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
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(Exact name of registrant as specified in charter)
2455 Corporate West Drive
Lisle, IL 60532
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(Address of principal executive offices) (Zip code)
J. Thomas Futrell
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: June 30, 2009
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), is as follows:
SEMIANNUAL
REPORT MADISON/CLAYMORE |
June 30, 2009 COVERED CALL & EQUITY STRATEGY FUND | MCN
(Unaudited)
Picture of a bridge
Madison Logo: CLAYMORE(SM)
Investment Advisors
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(R) | Equity Strategy
Fund
Madison Logo CLAYMORE(SM)
Investment Advisors
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 | Semiannual Report | June 30, 2009
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
semiannual period ended June 30, 2009.
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.
Claymore Advisors, LLC ("Claymore") is the Investment Adviser to the Fund.
Claymore entities provided supervision, management, servicing and/or
distribution on approximately $12.9 billion in assets as of June 30, 2009.
Madison Asset Management, LLC ("MAM"), a subsidiary of Madison Investment
Advisors, Inc., is the Fund's investment manager. Founded in 1974, MAM is an
independently owned firm that, with its affiliates, manages billions in
individual, corporate, pension, insurance, endowment, and mutual fund assets. As
of July 1, 2009, Madison managed or supervised in excess of $13.5 billion in
assets.
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the six months ended
June 30, 2009, the Fund provided a total return based on market price of 20.90%
and a total return based on NAV of 16.79%. As of June 30, 2009, the Fund's
market price of $6.98 per share represented a discount of 17.00% to its NAV of
$8.41 per share. 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 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 26 of the Fund's semiannual 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.
The Fund paid quarterly dividends of $0.2400 on February 27, 2009, and $0.1800
on May 29, 2009. The most recent dividend represents an annualized distribution
rate of 10.32% based on the Fund's closing market price of $6.98 on June 30,
2009. However, there is no guarantee that this level of income 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.
Semiannual Report | June 30, 2009 | 3
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | DEAR SHAREHOLDER
continued
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
Chief Executive Officer
Madison/Claymore Covered Call & Equity Strategy Fund
AN UPDATE ON THE FUND
AGREEMENT AND PLAN OF MERGER
On July 17, 2009, Claymore Group Inc., the parent of the Investment Adviser,
entered into an Agreement and Plan of Merger between and among Claymore Group
Inc., Claymore Holdings, LLC and GuggClay Acquisition, Inc., (with the latter
two entities being wholly-owned, indirect subsidiaries of Guggenheim Partners,
LLC ("Guggenheim")) whereby GuggClay Acquisition, Inc. will merge into Claymore
Group Inc. which will be the surviving entity. The parties intend that the
completed merger will result in a change-of-control whereby Claymore Group Inc.
and its subsidiaries, including the Investment Adviser, will become indirect,
wholly-owned subsidiaries of Guggenheim. The transaction is not expected to
affect the daily operations of the Fund or the investment management activities
of the Investment Adviser.
Under the 1940 Act, consummation of this transaction will result in the
automatic termination of the Advisory Agreement. Accordingly, prior to such
consummation, the Fund expects to enter into a new investment advisory agreement
with the Investment Adviser, to become effective upon the consummation of the
transaction. This new investment advisory agreement will be subject to the
initial approval of the Board of Trustees and subsequent approval by the Fund's
shareholders.
SHARE REPURCHASE PLAN
On July 22, 2009, the Fund's Board of Trustees approved an open market share
repurchase plan (the "Plan") and the Fund added an additional portfolio manager.
Under the terms of the Plan, the Fund is authorized to purchase up to 5% of its
outstanding common shares in the open market on a quarterly basis, subject to
applicable regulatory and legal restrictions and in consideration of certain
operational and market factors, including the size of the market price discount
to net asset value of the Fund. The amount and timing of repurchases will be at
the discretion of the Investment Manager to the Fund, and subject to market
conditions and investment considerations. The Fund intends to conduct the Plan
in accordance with Rule 10b-18 under the Securities Exchange Act of 1934.
The Plan is intended to enhance shareholder value. The Fund's Board of Trustees
has authorized the share repurchase program in the belief that share repurchases
may at times represent attractive investment opportunities for the Fund. There
is no assurance that the Fund will purchase shares at any particular discount
levels or in any particular amounts. There is also no assurance that the market
price of the Fund's shares, either absolutely or relative to net asset value,
will increase as a result of any share repurchases.
PORTFOLIO MANAGER
Ray Di Bernardo, CFA, will join Frank Burgess in the day-to-day portfolio
management responsibilities for the Fund. Mr. Di Bernardo brings over 15 years
of equity management expertise to his role at Madison Asset Management
("Madison"). Prior to joining the Madison organization in 2003, he was an equity
analyst at Concord Trust in Chicago, and before that, an equity analyst and
co-manager of numerous international and emerging market mutual funds at a
Toronto-based international equity firm. Mr. Di Bernardo holds a BA from the
University of Western Ontario and is a CFA charterholder.
4 | Semiannual Report | June 30, 2009
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 six-month period ended June 30, 2009. 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 subsidiary of Madison Investment
Advisors, Inc., with its affiliates, manages in excess of $13.5 billion in
individual, corporate, pension, insurance, endowment, and mutual fund assets as
of July 1, 2009. On June 30, 2009, Madison Investment Advisors, Inc. entered
into a joint venture with CUNA Mutual Insurance Society ("CMIS") pursuant to
which CMIS acquired a non-voting interest in MAM.
================================================================================
WHAT HAPPENED IN THE MARKET DURING THE FIRST HALF OF 2009?
The wild ride for stock investors during the first half of 2009 can be traced by
the path of the S&P 500 Index (the "Index"), which is often used as a proxy for
the overall market. The Index began the year with the same downward momentum
that characterized 2008, when the market dropped a record-setting -37%. The
Index fell an additional -25% by March 9, then rallied strongly through May
before consolidating gains as the first half of the year came to an end. By June
30, the Index had made up its early losses, finishing with a deceivingly
average-looking year-to-date return of 3.16%.
Over the past 12 months, the market has been buffeted by unprecedented financial
woes, economic recession, unprecedented government stimulus programs and wide
swings of investor psychology. In the fall of 2008, the collapse of Lehman
Brothers and the subsequent massive interventions from the Federal government
raised hopes that the worst was behind. But as we entered the first months of
2009, a new wave of uncertainty gripped the market. The new administration's
announcements of dramatic and sizable support initiatives were not enough to
overcome the continuing negative economic and corporate news. The economy, as
measured by GDP, was dropping at an annualized 6% rate, and employment fell at a
record-setting pace. The crisis in the housing market showed no sign of abating
and the domestic automobile business was in freefall. It was no wonder that
consumer sentiment hit a new low and investor sentiment could be summed up in
one word: fearful.
From the market lows in early March, the S&P rallied strongly through most of
the remaining period, ending the six months in plus territory for the first half
of 2009. This rebound was not so much driven by positive news as it was by
diminishing worry. In other words, investors who were once worried about the
collapse of the global financial system and another Great Depression were
beginning to believe that the economic problems were deep, but not fathomless.
By the later part of the period, some of the important economic indicators
showed signs of bottoming and other problem areas showed decreasing losses.
These signs, however modest, were eagerly noted by investors looking for hints
of recovery and as we entered the second half of the period, the market
sentiment shifted from fear to hope.
================================================================================
HOW DID THE FUND PERFORM GIVEN THE MARKETPLACE CONDITIONS DURING THE FIRST HALF
OF 2009?
We are very pleased to report that MCN performed admirably through the very
tumultuous first half of 2009. For the six months ended June 30, 2009, the Fund
provided a total return based on market price of 20.90% and a return of 16.79%
based on NAV. This compared favorably to the S&P 500 Index which returned 3.16%
and the Chicago Board of Options Exchange ("CBOE") S&P BuyWrite Index (BXM)
which posted a 7.71% return over the same period. The Fund's market price as of
June 30, 2009 was $6.98, representing a discount of 17.0% to the NAV of $8.41.
The discount to NAV has narrowed somewhat compared to the 18.7% level as of
December 31, 2008, however, it has narrowed dramatically from the levels
Semiannual Report | June 30, 2009 | 5
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS & ANSWERS
continued
seen in early March when investor fear drove discounts to record levels.
The Fund's strong performance during the period was powered by a combination of
very favorable underlying stock performance coupled with an option strategy that
allowed the Fund to participate in the market rally. Technology and Consumer
Discretionary stocks were among the best-performing sectors during the first
half and the Fund was well represented in these areas. The Fund has little
exposure to the Telecommunications, Utilities and Industrial Sectors which all
lagged the market during the first half of the year. The Fund entered the year
with the vast majority of options "out-of-the-money" and we continued to write
calls well "out-of-the-money" at attractive premiums during the early part of
the year (out-of-the-money means the stock price is below the strike price at
which the shares would be called away). This allowed the Fund to capture
meaningful upside as the market rallied off the March lows.
================================================================================
DESCRIBE THE FUND'S PORTFOLIO EQUITY AND OPTION STRUCTURE:
As of June 30, 2009, the Fund held 57 equity securities. Unexpired covered call
options had been written against 78% of the Fund's stock holdings as of June 30,
2009. In addition, 65% of the Fund's total assets were invested in common stocks
of large capitalization issuers. During the first half of 2009, the Fund
generated premiums of $11.1 million from its covered call writing activities. It
is the strategy of the Fund to write "out-of-the-money" call options and at June
30, 57% of the Fund's call options (60 of 106 different options) remained
"out-of-the-money." The number of "out-of-the-money" options has declined from
the beginning of the year as the strength of the market rally has moved many
share prices above the corresponding strike price of the options held by the
Fund. The Fund's managers have also begun writing options "closer-to-the-money"
in order to capture higher premium income and provide the Fund added protection
from a reversal in the market's upward surge.
The Fund has the ability to utilize leverage in order to take advantage of
opportunities in the equity and/or option markets. At the beginning of the year,
the Fund was leveraged to 14% of managed assets through its established credit
facility. While this provided a slight headwind during the early months of the
year as the market continued to correct, the use of leverage was a contributor
to the Fund's ability to dramatically outperform during the ensuing market
upturn. As the market continued higher in the second quarter of the year,
leverage was slowly reduced to a level of 7.4% of managed assets by June 30,
2009.
================================================================================
WHICH SECTORS ARE PREVALENT IN THE FUND?
From a sector perspective, MCN's largest exposure as of June 30, 2009 was to the
technology (and technology related) sector, followed by health care, consumer
discretionary, financials and energy. The Fund was not invested in the
materials, consumer staples and utilities sectors as of June 30, 2009.
================================================================================
DESCRIBE THE FUND'S DIVIDEND HISTORY FOR THE PERIOD:
The Fund paid quarterly dividends of $0.24 per share on February 27, 2009 and
$0.18 per share on May 29, 2009. At the Fund's closing market price of $6.98 per
share on June 30, 2009 and at the latest quarterly rate of $0.18, the Fund's
dividend yield was 10.32%.
================================================================================
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 to Growth rate) as well as
financial strength and industry leadership. As bottom-up
6 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS & ANSWERS
continued
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 strive to 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 THE REMAINDER OF
2009?
After watching the market drop and then rebound during the past six months, the
question remains: Is this the beginning of a new bull market or a rally within a
bear market? The answer may lie in an old market adage which describes rallies
following a bear market: "First comes price, then comes optimism and then comes
earnings." The price piece of this equation can be seen in the S&P 500's 37%
rally from the March low through period end. Optimism improved markedly since
the bleak days of early March, when there was real fear of a total collapse of
the global financial system. However, positive earnings news remained sparse,
leading us to the conclusion that it is too early to confidently categorize the
latest rally. For the market to truly transition into a new bull market phase,
we need evidence of a return to positive revenue and earnings growth and
although earnings are stabilizing mainly through cost cutting efforts, revenue
growth will only become sustainable once the economy begins growing again. We do
expect overall corporate earnings to improve in 2010, but the rate and the
breadth are subject to many variables. As a result, we continue to concentrate
our portfolios in shares of high-quality companies with superior competitive
advantages, strong balance sheets and positive free cash flow generation. These
kinds of companies can be a source of stability if volatility increases while
still providing upside if, in fact, a new bull market is upon us.
On the option writing side, after spiking above 80 last November the VIX Index
has steadily declined this year into the upper 20s as market volatility has
calmed along with investor fear (VIX is the ticker symbol for the CBOE
Volatility Index, a popular measure of the implied volatility of options on the
S&P 500 index). Despite this decline, volatility remains above levels seen
between 2003 and 2007 and option premiums continue to be relatively attractive.
================================================================================
INDEX DEFINITIONS
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 BuyWrite 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.
Semiannual Report | June 30, 2009 | 7
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS & ANSWERS
continued
================================================================================
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 Fund will fall due to
general market and economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate, or factors
relating to specific companies in which the Fund invests.
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 CONCENTRATION 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 shareholders. Such return of capital distributions generally are tax-free
up to the amount of a common shareholder's tax basis in the common shares
(generally, the amount paid for the common shares).In addition, such excess
distributions will decrease the Fund's total assets and may increase the Fund's
expense ratio.
FINANCIAL LEVERAGE: The Fund is authorized to utilize leverage through the
issuance of preferred shares and/or the Fund may 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 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Fund SUMMARY | AS OF JUNE 30, 2009 (unaudited)
FUND STATISTICS
------------------------------------------------------
Share Price $6.98
Common Share Net Asset Value $8.41
Premium/(Discount) to NAV -17.00%
Net Assets ($000) $162,111
------------------------------------------------------
TOTAL RETURNS
------------------------------------------------------
(INCEPTION 7/28/04) MARKET NAV
------------------------------------------------------
Six Month 20.90% 16.79%
One Year -19.46% -15.41%
Three Year - average annual -10.04% -6.86%
Since Inception - average annual -5.29% -1.47%
------------------------------------------------------
% OF LONG TERM
SECTOR BREAKDOWN INVESTMENTS
------------------------------------------------------
Technology 19.5%
Health Care 18.8%
Consumer Discretionary 16.7%
Financials 16.6%
Energy 9.2%
Consumer Services 6.0%
Exchange-Traded Funds 5.4%
Software 4.2%
Computers 2.0%
Industrial 1.3%
Insurance 0.3%
------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
------------------------------------------------------
Cisco Systems, Inc. 4.0%
Wells Fargo & Co. 3.1%
EMC Corp. 3.1%
Bed Bath & Beyond, Inc. 3.0%
Powershares QQQ 2.9%
State Street Corp. 2.8%
eBay, Inc. 2.7%
UnitedHealth Group, Inc. 2.7%
American Eagle Outfitters, Inc. 2.7%
Apache Corp. 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.
Line Chart:
Share Price & NAV Performance
SHARE PRICE NAV
6/30/08 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
6.21 7.64
6.44 7.94
6.57 7.91
6.8 8.09
6.71 7.89
6.65 7.95
6.55 7.76
6.35 7.55
6.34 7.59
6.15 7.29
6.04 7.28
6.06 7.3
5.68 6.73
5.89 7.08
5.91 6.95
5.95 7.01
5.93 7.04
6.01 7.13
6.23 7.5
6.08 7.2
5.93 7
5.88 7.01
6.1 7.11
6.06 7.09
6.15 7.23
6.35 7.47
6.43 7.49
6.16 7.1
5.92 6.96
5.97 6.96
5.86 6.89
5.52 6.55
5.45 6.55
5.36 6.43
5.18 6.38
4.96 6.14
5.26 6.48
5.3 6.45
5.33 6.34
5.09 6.23
4.88 5.87
4.81 5.88
4.9 6.07
4.49 5.76
4.5 5.7
4.28 5.64
4.62 6.14
4.91 6.24
5.15 6.56
5.25 6.59
5.29 6.51
5.34 6.79
5.51 7
5.55 6.89
5.39 6.69
5.92 7.22
5.72 7.06
5.76 7.14
5.99 7.35
5.89 7.18
5.59 6.94
5.69 7.02
5.83 7.15
6 7.35
6.09 7.46
6.02 7.37
5.88 7.23
5.97 7.37
6.27 7.77
6.39 7.83
6.23 7.68
6.28 7.74
6.49 7.88
6.53 7.98
6.2 7.58
6.3 7.79
6.33 7.75
6.42 7.81
6.49 7.98
6.41 7.85
6.44 7.85
6.59 8
6.65 8.01
6.65 8.02
6.87 8.28
6.85 8.28
7 8.43
6.85 8.33
7.1 8.54
6.91 8.39
6.87 8.33
6.31 7.95
6.44 8.07
6.38 8.01
6.61 8.26
6.64 8.25
6.6 8.2
6.52 8.1
6.61 8.04
6.7 8.25
6.6 8.14
6.78 8.22
6.84 8.34
7.01 8.5
7.04 8.51
6.88 8.41
7.06 8.5
7.02 8.47
6.96 8.46
7.01 8.53
7.05 8.51
7.12 8.54
7.04 8.56
6.9 8.41
6.88 8.31
6.83 8.3
6.87 8.34
6.9 8.41
6.66 8.15
6.71 8.17
6.77 8.25
6.92 8.43
6.88 8.45
6.94 8.49
6/30/09 6.98 8.41
Bar Chart:
QUARTERLY DIVIDENDS PER SHARE
May 08 0.33
Aug 08 0.28
Nov 08 0.24
Feb 09 0.24
May 09 0.18
Pie Chart:
PORTFOLIO COMPOSITION (% of Total Investments)
Long-Term Investments 98.7%
Short-Term Investments 1.3%
Semiannual Report | June 30, 2009 | 9
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Portfolio of INVESTMENTS | JUNE 30, 2009 (unaudited)
NUMBER
OF SHARES DESCRIPTION VALUE
================================================================================
LONG-TERM INVESTMENTS 114.5%
COMMON STOCKS (A) 108.3%
COMPUTERS 2.2%
265,800 Dell, Inc. (b) $ 3,649,434
--------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 19.1%
350,000 American Eagle Outfitters, Inc. 4,959,500
180,000 Bed Bath & Beyond, Inc. (b) 5,535,000
80,000 Best Buy Co., Inc. 2,679,200
120,000 Coach, Inc. 3,225,600
140,000 Home Depot, Inc. 3,308,200
210,000 Lowe's Cos., Inc. 4,076,100
160,000 Starbucks Corp. (b) 2,222,400
55,000 Target Corp. 2,170,850
232,000 Williams-Sonoma, Inc. 2,753,840
--------------------------------------------------------------------------------
30,930,690
--------------------------------------------------------------------------------
CONSUMER SERVICES 6.8%
293,400 eBay, Inc. (b) 5,025,942
100,000 Garmin, Ltd. (Cayman Islands) 2,382,000
130,000 Intuit, Inc. (b) 3,660,800
--------------------------------------------------------------------------------
11,068,742
--------------------------------------------------------------------------------
ENERGY 10.6%
68,000 Apache Corp. 4,906,200
32,000 Schlumberger, Ltd. (Netherlands Antilles) 1,731,520
65,000 Transocean, Ltd. (Switzerland) (b) 4,828,850
30,000 Unit Corp. (b) 827,100
70,000 Valero Energy Corp. 1,182,300
96,000 XTO Energy, Inc. 3,661,440
--------------------------------------------------------------------------------
17,137,410
--------------------------------------------------------------------------------
FINANCIALS 19.0%
55,000 Affiliated Managers Group, Inc. (b) 3,200,450
120,100 American Express Co. 2,791,124
205,278 Bank of America Corp. 2,709,670
160,000 Capital One Financial Corp. 3,500,800
420,000 Citigroup, Inc. 1,247,400
260,000 Marshall & Ilsley Corp. 1,248,000
150,000 Morgan Stanley 4,276,500
110,000 State Street Corp. 5,192,000
255,000 Synovus Financial Corp. 762,450
240,000 Wells Fargo & Co. 5,822,400
--------------------------------------------------------------------------------
30,750,794
--------------------------------------------------------------------------------
NUMBER
OF SHARES DESCRIPTION VALUE
================================================================================
HEALTH CARE 21.6%
60,000 Biogen Idec, Inc. (b) $ 2,709,000
85,000 Community Health Systems, Inc. (b) 2,146,250
85,045 Genzyme Corp. (a) 4,734,455
102,000 Gilead Sciences, Inc. (a) 4,777,680
310,000 Mylan, Inc. (b) 4,045,500
270,000 Pfizer, Inc. 4,050,000
200,000 UnitedHealth Group, Inc. 4,996,000
70,000 Varian Medical Systems, Inc. (b) 2,459,800
50,000 Waters Corp. (b) 2,573,500
57,500 Zimmer Holdings, Inc. (b) 2,449,500
--------------------------------------------------------------------------------
34,941,685
--------------------------------------------------------------------------------
INDUSTRIAL 1.5%
50,000 United Parcel Services, Inc. - Class B 2,499,500
--------------------------------------------------------------------------------
INSURANCE 0.3%
108,800 MGIC Investment Corp. 478,720
--------------------------------------------------------------------------------
SOFTWARE 4.8%
185,000 Check Point Software Technologies (Israel) (b) 4,341,950
220,000 Symantec Corp. (b) 3,423,200
--------------------------------------------------------------------------------
7,765,150
--------------------------------------------------------------------------------
TECHNOLOGY 22.4%
120,000 Adobe Systems, Inc. (b) 3,396,000
130,000 Altera Corp. 2,116,400
90,000 Applied Materials, Inc. 987,300
397,700 Cisco Systems, Inc. (b) 7,413,128
440,000 EMC Corp. (b) 5,764,000
20,000 Fiserv, Inc. (b) 914,000
600,000 Flextronics International Ltd. (Singapore) (b) 2,466,000
3,000 Google, Inc. - Class A (b) 1,264,770
190,000 Microsoft Corp. 4,516,300
157,300 QLogic Corp. (b) 1,994,564
164,000 Yahoo!, Inc. (b) 2,568,240
122,000 Zebra Technologies Corp. - Class A (b) 2,886,520
--------------------------------------------------------------------------------
36,287,222
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS - 108.3%
(Cost $291,885,516) 175,509,347
--------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS - 6.2%
150,000 Powershares QQQ 5,457,000
50,000 SPDR Trust Series 1 4,596,000
--------------------------------------------------------------------------------
(Cost $11,067,243) 10,053,000
--------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS 114.5%
(Cost $302,952,759) 185,562,347
--------------------------------------------------------------------------------
See notes to financial statements.
10 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | PORTFOLIO OF
INVESTMENTS (unaudited) continued
NUMBER
OF SHARES DESCRIPTION VALUE
================================================================================
SHORT-TERM INVESTMENTS 1.5%
MONEY MARKET FUNDS 1.5%
2,453,929 AIM Liquid Assets Money Market Fund (Cost $2,453,929) $2,453,929
--------------------------------------------------------------------------------
TOTAL INVESTMENTS 116.0%
(Cost $305,406,688) 188,016,276
Other Assets in excess of Liabilities - 0.3% 474,229
Borrowings - (8.0%) (13,000,000)
Total Value of Options Written - (8.3%) (13,379,774)
--------------------------------------------------------------------------------
NET ASSETS 100.0% $162,110,731
================================================================================
(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
======================================================================================================
400 Adobe Systems, Inc. July 2009 $ 20.00 $ 330,000
200 Adobe Systems, Inc. January 2010 22.50 144,000
450 Adobe Systems, Inc. January 2010 30.00 119,250
150 Adobe Systems, Inc. October 2009 25.00 69,000
300 Affiliated Managers Group, Inc. January 2010 50.00 384,000
250 Affiliated Managers Group, Inc. December 2009 55.00 241,250
400 Altera Corp. December 2009 16.00 72,000
400 Altera Corp. January 2010 17.50 50,000
300 Altera Corp. January 2010 20.00 15,000
1 American Express Co. July 2009 16.00 725
300 American Express Co. October 2009 17.50 192,000
300 American Express Co. July 2009 22.50 42,000
600 American Express Co. October 2009 27.50 57,000
300 American Eagle Outfitters, Inc. August 2009 10.00 124,500
1,300 American Eagle Outfitters, Inc. January 2010 12.50 367,250
1,000 American Eagle Outfitters, Inc. January 2010 15.00 157,500
900 American Eagle Outfitters, Inc. November 2009 17.50 49,500
365 Apache Corp. October 2009 75.00 189,800
600 Applied Materials, Inc. January 2010 12.50 46,500
1,500 Bed Bath & Beyond, Inc. January 2010 30.00 615,000
300 Bed Bath & Beyond, Inc. November 2009 32.50 70,500
400 Best Buy Co., Inc. January 2010 35.00 142,000
200 Biogen Idec, Inc. July 2009 55.00 1,000
400 Biogen Idec, Inc. January 2010 50.00 130,000
300 Capital One Financial Corp. December 2009 31.00 33,000
750 Check Point Software Technologies (Israel) January 2010 25.00 120,000
900 Check Point Software Technologies (Israel) July 2009 20.00 315,000
200 Check Point Software Technologies (Israel) July 2009 22.50 24,000
500 Cisco Systems, Inc. October 2009 19.00 62,250
1,900 Cisco Systems, Inc. January 2010 20.00 258,400
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (b) DATE PRICE VALUE
======================================================================================================
400 Cisco Systems, Inc. July 2009 $ 19.00 $ 12,400
400 Coach, Inc. November 2009 20.00 318,000
400 Coach, Inc. August 2009 15.00 480,000
400 Coach, Inc. November 2009 26.00 156,000
200 Community Health Systems, Inc. January 2010 30.00 46,500
700 Dell, Inc. January 2010 12.50 172,550
1,300 Dell, Inc. January 2010 15.00 158,600
1,000 eBay, Inc. January 2010 15.00 322,500
500 eBay, Inc. October 2009 15.00 140,250
500 eBay, Inc. October 2009 16.00 106,750
400 eBay, Inc. January 2010 17.50 73,200
234 eBay, Inc. January 2010 20.00 21,528
300 EMC Corp. July 2009 12.00 35,550
840 EMC Corp. January 2010 15.00 61,740
1,200 EMC Corp. January 2010 12.50 215,400
200 Fiserv, Inc. September 2009 35.00 218,000
1,000 Flextronics International Ltd. (Singapore) October 2009 5.00 29,000
600 Garmin, Ltd. (Cayman Islands) October 2009 25.00 115,500
91 Genzyme Corp. January 2010 60.00 34,580
30 Google, Inc. - Class A December 2009 410.00 132,150
350 Home Depot, Inc. November 2009 26.00 38,675
200 Home Depot, Inc. November 2009 27.50 13,500
428 Home Depot, Inc. January 2010 30.00 19,046
557 Intuit, Inc. January 2010 30.00 107,223
700 Intuit, Inc. October 2009 30.00 87,500
500 Lowe's Cos., Inc. October 2009 20.00 65,000
300 Lowe's Cos., Inc. January 2010 22.50 30,000
1,000 Lowe's Cos., Inc. January 2010 25.00 45,000
400 Microsoft Corp. July 2009 21.00 114,200
500 Microsoft Corp. October 2009 25.00 55,500
600 Microsoft Corp. January 2010 25.00 105,900
340 Mylan, Inc. January 2010 12.50 69,700
1,170 Mylan, Inc. January 2010 15.00 105,300
700 Mylan, Inc. October 2009 15.00 35,000
1,500 Powershares QQQ September 2009 33.00 615,750
400 QLogic Corp. January 2010 12.50 67,000
1,033 QLogic Corp. January 2010 15.00 69,727
320 Schlumberger, Ltd. (Netherlands Antilles) January 2010 60.00 152,000
500 SPDR Trust Series 1 July 2009 88.00 235,000
400 Starbucks Corp. July 2009 11.00 116,600
1,000 Starbucks Corp. January 2010 12.50 261,500
200 Starbucks Corp. October 2009 13.00 36,900
300 State Street Corp. November 2009 40.00 315,000
600 State Street Corp. November 2009 50.00 300,000
800 Symantec Corp. July 2009 15.00 68,000
See notes to financial statements.
Semiannual Report | June 30, 2009 | 11
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | PORTFOLIO OF
INVESTMENTS (unaudited) continued
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (b) DATE PRICE VALUE
======================================================================================================
700 Symantec Corp. October 2009 $ 17.50 $ 42,000
700 Symantec Corp. January 2010 20.00 28,000
350 Target Corp. October 2009 40.00 105,875
100 Target Corp. January 2010 44.00 25,750
180 Transocean, Ltd. (Switzerland) August 2009 55.00 351,000
202 Transocean, Ltd. (Switzerland) November 2009 90.00 50,500
200 Unit Corp. September 2009 30.00 34,000
100 Unit Corp. December 2009 40.00 5,000
600 UnitedHealth Group, Inc. September 2009 25.00 135,000
100 United Parcel Services, Inc. - Class B October 2009 50.00 33,000
200 United Parcel Services, Inc. - Class B October 2009 55.00 26,000
533 Varian Medical Systems, Inc. January 2010 40.00 94,607
167 Varian Medical Systems, Inc. November 2009 35.00 55,110
100 Waters Corp. January 2010 45.00 93,000
400 Waters Corp. January 2010 50.00 250,000
900 Wells Fargo & Co. July 2009 21.00 324,000
300 Wells Fargo & Co. October 2009 27.00 51,750
500 Wells Fargo & Co. January 2010 30.00 92,500
500 Williams-Sonoma, Inc. November 2009 12.50 67,500
1,020 Williams-Sonoma, Inc. November 2009 15.00 61,200
700 Williams-Sonoma, Inc. August 2009 10.00 152,250
100 XTO Energy, Inc. November 2009 38.00 43,500
860 XTO Energy, Inc. January 2010 45.00 212,850
300 Yahoo!, Inc. July 2009 15.00 28,500
540 Yahoo!, Inc. October 2009 15.00 103,950
800 Yahoo!, Inc. January 2010 17.50 111,600
200 Zebra Technologies Corp. - Class A August 2009 20.00 78,000
600 Zebra Technologies Corp. - Class A November 2009 22.50 165,000
220 Zebra Technologies Corp. - Class A February 2009 25.00 44,000
200 Zebra Technologies Corp. - Class A November 2009 25.00 29,500
275 Zimmer Holdings, Inc. December 2009 45.00 83,188
------------------------------------------------------------------------------------------------------
TOTAL VALUE OF CALL OPTIONS WRITTEN
(Premiums received $12,771,975) $13,379,774
======================================================================================================
(b) Non-income producing security.
See notes to financial statements.
12 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of ASSETS AND LIABILITIES | JUNE 30, 2009 (unaudited)
ASSETS
Investments at value (cost $305,406,688) $ 188,016,276
Cash 24,172
Investments sold receivable 668,160
Dividends and interest receivable 78,847
Other assets 17,813
----------------------------------------------------------------------------------------------------------------
Total assets 188,805,268
----------------------------------------------------------------------------------------------------------------
LIABILITIES
Borrowings 13,000,000
Options written, at value (premiums received of $12,771,975) 13,379,774
Payables:
Investment advisory fee 74,332
Investment management fee 74,332
Investments purchased 11,197
Other affiliates 6,271
Interest due on borrowings 1,072
Accrued expenses and other liabilities 147,559
----------------------------------------------------------------------------------------------------------------
Total liabilities 26,694,537
----------------------------------------------------------------------------------------------------------------
NET ASSETS $ 162,110,731
================================================================================================================
COMPOSITION OF NET ASSETS
Common stock, $.01 par value per share; unlimited number of shares authorized,
19,268,423 shares issued and outstanding $ 192,684
Additional paid-in capital 275,590,772
Accumulated net realized gain on investments and options transactions 12,791,127
Accumulated net unrealized depreciation on investments and options transactions (117,998,211)
Distributions in excess of net investment income (8,465,641)
----------------------------------------------------------------------------------------------------------------
NET ASSETS $ 162,110,731
================================================================================================================
NET ASSET VALUE (based on 19,268,423 common shares outstanding) $ 8.41
================================================================================================================
See notes to financial statements.
Semiannual Report | June 30, 2009 | 13
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of OPERATIONS | FOR THE SIX MONTHS ENDED JUNE 30, 2009 (unaudited)
INVESTMENT INCOME
Dividends $ 967,348
Interest 23,779
---------------------------------------------------------------------------------------------------------------
Total income $ 991,127
---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee 409,981
Investment management fee 409,981
Trustees' fees and expenses 69,247
Professional fees 66,352
Printing expenses 41,461
Administrative fee 21,526
Custodian fee 21,318
Line of credit fees 11,328
NYSE listing fee 11,178
Fund accounting 9,490
Transfer agent fee 8,944
Insurance 8,511
Other 5,162
Interest expense 269,551
---------------------------------------------------------------------------------------------------------------
Total expenses 1,364,030
---------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (372,903)
---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on:
Investments (12,382,515)
Options 10,270,964
Net change in unrealized appreciation (depreciation) on:
Investments 31,358,156
Options (5,909,661)
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and options transactions 23,336,944
---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $22,964,041
===============================================================================================================
See notes to financial statements.
14 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of CHANGES IN NET ASSETS |
FOR THE
SIX MONTHS ENDED FOR THE
JUNE 30, 2009 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2008
=================================================================================================================
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
Net investment (income) loss $ (372,903) $ 88,717
Net realized gain (loss) on investments and options (2,111,551) 34,916,137
Net unrealized appreciation (depreciation) on investments and options 25,448,495 (115,809,486)
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 22,964,041 (80,804,632)
-----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From and in excess of net investment income (8,092,738) (22,736,739)
-----------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 14,871,303 (103,541,371)
NET ASSETS:
Beginning of period 147,239,428 250,780,799
-----------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $8,465,641 and $0, respectively) $162,110,731 $ 147,239,428
=================================================================================================================
See notes to financial statements.
Semiannual Report | June 30, 2009 | 15
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of CASH FLOWS | FOR THE SIX MONTHS ENDED JUNE 30, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $22,964,041
---------------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO
NET CASH USED IN OPERATING AND INVESTING ACTIVITIES:
Net unrealized appreciation on investments (31,358,156)
Net unrealized depreciation on options 5,909,661
Net amortization of bond premium (10,274)
Net realized loss on investments and options 2,111,551
Purchase of long-term investments (21,686,564)
Proceeds from sale of long-term investments 25,407,178
Cost of written options closed (1,885,350)
Net sales of short-term investments 3,272,426
Decrease in dividends and interest receivable 97,927
Decrease in receivable for investments sold 1,209,817
Increase in other assets (13,169)
Decrease in payable for investments purchased (1,411,289)
Decrease in interest due on borrowings (70,224)
Premiums received on call options written 11,090,092
Increase in advisory and management fee payable 8,920
Decrease in other affiliates payable (8,984)
Decrease in trustees' fees (1,237)
Increase in accrued expenses and other liabilities 7,269
---------------------------------------------------------------------------------------------------------------
Net Cash Provided in Operating and Investing Activities 15,633,635
---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to common shareholders (8,092,738)
Decrease in borrowings (11,000,000)
---------------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (19,092,738)
---------------------------------------------------------------------------------------------------------------
Net decrease in cash (3,459,103)
CASH AT BEGINNING OF PERIOD 3,483,275
---------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 24,172
===============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR INTEREST $ 339,775
===============================================================================================================
See notes to financial statements.
16 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Financial HIGHLIGHTS |
FOR THE
SIX MONTHS ENDED FOR THE FOR THE FOR THE
JUNE 30, 2009 YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31, 2008 DECEMBER 31, 2007 DECEMBER 31, 2006
===================================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.64 $ 13.02 $ 14.84 $ 14.74
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income (loss) (b) (0.02) - 0.17 0.01
Net realized and unrealized gain (loss) on investments
and options 1.21 (4.20) (0.67) 1.41
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.19 (4.20) (0.50) 1.42
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM AND IN EXCESS OF NET INVESTMENT INCOME (0.42) (1.18) (1.32) (1.32)
------------------------------------------------------------------------------------------------------------------------------------
OFFERING EXPENSES CHARGED TO PAID-IN-CAPITAL - - - -
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.41 $ 7.64 $ 13.02 $ 14.84
====================================================================================================================================
MARKET VALUE, END OF PERIOD $ 6.98 $ 6.21 $ 11.41 $ 15.11
====================================================================================================================================
TOTAL INVESTMENT RETURN (c)
Net asset value 16.79% -34.53% -3.81% 10.22%
Market value 20.90% -38.12% -16.85% 11.86%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (thousands) $ 162,111 $ 147,239 $ 250,781 $ 283,851
Ratio of expenses to average net assets
Ratios to Average Net Assets applicable to Common Shares:
Total expenses, excluding interest expense 1.52%(d)(f) 1.36% 1.25% 1.28%
Total expenses, including interest expense 1.90%(d)(f) 1.62% N/A N/A
Net investment income, including interest expense -0.52%(d)(f) 0.04% N/A N/A
Ratios to Average Managed Assets: (e)
Total expenses, excluding interest expense 1.33%(d)(f) 1.29% 1.25% 1.28%
Total expenses, including interest expense 1.66%(d)(f) 1.53% N/A N/A
Net investment income, including interest expense -0.46%(d)(f) 0.04% N/A N/A
Portfolio Turnover (g) 13% 33% 103% 59%
Senior Indebtedness
Total borrowings outstanding (in thousands) $ 13,000 $ 24,000 N/A N/A
Asset coverage per $1,000 of indebtedness (h) $ 13,470 $ 7,135 N/A N/A
FOR THE PERIOD
FOR THE JULY 28, 2004*
YEAR ENDED THROUGH
DECEMBER 31, 2005 DECEMBER 31, 2004
=======================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.14 $ 14.33(a)
-------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income (loss) (b) (0.02) (0.02)
Net realized and unrealized gain (loss) on investments
and options 0.94 1.16
-------------------------------------------------------------------------------------------------------
Total from investment operations 0.92 1.14
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM AND IN EXCESS OF NET INVESTMENT INCOME (1.32) (0.30)
-------------------------------------------------------------------------------------------------------
OFFERING EXPENSES CHARGED TO PAID-IN-CAPITAL - (0.03)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.74 $ 15.14
=======================================================================================================
MARKET VALUE, END OF PERIOD $ 14.80 $ 14.90
=======================================================================================================
TOTAL INVESTMENT RETURN (c)
Net asset value 6.36% 7.80%
Market value 8.49% 1.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (thousands) $ 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 1.27% 1.24%(d)
Total expenses, including interest expense N/A N/A
Net investment income, including interest expense N/A N/A
Ratios to Average Managed Assets: (e)
Total expenses, excluding interest expense 1.27% 1.24%(d)
Total expenses, including interest expense N/A N/A
Net investment income, including interest expense N/A N/A
Portfolio Turnover (g) 109% 33%
Senior Indebtedness
Total borrowings outstanding (in thousands) N/A N/A
Asset coverage per $1,000 of indebtedness (h) 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) The ratios of total expenses to average net assets applicable to common
shares and to average managed assets do not reflect fees and expenses
incurred indirectly by the Fund as a result of its investment in shares of
other investment companies. If these fees were included in the expense
ratio, the net impact to the expense ratios would be 0.01% and 0.01% for
the six months ended June 30, 2009.
(g) Portfolio turnover is not annualized for periods less than a year.
(h) 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.
Semiannual Report | June 30, 2009 | 17
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Notes to FINANCIAL STATEMENTS | JUNE 30, 2009 (unaudited)
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"). The Fund adopted FAS 157 effective on January 1,
2008. 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 (e.g. yield curves; benchmark interest rates; indices). Level
3 valuations are those based upon unobservable inputs (e.g. discounted cash flow
analysis; non-market based methods used to determine fair valuation). In April
2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly" (FSP 157-4). FSP 157-4 provides
guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset/liability has significantly
decreased.
18 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS (unaudited) continued
The following table represents the Funds' investments carried on the Statement
of Assets and Liabilities by caption and by level within the fair value
hierarchy as of June 30, 2009:
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
======================================================================================================
(value in $000s)
Assets:
Common Stocks-
Consumer Discretionary $ 33,313 $ - $ - $ 33,313
Energy 17,137 - - 17,137
Financials 31,229 - - 31,229
Health Care 34,942 - - 34,942
Industrials 2,499 - - 2,499
Information Technology 56,389 - - 56,389
Exchange-Traded Funds 10,053 - - 10,053
Money Market Fund 2,454 - - 2,454
------------------------------------------------------------------------------------------------------
Total $ 188,016 $ - $ - $ 188,016
======================================================================================================
Liabilities:
Written options $ 13,380 - - $ 13,380
------------------------------------------------------------------------------------------------------
Total $ 13,380 $ - $ - $ 13,380
======================================================================================================
(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.
(e) SUBSEQUENT EVENTS
Effective June 30, 2009, the Fund adopted Statement of Financial Accounting
Standards No. 165 ("SFAS No. 165"), "Subsequent Events". SFAS No. 165 required
an entity to recognize in the financial statements the effects of all subsequent
events that provide additional evidence about conditions that existed at the
date of the balance sheet. SFAS No. 165 is intended to establish general
standards of accounting and for disclosure of events that occur after the
balance sheet date but before the financial state
Semiannual Report | June 30, 2009 | 19
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS (unaudited) continued
ments are issued or are available to be issued. The Funds have performed an
evaluation of subsequent events through August 24, 2009, which is the date the
financial statements were issued.
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"); and 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 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.
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
managed 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 managed 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.
Information on the tax components of investments, excluding written options, as
of June 30, 2009 is as follows:
COST OF NET TAX NET TAX
INVESTMENTS GROSS TAX GROSS TAX UNREALIZED UNREALIZED
FOR TAX UNREALIZED UNREALIZED DEPRECIATION ON DEPRECIATION
PURPOSES APPRECIATION DEPRECIATION INVESTMENTS ON DERIVATIVES
================================================================================
$ 305,844,769 $ 1,085,592 $(118,914,085) $ (117,828,493) $ (607,799)
For the year ended December 31, 2008, 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
===============================================
Ordinary income $22,736,739
Long-term capital gain 0
-----------------------------------------------
Total $22,736,739
-----------------------------------------------
20 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS (unaudited) continued
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, 2007 and 2008 remain subject to examination by major
jurisdictions.
Note 5 - INVESTMENT TRANSACTIONS AND OPTIONS WRITTEN:
During the six months ended June 30, 2009, the cost of purchases and proceeds
from sales of investments, excluding written options and short-term investments,
were $21,686,564 and $25,407,178, respectively.
Transactions in written option contracts during the six months ended June 30,
2009 were as follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-------------------------------------------------------------------
Options outstanding, beginning of year 69,125 $16,712,290
Options written during the year 49,858 11,090,092
Options expired during the year (37,914) (7,733,878)
Options closed during the year (18,136) (4,422,437)
Options assigned during the year (8,927) (2,874,092)
-------------------------------------------------------------------
Options outstanding, end of year 54,006 $12,771,975
-------------------------------------------------------------------
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 understand: 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. The Fund adopted SFAS No. 161 effective January 1, 2009.
The following table presents the types of derivatives in the Fund by location as
presented on the Statement of Assets and Liabilities as of June 30, 2009:
Statement of Asset & Liability Presentation of Fair Values of Derivative
Instruments: (amount in thousands)
ASSET DERIVATIVES LIABILITY DERIVATIVES
============================================================================================
DERIVATIVES NOT
ACCOUNTED FOR STATEMENT OF STATEMENT OF
AS HEDGING INSTRUMENTS ASSETS AND ASSETS AND
UNDER STATEMENT 133 LIABILITIES LOCATION FAIR VALUE LIABILITIES LOCATION FAIR VALUE
--------------------------------------------------------------------------------------------
Options written,
Equity contracts - - at value $ 13,380
--------------------------------------------------------------------------------------------
TOTAL - $ 13,380
============================================================================================
The following table presents the effect of Derivative Instruments on the
Statement of Operations for the six months ended June 30, 2009:
(amount in thousands)
AMOUNT OF REALIZED GAIN/(LOSS) ON DERIVATIVES
=================================================================
DERIVATIVES NOT ACCOUNTED FOR AS HEDGING
INSTRUMENTS UNDER STATEMENT 133 OPTIONS
=================================================================
Equity contracts $ 10,271
-----------------------------------------------------------------
TOTAL $ 10,271
=================================================================
CHANGE IN UNREALIZED DEPRECIATION ON DERIVATIVES
=================================================================
DERIVATIVES NOT ACCOUNTED FOR AS HEDGING
INSTRUMENTS UNDER STATEMENT 133 OPTIONS
=================================================================
Equity contracts $ (5,910)
-----------------------------------------------------------------
TOTAL $ (5,910)
=================================================================
Semiannual Report | June 30, 2009 | 21
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS (unaudited) continued
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.
Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2009 DECEMBER 31, 2008
================================================================================
Beginning Shares 19,268,423 19,268,423
Shares issued through dividend reinvestment - -
--------------------------------------------------------------------------------
Ending Shares 19,268,423 19,268,423
--------------------------------------------------------------------------------
Note 7 - 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. Effective April 30, 2009, the
$50,000,000 revolving credit agreement was reduced to $30,000,000. 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
2.41% with a minimum annual rate of 4.00%. An unused commitment fee of 0.10% is
charged on the difference between the $30,000,000 credit agreement and the
amount borrowed, which is included in "Line of credit fees" on the Statement of
Operations. As of June 30, 2009, there was $13,000,000 outstanding in connection
with the Fund's credit facility. The average daily amount of the borrowings on
the credit facility during the six months ended June 30, 2009 was $20,618,785
with a related average interest rate of 2.60%. The maximum amount outstanding
during the period was $24,000,000. The maturity date for the Revolving Credit
Agreement is April 30, 2010. If the Fund is unable to renew the revolving credit
facility or find a replacement facility, the Fund will 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 - SUBSEQUENT EVENT:
On July 17, 2009, Claymore Group Inc., the parent of the Investment Adviser,
entered into an Agreement and Plan of Merger between and among Claymore Group
Inc., Claymore Holdings, LLC and GuggClay Acquisition, Inc., (with the latter
two entities being wholly-owned, indirect subsidiaries of Guggenheim Partners,
LLC ("Guggenheim")) whereby GuggClay Acquisition, Inc. will merge into Claymore
Group Inc. which will be the surviving entity. The parties intend that the
completed merger will result in a change-of-control whereby Claymore Group Inc.
and its subsidiaries, including the Investment Adviser, will become indirect,
wholly-owned subsidiaries of Guggenheim. The transaction is not expected to
affect the daily operations of the Fund or the investment management activities
of the Investment Adviser.
Under the 1940 Act, consummation of this transaction will result in the
automatic termination of the Advisory Agreement. Accordingly, prior to such
consummation, the Fund expects to enter into a new investment advisory agreement
with the Investment Adviser, to become effective upon the consummation of the
transaction. This new investment advisory agreement will be subject to the
initial approval of the Board of Trustees and subsequent approval by the Fund's
shareholders.
On August 3, 2009, the Board of Trustees declared a quarterly dividend of $0.18
per common share. The dividend is payable August 31, 2009 to shareholders of
record on August 14, 2009.
22 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Supplemental INFORMATION |(unaudited)
FEDERAL INCOME TAX INFORMATION
In January 2010, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to the federal tax status of the distributions received by you in the
calendar year 2009.
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 (2001-present). 43 None.
Year of birth: 1951 Formerly, Senior Vice President
Trustee 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.
------------------------------------------------------------------------------------------------------------------------------------
Philip E. Blake 2004-2009 Private Investor; Managing 1 Director, Madison
Year of birth: 1944 Partner of Forecastle Inc. Newspapers, Inc.,
1 South Pinckney Street (2000-present). Forecastle, Inc,
Suite 501 Nemtes, Inc.
Madison, WI 53703 Trustee, the Mosaic
Trustee family of mutual
funds and Madison
Strategic Sector
Premium Fund.
------------------------------------------------------------------------------------------------------------------------------------
James R. Imhoff, Jr. Since 2004 Chairman and CEO of First Weber 1 Director, Park Bank.
Year of birth: 1944 Group (1996-present). Trustee, the Mosaic
5250 East Terrace Drive family of mutual
Madison, WI 53718 funds and Madison
Trustee Strategic Sector
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 Portfolio
Trustee 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 Retired. Formerly, President of 1 Director, Grand
Year of birth: 1938 Credit Union Benefits Services, Mountain Bank FSB.
135 Sunset Blvd. Inc. (1986-1997) and Pension Trustee, the Mosaic
Tabernash, CO 80478 Specialist for CUNA Mutual family of mutual
Trustee Group (1997-2001). funds and Madison
Strategic Sector
Premium Fund.
------------------------------------------------------------------------------------------------------------------------------------
Semiannual Report | June 30, 2009 | 23
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | SUPPLEMENTAL
INFORMATION (unaudited) continued
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
====================================================================================================================================
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. and Madison Asset Outrider Foundation,
Madison, WI 53711 Management, LLC (1974-present). Inc., and Santa
Trustee and Senior Barbara Community
Vice President Bankcorp. Trustee,
the Mosaic family
of mutual funds and
Madison Strategic
Sector Premium Fund.
------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso++ 2004-2009 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. Imhoff and Nyberg, as Class II Trustees, were elected at the
Fund's 2009 annual meeting of shareholders held on July 21, 2009 (the
"Annual Meeting") and are expected to stand again for re-election at
the Fund's 2012 annual meeting of shareholders.
- Messrs. Toupin and Wheeler, as Class III Trustees, are expected to
stand for re-election at the Fund's 2010 annual meeting of
shareholders.
Mr. Dalmaso and Mr. Blake served as Class II Trustees of the Fund. Mr.
Dalmaso and Mr. Blake did not stand for re-election at the Annual Meeting.
Based on a recommendation from the Nominating and Governance Committee of
the Board and pursuant to authority granted to it under the Fund's
Agreement and Declaration of Trust, the Board decided to reduce its size
from eight to six Trustees upon the expiration of the current terms of Mr.
Dalmaso and Mr. Blake at the Annual Meeting.
*** 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.
24 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | SUPPLEMENTAL
INFORMATION (unaudited) 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 OCCUPATION DURING THE PAST FIVE YEARS AND
POSITION(S) HELD WITH REGISTRANT LENGTH OF TIME SERVED OTHER AFFILIATIONS
====================================================================================================================================
J. Thomas Futrell Since 2008 Senior Managing Director and Chief Investment Officer of
Year of birth: 1955 Claymore Advisors, LLC and Claymore Securities Inc. Chief
Chief Executive Officer Executive Officer of certain funds in the Fund Complex
(2008-present). Formerly, Managing Director of Research, Nuveen
Asset Management (2000-2007).
------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Robinson Since 2008 Senior Managing Director and General Counsel of Claymore
Year of birth: 1959 Advisors, LLC, Claymore Securities, Inc. and Claymore Group,
Chief Legal Officer Inc. (2007-present). Chief Legal Officer of certain other funds
in the Fund Complex. Formerly, Associate General Counsel and
Assistant Corporate Secretary of NYSE Euronext, Inc. (2000-2007).
------------------------------------------------------------------------------------------------------------------------------------
Steven M. Hill Since 2004 Senior Managing Director of Claymore Advisors, LLC and Claymore
Year of birth: 1964 Securities, Inc. (2005-present). Formerly, Chief Financial
Chief Financial Officer, Officer of Claymore Group Inc. (2005-2006). Formerly, Managing
Chief Accounting Officer Director of Claymore Advisors, LLC and Claymore Securities, Inc.
and Treasurer (2003-2005). Previously, Treasurer of Henderson Global Funds and
Operations Manager for Henderson Global Investors (North
America) Inc. (2002-2003). Formerly, Managing Director,
FrontPoint Partners LLC (2001-2002)
------------------------------------------------------------------------------------------------------------------------------------
Mark Mathiasen Since 2009 Vice President, Assistant General Counsel of Claymore Advisors,
Year of birth: 1978 LLC. Secretary of certain funds in the Funds Complex
Secretary (2007-present). Previously, Law Clerk for the Idaho State Courts
(2003-2007).
------------------------------------------------------------------------------------------------------------------------------------
Jay Sekelsky Since 2004 Managing Director of Madison Investment Advisors, Inc.
550 Science Drive (2001-present); Vice President of Madison Asset Management, LLC
Madison, WI 53711 (2003-present); Vice President of Funds in the Mosaic family of
Year of birth: 1959 funds (1997-present) and Madison Strategic Sector Premium Fund
Vice President (2005-present).
------------------------------------------------------------------------------------------------------------------------------------
Kay Frank Since 2004 Managing Director of Madison Investment Advisors, Inc.
550 Science Drive (1986 - present); Vice President of Madison Asset Management,
Madison, WI 53711 LLC (2003-present); President of Funds in the Mosaic family of
Year of birth: 1960 funds (1996-present) and President of Madison Strategic Sector
Vice President Premium Fund (2005-present).
------------------------------------------------------------------------------------------------------------------------------------
Stephen Share Since 2006 Vice President, Madison Asset Management, LLC (2004-present).
550 Science Drive Formerly, Investment Analyst, University of Wisconsin Foundation
Madison, WI 53711 (2003-2004). Formerly, Research Analyst, Ark Asset Management
Year of birth: 1967 (1999-2002).
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Greg Hoppe Since 2008 Vice President of Madison Mosaic, LLC (1999-present); Vice
550 Science Drive President of Madison Asset Management LLC (2004-present).
Madison, WI 53711
Year of birth: 1969
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Bruce Saxon Since 2006 Vice President-Fund Compliance Officer of Claymore Advisors, LLC
Year of birth: 1957 (Feb 2006-present). Formerly, Chief Compliance Officer/Assistant
Chief Compliance Officer Secretary of Harris Investment Management, Inc. (2003-2006).
Formerly, Director-Compliance of Harrisdirect 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.
Semiannual Report | June 30, 2009 | 25
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.
26 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Investment Advisory Agreement and
Investment Management AGREEMENT RE-APPROVALS | (unaudited)
On April 14, 2009, the Board of Trustees, including those trustees who are not
"interested persons" as defined by the Investment Company Act of 1940 (the
"Independent Trustees") of Madison/Claymore Covered Call & Equity Strategy Fund
(the "Fund") met to consider the renewal of: (1) the investment advisory
agreement ("Investment Advisory Agreement") between the Fund and Claymore
Advisors, LLC ("Adviser") and (2) the investment management agreement
("Investment Management Agreement") among the Adviser, the Fund and Madison
Asset Management, LLC ("Manager"). (The Investment Advisory Agreement and the
Investment Management Agreement are together referred to as the "Advisory
Agreements.") As part of its review process, the Nominating and Governance
Committee of the Board (referred to as the "Committee" and consisting solely of
the Independent Trustees) was represented by independent legal counsel. The
Board reviewed materials received from the Adviser, the Manager and independent
legal counsel. The Board also had previously received, throughout the year,
Board meeting information regarding performance and operating results of the
Fund.
In preparation for its review, the Committee communicated with independent legal
counsel regarding the nature of information to be provided, and independent
legal counsel, on behalf of the Committee, sent a formal request for information
to the Adviser and Manager. The Adviser and the Manager provided extensive
information in response to the request and to a follow-up request for
information. Among other information, the Adviser and Manager provided general
information to assist the Committee in assessing the nature and quality of
services provided by the Adviser and Manager, information comparing the
investment performance, advisory fees and total expenses of the Fund to other
funds, information about the profitability from the Advisory Agreements to each
of the Adviser and the Manager and the compliance program of the Adviser and of
the Manager.
Based upon their review, the Committee and the Board concluded that it was in
the best interests of the Fund to renew each of the Advisory Agreements. In
reaching this conclusion for the Fund, no single factor was determinative in the
Board's analysis, but rather the Board considered a variety of factors.
INVESTMENT ADVISORY AGREEMENT
With respect to the nature, extent and quality of services provided by the
Adviser, the Board noted that the Manager was responsible for the investment and
reinvestment of the Fund's assets. The Board considered the Adviser's
responsibility to oversee the Manager and that the Adviser has similar oversight
responsibilities for other registered funds for which it serves as investment
adviser. The Board also considered the secondary market support provided by the
Adviser to the Fund, including the Adviser's efforts to educate investment
professionals about the Fund and other funds sponsored by the Adviser. The Board
reviewed financial information regarding the Adviser and its parent company and
considered the parent company's guaranty of the Adviser's obligations under the
Investment Advisory Agreement. The Board considered the experience and
qualifications of the Adviser's personnel, including those personnel providing
compliance oversight and oversight of the Manager's portfolio management
activities. Specifically, the Board noted the ongoing oversight activities
performed by the Adviser, including on-site compliance reviews and monitoring of
compliance with policies and procedures and with the Fund's investment policies.
After considering these factors, the Board concluded that the Adviser and its
personnel were qualified to serve the Fund in an oversight capacity.
The Board considered the Fund's investment performance by reviewing the Fund's
total return on a net asset value and market price basis for the three month,
six month, one year, three year and since inception periods ended February 27,
2009. The Board compared the Fund's performance to the performance of a peer
group of closed-end funds ("peer group of funds") provided by the Adviser for
the same time periods. The peer group of funds included other closed-end funds
that generally invest a majority of their assets in large-cap domestic equity
securities and that write individual call options on a substantial portion of
the fund's assets. The Board noted that the Fund's investment results were
consistent with that aspect of the Fund's investment strategy to write covered
call options on common stocks to generate income. The Board also considered that
the Adviser does not directly control investment performance but that such
duties were the Manager's responsibility. The Board concluded that the Adviser
had reviewed and monitored the Manager's investment performance.
The Board compared the Fund's advisory and management fees and expense ratio to
the peer group of funds and to the advisory fee that the Adviser charged to
other closed-end funds for which it serves as adviser. The Board also reviewed
the mean and median advisory fees and expense ratios of the peer group of funds.
The Board also considered that the combined advisory and management fees were at
the median of the peer group of funds.
With respect to the costs of services to be provided and profits realized by the
Adviser from its relationship to the Fund, the Board reviewed information
regarding the revenues the Adviser received under the Investment Advisory
Agreement as well as the estimated allocated direct and indirect costs the
Adviser incurred in providing the services to the Fund.
The Board considered the extent to which economies of scale could be realized
with respect to the management of the Fund as the Fund grows and whether fee
levels reflected a reasonable sharing of such economies of scale for the benefit
of Fund investors. Given the size of the Fund, the Board does not anticipate
significant economies of scale in the coming year.
The Board considered other benefits available to the Adviser because of its
relationship with the Fund and noted that the administrative services fees
received by the Adviser from serving as administrator provides it with
additional revenue.
INVESTMENT MANAGEMENT AGREEMENT
With respect to the nature, extent and quality of services provided by the
Manager, the Board considered the qualifications, experience and skills of the
Manager's portfolio management and other key personnel. The Board also
considered the Manager's implementation of the strategy to write covered call
options on a portion of the Fund's equity securities. The Board concluded that
the Manager had personnel qualified to provide the services under the Investment
Management Agreement.
In considering investment performance, the Board considered the Manager's
efforts in pursuing the Fund's primary objective of providing a high level of
current income and current gains and secondary objective of long-term capital
appreciation. The Board reviewed the performance of the Fund and the peer group
of funds for various periods of time. The Board noted that the Fund's returns on
a net asset value basis were higher than the Standard & Poor's 500 Index but
lower than the CBOE BuyWrite ("BXM") Index (the "Relevant Indices") returns for
the year ended December 31, 2008. The Board considered that the Manager followed
its investment strategy of investing in securities in sectors it believed would
"grow at a reasonable price." The Board noted information provided by the
Manager that securities in those identified sectors had underperformed in the
last half of 2007 and the beginning of 2008, but that prior to and after that
time period, the Fund had outperformed compared to the returns of the S&P 500
Index. The Board also considered that as a percentage of the Fund's market
price, the Fund had distributed a high level of current income.
Semiannual Report | June 30, 2009 | 27
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | BOARD
CONSIDERATIONS REGARDING INVESTMENT ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT
CONTRACT RE-APPROVAL (unaudited) continued
The Board reviewed the management fee paid by the Fund to the Manager and
compared it to the fees charged by the Manager to other investment company
clients for which the Manager serves as adviser that have a covered call
strategy. The Board considered that the Fund's management fee was lower than the
Manager's two investment company clients' advisory fees and that the Manager did
not serve as sub-adviser for other funds.
With respect to the costs of services to be provided and profits realized by the
Manager from its relationship to the Fund, the Board reviewed information
regarding the revenues the Manager received under the Investment Management
Agreement and estimated allocated expenses of the Manager in providing services
under the Investment Management Agreement.
The Board reviewed the extent to which economies of scale with respect to the
sub-advisory services provided to the Fund would be realized as the Fund grows
and whether fee levels reflect a reasonable sharing of such economies of scale
for the benefit of Fund investors. Given the size of the Fund, the Board does
not anticipate significant economies of scale in the coming year.
The Board considered other benefits available to the Manager because of its
relationship to the Fund and noted that the accounting services fees received by
the Manager from serving as accounting services provider to the Fund provided it
with additional revenue. The Board also considered the Manager's use of soft
dollars and ability to obtain brokerage research with the Fund's commissions,
which may or may not be used for the benefit of the Fund and may be used for the
benefit of other clients of the Manager.
OVERALL CONCLUSIONS
Based upon all of the information considered and the conclusions reached, the
Board determined that the terms of each Advisory Agreement are reasonable and
that the continuation of each Advisory Agreement is in the best interests of the
Fund, taking into consideration the costs of services to be provided and profit
realized, economies of scale and other benefits to the Adviser and the Manager.
28 | Semiannual Report | June 30, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Fund INFORMATION |
BOARD OF TRUSTEES
Randall C. Barnes
Frank Burgess*
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.
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
Mark Mathiasen
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.
Semiannual Report | June 30, 2009 | 31
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
About the FUND MANAGER |
MADISON ASSET MANAGEMENT, LLC
Madison Asset Management, LLC, (MAM) a subsidiary of Madison Investment
Advisors, Inc., with its affiliates, manages in excess of $13.5 billion in
individual, corporate, pension, insurance, endowment and mutual fund assets as
of July 1, 2009.
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 08/09
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
MCN
LISTED
NYSE(R)
MCN-SAR-0609
ITEM 2. CODE OF ETHICS.
Not applicable for a semi-annual reporting period.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for a semi-annual reporting period.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for a semi-annual reporting period.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable for a semi-annual reporting period.
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.
Not applicable for a semi-annual reporting period.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable for a semi-annual reporting period.
(b) There has been no change, as of the date of this filing, in the
Portfolio Manager identified in response to paragraph (a) (1) of this
item in the registrant's most recent annual report on Form N-CSR.
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) 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) Not applicable.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not Applicable.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(b) under the Investment Company Act of 1940.
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
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By: /s/ J. Thomas Futrell
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Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: September 1, 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: September 1, 2009
By: /s/ Steven M. Hill
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Name: Steven M. Hill
Title: Chief Accounting Officer, Chief Financial Officer and Treasurer
Date: September 1, 2009