were trading at an
18.72% discount to NAV at that time.
For 2008, the Fund provided investors with total returns of -34.53% and -38.12%
on an NAV and market price basis, respectively, compared to a return of -37.00%
for the S&P 500. The Fund's benchmark, the CBOE S&P 500 Buy Write Index (the
"BXM"), (2) lost -28.70% in 2008. The Fund's underlying stocks were the main
source of the performance gap between the Fund and the BXM. MCN had its largest
weighting in the consumer discretionary, financial, and technology sectors, all
of which were strongly negative for the period, while the S&P 500's consumer
staples and utility sectors, which were unrepresented in the Fund's portfolio,
were two of the index's three strongest performers in 2008. Currently, we
believe the Fund's portfolio is comprised of high-quality stocks trading at
attractive prices based on a number of valuation metrics.
--------------------------------------------------------------------------------
DESCRIBE THE FUND'S PORTFOLIO EQUITY AND OPTION STRUCTURE:
As of December 31, 2008, the Fund held 56 equity securities. Unexpired covered
call options had been written against 96% of the Fund's stock holdings as of
December 31, 2008. During 2008, the Fund generated total premiums of $50.5
million from its covered call writing activities. It is the strategy of the Fund
to write "out-of-the-money" call options; at December 31, the majority of the
Fund's options (about 86%) were still out-of-the-money. (Out-of-the-money means
the stock price is below the strike price at which the shares could be called
away by the option holder.) Since the Fund's option positions are primarily
out-of-the-money, we believe the Fund is well positioned to participate in the
upside should its stock holdings rally.
--------------------------------------------------------------------------------
WHICH SECTORS ARE PREVALENT IN THE FUND?
From a sector perspective, MCN's largest exposure as of December 31, 2008 was to
the technology (and technology related) sector, followed by consumer
discretionary, financials, health care and energy. The Fund was not invested in
the materials, consumer staples and utilities sectors as of December 31, 2008.
--------------------------------------------------------------------------------
DESCRIBE THE FUND'S DIVIDEND HISTORY FOR THE PERIOD:
In 2008, the Fund declared quarterly dividends of $0.33 per share in February
and May, $0.28 per share in August and $0.24 per share in November. At the
Fund's closing market price of $6.21 per share on December 31, 2008 and at the
latest quarterly rate of $0.24, the Fund's dividend yield was 15.46%.
--------------------------------------------------------------------------------
DISCUSS THE FUND'S SECURITY AND OPTION SELECTION PROCESS:
The Fund is managed by two teams of investment professionals. We like to think
of these teams as a "right hand" and "left hand" meaning they work together to
make common stock and option decisions. We use fundamental analysis to select
solid companies with good growth prospects and attractive valuations. We then
seek attractive call options to write on those stocks. It is our belief that
this partnership of active management between the equity and option teams
provides investors with an innovative, risk-moderated approach to equity
investing.
MAM seeks to invest in a portfolio of common stocks that have favorable "PEG"
ratios (Price-Earnings ratio
----------
(2) The CBOE S&P 500 Buy Write Index (BXM) is a benchmark index designed to
show the hypothetical performance of a portfolio that purchases all the
constituents of the S&P 500 Index and then sells at-the-money (meaning
same as purchase price) calls of one-month duration against those
positions.
6 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS & ANSWERS
continued
to Growth rate) as well as financial strength and industry leadership. As
bottom-up investors, we focus on the fundamental businesses of our companies.
Our stock selection philosophy strays away from the "beat the street" mentality,
as we seek companies that have sustainable competitive advantages, predictable
cash flows, solid balance sheets and high-quality management teams. By
concentrating on long-term prospects and circumventing the "instant
gratification" school of thought, we believe we bring elements of consistency,
stability and predictability to our shareholders.
Once we have selected attractive and solid names for the Fund, we employ our
call writing strategy. This procedure entails selling calls that are primarily
out-of-the-money, meaning that the strike price is higher than the common stock
price, so that the Fund can participate in some stock appreciation. By receiving
option premiums, the Fund receives a high level of investment income and adds an
element of downside protection. Call options may be written over a number of
time periods and at differing strike prices in an effort to maximize the
protective value to the strategy and spread income evenly throughout the year.
--------------------------------------------------------------------------------
WHAT IS THE MANAGEMENT'S OUTLOOK FOR THE MARKET AND FUND IN 2009?
As we enter 2009, the U.S. economy and most of the world is mired in a severe
recession. It is increasingly difficult to find reason for optimism in upcoming
economic data. U.S. consumer confidence has fallen to generational lows.
Manufacturers are paring back production and employment in anticipation of a
prolonged recession. Unemployment rates are rising and are likely to rise
further, in our opinion. Credit remains tight and is only available to the most
worthy of borrowers.
The process of deleveraging, begun in 2007, will likely continue into 2009 and
beyond. The financial sector deleveraging, while well-advanced, has more room
to run. Private sector corporate deleveraging will likely be a less troublesome
issue, as non-financial corporate balance sheets remain in good shape. The
process of consumer deleveraging, we fear, is still in its early stages, and
should only be magnified as the unemployment rate rises and the recession
deepens.
Despite this, there are bright spots. The monetary and fiscal stimulus brought
to bear thus far is staggering and should eventually produce its intended
effect. Estimates of the U.S. federal government budget deficit for 2009 could
approach $1 trillion. And the $100 decline in the price of a barrel of crude oil
could place up to $260 billion back in consumer's pockets - a large stimulus in
and of itself. After a gloomy first half, we expect the economy to begin to show
signs of life in the second half of 2009.
On the option writing side, the VIX Index (3) spiked as high as 80 in November,
resulting in some of the most attractive option premiums since we launched the
Fund. Going forward, we believe this higher level of volatility will allow us to
earn very attractive option income for the Fund.
----------
(3) Indices are unmanaged and it is not possible to invest directly in an
index. The S&P 500 is an unmanaged, 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. The CBOE S&P 500 Buy Write Index (BXM)
is a benchmark index designed to show the hypothetical performance of a
portfolio that purchases all the constituents of the S&P 500 Index and
then sells at-the-money (meaning same as purchase price) calls of
one-month duration against those positions. VIX is the ticker symbol for
the Chicago Board Options Exchange (CBOE) Volatility Index and shows the
market's expectation of 30-day volatility. It is constructed using the
implied volatilities of a wide range of S&P 500 index options. This
volatility is meant to be forward looking and is calculated from both
calls and puts. The VIX is a widely used measure of market risk and is
often referred to as the "investor fear gauge."
Annual Report | December 31, 2008 | 7
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS & ANSWERS
continued
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MCN RISKS AND OTHER CONSIDERATIONS
The views expressed in this report reflect those of the portfolio manager 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 include forward
looking statements that involve risk and uncertainty, and there is no guarantee
that any predictions 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.
Equity Risk: The value of the securities held by the Funds will fall due to
general market and economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Funds participate, or factors
relating to specific companies in which the Funds invest.
Risks Associated with Options on Securities: There are several risks associated
with transactions in options on securities. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events. 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 fulfill its obligation as a
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.
Foreign Investment Risk: Investing in non-U.S. issuers may involve unique risks
such as currency, political, and economic risk, as well as less market
liquidity, generally greater market volatility and less complete financial
information than for U.S. issuers.
Risks of Mid-Cap Companies: Mid-cap companies often are newer or less
established companies than larger companies. Investments in mid-cap companies
carry additional risks because earnings of these companies tend to be less
predictable; they often have limited product lines, markets, distribution
channels or financial resources; and the management of such companies may be
dependent upon one or a few key people. The market movements of equity
securities of mid-cap companies may be more abrupt or erratic than the market
movements of equity securities of larger, more established companies or the
stock market in general.
Industry Concent ration Risk: To the extent that the Fund makes substantial
investments in a single industry, the Fund will be more susceptible to adverse
economic or regulatory occurrences affecting those sectors.
Fund Distribution Risk: In order to make regular quarterly distributions on its
common shares, 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 share-holders. 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.
Financial Leverage: The Fund is authorized to utilize leverage through the
issuance of preferred shares and/or the Fund may also borrow or issue debt
securities for financial leveraging purposes and for temporary purposes such as
settlement of transactions. Although the use of any financial leverage by the
Fund may create an opportunity for increased net income, gains 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. Financial leverage also increases 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.
An investment in the Fund includes, but is not limited to, risks and
considerations such as: Investment Risk, Not a Complete Investment Program,
Equity Risk, Risks Associated with Options on Securities, Limitation on Option
Writing Risk, Risks of Mid-Cap Companies, Income Risk, Foreign Securities Risk,
Industry Concentration Risk, Derivatives Risk, Illiquid Securities Risk, Fund
Distribution Risk, Market Discount Risk, Other Investment Companies, Financial
Leverage Risk, Management Risk, Risks Related to Preferred Securities, Interest
Rate Risk, Inflation Risk, Current Developments Risk and Anti-Takeover
Provisions. Please see www.claymore.com/mcn for a more detailed discussion about
Fund risks and considerations.
8 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Fund SUMMARY | AS OF DECEMBER 31, 2008 (unaudited)
FUND STATISTICS
--------------------------------------------------------------------------------
Share Price $ 6.21
Common Share Net Asset Value $ 7.64
Premium/(Discount) to NAV -18.72%
Net Assets ($000) $ 147,239
--------------------------------------------------------------------------------
TOTAL RETURNS
--------------------------------------------------------------------------------
(INCEPTION 7/28/04) MARKET NAV
--------------------------------------------------------------------------------
One Year -38.12% -34.53%
Three Year - average annual -16.82% -11.46%
Since Inception - average annual -9.82% -5.02%
--------------------------------------------------------------------------------
% OF LONG TERM
SECTOR BREAKDOWN INVESTMENTS
--------------------------------------------------------------------------------
Consumer Discretionary 22.0%
Financials 19.2%
Technology 17.1%
Health Care 14.8%
Energy 8.8%
Exchange-Traded Funds 6.0%
Consumer Services 5.0%
Software 3.7%
Industrial 1.6%
Computers 1.6%
Insurance 0.2%
--------------------------------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
--------------------------------------------------------------------------------
Wells Fargo & Co. 4.1%
Kohl's Corp. 3.4%
Powershares QQQ 3.4%
Cisco Systems, Inc. 3.4%
Bed Bath & Beyond, Inc. 3.3%
UnitedHealth Group, Inc. 3.1%
Capital One Financial Corp. 2.9%
Apache Corp. 2.9%
Pfizer, Inc. 2.8%
Lowe's Cos., Inc. 2.6%
--------------------------------------------------------------------------------
Sectors and holdings are subject to change daily. For more current information,
please visit www.claymore.com/mcn. The above summaries are provided for
informational purposes only and should not be viewed as recommendations. Past
performance does not guarantee future results.
SHARE PRICE & NAV PERFORMANCE
--------------------------------------------------------------------------------
[LINE CHART]
Share Price NAV
12/31/07 $ 11.41 $ 13.02
11.48 12.86
11.63 12.76
11.29 12.48
11.17 12.5
11.1 12.27
11.09 12.39
11.15 12.56
11.12 12.4
11.18 12.54
11.05 12.27
11.04 12.33
10.86 12.09
10.64 12.12
10.68 12.25
11.05 12.6
11.23 12.68
11.18 12.5
11.39 12.71
11.53 12.78
11.82 12.75
12.03 12.92
12.32 13.13
12.11 12.98
11.92 12.68
11.8 12.59
11.75 12.69
11.8 12.62
11.97 12.68
12.17 12.69
11.77 12.46
11.27 12.29
11.22 12.28
11.25 12.28
11.34 12.35
11.13 12.24
11.2 12.32
11.3 12.48
11.45 12.58
11.4 12.63
11.46 12.44
11.21 12.15
11.25 12.12
11.35 12.11
11.25 12.14
11 11.83
10.7 11.79
10.59 11.58
10.71 11.9
10.8 11.82
10.79 11.88
10.55 11.64
10.15 11.44
10.53 11.96
10.33 11.76
10.55 12.06
10.72 12.28
10.78 12.26
10.84 12.11
10.77 11.95
10.56 11.83
10.62 11.93
10.91 12.34
11.02 12.35
10.9 12.33
10.92 12.33
10.91 12.31
10.98 12.25
10.91 12.1
10.98 12.19
10.73 12
10.62 11.93
10.47 11.99
10.78 12.18
10.83 12.23
10.97 12.45
10.95 12.43
10.96 12.32
11 12.36
11.02 12.5
11.1 12.6
11.19 12.61
11.2 12.61
11.16 12.54
11.39 12.77
11.54 12.78
11.44 12.65
11.5 12.7
11.38 12.53
11.44 12.5
11.39 12.45
11.52 12.6
11.19 12.24
11.19 12.31
11.18 12.43
11.25 12.4
11.16 12.37
11.1 12.26
10.93 12.1
10.92 12.18
10.91 12.06
10.91 12.17
11 12.21
11.09 12.34
11.17 12.35
11.12 12.25
11.09 12.26
11.19 12.28
11.32 12.38
11.1 12.05
11.02 11.97
10.88 11.98
10.69 11.72
10.69 11.79
10.85 11.99
10.94 12.04
10.8 11.92
10.71 11.81
10.76 11.88
10.54 11.65
10.49 11.5
10.37 11.53
10.41 11.64
6/30/08 10.15 11.34
10.1 11.26
10 11.16
9.96 11.22
9.91 11.06
9.89 11.08
9.66 11.01
9.98 11.28
9.98 10.96
9.69 10.88
9.45 10.75
9.35 10.55
9.1 10.51
9.34 11.04
9.67 11.29
9.82 11.27
9.82 11.2
9.89 11.46
10.05 11.59
9.97 11.24
9.91 11.26
9.81 11.01
10.02 11.3
10.14 11.32
9.81 11.28
9.87 11.24
9.81 11.19
9.96 11.53
10.01 11.59
9.9 11.41
10.16 11.71
10.27 11.87
10.31 11.72
10.09 11.36
9.98 11.49
9.99 11.58
9.95 11.43
9.9 11.29
9.84 11.32
9.9 11.32
10 11.47
9.84 11.29
9.89 11.36
9.97 11.45
10.12 11.6
10 11.51
10.17 11.5
10.06 11.54
9.92 11.28
9.93 11.36
10.12 11.59
9.96 11.19
9.83 11.26
9.71 11.34
9.63 11.34
9.22 10.92
9 11.12
8.55 10.58
8.52 11.11
9.17 11.57
9.17 11.06
9.01 10.94
8.98 10.91
9.02 11.14
8.81 11.17
8.09 10.05
8.39 10.74
8.58 10.67
8.4 10.21
8.45 9.96
7.4 9.51
6.69 8.85
6.28 8.71
6.02 8.01
5.72 7.91
6.57 8.92
6.96 8.94
6.36 8
6.53 8.33
6.9 8.35
7.12 8.69
7.1 8.48
6.8 7.97
6.59 7.87
6.4 7.6
6.4 7.32
6.72 8.16
6.85 8.11
6.91 8.32
7.01 8.53
7.21 8.51
7.29 8.82
7.04 8.35
6.6 7.92
6.7 8.08
6.65 7.88
6.45 7.68
5.96 6.95
5.95 7.48
5.95 7.07
5.53 6.86
5.43 6.85
5 6.25
4.62 5.7
5 6.06
5.05 6.79
5.1 6.86
5.3 7.25
5.67 7.29
5.37 6.47
5.27 6.81
5.39 7.1
5.39 6.91
5.45 7.23
5.77 7.58
5.69 7.44
5.79 7.57
5.75 7.28
5.6 7.33
5.55 7.17
5.75 7.61
5.67 7.6
5.66 7.5
5.73 7.58
5.75 7.37
5.7 7.3
5.73 7.35
5.78 7.38
5.8 7.34
5.95 7.54
12/31/08 6.21 7.64
QUARTERLY DIVIDENDS PER SHARE
--------------------------------------------------------------------------------
[BAR CHART]
2/08 $ 0.33
5/08 0.33
8/08 0.28
11/08 0.24
PORTFOLIO COMPOSITION (% of Total Investments)
--------------------------------------------------------------------------------
[PIE CHART]
Long-Term Investments 96.8%
Short-Term Investments 3.2%
Annual Report | December 31, 2008 | 9
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Portfolio of INVESTMENTS | DECEMBER 31, 2008
NUMBER
OF SHARES DESCRIPTION VALUE
----------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 117.6%
COMMON STOCKS (A) 110.5%
COMPUTERS 1.8%
265,800 Dell, Inc. (b) $ 2,721,792
----------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 25.9%
400,000 American Eagle Outfitters, Inc. 3,744,000
226,000 Bed Bath & Beyond, Inc. (b) 5,744,920
110,000 Best Buy Co., Inc. 3,092,100
170,000 Coach, Inc. (b) 3,530,900
140,000 Home Depot, Inc. 3,222,800
165,000 Kohl's Corp. (b) 5,973,000
210,000 Lowe's Cos., Inc. 4,519,200
230,000 Starbucks Corp. (b) 2,175,800
125,000 Target Corp. 4,316,250
232,000 Williams-Sonoma, Inc. 1,823,520
----------------------------------------------------------------------------------------------
38,142,490
----------------------------------------------------------------------------------------------
CONSUMER SERVICES 5.9%
263,400 eBay, Inc. (b) 3,677,064
100,000 Garmin, Ltd. (Cayman Islands) 1,917,000
130,000 Intuit, Inc. (b) 3,092,700
----------------------------------------------------------------------------------------------
8,686,764
----------------------------------------------------------------------------------------------
ENERGY 10.4%
68,000 Apache Corp. 5,068,040
52,000 Schlumberger, Ltd. (Netherlands Antilles) 2,201,160
38,000 Transocean, Ltd. (Switzerland) (b) 1,795,500
50,000 Unit Corp. (b) 1,336,000
70,000 Valero Energy Corp. 1,514,800
96,000 XTO Energy, Inc. 3,385,920
----------------------------------------------------------------------------------------------
15,301,420
----------------------------------------------------------------------------------------------
FINANCIALS 22.6%
60,000 Affiliated Managers Group, Inc. (b) 2,515,200
160,000 American Express Co. 2,968,000
58,304 Bank of America Corp. 820,920
160,000 Capital One Financial Corp. 5,102,400
170,000 Citigroup, Inc. 1,140,700
260,000 Marshall & Ilsley Corp. 3,546,400
171,000 Merrill Lynch & Co., Inc 1,990,440
150,000 Morgan Stanley 2,406,000
90,000 State Street Corp. 3,539,700
255,000 Synovus Financial Corp. 2,116,500
240,000 Wells Fargo & Co. 7,075,200
----------------------------------------------------------------------------------------------
33,221,460
----------------------------------------------------------------------------------------------
NUMBER
OF SHARES DESCRIPTION VALUE
----------------------------------------------------------------------------------------------
HEALTH CARE 17.4%
91,000 Biogen Idec, Inc. (b) $ 4,334,330
100,000 Community Health Systems, Inc. (b) 1,458,000
310,000 Mylan, Inc. (b) 3,065,900
270,000 Pfizer, Inc. 4,781,700
200,000 UnitedHealth Group, Inc. 5,320,000
70,000 Varian Medical Systems, Inc. (b) 2,452,800
50,000 Waters Corp. (b) 1,832,500
57,500 Zimmer Holdings, Inc. (b) 2,324,150
----------------------------------------------------------------------------------------------
25,569,380
----------------------------------------------------------------------------------------------
INDUSTRIAL 1.9%
50,000 United Parcel Services, Inc. - Class B 2,758,000
----------------------------------------------------------------------------------------------
INSURANCE 0.2%
108,800 MGIC Investment Corp. 378,624
----------------------------------------------------------------------------------------------
SOFTWARE 4.4%
160,000 Check Point Software Technologies
(Israel) (b) 3,038,400
250,000 Symantec Corp. (b) 3,380,000
----------------------------------------------------------------------------------------------
6,418,400
----------------------------------------------------------------------------------------------
TECHNOLOGY 20.0%
80,000 Adobe Systems, Inc. (b) 1,703,200
100,000 Altera Corp. 1,671,000
160,000 Applied Materials, Inc. 1,620,800
361,900 Cisco Systems, Inc. (b) 5,898,970
394,000 EMC Corp. (b) 4,125,180
600,000 Flextronics International
Ltd. (Singapore) (b) 1,536,000
10,000 Google, Inc. - Class A (b) 3,076,500
170,000 Microsoft Corp. 3,304,800
157,300 QLogic Corp. (b) 2,114,112
164,000 Yahoo!, Inc. (b) 2,000,800
122,000 Zebra Technologies Corp. - Class A (b) 2,471,720
29,523,082
----------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS - 110.5%
(Cost $308,608,512) 162,721,412
----------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUND - 7.1%
200,000 Powershares QQQ 5,948,000
50,000 SPDR Trust Series 1 4,512,000
----------------------------------------------------------------------------------------------
(Cost $13,321,468) 10,460,000
----------------------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS 117.6%
(Cost $321,929,980) 173,181,412
----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 3.9%
MONEY MARKET FUNDS 2.7%
4,000,000 AIM Liquid Assets Money Market Fund
(Cost $4,000,000) 4,000,000
----------------------------------------------------------------------------------------------
See notes to financial statements.
10 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | PORTFOLIO OF
INVESTMENTS continued
PRINCIPAL AMOUNT VALUE
----------------------------------------------------------------------------------------------
U.S. GOVERNMENT 1.2%
$ 1,710,000 U.S. Treasury Note (coupon 4.875%,
maturity 1/31/09)
(Cost $1,716,082) $ 1,716,082
----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 3.9%
(Cost $5,716,082) 5,716,082
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 121.5%
(Cost $327,646,062) 178,897,494
Other Assets in excess of Liabilities - 2.5% 3,752,362
Borrowings - (16.3%) (24,000,000)
Total Value of Options Written - (7.7%) (11,410,428)
----------------------------------------------------------------------------------------------
NET ASSETS 100.0% $147,239,428
==============================================================================================
(a) All or a portion of this security position represents cover (directly or
through conversion rights) for outstanding options written.
(b) Non-income producing security.
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (B) DATE PRICE VALUE
----------------------------------------------------------------------------------------------
250 Adobe Systems, Inc. April 2009 $ 25.00 $ 29,375
150 Adobe Systems, Inc. April 2009 30.00 4,500
200 Adobe Systems, Inc. January 2010 30.00 33,500
200 Affiliated Managers Group, Inc. June 2009 35.00 237,000
100 Affiliated Managers Group, Inc. June 2009 45.00 65,500
300 Affiliated Managers Group, Inc. January 2010 50.00 216,000
500 Altera Corp. June 2009 17.50 93,750
500 Altera Corp. January 2010 20.00 106,250
300 American Express Co. July 2009 22.50 59,250
180 American Express Co. April 2009 25.00 11,700
1,120 American Express Co. January 2009 30.00 5,600
1,000 American Eagle Outfitters, Inc. February 2009 10.00 75,000
300 American Eagle Outfitters, Inc. August 2009 10.00 53,250
1,000 American Eagle Outfitters, Inc. May 2009 12.50 55,000
246 American Eagle Outfitters, Inc. January 2010 12.50 30,750
500 American Eagle Outfitters, Inc. January 2009 25.00 2,500
315 Apache Corp. July 2009 80.00 338,625
365 Apache Corp. April 2009 90.00 153,300
700 Applied Materials, Inc. April 2009 11.00 61,250
500 Applied Materials, Inc. January 2010 12.50 76,250
300 Applied Materials, Inc. January 2010 15.00 26,250
200 Bank of America Corp. February 2009 17.50 9,700
460 Bed Bath & Beyond, Inc. May 2009 25.00 179,400
300 Bed Bath & Beyond, Inc. May 2009 27.50 81,750
600 Bed Bath & Beyond, Inc. January 2009 30.00 15,000
900 Bed Bath & Beyond, Inc. January 2010 30.00 355,500
300 Best Buy Co., Inc. March 2009 25.00 150,000
200 Best Buy Co., Inc. June 2009 27.50 96,000
200 Best Buy Co., Inc. June 2009 32.50 53,500
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (B) DATE PRICE VALUE
----------------------------------------------------------------------------------------------
200 Best Buy Co., Inc. January 2010 $ 35.00 $ 68,000
200 Biogen Idec, Inc. April 2009 45.00 128,000
110 Biogen Idec, Inc. January 2009 50.00 8,800
400 Biogen Idec, Inc. January 2010 50.00 310,000
200 Biogen Idec, Inc. July 2009 55.00 70,000
500 Capital One Financial Corp. March 2009 35.00 202,500
930 Capital One Financial Corp. January 2009 45.00 4,650
900 Check Point Software Technologies
(Israel) July 2009 20.00 189,000
500 Check Point Software Technologies
(Israel) January 2009 22.50 2,500
200 Check Point Software Technologies
(Israel) July 2009 22.50 23,000
400 Cisco Systems, Inc. January 2009 16.00 30,400
500 Cisco Systems, Inc. April 2009 18.00 45,750
500 Cisco Systems, Inc. January 2010 20.00 91,250
300 Citigroup, Inc. January 2009 7.50 8,100
140 Coach, Inc. February 2009 17.50 60,900
800 Coach, Inc. May 2009 20.00 324,000
260 Coach, Inc. May 2009 25.00 50,050
690 Community Health Systems, Inc. January 2009 35.00 3,450
400 Dell, Inc. January 2010 12.50 63,000
400 Dell, Inc. May 2009 13.00 21,600
400 Dell, Inc. January 2010 15.00 37,600
250 Dell, Inc. January 2009 25.00 1,250
1,000 eBay, Inc. April 2009 15.00 129,500
1,634 eBay, Inc. April 2009 17.00 105,393
500 EMC Corp. April 2009 12.00 33,000
300 EMC Corp. July 2009 12.00 31,050
600 EMC Corp. January 2010 12.50 88,200
500 EMC Corp. July 2009 13.00 36,250
1,185 EMC Corp. January 2009 17.50 5,925
2,100 Flextronics International
Ltd. (Singapore) January 2009 10.00 10,500
1,700 Flextronics International
Ltd. (Singapore) January 2009 12.50 8,500
350 Garmin, Ltd. (Cayman Islands) April 2009 20.00 84,000
450 Garmin, Ltd. (Cayman Islands) January 2009 50.00 2,250
50 Google, Inc. - Class A January 2009 280.00 158,250
50 Google, Inc. - Class A June 2009 350.00 121,500
328 Home Depot, Inc. February 2009 27.50 10,168
772 Home Depot, Inc. May 2009 27.50 102,290
743 Intuit, Inc. April 2009 25.00 144,885
357 Intuit, Inc. January 2009 27.50 2,678
1,150 Kohl's Corp. April 2009 35.00 672,750
500 Kohl's Corp. April 2009 40.00 180,000
400 Lowe's Cos., Inc. January 2009 22.50 19,000
365 Lowe's Cos., Inc. April 2009 22.50 78,475
400 Lowe's Cos., Inc. January 2009 25.00 3,000
635 Lowe's Cos., Inc. January 2010 25.00 219,075
500 Marshall & Ilsley Corp. June 2009 15.00 101,250
See notes to financial statements.
Annual Report | December 31, 2008 | 11
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | PORTFOLIO OF
INVESTMENTS continued
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (B) DATE PRICE VALUE
----------------------------------------------------------------------------------------------
640 Marshall & Ilsley Corp. March 2009 $ 22.50 $ 3,200
486 Marshall & Ilsley Corp. January 2009 30.00 2,430
500 Merrill Lynch & Co., Inc. January 2009 25.00 2,500
438 MGIC Investment Corp. January 2009 10.00 2,190
400 Microsoft Corp. July 2009 21.00 83,200
500 Microsoft Corp. July 2009 23.00 68,500
800 Microsoft Corp. April 2009 27.00 11,600
300 Morgan Stanley January 2009 15.00 48,750
210 Mylan, Inc. January 2010 12.50 39,900
2,730 Mylan, Inc. January 2009 15.00 13,650
400 Pfizer, Inc. January 2009 20.00 2,000
500 Powershares QQQ January 2009 29.00 60,500
1,500 Powershares QQQ February 2009 31.00 149,250
200 QLogic Corp. July 2009 12.50 51,500
800 QLogic Corp. January 2009 15.00 8,000
573 QLogic Corp. January 2010 15.00 104,572
200 Schlumberger, Ltd. (Netherlands
Antilles) May 2009 50.00 66,000
120 Schlumberger, Ltd. (Netherlands
Antilles) February 2009 55.00 5,400
200 Schlumberger, Ltd. (Netherlands
Antilles) January 2010 60.00 79,000
500 SPDR Trust Series 1 January 2009 90.00 122,250
700 Starbucks Corp. April 2009 10.00 73,500
200 Starbucks Corp. January 2009 17.50 1,000
700 State Street Corp. May 2009 50.00 220,500
200 State Street Corp. January 2010 60.00 92,000
300 Symantec Corp. April 2009 15.00 33,000
300 Symantec Corp. July 2009 15.00 47,250
500 Symantec Corp. January 2009 17.50 2,500
400 Symantec Corp. April 2009 17.50 16,000
2,550 Synovus Financial Corp. February 2009 10.00 82,875
800 Target Corp. April 2009 37.50 372,000
350 Target Corp. January 2009 40.00 17,150
180 Transocean, Ltd. (Switzerland) August 2009 55.00 125,100
200 Transocean, Ltd. (Switzerland) May 2009 70.00 32,500
200 Unit Corp. June 2009 25.00 107,000
300 Unit Corp. March 2009 35.00 18,000
1,300 UnitedHealth Group, Inc. March 2009 30.00 178,750
200 UnitedHealth Group, Inc. June 2009 30.00 51,500
500 UnitedHealth Group, Inc. March 2009 31.00 53,750
500 United Parcel Services, Inc. - Class B April 2009 55.00 220,000
200 Valero Energy Corp. March 2009 22.50 46,800
500 Valero Energy Corp. June 2009 25.00 126,000
218 Varian Medical Systems, Inc. January 2010 40.00 99,190
50 Varian Medical Systems, Inc. May 2009 40.00 10,750
284 Varian Medical Systems, Inc. May 2009 45.00 25,560
300 Waters Corp. May 2009 45.00 47,250
200 Waters Corp. January 2009 50.00 55,500
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (B) DATE PRICE VALUE
----------------------------------------------------------------------------------------------
2,400 Wells Fargo & Co. January 2009 $ 30.00 $ 432,000
450 Williams-Sonoma, Inc. August 2009 10.00 52,875
320 Williams-Sonoma, Inc. February 2009 10.00 8,000
560 XTO Energy, Inc. May 2009 45.00 130,200
400 XTO Energy, Inc. January 2010 45.00 200,000
300 Yahoo!, Inc. July 2009 15.00 54,000
400 Yahoo!, Inc. April 2009 16.00 37,000
200 Yahoo!, Inc. January 2010 17.50 31,600
500 Yahoo!, Inc. January 2009 25.00 1,500
400 Zebra Technologies Corp. - Class A May 2009 20.00 100,000
200 Zebra Technologies Corp. - Class A August 2009 20.00 63,000
200 Zimmer Holdings, Inc. June 2009 45.00 57,000
----------------------------------------------------------------------------------------------
TOTAL VALUE OF CALL OPTIONS WRITTEN
(Premiums received $16,545,179) 11,014,131
----------------------------------------------------------------------------------------------
PUT OPTIONS WRITTEN
436 Cisco Systems, Inc. January 2009 22.50 271,410
95 Cisco Systems, Inc. January 2009 25.00 82,887
200 Garmin, Ltd. (Cayman Islands) April 2009 17.50 42,000
----------------------------------------------------------------------------------------------
TOTAL VALUE OF PUT OPTIONS WRITTEN
(Premiums received $167,111) 396,297
----------------------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(Premiums received $16,712,290) $ 11,410,428
==============================================================================================
(b) Non-income producing security.
See notes to financial statements.
12 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of ASSETS AND LIABILITIES | DECEMBER 31, 2008
ASSETS
Investments at value (cost $327,646,062) $ 178,897,494
Cash 3,483,275
Investments sold receivable 1,877,977
Dividends and interest receivable 176,774
Other assets 4,644
----------------------------------------------------------------------------------------------------------------
Total assets 184,440,164
----------------------------------------------------------------------------------------------------------------
LIABILITIES
Borrowings 24,000,000
Options written, at value (premiums received of $16,712,290) 11,410,428
Payables:
Investments purchased 1,422,486
Investment advisory fee 69,872
Investment management fee 69,872
Other affiliates 15,255
Trustees' fees 1,237
Interest due on borrowings 71,296
Accrued expenses and other liabilities 140,290
----------------------------------------------------------------------------------------------------------------
Total liabilities 37,200,736
----------------------------------------------------------------------------------------------------------------
NET ASSETS $ 147,239,428
================================================================================================================
COMPOSITION OF NET ASSETS
Common stock, $.01 par value per share; unlimited number of shares $ 192,684
authorized, 19,268,423 shares issued and outstanding
Additional paid-in capital 275,590,772
Accumulated net realized gain on investments and options transactions 14,902,678
Accumulated net unrealized depreciation on investments and options transactions (143,446,706)
----------------------------------------------------------------------------------------------------------------
NET ASSETS $ 147,239,428
================================================================================================================
NET ASSET VALUE (based on 19,268,423 common shares outstanding) $ 7.64
================================================================================================================
See notes to financial statements.
Annual Report | December 31, 2008 | 13
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of OPERATIONS | FOR THE YEAR ENDED DECEMBER 31, 2008
INVESTMENT INCOME
Dividends $ 3,220,730
Interest 253,595
----------------------------------------------------------------------------------------------------------------
Total income $ 3,474,325
----------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee 1,108,341
Investment management fee 1,108,341
Professional fees 162,678
Trustees' fees and expenses 141,122
Printing expenses 85,117
Administrative fee 57,524
Fund accounting 55,974
Custodian fee 53,597
NYSE listing fee 24,508
Transfer agent fee 18,624
Insurance 16,497
Line of credit fees 10,183
Other 12,926
Interest expense 530,176
----------------------------------------------------------------------------------------------------------------
Total expenses 3,385,608
----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 88,717
----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments (5,701,531)
Options 40,617,668
Net change in unrealized depreciation on:
Investments (114,511,759)
Options (1,297,727)
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and options transactions (80,893,349)
----------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (80,804,632)
================================================================================================================
See notes to financial statements.
14 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of CHANGES IN NET ASSETS |
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
---------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
Net investment income $ 88,717 $ 3,319,693
Net realized gain on investments and options 34,916,137 22,084,839
Net unrealized depreciation on investments and options (115,809,486) (35,228,751)
---------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (80,804,632) (9,824,219)
---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From and in excess of net investment income (22,736,739) (25,364,524)
---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Reinvestment of dividends - 2,119,016
---------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (103,541,371) (33,069,727)
NET ASSETS:
Beginning of period 250,780,799 283,850,526
---------------------------------------------------------------------------------------------------------------------------
End of period (including accumulated undistributed net investment income of
$0 and $0, respectively.) $ 147,239,428 $ 250,780,799
===========================================================================================================================
See notes to financial statements.
Annual Report | December 31, 2008 | 15
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Financial HIGHLIGHTS |
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JULY 28, 2004*
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 2008 31, 2007 31, 2006 31, 2005 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.02 $ 14.84 $ 14.74 $ 15.14 $ 14.33(a)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income (loss) (b) - 0.17 0.01 (0.02) (0.02)
Net realized and unrealized gain (loss) on investments
and options (4.20) (0.67) 1.41 0.94 1.16
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.20) (0.50) 1.42 0.92 1.14
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM AND IN EXCESS OF NET INVESTMENT INCOME (1.18) (1.32) (1.32) (1.32) (0.30)
------------------------------------------------------------------------------------------------------------------------------------
OFFERING EXPENSES CHARGED TO PAID-IN-CAPITAL - - - - (0.03)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.64 $ 13.02 $ 14.84 $ 14.74 $ 15.14
====================================================================================================================================
MARKET VALUE, END OF PERIOD $ 6.21 $ 11.41 $ 15.11 $ 14.80 $ 14.90
====================================================================================================================================
TOTAL INVESTMENT RETURN (c)
Net asset value -34.53% -3.81% 10.22% 6.36% 7.80%
Market value -38.12% -16.85% 11.86% 8.49% 1.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (thousands) $ 147,239 $ 250,781 $ 283,851 $ 278,344 $ 280,290
Ratio of expenses to average net assets
Ratios to Average Net Assets applicable to Common Shares:
Total expenses, excluding interest expense 1.36% 1.25% 1.28% 1.27% 1.24%(d)
Total expenses, including interest expense 1.62% N/A N/A N/A N/A
Net investment income, including interest expense 0.04% N/A N/A N/A N/A
Ratios to Average Managed Assets: (e)
Total expenses, excluding interest expense 1.29% 1.25% 1.28% 1.27% 1.24%(d)
Total expenses, including interest expense 1.53% N/A N/A N/A N/A
Net investment income, including interest expense 0.04% N/A N/A N/A N/A
Portfolio Turnover 33% 103% 59% 109% 33%
Senior Indebtedness
Total borrowings outstanding (in thousands) $ 24,000 N/A N/A N/A N/A
Asset coverage per $1,000 of indebtedness (f) $ 7,135 N/A N/A N/A N/A
*Commencement of investment operations.
(a) Before deduction of offering expenses charged to capital.
(b) Based on average shares outstanding.
(c) 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 distributions are assumed to be reinvested at NAV for
returns at NAV or in accordance with the Fund's dividend reinvestment plan
for returns at market value. Total investment return does not reflect
brokerage commissions. A return calculated for a period of less than one
year is not annualized.
(d) Annualized.
(e) Managed assets are equal to net assets plus outstanding leverage.
(f) Calculated by subtracting the Fund's total liabilities (not including the
borrowings) from the Fund's total assets and dividing by the total
borrowings.
See notes to financial statements.
16 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Notes to FINANCIAL STATEMENTS | DECEMBER 31, 2008
Note 1 - ORGANIZATION:
Madison/Claymore Covered Call & Equity Strategy Fund (the "Fund") was organized
as a Delaware statutory trust on May 6, 2004. The Fund is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940.
The Fund's primary investment objective is to provide a high level of current
income and current gains, with a secondary objective of long-term capital
appreciation. The Fund will, under normal market conditions, pursue its primary
investment objective by allocating at least 80% of total assets to an integrated
investment strategy pursuant to which the Fund invests in a portfolio of equity
securities consisting primarily of high quality, large capitalization common
stocks that are, in the view of the Fund's investment manager, selling at a
reasonable price in relation to their long-term earnings growth rates and writes
(sells) covered call options against a portion of the equity securities held;
pending investment in equity securities or covered call options, assets of the
Fund allocated to its integrated investment strategy will be held in cash or
cash equivalents. The Fund seeks to produce a high level of current income and
gains through premiums received from writing options and, to a lesser extent,
from dividends. 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 - SIGNIFICANT 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.
The following is a summary of significant accounting policies consistently
followed by the Fund.
(a) VALUATION OF INVESTMENTS
Readily marketable portfolio securities listed on an exchange or traded in the
over-the-counter market are generally valued at their last reported sale price.
If no sales are reported, the securities are valued at the mean of the closing
bid and asked prices on such day. If no bid or asked prices are quoted on such
day, then the security is valued by such method as the Fund's Board of Trustees
shall determine in good faith to reflect its fair value. Securities traded on
NASDAQ are valued at the NASDAQ official closing price. Portfolio securities
traded on more than one securities exchange are valued at the last sale price at
the close of the exchange representing the principal market for such securities.
Debt securities are valued at the last available bid price for such securities
or, if such prices are not available, at the mean between the last bid and asked
price. Exchange-traded options are valued at the mean of the best bid and best
asked prices across all option exchanges. Short-term debt securities having a
remaining maturity of sixty days or less are valued at amortized cost, which
approximates market value.
For those securities whose bid or asked 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).
In September, 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.157,"Fair Valuation Measurements"
("FAS 157"). This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosures about the use of fair value measurements. FAS 157
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 (i.e. yield curves; benchmark interest rates; indices). Level
3 valuations are those based upon unobservable inputs (i.e. discounted cash flow
analysis; non-market based methods used to determine fair valuation). Details of
the valuations as of December 31, 2008 were as follows:
VALUATIONS AT DECEMBER 31, 2008
DESCRIPTION
(VALUE IN $000S) SECURITIES OPTIONS TOTAL
--------------------------------------------------------------------------------
Assets:
Level 1 $ 177,181 $ - $ 177,181
Level 2 1,716 - 1,716
Level 3 - - -
--------------------------------------------------------------------------------
Total $ 178,897 $ - $ 178,897
================================================================================
Annual Report | December 31, 2008 | 17
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
VALUATIONS AT DECEMBER 31, 2008
DESCRIPTION
(VALUE IN $000S) SECURITIES OPTIONS TOTAL
--------------------------------------------------------------------------------
Liabilities:
Level 1 $ - $11,410 $ 11,410
Level 2 - - -
Level 3 - - -
--------------------------------------------------------------------------------
Total $ - $11,410 $ 11,410
================================================================================
(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.
To earn greater income on otherwise uninvested cash temporarily held by the
Fund, such as income earned from stock sold or called away, stock dividends and
covered call writing premiums, the Fund may invest such cash in repurchase
agreements. Repurchase agreements are short-term investments in which the Fund
acquires ownership of a debt security and the seller agrees to repurchase the
security at a future time and specified price. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
(c) OPTIONS
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.
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. A writer of a put option is exposed to the risk of
loss if fair value of the underlying securities declines, but profits only to
the extent of the premium received if the underlying security increases in
value. 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.
(d) DISTRIBUTIONS TO SHAREHOLDERS
The Fund declares and pays quarterly dividends to common shareholders.
Distributions to shareholders are recorded on the ex-dividend date. The amount
and timing of distributions are determined in accordance with federal income tax
regulations, which may differ from U.S. generally accepted accounting
principles. These dividends consist of investment company taxable income, which
generally includes qualified dividend income, ordinary income and short-term
capital gains, including premiums received on written options. Realized
short-term capital gains are considered ordinary income for tax purposes and
will be reclassified at the Fund's fiscal year end on the Fund's Statement of
Assets and Liabilities from accumulated net realized gains to distributions in
excess of net investment income. Any net realized long-term capital gains are
distributed annually to common shareholders.
Note 3 - INVESTMENT ADVISORY AGREEMENT, INVESTMENT MANAGEMENT AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES:
Pursuant to an Investment Advisory Agreement (the "Agreement") between the Fund
and Claymore Advisors, LLC (the "Adviser"), the Adviser will furnish offices,
necessary facilities and equipment, provide certain administrative services,
oversee the activities of Madison Asset Management LLC (the "Investment
Manager"), provide personnel, including certain officers required for the Fund's
administrative management and compensate all officers and trustees of the Fund
who are its affiliates. As compensation for these services, the Fund will pay
the Investment Adviser a fee, payable monthly, in an amount equal to 0.50% of
the Fund's average daily managed assets. Managed assets equal the net assets of
the Fund plus any assets attributable to financial leverage.
Pursuant to an Investment Management Agreement between the Fund and the
Investment Manager, the Investment Manager, under the supervision of the Fund's
Board of Trustees and the Adviser, will provide a continuous investment program
for the Fund's portfolio; provide investment research and make and execute
recommendations for the purchase and sale of securities; and provide 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 affiliates. As compensation for these services, the Fund will
pay the Investment Manager a fee, payable monthly, in an amount equal to 0.50%
of the Fund's average daily managed assets.
18 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
Under separate Fund Administration and Fund Accounting agreements, the Adviser
provides fund administration services and the Investment Manager provides fund
accounting 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 0.0175%
Next $500,000,000 0.0125%
Over $1,000,000,000 0.0100%
The Investment Manager receives a fund accounting fee based on the combined net
assets of the Fund and the Madison Strategic Sector Premium Fund, a closed-end
investment company sponsored by the Investment Manager. The fund accounting fee
is allocated on a prorated basis of the net assets of each fund. This fee is
payable monthly at the annual rate set forth below as a percentage of the
average daily net assets of the two funds:
NET 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%
Certain officers and trustees of the Fund are also officers and directors of
Claymore Advisors, LLC or Madison Asset Management LLC. The Fund does not
compensate its officers or trustees who are officers or interested persons of
the two aforementioned firms.
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 a distribution
reclass in the amount of $22,648,022 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain. Net
realized gains or losses may differ for financial reporting and tax reporting
primarily as a result of the deferral of losses relating to wash sale
transactions. Information on the components of investments, excluding written
options, and net assets as of December 31, 2008 is as follows:
Information on the tax components of investments, excluding written options, and
net assets as of December 31, 2008 is as follows:
UNDISTRIBUTED
COST OF NET TAX NET TAX LONG-TERM
INVESTMENTS GROSS TAX GROSS TAX UNREALIZED UNREALIZED UNDISTRIBUTED GAIN/
FOR TAX UNREALIZED UNREALIZED DEPRECIATION ON DEPRECIATION ORDINARY (ACCUMULATED
PURPOSES APPRECIATION DEPRECIATION INVESTMENTS ON DERIVATIVES INCOME CAPITAL LOSS)
----------------------------------------------------------------------------------------------------------------
$ 328,084,143 $ 817,762 $ (150,004,411) $ (149,186,649) $ 5,301,862 $ 15,340,759 $ -
For the years ended December 31, 2008 and 2007, the tax character of
distributions paid to common shareholders as reflected in the statement of
changes in net assets was as follows:
DISTRIBUTIONS PAID FROM: 2008 2007
---------------------------------------------------------------------
Ordinary income $ 22,736,739 $ 25,023,276
Long-term capital gain - 341,248
---------------------------------------------------------------------
$ 22,736,739 $ 25,364,524
---------------------------------------------------------------------
The Fund adopted the provisions of the Financial Accounting Standards Board
("FASB") Interpretation No.48 ("FIN 48") Accounting for Uncertainty in Income
Taxes on December 31, 2007. FIN 48 sets forth a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return. The implementation of FIN 48 did not result in any
unrecognized tax benefits in the accompanying financial statements.
FIN 48 requires the Fund to analyze all open tax years. Open tax years are those
years that are open for examination by the relevant income taxing authority. Tax
years ended 2005, 2006 and 2007 remain subject to examination by major
jurisdictions.
Annual Report | December 31, 2008 | 19
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
Note 5 - INVESTMENT TRANSACTIONS AND OPTIONS WRITTEN:
During the year ended December 31, 2008, the cost of purchases and proceeds from
sales of investments, excluding written options with maturity less than one year
and short-term investments were $142,922,402 and $75,019,562, respectively.
Transactions in option contracts during the year ended December 31, 2008 were as
follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------------------------------------------------------------------------------
Options outstanding, beginning of year 58,498 $ 16,774,714
Options written during the year 176,718 50,451,520
Options expired during the year (65,947) (16,708,734)
Options closed during the year (86,199) (28,668,223)
Options assigned during the year (13,945) (5,136,987)
--------------------------------------------------------------------------------
Options outstanding, end of year 69,125 $ 16,712,290
--------------------------------------------------------------------------------
Note 6 - CAPITAL:
COMMON SHARES
The Fund has an unlimited amount of common shares, $0.01 par value authorized
and 19,268,423 issued and outstanding. At December 31, 2008, Claymore
Securities, Inc., an affiliate of the Fund's Investment Adviser, owned 7,374
shares of the Fund.
Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
--------------------------------------------------------------------------------
Beginning Shares 19,268,423 19,124,936
Shares issued through dividend reinvestment - 143,487
--------------------------------------------------------------------------------
Ending Shares 19,268,423 19,268,423
--------------------------------------------------------------------------------
Note 7 - SHORT-TERM BORROWINGS:
On April 30, 2008, the Fund entered into a $50,000,000 Revolving Credit
Agreement with M&I Marshall & Ilsley Bank, which provides for a revolving credit
facility to be used as leverage for the Fund. The credit facility provides for a
secured line of credit for the Fund, where Fund assets are pledged against
advances made to the Fund. The Fund may borrow an amount up to 20% of the Fund's
total assets (including the proceeds of such financial leverage). Interest on
the amount borrowed is based on the 1-month LIBOR plus 1.50%. An unused
commitment fee of 0.10% is charged on the difference between the $50,000,000
credit agreement and the amount borrowed, which is included in "Line of credit
fees" on the Statement of Operations. As of December 31, 2008, there was
$24,000,000 outstanding in connection with the Fund's credit facility. The
average daily amount of the borrowings on the credit facility during the period
ended December 31, 2008 was $12,058,470 with a related average interest rate of
4.29%. The maximum amount outstanding during the period was $ 29,600,000. The
maturity date for the Revolving Credit Agreement is February 28, 2009. If the
Fund is unable to renew the revolving credit facility or find a replacement
facility, the Fund may need to liquidate portfolio securities in an amount
necessary to repay the facility.
Note 8 - INDEMNIFICATIONS:
In the normal course of business, the Fund enters into contracts that provide
general indemnifications. The Fund's maximum exposure under these arrangements
is dependent upon claims that may be made against the Fund in the future, and,
therefore cannot be estimated; however, the risk of material loss from such
claims is considered remote.
Note 9 - RECENT ACCOUNTING PRONOUNCEMENTS:
In March 2008, the FASB issued Statement of Financial Accounting Standards
No.161 ("SFAS No.161"),"Disclosures about Derivative Instruments and Hedging
Activities." This standard is intended to enhance financial statement
disclosures for derivative instruments and hedging activities and enable
investors to under-stand: a) how and why a fund uses derivative instruments, b)
how derivative 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. SFAS No.161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. As of December 31, 2008, management does not believe the
adoption of SFAS No.161 will impact the financial statement amounts; however,
additional footnote disclosures may be required about the use of derivative
instruments and hedging items.
Note 10 - SUBSEQUENT EVENT:
On February 2, 2009, the Board of Trustees declared a quarterly dividend of
$0.24 per common share. The dividend is payable February 27, 2009 to
shareholders of record on February 13, 2009.
20 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM|
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MADISON/CLAYMORE COVERED CALL & EQUITY STRATEGY FUND
We have audited the accompanying statement of assets and liabilities of
Madison/Claymore Covered Call & Equity Strategy Fund (the "Fund"), including the
portfolio of investments, as of December 31, 2008, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four years in the period then ended and for the period from July 28,
2004 (commencement of investment operations) through December 31, 2004. 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 December 31, 2008, by correspondence with the Fund's
custodian and brokers or by other applicable auditing procedures where replies
from brokers were not received. 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 of
Madison/Claymore Covered Call & Equity Strategy Fund as of December 31, 2008,
and the results of its operations 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 four years in the period then ended and for the
period from July 28, 2004 (commencement of investment operations) through
December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 18, 2009
Annual Report | December 31, 2008 | 21
MCN | MADISON/CLAYMORE COVERED CALL & EQUITY STRATEGY FUND
SUPPLEMENTAL INFORMATION | (UNAUDITED)
FEDERAL INCOME TAX INFORMATION
Qualified dividend income of as much as $3,215,174 was received by the Fund
through December 31,2008. 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, $3,184,763 of investment income qualifies for
dividends-received deduction.
In January 2009, 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 2008.
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Fund was held on July 22, 2008.
Holders of the Fund's common shares of beneficial interest, par value $0.01 per
share ("Common Shares") voted on the election of Class I Trustees.
Voting results with respect to the election of Class I Trustees by holders of
Common Shares are set forth below:
# OF SHARES # OF SHARES
NAME IN FAVOR WITHHELD
--------------------------------------------------------------------------------
Randall C. Barnes 16,646,687 313,951
Frank E. Burgess 16,636,380 324,258
The terms of the following Trustees of the Fund did not expire in 2008:Philip E.
Blake, Nicholas Dalmaso, James R. Imhoff, Jr., Ronald A. Nyberg, Ronald E.
Toupin, Jr. and Lorence Wheeler.
TRUSTEES
The Trustees of the Madison/Claymore Covered Call & Equity Strategy Fund and
their principal occupations during the past five years:
NUMBER OF
NAME, ADDRESS*, YEAR OF TERM OF OFFICE** PRINCIPAL OCCUPATION DURING PORTFOLIOS IN THE
BIRTH AND POSITION(S) HELD AND LENGTH OF THE PAST FIVE YEARS AND FUND COMPLEX*** OTHER DIRECTORSHIPS
WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
------------------------------------------------------------------------------------------------------------------------------------
Randall C. Barnes Since 2004 Private Investor 43 None.
Year of birth: 1951 (2001-present). Formerly,
Trustee Senior Vice President and
Treasurer, PepsiCo, Inc.
(1993-1997), President, Pizza
Hut International (1991-1993)
and Senior Vice President,
Strategic Planning and New
Business Development
(1987-1990) of PepsiCo, Inc.
(1987-1997).
------------------------------------------------------------------------------------------------------------------------------------
Philip E. Blake Since 2004 Private investor; Managing 1 Director, Madison
Year of birth: 1944 Partner of Forecastle Inc. Newspapers, Inc.,
1 South Pinckney Street (2000-present). Forecastle, Inc, Nets,
Suite 501 Inc. Trustee, the Mosaic
Madison, WI 53703 family of mutual funds and
Trustee Madison Strategic Sector
Premium Fund.
------------------------------------------------------------------------------------------------------------------------------------
James R. Imh off, Jr. Since 2004 Chairman and CEO of First 1 Director, Park Bank.
Year of birth: 1944 Weber Group. Trustee, the Mosaic family
5250 East Terrace Drive of mutual funds and
Madison, WI 53718 Madison Strategic Sector
Trustee Premium Fund.
------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Since 2004 Partner of Nyberg & Cassioppi, 46 None.
Year of birth: 1953 LLC, a law firm specializing
Trustee in corporate law, estate
planning and business
transactions (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 43 None.
Year of birth: 1958 President, Manager and
Trustee Portfolio Manager of 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 & Co., Inc. (1982-1999).
------------------------------------------------------------------------------------------------------------------------------------
Lorence Wheeler Since 2004 Formerly, President of Credit 1 Director, Grand Mountain
Year of birth: 1938 Union Benefits Services, Inc. Bank FSB. Trustee, the
135 Sunset Blvd. and Pension Specialist for Mosaic family of mutual
Tabernash, CO 80478 CUNA Mutual Group. funds and Madison
Trustee Strategic Sector Premium
Fund.
------------------------------------------------------------------------------------------------------------------------------------
22 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | Supplemental
INFORMATION (unaudited) continued
NUMBER OF
NAME, ADDRESS*, YEAR OF TERM OF OFFICE** PRINCIPAL OCCUPATIONS DURING PORTFOLIOS IN THE
BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND FUND COMPLEX*** OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
------------------------------------------------------------------------------------------------------------------------------------
Frank E. Burgess+ Since 2004 Founder, President and CEO of 1 Director, Capital
Year of birth: 1942 Madison Investment Advisors, Bankshares, Inc.,
550 Science Drive Inc. (1974-present) and Outrider Foundation,
Madison, WI 53711 Madison Asset Management, LLC Inc., and Santa Barbara
Trustee and Senior Community Bankcorp.
Vice President Trustee, the Mosaic
family of mutual funds
and Madison Strategic
Sector Premium Fund.
------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso++ Since 2004 Attorney. Formerly, Senior 45 None.
Year of birth: 1965 Managing Director and Chief
Trustee Administrative Officer
(2007-2008) and General
Counsel (2001-2007) of
Claymore Advisors, LLC and
Claymore Securities, Inc.
Formerly, Assistant General
Counsel, John Nuveen and Co.,
Inc. (1999-2000). Formerly,
Vice President and Associate
General Counsel of Van Kampen
Investments, Inc. (1992-1999).
------------------------------------------------------------------------------------------------------------------------------------
* 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:
- Messrs. Barnes and Burgess, as Class I Trustees, are expected to
stand for re-election at the Fund's 2011 annual meeting of
shareholders.
- Messrs. Blake, Dalmaso and Imhoff, as Class II Trustees, are
expected to stand for re-election at the Fund's 2009 annual meeting
of shareholders.
- Messrs. Nyberg, Toupin and Wheeler, as Class III Trustees, are
expected to stand for re-election at the Fund's 2010 annual meeting
of shareholders.
*** The Claymore Fund Complex consists of U.S. registered investment companies
advised or serviced by Claymore Advisors, LLC or Claymore Securities, Inc.
The Claymore Fund Complex is overseen by multiple Boards of Trustees.
+ Mr. Burgess is an "interested person"(as defined in section 2(a) (19)) of
the Fund because of his position as an officer of Madison Asset
Management, LLC, the Fund's Investment Manager.
++ Mr. Dalmaso is an "interested person"(as defined in section 2(a)(19) of
the 1940 Act) of the Fund as a result of his former position as an officer
of, and his equity ownership in the Fund's Adviser and certain of its
affiliates.
Annual Report | December 31, 2008 | 23
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | SUPPLEMENTAL
INFORMATION continued
OFFICERS
The Officers of the Madison/Claymore Covered Call & Equity Strategy 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 AND
POSITION(S) HELD WITH REGISTRANT LENGTH OF TIME SERVED OTHER AFFILIATIONS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell Since 2008 Senior Managing Director and Chief Investment Officer of Claymore
Year of birth: 1955 Advisors, LLC and Claymore Securities Inc. (2008-Present). Chief
Chief Executive Officer Executive Officer of certain funds in the Fund Complex. Formerly,
Managing Director of Research, Nuveen Asset Management (2000-2007).
------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Robinson Since 2008 Senior Managing Director, General Counsel and Corporate Secretary
Year of birth: 1959 (2007-present) of Claymore Advisors, LLC and Claymore Securities, Inc.;
Chief Legal Officer Chief Legal Officer of certain funds in the Fund Complex. Formerly,
Associate General Counsel (2000-2007) of NYSE Euronext, Inc. Formerly,
Archipelago Holdings, Inc. Senior Managing Director and Associate
General Counsel (1997-2000) of ABN Amro Inc. Formerly, Senior Counsel in
the Enforcement Division (1989-1997) of the U.S. Securities and Exchange
Commission.
------------------------------------------------------------------------------------------------------------------------------------
Steven M. Hill Since 2004 Senior Managing Director of Claymore Advisors, LLC and Claymore
Year of birth: 1964 Securities, Inc. (2005-present). Formerly, Chief Financial Officer
Chief Financial Officer, (2005-2006) Claymore Group Inc. Managing Director of Claymore Advisors,
Chief Accounting LLC and Claymore Securities, Inc. (2003-2005). Previously, Treasurer of
Officer and Treasurer Henderson Global Funds and Operations Manager for Henderson Global
Investors (North America) Inc. (2002-2003); Managing Director,
FrontPoint Partners LLC (2001-2002)
------------------------------------------------------------------------------------------------------------------------------------
Matthew J. Patterson Since 2006 Vice President, Assistant General Counsel of Claymore Group
Year of birth: 1971 Inc. (2006-present). Chief Compliance Officer and Clerk, The Preferred
Secretary Group of Mutual Funds (2005-2006); Chief Compliance Officer and
Secretary, Caterpillar Investment Management Ltd. (2005-2006);
Securities Counsel, Caterpillar, Inc. (2004-2006); Associate, Skadden,
Arps, Slate, Meagher & Flom LLP (2002-2004).
------------------------------------------------------------------------------------------------------------------------------------
Jay Sekelsky Since 2004 Managing Director of Madison Investment Advisors, Inc.; Vice President
550 Science Drive of Madison Asset Management, LLC; Vice President of Funds in the Mosaic
Madison, WI 53711 family of funds and Madison Strategic Sector Premium Fund.
Year of birth: 1959
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Kay Frank Since 2004 Managing Director of Madison Investment Advisors, Inc.; Vice President
550 Science Drive of Madison Asset Management, LLC; President of Funds in the Mosaic
Madison, WI 53711 family of funds and President of Madison Strategic Sector Premium Fund.
Year of birth: 1960
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Stephen Share Since 2006 Vice President, Madison Asset Management, LLC (2004-present); Investment
550 Science Drive Analyst, University of Wisconsin Foundation (2003-2004); Research
Madison, WI 53711 Analyst, Ark Asset Management (1999-2002).
Year of birth: 1967
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Greg Hoppe Since 2008 Vice President of Madison Mosaic, LLC; Vice President of Madison Asset
Year of birth: 1969 Management LLC
------------------------------------------------------------------------------------------------------------------------------------
Bruce Saxon Since 2006 Vice President-Fund Compliance Officer of Claymore Advisors, LLC (Feb
Year of birth: 1957 2006-present). Previously, Chief Compliance Officer/Assistant Secretary
Chief Compliance Officer of Harris Investment Management, Inc. (2003-2006). Director-Compliance
of Harris direct LLC (1999-2003).
------------------------------------------------------------------------------------------------------------------------------------
* Address for all Officers, unless otherwise noted: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.
24 | Annual Report | December 31, 2008
MCN | Madison/Claymore Covered Call & Equity Strategy 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, PO
Box 358015, Pittsburgh, PA 15252-8015, Phone Number: (866) 488-3559.
Annual Report | December 31, 2008 | 25
(This page is intentionally left blank)
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Fund INFORMATION |
BOARD OF TRUSTEES
Randall C. Barnes
Philip E. Blake
Frank Burgess*
Nicholas Dalmaso**
James Imhoff, Jr.
Ronald A. Nyberg
Ronald E. Toupin, Jr.
Lorence Wheeler
* Trustee is an "interested person" of the Fund as defined in the Investment
Company Act of 1940, as amended.
** Trustee is an "interested person" of the Trust as defined in the
Investment Company Act of 1940, as amended, as a result of his former
position as an officer of, and his equity ownership in, the Adviser and
certain of its affiliates.
OFFICERS
J. Thomas Futrell
Chief Executive Officer
Kevin M. Robinson
Chief Legal Officer
Steven M. Hill
Chief Financial Officer, Chief
Accounting Officer and Treasurer
Frank Burgess
Senior Vice President
Matthew Patterson
Secretary
Jay Sekelsky
Vice President
Kay Frank
Vice President
Stephen Share
Vice President
Greg Hoppe
Vice President
Bruce Saxon
Chief Compliance Officer
INVESTMENT MANAGER
Madison Asset Management, LLC
550 Science Drive
Madison, WI 53711
INVESTMENT ADVISER
Claymore Advisors, LLC
2455 Corporate West Drive
Lisle, IL 60532
ADMINISTRATOR
Claymore Advisors, LLC
2455 Corporate West Drive
Lisle, IL 60532
CUSTODIAN AND TRANSFER AGENT
The Bank of New York Mellon
New York, New York
LEGAL COUNSEL
Vedder Price P.C.
Chicago, Illinois
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, Illinois
PRIVACY PRINCIPLES OF MADISON/CLAYMORE COVERED CALL & EQUITY STRATEGY FUND FOR
SHAREHOLDERS
The Fund is committed to maintaining the privacy of shareholders and to
safeguarding its non-public 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 MADISON/CLAYMORE COVERED CALL & EQUITY
STRATEGY 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 Madison/Claymore Covered Call & Equity
Strategy 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 (800) 851-0264.
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 the Fund at (800) 851-0264
or by accessing the Fund's Form N-PX on the SEC's website at www.sec.gov or
www.claymore.com.
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. The Fund's Form
N-Q may also be reviewed 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 or at www.sec.gov.
In August 2008, the Fund submitted a CEO annual certification to the 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,
including 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 is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market.
Annual Report | December 31, 2008 | 27
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
About the FUND MANAGER |
MADISON ASSET MANAGEMENT, LLC
Madison Asset Management, LLC, (MAM) a wholly-owned subsidiary of Madison
Investment Advisors, Inc., with its affiliates, manages more than $7 billion in
individual, corporate, pension, insurance, endowment and mutual fund assets.
INVESTMENT PHILOSOPHY
MAM believes in investing in high-quality growth companies, which deliver
potentially consistent and sustainable earnings growth, yet sell at attractive
valuations. Historically, shareholders of these types of companies have been
rewarded over the long term with above-average returns, and favorable risk
characteristics. Constructing portfolios with positive risk/reward profiles has
historically allowed clients to participate during strong market environments,
while mitigating potential declines.
INVESTMENT PROCESS
The managers employ a fundamental, bottom-up strategy in constructing equity
portfolios. The managers look for companies that they believe are consistently
growing at an above-average pace, yet sell at below-average multiple.
The managers follow a rigorous three-step process when evaluating companies and
then employ an actively-managed option strategy to help enhance income and
mitigate downside risk.
1. BUSINESS MODEL. The managers look for a sustainable competitive advantage,
cash flow that is both predictable and growing, as well as a rock-solid
balance sheet.
2. MANAGEMENT. When assessing management, the managers look to see how the
company has allocated capital in the past, their track record for
enhancing shareholder value and the nature of their accounting practices.
3. PROPER VALUATION. The final step in the process is assessing the proper
valuation for the company. The managers strive to purchase securities
trading at a discount to their intrinsic value as determined by discounted
cash flows. They corroborate this valuation work with additional valuation
methodologies.
The covered call investment strategy focuses on stocks in which the managers
have high confidence in their continuing earnings growth rates, but sell at
reasonable Price-Earnings Ratios. By writing the majority of the Fund's calls
out-of-the-money, meaning the strike price is higher than the stock price, the
Fund can participate in some stock appreciation while still receiving income in
the form of option premiums. The covered call strategy also tends to reduce the
risk compared to just owning the stock.
CLAYMORE SECURITIES, INC.
2455 Corporate West Drive
Lisle, IL 60532
Member FINRA/SIPC 02/09
MCN
LISTED
NYSE(R)
MCN-AR-1208
NOT FDIC - INSURED | NOT BANK - GUARANTEED | MAY LOSE VALUE
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics (the "Code of Ethics")
that applies to its principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions.
(b) No information need be disclosed pursuant to this paragraph.
(c) During the registrant's fiscal year ended December 31, 2008, the Code
of Ethics was not amended.
(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 for
purposes of this 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 unaudited 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 amended, 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 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 $46,500 for the fiscal year ending December 31, 2008,
and $48,000 for the fiscal year ending December 31, 2007.
(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 $0 for the
fiscal year ending December 31, 2008 and $0 for the fiscal year ending
December 31, 2007.
(c) Tax Fees: the aggregate fees billed for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax
planning were $6,500 for the fiscal year ending December 31, 2008 and
$6,200 for the fiscal year ending December 31, 2007.
(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) and (c) of this Item were $0 for the fiscal year
ending December 31, 2008 and $0 for the fiscal year ending December
31, 2007.
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) Audit Committee Pre-Approval Policies and Procedures.
(i) 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 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-prohibited 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.
(ii) 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.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant (not including a sub-adviser whose
role is primarily portfolio management and is sub-contracted with or overseen by
another investment adviser) that directly related to the operations and
financial reporting of the registrant was $6,500 for the fiscal year ending
December 31, 2008 and $6,200 for the fiscal year ending December 31, 2007.
(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 is
comprised of: Randall C. Barnes, Philip E. Blake, James R. Imhoff, Jr., Ronald
A. Nyberg, Ronald E. Toupin, Jr. and Lorence D. Wheeler.
(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 responsibility for voting of proxies relating
to its voting securities to its investment manager, Madison Asset Management,
LLC (the "Investment Manager"). The Investment Manager's proxy voting policies
and procedures are included as an exhibit hereto.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) Frank E. Burgess, the President and founder of Madison Investment
Advisors, Inc., is responsible for the day-to-day management of the registrant's
portfolio. The Investment Manager is a wholly owned subsidiary of Madison
Investment Advisors, Inc.
(a) (2) Other portfolios managed.
As of the end of the registrant's most recent fiscal year, Mr. Burgess was
involved in the management of the following accounts:
MATERIAL CONFLICTS OF
INTEREST THAT MAY
ARISE IN CONNECTION
WITH THE MANAGER'S
MANAGEMENT OF THE
TRUST'S INVESTMENTS
NAME OF CATEGORY OF OTHER NUMBER MANAGED TOTAL ASSETS AND THE INVESTMENTS OF
MANAGER ACCOUNTS MANAGED IN CATEGORY IN CATEGORY THE OTHER ACCOUNTS
---------- ----------------- -------------------- ---------------- -------------------------
Frank Registered 3* (including the* $ 214,364,000 None identified. One of
Burgess investment registrant) the four funds managed by
companies Mr. Burgess, the Madison
Mosaic Equity Trust
("MADOX"), has investment
strategies similar to
the registrant. MADOX
contains a fulcrum fee
that rewards Madison Asset
Management, LLC ("MAM")
if MADOX outperforms
the BXM Index and
penalizes MAM for
underperforming the index.
As of the date of this
filing, MADOX assets were
approximately $4 million.
MAM's compliance program
includes procedures to
monitor trades by MADOX,
the registrant and other
funds managed by the
portfolio manager.
Other pooled 0 $ 0 None identified.
investment vehicles
Other accounts None Not None identified
applicable
* Except as disclosed above with regard to MADOX, the advisory fee was not
based on the performance of any of these accounts.
(a)(3) Compensation.
All compensation is measured and paid on an annual, calendar year basis. The
portfolio manager is a majority owner of the Investment Manager and does not
receive "incentive" compensation.
DIFFERENCE IN METHODOLOGY
OF COMPENSATION WITH
STRUCTURE OF COMPENSATION OTHER ACCOUNTS MANAGED
FOR MANAGING (RELATES TO THE "OTHER
NAME OF MOSAIC EQUITY TRUST ACCOUNTS" MENTIONED IN THE
MANAGER PORTFOLIOS SPECIFIC CRITERIA CHART ABOVE)
--------------- ------------------------------- ----------------- ---------------------------
Frank Burgess The Investment Manager believes Not None. Compensation is based
investment professionals should applicable. on the entire employment
receive compensation for the relationship, not based on
performance of their client's the performance of any single
accounts, their individual account or type of account.
effort, and the overall
profitability of the firm. The
manager is a controlling
shareholder of Madison
Investment Advisors, Inc. and
participates in the overall
profitability of the firm
through his individual ownership
in the firm. Madison Investment
Advisors, Inc. also offers an
Employee Stock Ownership Plan
(ESOP) in which all employees
are eligible to participate in
after one year
of employment. The Investment
Manager believes its portfolio
managers' goals are aligned
with those of long-term
investors, recognizing client
goals to outperform over the
long-term, rather than
focused on short-term
performance contests.
(a) (4) Ownership of Securities.
As of December 31, 2008, the portfolio manager beneficially owned the following
amounts of the registrant:
NAME OF MANAGER NAME OF REGISTRANT RANGE OF OWNERSHIP INTEREST
--------------- -------------------------------------- -----------------------------------
Frank Burgess Madison/Claymore Covered Call & Equity $100,001 - $500,000
Strategy Fund
(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.
On January 20, 2009, the registrant's Board of Trustees (the "Board") approved a
revised written charter (the "Nominating and Governance Committee Charter") for
its nominating and governance committee (the "Nominating and Governance
Committee") that contains changes to the procedures by which shareholders may
recommend nominees to the Board.
Under the Nominating and Governance Charter, the previously existing procedures
by which shareholders may recommend nominees to the Board, as described in the
registrant's proxy statement filed with the Securities and Exchange Commission
on June 25, 2008, remain in effect. In addition to these previously existing
procedures, the Nominating and Governance Charter includes a new requirement
that following the submission by a shareholder of a Trustee candidate
recommendation, a Trustee candidate must (i) be prepared to submit written
answers to a questionnaire seeking professional and personal information that
will assist the Nominating and Governance Committee to evaluate the candidate
and to determine, among other matters, whether the candidate would qualify as a
Trustee who is not an "interested person" of the registrant as such term is
defined under the Investment Company Act of 1940; (ii) be prepared to submit
character references and agree to appropriate background checks; and (iii) be
prepared to meet with one or more members of the Nominating and Governance
Committee at a time and location convenient to those Nominating and Governance
Committee members in order to discuss the nominee's qualifications.
A copy of the Nominating and Governance Committee Charter will be filed with the
Securities and Exchange Commission as an appendix to the registrant's 2009 proxy
statement.
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 of 1940) as of a date
within 90 days of this filing and have concluded based on such evaluation, 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 of 1940)
that occurred during the registrant's last 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 Senior Financial Officer.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(a) of the Investment Company Act.
(a)(3) Not Applicable.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(c) Madison Asset Management, LLC Proxy Voting Policies
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) Madison / Claymore Covered Call & Equity Strategy Fund
By: /s/ J. Thomas Futrell
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Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: March 5, 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
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Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: March 5, 2009
By: /s/ Steven M. Hill
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Name: Steven M. Hill
Title: Treasurer and Chief Financial Officer
Date: March 5, 2009