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: January 1, 2009 - December 31, 2009
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), is as follows:
ANNUAL REPORT
December 31, 2009
MADISON/CLAYMORE
MCN
COVERED CALL & EQUITY STRATEGY FUND
Picture of bridge
Logo: Madison
Investment Advisors
Logo: CLAYMORE(R)
WWW.CLAYMORE.COM/MCN
... YOUR ROAD TO THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
MADISON/CLAYMORE COVERED CALL & EQUITY STRATEGY FUND
MCN | Madison/Claymore
LISTED | Covered Call &
NYSE | Equity Strategy
Fund
Logo: Madison
Investment Advisor
The shareholder report you are reading right now is just the beginning of the
story. Online at WWW.CLAYMORE.COM/MCN, you will find:
o Daily, weekly and monthly data on share prices, distributions and more
o Portfolio overviews and performance analyses
o Announcements, press releases and special notices
o Fund and adviser contact information
Madison Asset Management and Claymore are continually updating and expanding
shareholder information services on the Fund's website, in an ongoing effort to
provide you with the most current information about how your Fund's assets are
managed, and the results of our efforts. It is just one more way we are working
to keep you better informed about your investment in the Fund.
2 | Annual Report | December 31, 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
12 months ended December 31, 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.
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the 12 months ended
December 31, 2009, the Fund provided a total return based on market price of
61.01% and a total return based on NAV of 39.00%. As of December 31, 2009, the
Fund's market price of $8.89 per share represented a discount of 7.59% to its
NAV of $9.62 per share. Past performance does not guarantee future results. The
market price of the Fund's shares fluctuates from time to time, and it may be
higher or lower than the Fund's NAV.
The Fund paid quarterly dividends of $0.2400 on February 27, 2009, $0.1800 on
May 29 and August 31, 2009; and $0.1962 on November 30, 2009. The most recent
dividend included a supplemental distribution component of $0.0162 per share in
order for the Fund to meet its distribution requirements. The regular quarterly
component of this distribution, which was $0.18 per share, represents an
annualized distribution rate of 8.10% based on the Fund's closing market price
of $8.89 on December 31, 2009. However, there is no guarantee that this level
of income will be maintained.
Claymore Advisors, LLC (the "Adviser") is the investment adviser to the Fund.
Claymore entities provided supervision, management or servicing on
approximately $15.2 billion in assets as of December 31, 2009. Madison Asset
Management, LLC, ("MAM"), a wholly-owned subsidiary of Madison Investment
Advisors, Inc., (collectively "Madison") is the Fund's investment manager (the
"Investment Manager"). Founded in 1974, Madison is an independently owned firm
that, with its affiliates, manages approximately $15 billion in individual,
corporate, pension, insurance, endowment, and mutual fund assets as of December
31, 2009.
On July 17, 2009, Claymore Group Inc., the parent of the Adviser, entered into
an Agreement and Plan of Merger between and among Claymore Group Inc., Claymore
Holdings, LLC and GuggClay Acquisition, Inc. (with the latter two entities
being wholly-owned, indirect subsidiaries of Guggenheim Partners, LLC
("Guggenheim")). The transaction closed on October 14, 2009 (the "Effective
Date"), whereby GuggClay Acquisition, Inc. merged into Claymore Group Inc., the
surviving entity. The transaction resulted in a change-of-control whereby
Claymore Group Inc. and its subsidiaries, including the Adviser, became
indirect, wholly-owned subsidiaries of Guggenheim. The transaction has not
affected the daily operations of the Fund or the investment management
activities of the Adviser.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"), the
consummation of this transaction resulted in the automatic termination of the
Advisory & Investment Management Agreements. Accordingly, on September 23,
2009, the Board of Trustees approved an interim investment advisory agreement
between the Fund and the Adviser (the "Interim Advisory Agreement") and an
interim investment management agreement among the Fund, the Adviser and MAM
(the "Interim Investment Management Agreement" and together with the Interim
Advisory Agreement, the "Interim Agreements"). The terms and conditions of the
Interim Agreements are substantively identical to those of the original
Advisory Agreement and Investment Management Agreement.
On September 23, 2009, the Board of Trustees approved a new investment advisory
agreement between the Fund and the Adviser (the "New Advisory Agreement") and a
new investment
Annual Report | December 31, 2009 | 3
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | DEAR SHAREHOLDER
continued
management agreement among the Fund, the Adviser and MAM (the "New Investment
Management Agreement" and together with the New Advisory Agreement, the "New
Agreements") and recommended that the New Agreements be submitted to the
shareholders of the Fund for their approval. The New Agreements, which were
approved by shareholders on February 2, 2010, have an initial term of one year.
Thereafter, the New Agreements will continue in effect only if their
continuance is annually approved by the Board of Trustees. Other than effective
dates, there are no material differences between the terms of the New
Agreements and those of the original Advisory Agreement and Investment
Management Agreement.
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, 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.
Ray Di Bernardo, CFA, has joined Frank Burgess in the day-to-day portfolio
management responsibilities for the Fund. Mr. Di Bernardo, who has been with
the Madison organization since 2003, was previously an equity analyst at
Concord Trust in Chicago, and before that, an equity analyst and co-manager of
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.
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 27 of the Fund's annual report. When
shares trade at a discount to NAV, the DRIP takes advantage of the discount by
reinvesting the quarterly dividend distribution in common shares of the Fund
purchased in the market at a price less than NAV. Conversely, when the market
price of the Fund's common shares is at a premium above NAV, the DRIP reinvests
participants' dividends in newly-issued common shares at NAV, subject to an IRS
limitation that the purchase price cannot be more than 5% below the market
price per share. The DRIP provides a cost-effective means to accumulate
additional shares and enjoy the benefits of compounding returns over time.
Since the Fund endeavors to maintain a steady monthly distribution rate, the
DRIP plan effectively provides an income averaging technique, which causes
shareholders to accumulate a larger number of Fund shares when the market price
is depressed than when the price is higher.
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 Madison's investment
philosophy and discipline, its views on the market environment and how it
structured the Fund's portfolio based on its views.
We appreciate your investment and look forward to serving your investment needs
in the future. For the most up-to-date information on your investment, please
visit the Fund's website at www. claymore.com/mcn.
Sincerely,
/s/ J. Thomas Futrell
J. Thomas Futrell
Chief Executive Officer
Madison/Claymore Covered Call & Equity Strategy Fund
4 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
QUESTIONS & ANSWERS |
Madison Asset Management, LLC ("MAM") is pleased to address the progress of the
Madison/Claymore Covered Call & Equity Strategy Fund (the "Fund" or "MCN") for
the year ended December 31, 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 the
opinion of the MAM investment professionals, selling at a reasonable price with
respect to their long-term earnings growth rates. The Fund's option-writing
strategy seeks to provide a consistent income from option premiums which are
expected to help achieve the 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, a subsidiary of Madison Investment Advisors,
Inc., together with its affiliates, manages approximately $15 billion in
individual, corporate, pension, insurance, endowment, and mutual fund assets as
of December 31, 2009.
--------------------------------------------------------------------------------
WHAT HAPPENED IN THE MARKET DURING 2009?
With a sense of relief, U.S. equity markets ended the year in much better form
than when they began the year. In the first months of 2009 the U.S. economy was
in a very deep recession, which some were characterizing as the start of a new
depression. Housing was in disarray, the auto market had serious problems,
unemployment was rising and the credit markets were deteriorating. There was
widespread fear that the major banks would be nationalized and by early March
these factors had driven the S&P 500 down by approximately 25%. Since then
we've experienced a sizable recovery, a record rally in a very short time.
Massive government stimulus has unfrozen credit markets, economic recovery is
underway and market psychology has shifted from fear to optimism, some might
say hyper-optimism. As a result, the S&P 500 managed a very strong 26.5% return
in 2009 with a 6.0% boost coming in the fourth quarter.
Although defensive sectors led the way in the early portion of the year as the
market continued to swoon, once the recovery gathered steam, cyclical sectors
began to assert leadership. The Technology, Consumer Discretionary and Materials
sectors were the ultimate leaders over the full year as expectations grew for a
global economic recovery. The Financial sector, which had been decimated in late
2008 and early 2009, rebounded sharply in the second and third quarter as a
semblance of stability returned to the banking system. Despite its defensive
nature and the specter of dramatic reform, the Health Care sector also rebounded
strongly, particularly late in the year as reform efforts seemed to lose
momentum.
Given the dire environment as the year began, investor fear was very high and
as a result, market volatility was near the all-time highs reached in late
2008. The CBOE Market Volatility Index (VIX) traded in the range of 40 to 50
early in the year but trended lower as the stock market recovered and fear
subsided, ending the year just above 20.
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HOW DID THE FUND PERFORM GIVEN THE MARKETPLACE CONDITIONS DURING 2009?
We are very pleased to report that MCN had a tremendous year, outperforming
through the market declines in the first quarter and the rally that followed.
For the year ended December 31, 2009, the Fund provided a market price total
return of 61.01%. This compared highly favorably to the S&P 500 Index which
returned 26.46% and the CBOE S&P BuyWrite Index (BXM) which posted a 25.91%
return over the same period. Closed-end funds in general, and MCN specifically,
were pushed to deep discounts by the fear-inspired selling environment of 2008
and early 2009. A significant portion of the Fund's market price total return
for this annual period was a reduction of the market price discount to net
asset value ("NAV"), as the underlying NAV showed a robust return of 39.00%.
About a third of the market price total return in 2009 was due to a reduction
of this discount. 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.
Much transpired throughout the year from a portfolio strategy standpoint. Early
in the year, the portfolio was
Annual Report | December 31, 2009 | 5
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS &
ANSWERS continued
structured to provide the most protection possible by taking advantage of the
extremely high option premiums that resulted from the excessively high level of
market volatility. As the market bottomed, call options were written
meaningfully out-of-the-money in order for the portfolio to participate in the
market rebound. This strategy worked extremely well and allowed the Fund's NAV
to recover as the market advanced. Through mid-year, as the market continued
its recovery, the Fund shifted to a more defensive posture as concerns grew
that the market may have moved too far ahead of actual underlying economic and
corporate fundamentals. Call options were written closer-to-the-money and on a
larger portion of the portfolio holdings, and proceeds from option assignments
were used to steadily reduce the Fund's leverage, which began the year at
approximately 14% of total assets and was ultimately eliminated in October.
--------------------------------------------------------------------------------
DESCRIBE THE FUND'S PORTFOLIO EQUITY AND OPTION STRUCTURE:
As of December 31, 2009, the Fund held 51 equity securities and unexpired
covered call options had been written against 77.7% of the Fund's stock
holdings. During 2009, the Fund generated premiums of $18.3 million from its
covered call writing activities. It is the strategy of the Fund to write
out-of-the-money call options; as of December 31, 49.1% of the Fund's call
options (55 of 112 different options) remained out-of-the-money.
(Out-of-the-money means the stock price is below the strike price at which the
shares could be called away by the option holder.) 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 their
corresponding option strike prices. 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.
--------------------------------------------------------------------------------
WHICH SECTORS ARE PREVALENT IN THE FUND?
From a sector perspective, MCN's largest exposure as of December 31, 2009 was to
the Health Care and Technology (and technology related) sectors, followed by
Consumer Discretionary, Financials and Energy sectors. The Fund was not invested
in the Materials, Consumer Staples, Telecommunication Services and Utilities
sectors as of year-end.
--------------------------------------------------------------------------------
DISCUSS THE FUND'S SECURITY AND OPTION SELECTION PROCESS:
The Fund is managed by two teams of investment professionals. MAM considers
these teams as a "right hand" and "left hand" meaning they work together to
make common stock and option decisions. Fundamental analysis is used to select
solid companies with good growth prospects and attractive valuations. Then MAM
seeks attractive call options to write on those stocks. It is the belief that
this partnership of active management between the equity and option teams
provides investors with an innovative, risk-moderated approach to equity
investing. The Fund's portfolio managers seek 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
investors, the focus of MAM is on the fundamental businesses of its companies.
The stock selection philosophy strays away from the "beat the street"
mentality, as they 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, the MAM investment professionals bring
elements of consistency, stability and predictability to shareholders.
Once attractive and solid names have been selected for the Fund, the call
writing strategy is employed. This procedure entails selling calls that are
primarily out-of the-money, so 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.
6 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS &
ANSWERS continued
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WHAT IS THE MANAGEMENT'S OUTLOOK FOR THE MARKET AND FUND IN 2010?
With 2009 providing a turning point in the stock market and economy,
management's outlook for 2010 is optimistic, although tempered by the fact that
the market has already enjoyed such a strong recovery. The MAM investment
professionals expect the economy to improve in 2010, especially
internationally. Corporate profitability should continue to expand behind solid
margins, productivity gains and improving revenue growth. Even though interest
rates may move upward, they should remain at a relatively low level, which is
positive for valuations. It is also possible that substantial assets still in
cash and lower yielding bonds which could come back into the stock market will
provide support. Although deep recessions, such as the one recently
experienced, are historically followed by steep recoveries, MAM believes that
the current recovery will likely be slower than history might suggest due to
some lingering headwinds. High unemployment, stagnant wage growth and the
prospect of higher taxes are causing consumers to save more and spend less,
crimping a key economic driver. Additionally, the financial system, while
recovering, remains wounded, as does the housing market. In general, economic
growth is expected to be moderately positive but below the long-term trend line
of 3-4%.
The explosive rally from the March 2009 lows was focused on lower quality and
economically sensitive areas with the expectation that the economy would bounce
back. This is characteristic of the first leg of a recovery. As the recovery
moves to the next leg, the market will take its direction from actual signs of
improving economic and company fundamentals which should bring the spotlight to
higher quality, blue chip companies which remain the focus within MCN's
portfolio.
Over the near term, MAM expects the stock market to consolidate its significant
gains from the market lows with increasing risk relating to the possibility that
lofty expectations of economic growth are proven to be overly optimistic. During
the wait for economic and corporate reality to catch up with expectations, the
MAM investment philosophy remains relatively defensively postured.
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INDEX DEFINITIONS
Indices are unmanaged, reflect no expenses 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 VIX-CBOE Volatility Index is widely known as the VIX Index. VIX is the
ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index,
which shows the market's expectation of 30-day volatility. It is constructed
using the implied volatilities of a wide range of S&P 500 index options. This
volatility is meant to be forward looking and is calculated from both calls and
puts. The VIX is a widely used measure of market risk and is often referred to
as the "investor fear gauge."
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.
Annual Report | December 31, 2009 | 7
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | QUESTIONS &
ANSWERS continued
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MCN RISKS AND OTHER CONSIDERATIONS
The views expressed in this report reflect those of the portfolio manager only
through the report period as stated on the cover. These views are subject to
change at any time, based on market and other conditions and should not be
construed as a recommendation of any kind. The material may also include
forward looking statements that involve risk and uncertainty, and there is no
guarantee that any predictions will come to pass.
There can be no assurance that the Fund will achieve its investment objectives.
The value of the Fund will fluctuate with the value of the underlying
securities. Historically, closed-end funds often trade at a discount to their
net asset value.
EQUITY RISK: The value of the securities held by the 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 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Fund SUMMARY | AS OF DECEMBER 31, 2009 (unaudited)
FUND STATISTICS
------------------------------------------------------
Share Price $8.89
Common Share Net Asset Value $9.62
Premium/(Discount) to NAV -7.59%
Net Assets ($000) $185,393
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TOTAL RETURNS
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(INCEPTION 7/28/04) MARKET NAV
------------------------------------------------------
One Year 61.01% 39.00%
Three Year - average annual -6.08% -4.34%
Five Year - average annual 0.11% 0.52%
Since Inception - average annual 0.35% 1.88%
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% OF LONG TERM
SECTOR BREAKDOWN INVESTMENTS
------------------------------------------------------
Health Care 22.1%
Technology 20.1%
Consumer Discretionary 15.2%
Financials 15.2%
Energy 10.1%
Consumer Services 7.8%
Software 3.4%
Computers 2.1%
Exchange-Traded Funds 2.1%
Industrial 1.6%
Insurance 0.3%
------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
------------------------------------------------------
Cisco Systems, Inc. 4.8%
EMC Corp. 4.2%
eBay, Inc. 3.8%
Apache Corp. 3.6%
Capital One Financial Corp. 3.4%
UnitedHealth Group, Inc. 3.4%
Bed Bath & Beyond, Inc. 3.2%
Mylan, Inc. 3.2%
Lowe's Cos., Inc. 2.8%
Pfizer, Inc. 2.8%
------------------------------------------------------
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
12/31/08 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
6.97 8.42
6.81 8.22
6.95 8.21
6.73 8.09
6.66 8.07
6.71 8.13
6.63 8.11
6.71 8.31
6.83 8.36
7.09 8.6
7.18 8.68
7.22 8.69
7.3 8.79
7.35 8.82
7.35 8.82
7.55 9.02
7.56 9.04
7.58 9.04
7.57 9.07
7.6 9.03
7.69 9.09
7.71 9.08
7.85 9.22
7.94 9.23
7.9 9.25
7.9 9.23
8 9.33
7.98 9.34
7.96 9.22
7.89 9.13
7.99 9.2
7.85 9.12
7.58 8.92
7.7 9.02
7.76 9.07
7.85 9.15
7.99 9.27
7.92 9.24
7.93 9.29
7.94 9.31
7.94 9.35
8.03 9.36
7.89 9.3
7.83 9.12
7.77 9.11
7.82 9.2
7.93 9.3
8 9.34
8.03 9.42
8.12 9.51
8.19 9.51
8.19 9.54
8.29 9.55
8.41 9.67
8.44 9.66
8.38 9.66
8.4 9.65
8.42 9.7
8.37 9.63
8.27 9.55
8.28 9.51
8.38 9.65
8.3 9.62
8.3 9.62
8.23 9.43
8.16 9.39
8.29 9.52
8.38 9.59
8.42 9.63
8.63 9.67
8.58 9.71
8.59 9.74
8.59 9.73
8.69 9.85
8.8 9.85
8.83 9.78
8.9 9.84
8.89 9.78
8.82 9.7
8.89 9.79
8.85 9.7
8.78 9.61
8.66 9.58
8.36 9.38
8.49 9.56
8.32 9.37
8.46 9.4
8.46 9.44
8.49 9.4
8.6 9.53
8.61 9.54
8.85 9.68
8.63 9.48
8.63 9.51
8.63 9.44
8.75 9.45
8.87 9.53
8.87 9.53
8.75 9.53
8.53 9.46
8.51 9.43
8.58 9.52
8.53 9.52
8.59 9.54
8.54 9.43
8.59 9.46
8.7 9.53
8.69 9.52
8.58 9.45
8.52 9.51
8.5 9.48
8.51 9.43
8.63 9.46
8.68 9.48
8.64 9.5
8.77 9.57
8.77 9.55
8.82 9.56
8.76 9.5
8.72 9.54
8.75 9.61
8.79 9.64
8.85 9.64
8.88 9.67
8.84 9.67
8.88 9.66
8.87 9.67
12/31/09 8.89 9.62
Bar Chart:
QUARTERLY DIVIDENDS PER SHARE
Feb 09 0.24
May 09 0.18
Aug 09 0.18
Nov 09 0.1962
Pie Chart:
PORTFOLIO COMPOSITION (% of Total Investments)
Long-Term Investments 88.8%
Short-Term Investments 11.2%
Annual Report | December 31, 2009 | 9
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Portfolio of INVESTMENTS | DECEMBER 31, 2009
NUMBER
OF SHARES DESCRIPTION VALUE
-------------------------------------------------------------------
LONG-TERM INVESTMENTS 96.3%
COMMON STOCKS (A) 94.3%
COMPUTERS 2.1%
265,800 Dell, Inc. (b) $ 3,816,888
-------------------------------------------------------------------
CONSUMER DISCRETIONARY 14.6%
206,000 American Eagle Outfitters, Inc. 3,497,880
150,000 Bed Bath & Beyond, Inc. (b) 5,794,500
40,600 Best Buy Co., Inc. 1,602,076
140,000 Home Depot, Inc. 4,050,200
210,000 Lowe's Cos., Inc. 4,911,900
93,900 Starbucks Corp. (b) 2,165,334
55,000 Target Corp. 2,660,350
120,000 Williams-Sonoma, Inc. 2,493,600
-------------------------------------------------------------------
27,175,840
-------------------------------------------------------------------
CONSUMER SERVICES 7.5%
291,400 eBay, Inc. (b) 6,859,556
97,500 Garmin, Ltd. (Cayman Islands) 2,993,250
130,000 Intuit, Inc. (b) 3,992,300
-------------------------------------------------------------------
13,845,106
-------------------------------------------------------------------
ENERGY 9.7%
61,900 Apache Corp. 6,386,223
32,000 Schlumberger, Ltd. (Netherlands Antilles) 2,082,880
47,000 Transocean, Ltd. (Switzerland) (b) 3,891,600
70,000 Valero Energy Corp. 1,172,500
96,000 XTO Energy, Inc. 4,466,880
-------------------------------------------------------------------
18,000,083
-------------------------------------------------------------------
FINANCIALS 14.6%
6,400 Affiliated Managers Group, Inc. (b) 431,040
205,278 Bank of America Corp. 3,091,487
160,000 Capital One Financial Corp. 6,134,400
420,000 Citigroup, Inc. 1,390,200
260,000 Marshall & Ilsley Corp. 1,417,000
150,000 Morgan Stanley 4,440,000
110,000 State Street Corp. 4,789,400
255,000 Synovus Financial Corp. 522,750
180,000 Wells Fargo & Co. 4,858,200
-------------------------------------------------------------------
27,074,477
-------------------------------------------------------------------
NUMBER
OF SHARES DESCRIPTION VALUE
-------------------------------------------------------------------
HEALTH CARE 21.3%
60,000 Biogen Idec, Inc. (b) $ 3,210,000
85,000 Community Health Systems, Inc. (b) 3,026,000
85,045 Genzyme Corp. (b) 4,168,055
102,000 Gilead Sciences, Inc. (b) 4,414,560
308,400 Mylan, Inc. (b) 5,683,812
270,000 Pfizer, Inc. 4,911,300
199,800 UnitedHealth Group, Inc. 6,089,904
38,200 Varian Medical Systems, Inc. (b) 1,789,670
46,200 Waters Corp. (b) 2,862,552
55,200 Zimmer Holdings, Inc. (b) 3,262,872
-------------------------------------------------------------------
39,418,725
-------------------------------------------------------------------
INDUSTRIAL 1.5%
50,000 United Parcel Services, Inc. - Class B 2,868,500
-------------------------------------------------------------------
INSURANCE 0.3%
108,800 MGIC Investment Corp. (b) 628,864
-------------------------------------------------------------------
SOFTWARE 3.3%
62,500 Check Point Software Technologies
(Israel) (b) 2,117,500
220,000 Symantec Corp. (b) 3,935,800
-------------------------------------------------------------------
6,053,300
-------------------------------------------------------------------
TECHNOLOGY 19.4%
65,000 Adobe Systems, Inc. (b) 2,390,700
82,400 Altera Corp. 1,864,712
90,000 Applied Materials, Inc. 1,254,600
357,600 Cisco Systems, Inc. (b) 8,560,944
431,300 EMC Corp. (b) 7,534,811
592,300 Flextronics International Ltd.
(Singapore) (b) 4,329,713
93,000 Microsoft Corp. 2,835,570
156,000 QLogic Corp. (b) 2,943,720
164,000 Yahoo!, Inc. (b) 2,751,920
52,800 Zebra Technologies Corp. - Class A (b) 1,497,408
-------------------------------------------------------------------
35,964,098
-------------------------------------------------------------------
TOTAL COMMON STOCKS - 94.3%
(Cost $249,322,073) 174,845,881
-------------------------------------------------------------------
EXCHANGE-TRADED FUNDS - 2.0%
80,000 Powershares QQQ 3,673,600
(Cost $3,692,600)
-------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS 96.3%
(Cost $253,014,673) 178,519,481
-------------------------------------------------------------------
See notes to financial statements.
10 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | PORTFOLIO OF
INVESTMENTS continued
NUMBER
OF SHARES DESCRIPTION VALUE
--------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 12.2%
MONEY MARKET FUNDS 12.2%
22,623,914 AIM Liquid Assets Money Market Fund $ 22,623,914
(Cost $22,623,914)
--------------------------------------------------------------------------
TOTAL INVESTMENTS 108.5%
(Cost $275,638,587) 201,143,395
Liabilities in excess of Other Assets - (0.2%) (304,575)
Total Value of Options Written - (8.3%) (15,446,102)
--------------------------------------------------------------------------
NET ASSETS 100.0% $ 185,392,718
==========================================================================
(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
----------------------------------------------------------------------------------------------------
200 Adobe Systems, Inc. January 2010 $ 22.50 $ 286,000
450 Adobe Systems, Inc. January 2010 30.00 306,000
64 Affiliated Managers Group, Inc. January 2010 50.00 111,040
324 Altera Corp. January 2010 17.50 165,240
300 Altera Corp. January 2010 20.00 79,500
200 Altera Corp. March 2010 20.00 60,000
37 American Eagle Outfitters, Inc. January 2010 12.50 16,650
1,000 American Eagle Outfitters, Inc. January 2010 15.00 210,000
500 American Eagle Outfitters, Inc. February 2010 17.50 38,750
300 American Eagle Outfitters, Inc. May 2010 17.50 45,000
304 Apache Corp. April 2010 105.00 176,320
315 Apache Corp. January 2010 95.00 269,325
600 Applied Materials, Inc. January 2010 12.50 91,500
1,500 Bed Bath & Beyond, Inc. January 2010 30.00 1,297,500
6 Best Buy Co., Inc. January 2010 35.00 2,745
200 Biogen Idec, Inc. April 2010 55.00 51,500
400 Biogen Idec, Inc. January 2010 50.00 150,000
600 Capital One Financial Corp. June 2010 41.00 186,000
600 Capital One Financial Corp. January 2010 36.00 162,000
400 Capital One Financial Corp. January 2010 40.00 17,200
625 Check Point Software Technologies January 2010 25.00 556,250
1,899 Cisco Systems, Inc. January 2010 20.00 754,852
500 Cisco Systems, Inc. January 2010 22.50 77,500
400 Cisco Systems, Inc. April 2010 24.00 52,600
200 Community Health Systems, Inc. January 2010 30.00 122,000
450 Community Health Systems, Inc. March 2010 35.00 153,000
200 Community Health Systems, Inc. June 2010 35.00 92,000
700 Dell, Inc. January 2010 12.50 131,600
1,600 Dell, Inc. January 2010 15.00 22,400
358 Dell, Inc. February 2010 17.00 3,580
980 eBay, Inc. January 2010 15.00 837,900
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (B) DATE PRICE VALUE
---------------------------------------------------------------------------------
400 eBay, Inc. January 2010 $ 17.50 $ 242,000
234 eBay, Inc. January 2010 20.00 83,070
800 eBay, Inc. January 2010 24.00 27,200
500 eBay, Inc. April 2010 26.00 36,500
1,700 EMC Corp. January 2010 15.00 421,600
1,113 EMC Corp. January 2010 12.50 553,718
400 EMC Corp. April 2010 17.00 55,000
500 EMC Corp. January 2010 17.50 17,250
600 EMC Corp. April 2010 18.00 51,900
1,500 Flextronics International Ltd. January 2011 10.00 81,000
2,000 Flextronics International Ltd. April 2010 7.50 124,000
375 Garmin, Ltd. July 2010 33.00 107,812
200 Garmin, Ltd. January 2010 34.00 1,500
300 Genzyme Corp. January 2010 55.00 3,750
350 Genzyme Corp. January 2010 60.00 1,750
500 Gilead Sciences, Inc. August 2010 46.00 137,500
215 Gilead Sciences, Inc. January 2010 48.00 1,075
200 Gilead Sciences, Inc. May 2010 48.00 26,000
1,000 Home Depot, Inc. February 2010 28.00 153,500
200 Home Depot, Inc. May 2010 29.00 35,900
600 Intuit, Inc. January 2010 30.00 57,000
200 Intuit, Inc. July 2010 30.00 52,500
300 Intuit, Inc. April 2010 27.50 111,000
300 Lowe's Cos., Inc. January 2010 22.50 31,500
300 Lowe's Cos., Inc. July 2010 24.00 52,500
600 Lowe's Cos., Inc. January 2010 24.00 12,000
300 Lowe's Cos., Inc. January 2010 25.00 1,500
182 MGIC Investment Corp. January 2010 10.00 910
358 Microsoft Corp. January 2010 24.00 232,700
572 Microsoft Corp. January 2010 25.00 316,030
500 Morgan Stanley April 2010 32.00 62,250
400 Morgan Stanley July 2010 32.00 83,400
324 Mylan, Inc. January 2010 12.50 194,400
1,460 Mylan, Inc. January 2010 15.00 503,700
300 Mylan, Inc. April 2010 17.50 54,750
200 Mylan, Inc. July 2010 19.00 29,500
500 Pfizer, Inc. March 2010 18.00 47,250
500 Pfizer, Inc. June 2010 20.00 29,000
800 Powershares QQQ March 2010 47.00 96,800
387 QLogic Corp. January 2010 12.50 245,745
1,173 QLogic Corp. January 2010 15.00 457,470
320 Schlumberger, Ltd. January 2010 60.00 172,000
709 Starbucks Corp. January 2010 12.50 751,540
200 Starbucks Corp. January 2010 19.00 83,000
500 State Street Corp. May 2010 45.00 170,000
See notes to financial statements
Annual Report | December 31, 2009 | 11
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | PORTFOLIO OF
INVESTMENTS continued
CONTRACTS
(100 SHARES EXPIRATION EXERCISE
PER CONTRACT) CALL OPTIONS WRITTEN (B) DATE PRICE VALUE
--------------------------------------------------------------------------------------
400 State Street Corp. August 2010 $ 47.00 $ 144,000
500 Symantec Corp. April 2010 18.00 57,500
300 Symantec Corp. July 2010 18.00 48,750
300 Symantec Corp. July 2010 19.00 35,250
100 Target Corp. January 2010 44.00 44,500
100 Target Corp. January 2010 46.00 26,450
200 Target Corp. July 2010 49.00 73,500
150 Target Corp. July 2010 50.00 48,000
200 Transocean, Ltd. February 2010 90.00 24,000
270 Transocean, Ltd. January 2010 85.00 26,190
700 UnitedHealth Group, Inc. March 2010 28.00 252,000
500 UnitedHealth Group, Inc. March 2010 30.00 118,250
400 UnitedHealth Group, Inc. June 2010 30.00 130,000
300 UnitedHealth Group, Inc. June 2010 32.00 69,900
150 United Parcel Services, Inc. January 2010 55.00 39,075
200 United Parcel Services, Inc. July 2010 60.00 44,700
150 United Parcel Services, Inc. January 2010 60.00 1,725
400 Valero Energy Corp. June 2010 18.00 42,600
300 Valero Energy Corp. March 2010 20.00 4,800
382 Varian Medical Systems, Inc. January 2010 40.00 261,670
86 Waters Corp. January 2010 45.00 145,770
376 Waters Corp. January 2010 50.00 449,320
900 Wells Fargo & Co. January 2010 30.00 8,550
200 Wells Fargo & Co. April 2010 29.00 27,300
300 Wells Fargo & Co. April 2010 30.00 31,200
300 Wells Fargo & Co. April 2010 32.00 17,100
500 Williams-Sonoma, Inc. February 2010 17.50 175,000
236 Williams-Sonoma, Inc. May 2010 22.50 33,040
400 Williams-Sonoma, Inc. February 2010 22.50 22,000
100 XTO Energy, Inc. May 2010 44.00 43,500
860 XTO Energy, Inc. January 2010 45.00 159,100
800 Yahoo!, Inc. January 2010 17.50 8,800
220 Zebra Technologies Corp. February 2010 25.00 78,100
108 Zebra Technologies Corp. May 2010 30.00 14,040
150 Zimmer Holdings, Inc. March 2010 55.00 84,000
300 Zimmer Holdings, Inc. June 2010 60.00 120,000
--------------------------------------------------------------------------------------
TOTAL VALUE OF CALL OPTIONS WRITTEN
(Premiums received $11,367,416) $ 15,446,102
--------------------------------------------------------------------------------------
(b) Non-income producing security.
See notes to financial statements.
12 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of ASSETS AND LIABILITIES | DECEMBER 31, 2009
ASSETS
Investments at value (cost $275,638,587) $ 201,143,395
Cash 132,972
Investments sold receivable 3,499,840
Dividends and interest receivable 49,203
Other assets 6,738
-------------------------------------------------------------------------------------------------
Total assets 204,832,148
-------------------------------------------------------------------------------------------------
LIABILITIES
Options written, at value (premiums received of $11,367,416) 15,446,102
Payables:
Investments purchased 3,692,600
Investment advisory fee 78,093
Investment management fee 78,093
Other affiliates 8,529
Trustees'fees 3,813
Accrued expenses and other liabilities 132,200
-------------------------------------------------------------------------------------------------
Total liabilities 19,439,430
-------------------------------------------------------------------------------------------------
NET ASSETS $ 185,392,718
=================================================================================================
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 275,590,013
Accumulated net realized loss on investments and options transactions (11,816,101)
Net unrealized depreciation on investments and options transactions (78,573,878)
-------------------------------------------------------------------------------------------------
NET ASSETS $ 185,392,718
=================================================================================================
NET ASSET VALUE (based on 19,268,423 common shares outstanding) $ 9.62
=================================================================================================
See notes to financial statements.
Annual Report | December 31, 2009 | 13
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of OPERATIONS | FOR THE YEAR ENDED DECEMBER 31, 2009
INVESTMENT INCOMEINVESTMENT INCOME
Dividends $ 1,672,771
Interest 24,076
---------------------------------------------------------------------------------------------------------
Total income $ 1,696,847
---------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee 870,249
Investment management fee 870,249
Professional fees 134,989
Trustees'fees and expenses 134,686
Printing expenses 68,933
Administrative fee 46,691
Custodian fee 45,174
Fund accounting 34,394
Line of credit fees 29,141
NYSE listing fee 21,850
Transfer agent fee 18,827
Insurance 18,400
Other 6,820
Interest expense 324,083
---------------------------------------------------------------------------------------------------------
Total expenses 2,624,486
---------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (927,639)
---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments (20,618,805)
Options 10,168,424
Net change in unrealized appreciation (depreciation) on:
Investments 74,253,376
Options (9,380,548)
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and options transactions 54,422,447
---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 53,494,808
=========================================================================================================
See notes to financial statements.
14 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Statement of CHANGES IN NET ASSETS|
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2009 DECEMBER 31, 2008
------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
Net investment (income) loss $ (927,639) $ 88,717
Net realized gain (loss) on investments and options (10,450,381) 34,916,137
Net unrealized appreciation (depreciation) on investments and options 64,872,828 (115,809,486)
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 53,494,808 (80,804,632)
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From and in excess of net investment income (15,340,759) (22,736,739)
Return of capital (759) --
-------------------------------------------------------------------------------------------------------------
(15,341,518) (22,736,739)
-------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 38,153,290 (103,541,371)
NET ASSETS:
Beginning of period 147,239,428 250,780,799
-------------------------------------------------------------------------------------------------------------
End of period (including accumulated undistributed net
investment income of $0 and $0, respectively) $ 185,392,718 $ 147,239,428
=============================================================================================================
See notes to financial statements.
Annual Report | December 31, 2009 | 15
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Financial HIGHLIGHTS|
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2009 2008 2007 2006 2005
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.64 $ 13.02 $ 14.84 $ 14.74 $ 15.14
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income (loss) (a) (0.05) -- 0.17 0.01 (0.02)
Net realized and unrealized gain (loss)
on investments and options 2.83 (4.20) (0.67) 1.41 0.94
-----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.78 (4.20) (0.50) 1.42 0.92
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (0.80) (1.18) (1.32) (1.32) (1.32)
Return of capital 0.00* -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions to Common Shareholders (0.80) (1.18) (1.32) (1.32) (1.32)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.62 $ 7.64 $ 13.02 $ 14.84 $ 14.74
===================================================================================================================================
MARKET VALUE, END OF PERIOD $ 8.89 $ 6.21 $ 11.41 $ 15.11 $ 14.80
===================================================================================================================================
TOTAL INVESTMENT RETURN (B)
Net asset value 39.00% -34.53% -3.81% 10.22% 6.36%
Market value 61.01% -38.12% -16.85% 11.86% 8.49%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (thousands) $ 185,393 $ 147,239 $ 250,781 $ 283,851 $ 278,344
Ratios to Average Net Assets applicable to Common Shares:
Total expenses, excluding interest expense 1.42% 1.36% 1.25% 1.28% 1.27%
Total expenses, including interest expense 1.62% 1.62% N/A N/A N/A
Net investment income, including interest expense -0.57% 0.04% N/A N/A N/A
Portfolio Turnover (c) 14% 33% 103% 59% 109%
Senior Indebtedness
Total borrowings outstanding (in thousands) N/A $ 24,000 N/A N/A N/A
Asset coverage per $1,000 of indebtedness (d) N/A $ 7,135 N/A N/A N/A
* Amount is less than 0.01
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of a common share
at the beginning of the period and a sale on the last day of the period
reported either at net asset value (NAV) or market price per share.
Dividends and 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.
(c) Portfolio turnover is not annualized for periods less than one year.
(d) Calculated by subtracting the Fund's total liabilities (not including the
borrowings) from the Fund's total assets and dividing by the total
borrowings.
See notes to financial statements.
16 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Notes to FINANCIAL STATEMENTS | DECEMBER 31, 2009
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 (GAAP) requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
In June 2009, the Financial Accounting Standards Board ("FASB") established the
FASB Accounting Standards Codification(TM) ("ASC") as the single source of
authoritative accounting principles reorganized by the FASB in preparation of
financial statements in conformity with GAAP. The ASC superseded existing
non-grandfathered, non-U.S. Securities and Exchange Commission ("SEC")
accounting and reporting standards. The ASC did not change GAAP but rather
organized it into a hierarchy where all guidance with the ASC carried an equal
level of authority. The ASC became effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The
implementation of ASC did not have a material effect of the Fund's financial
statements
The following is a summary of significant accounting policies consistently
followed by the Fund.
(a) VALUATION OF INVESTMENTS
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).
The Fund adopted ASC 820, Fair Value Measurements and Disclosures ("ASC 820")
(formerly known as the Statement of Financial Accounting Standard ("FAS") No.
157). In accordance with ASC 820, fair value is defined as the price that the
Fund would receive to sell an investment or pay to transfer a liability in an
orderly transaction with an independent buyer in the principal market, or in
the absence of a principal market the most advantageous market for the
investment or liability. ASC 820 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
Annual Report | December 31, 2009 | 17
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
inputs (e.g. discounted cash flow analysis; non-market based methods used to
determine fair valuation). The following table represents the Fund's
investments carried on the Statement of Assets and Liabilities by caption and
by level within the fair value hierarchy as of December 31, 2009:
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------
(value in $000s)
Assets:
Common Stocks $ 174,846 $ -- $ -- $ 174,846
Exchange-Traded Funds 3,674 -- -- 3,674
Money Market Fund 22,624 -- -- 22,624
-----------------------------------------------------------------------
Total $ 201,144 $ -- $ -- $ 201,144
=======================================================================
Liabilities:
Written Options $ 15,446 -- -- $ 15,446
-----------------------------------------------------------------------
Total $ 15,446 $ -- $ -- $ 15,446
=======================================================================
(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
The Fund will pursue its primary objective by employing an option strategy of
writing (selling) covered call options on common stocks. The Fund seeks to
generate current gains from option premiums as a means to enhance distributions
payable to the Fund's common shareholders.
When an option is written, the premium received is recorded as an asset with an
equal liability and is subsequently marked to market to reflect the current
market value of the option written. These liabilities are reflected as options
written in the Statement of Assets and Liabilities. Premiums received from
writing options which expire unexercised are recorded on the expiration date as
a realized gain. The difference between the premium received and the amount
paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase transactions, as a realized loss. If a
call option is exercised; the premium is added to the proceeds from the sale of
the underlying security in determining whether there has been a realized gain
or loss.
(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
The Fund has adopted ASC 855, Subsequent Events ("ASC 855") (formerly known as
SFAS No. 165). ASC 855 requires an entity to recognize in the financial
statements the effects of all subsequent events that provide additional
evidence about conditions that existed at the date of the statement of assets
and liabilities. ASC 855 is intended to establish general standards of
accounting and for disclosure of events that occur after the statement of
assets and liabilities date but before the financial statements are issued or
are available to be issued. The Fund has performed an evaluation of subsequent
events through February 24 2010, which is the date the financial statements
were issued.
18 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
Note 3 -- INVESTMENT ADVISORY AGREEMENT, INVESTMENT MANAGEMENT AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES:
Pursuant to an Investment Advisory Agreement (the "Advisory Agreement") between
the Fund and Claymore Advisors, LLC (the "Adviser"), the Adviser furnishes
offices, necessary facilities and equipment; provides certain administrative
services; oversees the activities of Madison Asset Management LLC (the
"Investment Manager"); and provides personnel, including certain officers
required for the Fund's administrative management and compensates all officers
and trustees of the Fund who are its affiliates. As compensation for these
services, the Fund pays 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, provides a continuous investment program for
the Fund's portfolio; provides investment research and makes and executes
recommendations for the purchase and sale of securities; and provides 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 pays
the Investment Manager a fee, payable monthly, in an amount equal to 0.50% of
the Fund's average daily managed assets.
On July 17, 2009, Claymore Group Inc., the parent of the Adviser, entered into
an Agreement and Plan of Merger between and among Claymore Group Inc., Claymore
Holdings, LLC and GuggClay Acquisition, Inc., (with the latter two entities
being wholly-owned, indirect subsidiaries of Guggenheim Partners, LLC
("Guggenheim")) whereby GuggClay Acquisition, Inc. merged into Claymore Group
Inc. which is the surviving entity. This transaction was completed on October
14, 2009 (the "Effective Date") and resulted in a change-of-control whereby
Claymore Group Inc. and its subsidiaries, including the Adviser, became
indirect, wholly-owned subsidiaries of Guggenheim. The transaction is not
expected to affect the daily operations of the Fund or the investment
management activities of the Adviser.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"), the
consummation of this transaction resulted in the automatic termination of the
Advisory & Investment Management Agreements. Accordingly, on September 23,
2009, the Board of Trustees approved an interim investment advisory agreement
between the Fund and the Adviser (the "Interim Advisory Agreement") and an
interim investment management agreement among the Fund, the Adviser and Madison
Asset Management, LLC (the "Interim Investment Management Agreement" and
together with the Interim Advisory Agreement, the "Interim Agreements"). The
Interim Agreements took effect as of the Effective Date.
On September 23, 2009, the Board of Trustees approved a new investment advisory
agreement between the Fund and the Adviser (the "New Advisory Agreement") and a
new investment management agreement among the Fund, the Adviser and the
Investment Manager (the "New Investment Management Agreement" and together with
the New Advisory Agreement, the "New Agreements") and recommended that the New
Agreements be submitted to the shareholders of the Fund for their approval. On
February 2, 2010, shareholders approved the New Agreements and therefore the
Interim Agreements terminated. The New Agreements will have an initial term of
one year. Thereafter, the New Agreements will continue in effect only if their
continuance is approved annually by the Board of Trustees. Other than effective
dates, there are no material differences between the terms of the New
Agreements and those of the original Advisory Agreement and Investment
Management Agreement.
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 net assets
of the Fund and the Madison Strategic Sector Premium Fund, a closed-end
investment company sponsored by the Investment Manager. The fund accounting fee
is allocated on a prorated basis of the net assets of each fund. This fee is
payable monthly at the annual rate set forth below as a percentage of the
average daily net assets of the two funds:
NET ASSETS RATE
==================================
First $200,000,000 0.0275%
Next $300,000,000 0.0200%
Next $500,000,000 0.0150%
Over $1,000,000,000 0.0100%
The Bank of New York Mellon ("BNY") acts as the Fund's custodian and transfer
agent. As custodian, BNY is responsible for the custody of the Fund's assets.
As transfer agent, BNY is responsible for performing transfer agency services
for the Fund.
Annual Report | December 31, 2009 | 19
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
Certain officers and trustees of the Fund are also officers and directors of
Claymore Advisors, LLC or Madison Asset Management LLC. The Fund does not
compensate its officers or trustees who are officers or interested persons of
the two aforementioned firms.
Note 4 -- FEDERAL INCOME TAXES:
The Fund intends to comply with the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies. Accordingly, no provision for U.S. federal income taxes is required.
In addition, by distributing substantially all of its ordinary income and
long-term capital gains, if any, during each calendar year, the Fund intends
not to be subject to U.S. federal excise tax.
Due to inherent differences in the recognition of income, expenses, and
realized gains/losses under U.S. generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax basis
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities. A permanent book and tax difference relating to a
distribution reclass in the amount of $15,340,759 was reclassified from net
investment loss to accumulated net realized gain. Finally, a permanent book and
tax difference relating to net operating losses in the amount of $927,639 was
reclassified from net investment loss to accumulated net realized gain. Net
realized gains or losses may differ for financial reporting and tax reporting
primarily as a result of the deferral of losses relating to wash sale and
straddle transactions.
Information on the tax components of investments, excluding written options, as
of December 31, 2009 is as follows:
UNDISTRIBUTED
LONG-TERM
COST OF NET TAX NET TAX GAIN/
INVESTMENTS GROSS TAX GROSS TAX UNREALIZED UNREALIZED UNDISTRIBUTED (ACCUMULATED
FOR TAX UNREALIZED UNREALIZED DEPRECIATION ON DEPRECIATION ORDINARY CAPITAL LOSS
PURPOSES APPRECIATION DEPRECIATION INVESTMENTS ON DERIVATIVES INCOME AND OTHER)
==============================================================================================================
$ 276,532,930 $ 6,034,022 ($81,423,557) ($75,389,535) ($4,078,686) $ -- ($10,921,758)
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer capital losses of
$3,075,359.
At December 31, 2009, for federal income tax purposes, the Fund had a capital
loss carryforward of $7,813,335 available to offset possible future capital
gains. Of the capital loss carrryforward, $7,813,335 is set to expire on
December 31, 2017.
For the years ended December 31, 2009 and 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: 2009 2008
======================================================
Ordinary income $ 15,340,759 $ 22,736,739
Long-term capital gain -- --
Return of capital 759 --
------------------------------------------------------
$ 15,341,518 $ 22,736,739
======================================================
For all open tax years and all major jurisdictions, management of the Fund has
concluded that there are no significant uncertain tax positions that would
require recognition in the financial statements. Open tax years are those that
are open for examination by taxing authorities (i.e. generally the last four
tax year ends and the interim tax period since them). Furthermore, management
of the fund is also not aware of any tax positions for which it is reasonably
possible that the total amounts of unrecognized tax benefits will significantly
change in the next twelve months.
Note 5 -- INVESTMENTS IN SECURITIES:
During the year ended December 31, 2009, the cost of purchases and proceeds
from sales of investments, excluding written options and short-term
investments, were $25,379,164 and $67,184,671, respectively.
Note 6 -- DERIVATIVES:
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).
20 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
COVERED CALL OPTIONS
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.
Transactions in written option contracts during the year ended December 31,
2009 were as follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
==============================================================================
Options outstanding, beginning of year 69,125 $ 16,712,290
Options written during the year 85,184 18,328,659
Options expired during the year (40,164) (8,545,505)
Options closed during the year (37,415) (8,721,554)
Options assigned during the year (23,608) (6,406,474)
------------------------------------------------------------------------------
Options outstanding, end of year 53,122 $ 11,367,416
------------------------------------------------------------------------------
The Fund adopted ASC 815, Derivatives and Hedging (formerly known as FAS No.
161), effective January 1, 2009. ASC 815 is intended to improve financial
reporting about derivative instruments by requiring enhanced disclosures to
enable investors to better understand: a) how and why a fund uses derivative
instruments, b) how derivatives instruments and related hedge fund items are
accounted for, and c) how derivative instruments and related hedge items affect
a fund's financial position, results of operations and cash flows.
The following table presents the types of derivatives in the Fund by location as
presented on the Statement of Assets and Liabilities as of December 31, 2009:
STATEMENT OF ASSETS & LIABILITY PRESENTATION OF FAIR VALUES OF DERIVATIVES:
(amount in thousands)
ASSET DERIVATIVES LIABILITY DERIVATIVES
====================================================================================
STATEMENT OF STATEMENT OF
ASSETS AND ASSETS AND
LIABILITIES LOCATION FAIR VALUE LIABILITIES LOCATION FAIR VALUE
====================================================================================
Options written,
Equity risk -- -- at value $ 15,446
------------------------------------------------------------------------------------
TOTAL -- $ 15,446
====================================================================================
The following table presents the effect of derivatives on the Statement of
Operations for the year ended December 31, 2009: (amount in thousands)
AMOUNT OF REALIZED GAIN/(LOSS) ON DERIVATIVES
======================================================================
OPTIONS
======================================================================
Equity risk $ 10,168
----------------------------------------------------------------------
TOTAL $ 10,168
======================================================================
CHANGE IN UNREALIZED DEPRECIATION ON DERIVATIVES
======================================================================
OPTIONS
======================================================================
Equity risk $ (9,381)
----------------------------------------------------------------------
TOTAL $(9,381)
======================================================================
Annual Report | December 31, 2009 | 21
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | NOTES TO FINANCIAL
STATEMENTS continued
Note 7 -- CAPITAL:
COMMON SHARES
The Fund has an unlimited amount of common shares, $0.01 par value authorized
and 19,268,423 issued and outstanding.
There were no transactions in common shares during the years ended December 31,
2009 and December 31, 2008.
Note 8 -- 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 up to
the lesser of the amount of the revolving credit facility or 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 December 31, 2009, there was $0 outstanding in connection with the Fund's
credit facility. The average daily amount of the borrowings on the credit
facility during the year ended December 31, 2009 was $11,769,863 with a related
average interest rate of 2.75%. The maximum amount outstanding during the
period was $24,000,000. The maturity date for the Revolving Credit Agreement is
April 30, 2010.
Note 9 -- 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 10 -- SUBSEQUENT EVENT:
On February 1, 2010, the Board of Trustees declared a quarterly dividend of
$0.18 per common share. The dividend is payable February 26, 2010 to
shareholders of record on February 12, 2010.
Note 11 -- RECENT ACCOUNTING PRONOUNCEMENTS
On January 21, 2010, the FASB issued an ASU, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
which provides guidance on how investment assets and liabilities are to be
valued and disclosed. Specifically, the amendment requires reporting entities
to disclose i) the input and valuation techniques used to measure fair value
for both recurring and nonrecurring fair value measurements, for Level 2 or
Level 3 positions ii) transfers between all levels (including Level 1 and Level
2) will be required to be disclosed on a gross basis (i.e. transfers out must
be disclosed separately from transfers in) as well as the reason(s) for the
transfer and iii) purchases, sales, issuances and settlements must be shown on
a gross basis in the Level 3 rollforward rather than as one net number. The
effective date of the amendment is for interim and annual periods beginning
after December 15, 2009 however, the requirement to provide the Level 3
activity for purchases, sales, issuances and settlements on a gross basis will
be effective for interim and annual periods beginning after December 15, 2010.
At this time the Fund is evaluating the implications of the amendment to ASC
820 and the impact to the financial statements.
22 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM|
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
MADISON/CLAYMORE COVERED CALL & EQUITY STRATEGY FUND
We have audited the accompanying statement of assets and liabilities of
Madison/Claymore Covered Call & Equity Strategy Fund (the Fund), including the
portfolio of investments, as of December 31, 2009, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2009, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Madison/Claymore Covered Call & Equity Strategy Fund at December 31, 2009, and
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 24, 2010
Annual Report | December 31, 2009 | 23
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Supplemental INFORMATIONl(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.
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Fund was held on July 21, 2009.
Holders of the Fund's common shares of beneficial interest, par value $0.01 per
share ("Common Shares") voted on the election of Class II Trustees.
Voting results with respect to the election of Class II Trustees by holders of
Common Shares are set forth below:
# OF SHARES # OF SHARES
NAME IN FAVOR WITHHELD
=======================================================================
Ronald A Nyberg 13,711,565 1,096,977
James R. Imhoff, Jr. 14,393,688 414,853
The terms of the following Trustees of the Fund did not expire in 2009, Ronald
E. Toupin, Jr., Lorence Wheeler, Randall C. Barnes and Frank E. Burgess.
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 OCCUPATIONS DURING PORTFOLIOS IN THE
BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND FUND COMPLEX*** OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
====================================================================================================================================
INDEPENDENT TRUSTEES:
====================================================================================================================================
Randall C. Barnes Since 2004 Private Investor (2001-present).Formerly, 41 None.
Year of birth: 1951 Senior Vice President and Treasurer, PepsiCo,
Trustee Inc. (1993-1997), President, Pizza Hut
International (1991-1993) and Senior Vice
President, Strategic Planning and New Business
Development (1987-1990) of PepsiCo, Inc.
----------------------------------------------------------------------------------------------------------------------------------
James R. Imhoff, Jr. Since 2004 Chairman and CEO of First Weber Group 1 Director, Park
Year of birth: 1944 (1996-present). Bank. Trustee,
5250 East Terrace Drive the Mosaic family
Madison, WI 53718 of mutual funds and
Trustee Madison Strategic
Sector Premium
Fund.
----------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Since 2004 Partner of Nyberg & Cassioppi, LLC, a law firm 44 None.
Year of birth: 1953 specializing in corporate law, estate planning
Trustee 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 President, Manager and 41 None.
Year of birth: 1958 Portfolio Manager of Nuveen Asset Management
Trustee (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 Credit Union 1 Director, Grand
Year of birth: 1938 Benefits Services, Inc. (1986-1997) and Pension Mountain Bank FSB.
135 Sunset Blvd. Specialist for CUNA Mutual Group (1997-2001). Trustee, the Mosaic
Tabernash, CO 80478 family of mutual
Trustee funds and Madison
Strategic Sector
Premium Fund.
----------------------------------------------------------------------------------------------------------------------------------
24 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | SUPPLEMENTAL
INFORMATION (unaudited) continued
NUMBER OF
NAME, ADDRESS,* YEAR OF TERM OF OFFICE** PRINCIPAL OCCUPATIONS DURING PORTFOLIOS IN THE
BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND FUND COMPLEX*** OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
====================================================================================================================================
INTERESTED TRUSTEES:
====================================================================================================================================
Frank E. Burgess+ Since 2004 Founder, President and CEO of Madison Investment 1 Director, Capital
Year of birth: 1942 Advisors, Inc. and Madison Asset Bankshares, Inc.,
550 Science Drive Management, LLC (1974-present). Outrider
Madison, WI 53711 Foundation, Inc.,
Trustee and Senior and Santa Barbara
Vice President Community Bankcorp.
Trustee, the Mosaic
family of mutual
funds and Madison
StrategicSector
Premium Fund.
------------------------------------------------------------------------------------------------------------------------------------
* 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, are expected to stand
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.
*** 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 and Mr. Blake served as Class II Trustees of the Fund. Mr. Dalmaso
and Mr. Blake did not stand for re-election at the Fund's annual meeting of
shareholders on July 21, 2009 (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.
Annual Report | December 31, 2009 | 25
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 TERM OF OFFICE**
BIRTH AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS AND
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS
------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell Since 2008 Senior Managing Director and Chief Investment Officer of Claymore Advisors,
Year of birth: 1955 LLC and Claymore Securities Inc. Chief Executive Officer of certain funds
Chief Executive Officer 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 Advisors, LLC,
Year of birth: 1959 Claymore Securities, Inc. and Claymore Group, Inc. (2007-present). Chief
Chief Legal Officer 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 Securities,
Year of birth: 1964 Inc. (2005-present). Formerly, Chief Financial Officer of Claymore
Chief Financial Officer, Group Inc. (2005-2006). Formerly, Managing Director of Claymore Advisors,
Chief Accounting Officer LLC and Claymore Securities, Inc. (2003-2005). Previously, Treasurer of
and Treasurer 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, LLC.
Year of birth: 1978 Secretary of certain funds in the Funds Complex (2007-present). Previously,
Secretary Law Clerk for the Idaho State Courts (2003-2007).
------------------------------------------------------------------------------------------------------------------------------------
Jay Sekelsky Since 2004 Managing Director of Madison Investment Advisors, Inc.; Vice President of
550 Science Drive Madison Asset Management, LLC; Vice President of Funds in the Mosaic
Madison, WI 53711 family of funds and Madison Strategic Sector Premium Fund.
Year of birth: 1959
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Kay Frank Since 2004 Managing Director of Madison Investment Advisors, Inc. (1986 -- present);
550 Science Drive Vice President of Madison Asset Management, LLC (2003-present);
Madison, WI 53711 President of Funds in the Mosaic family of funds and President of Madison
Year of birth: 1960 Strategic Sector Premium Fund.
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Ray Di Bernardo Since 2003 Vice President of Madison Investment Advisors, Inc. (2003-present).
550 Science Drive
Madison, WI 53711
Year of birth: 1962
Vice President
------------------------------------------------------------------------------------------------------------------------------------
Greg Hoppe Since 2008 Vice President of Madison Mosaic, LLC (1999-present); Vice President of
550 Science Drive 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 (Feb
Year of birth: 1957 2006-present). Formerly, Chief Compliance Officer/Assistant Secretary of
Chief Compliance Officer Harris Investment Management, Inc. (2003-2006). Formerly,
Director-Compliance of Harrisdirect LLC (1999-2003).
------------------------------------------------------------------------------------------------------------------------------------
Elizabeth H. Hudson Since 2009 Assistant General Counsel of Claymore Group Inc. (2009 to present).
Year of birth: 1980 Assistant Secretary of certain funds in the Fund Complex. Previously,
Assistant Secretary associate at Bell, Boyd & Lloyd LLP (nka K&L Gates LLP) (2007-2008).
------------------------------------------------------------------------------------------------------------------------------------
* 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.
26 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Dividend Reinvestment PLAN | (unaudited)
Unless the registered owner of common shares elects to receive cash by
contacting the Plan Administrator, all dividends declared on common shares of
the Fund will be automatically reinvested by the Bank of New York Mellon (the
"Plan Administrator"), administrator for shareholders in the Fund's Dividend
Reinvestment Plan (the "Plan"), in additional common shares of the Fund.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by notice if received and processed by the
Plan Administrator prior to the dividend record date; otherwise such
termination or resumption will be effective with respect to any subsequently
declared dividend or other distribution. Some brokers may automatically elect
to receive cash on your behalf and may re-invest that cash in additional common
shares of the Fund for you. If you wish for all dividends declared on your
common shares of the Fund to be automatically reinvested pursuant to the Plan,
please contact your broker.
The Plan Administrator will open an account for each common shareholder under
the Plan in the same name in which such common shareholder's common shares are
registered. Whenever the Fund declares a dividend or other distribution
(together, a "Dividend") payable in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the equivalent in common
shares. The common shares will be acquired by the Plan Administrator for the
participants' accounts, depending upon the circumstances described below,
either (i) through receipt of additional unissued but authorized common shares
from the Fund ("Newly Issued Common Shares") or (ii) by purchase of outstanding
common shares on the open market ("Open-Market Purchases") on the New York
Stock Exchange or elsewhere. If, on the payment date for any Dividend, the
closing market price plus estimated brokerage commission per common share is
equal to or greater than the net asset value per common share, the Plan
Administrator will invest the Dividend amount in Newly Issued Common Shares on
behalf of the participants. The number of Newly Issued Common Shares to be
credited to each participant's account will be determined by dividing the
dollar amount of the Dividend by the net asset value per common share on the
payment date; provided that, if the net asset value is less than or equal to
95% of the closing market value on the payment date, the dollar amount of the
Dividend will be divided by 95% of the closing market price per common share on
the payment date. If, on the payment date for any Dividend, the net asset value
per common share is greater than the closing market value plus estimated
brokerage commission, the Plan Administrator will invest the Dividend amount in
common shares acquired on behalf of the participants in Open-Market Purchases.
If, before the Plan Administrator has completed its Open-Market Purchases, the
market price per common share exceeds the net asset value per common share, the
average per common share purchase price paid by the Plan Administrator may
exceed the net asset value of the common shares, resulting in the acquisition
of fewer common shares than if the Dividend had been paid in Newly Issued
Common Shares on the Dividend payment date. Because of the foregoing difficulty
with respect to Open-Market Purchases, the Plan provides that if the Plan
Administrator is unable to invest the full Dividend amount in Open-Market
Purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Administrator may cease
making Open-Market Purchases and may invest the uninvested portion of the
Dividend amount in Newly Issued Common Shares at net asset value per common
share at the close of business on the last purchase date provided that, if the
net asset value is less than or equal to 95% of the then current market price
per common share; the dollar amount of the Dividend will be divided by 95% of
the market price on the payment date.
The Plan Administrator maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Common shares in the
account of each Plan participant will be held by the Plan Administrator on
behalf of the Plan participant, and each shareholder proxy will include those
shares purchased or received pursuant to the Plan. The Plan Administrator will
forward all proxy solicitation materials to participants and vote proxies for
shares held under the Plan in accordance with the instruction of the
participants.
There will be no brokerage charges with respect to common shares issued
directly by the Fund. However, each participant will pay a pro rata share of
brokerage commission incurred in connection with Open-Market Purchases. The
automatic reinvestment of Dividends will not relieve participants of any
Federal, state or local income tax that may be payable (or required to be
withheld) on such Dividends.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan; however,
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants.
All correspondence or questions concerning the Plan should be directed to the
Plan Administrator, BNY Mellon Shareowner Services, PO Box 358015, Pittsburgh,
PA 15252-8015, Phone Number: (866) 488-3559.
Annual Report | December 31, 2009 | 27
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Board Considerations Regarding Contract Approvals of the Interim and New
Investment Advisory Agreements and Interim and New Investment Management
Agreements
On September 23, 2009, the Board of Trustees (the "Board") of the
Madison/Claymore Covered Call & Equity Strategy Fund (the "Fund"), including
those trustees who are not "interested persons" as defined by the Investment
Company Act of 1940 (the "Independent Trustees"), on the recommendation of the
Nominating & Governance Committee (referred to as the "Committee" and
consisting solely of the Independent Trustees) of the Board of the Fund,
approved: (1) an interim ("Interim Advisory Agreement") and new ("New Advisory
Agreement") advisory agreement (together, the "Investment Advisory Agreements")
between the Fund and Claymore Advisors, LLC ("Adviser") and (2) an interim
("Interim Investment Management Agreement") and new ("New Investment Management
Agreement") investment management agreement (together the "Investment
Management Agreements") among the Adviser, the Fund and Madison Asset
Management, LLC ("Investment Manager"). (The Investment Advisory Agreements and
the Investment Management Agreements are together referred to as the "Advisory
Agreements.") As part of its review process, the Committee was represented by
independent legal counsel.
Based upon its review, the Board and the Committee concluded that it was in the
best interest of the Fund to approve 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.
INTERIM ADVISORY AGREEMENT AND NEW ADVISORY AGREEMENT
The Board reviewed materials received from the Adviser, Guggenheim Partners,
LLC ("Guggenheim") and independent legal counsel. The Board also had previously
received, throughout the year, Board meeting information regarding performance
and operating results of the Fund. Earlier this year, the Adviser informed the
Board that it was in discussions with Guggenheim concerning a strategic
transaction, including a potential sale of a controlling interest in the
Adviser (the "Transaction"). The Adviser provided periodic reports to
representatives of the Board as to the status and nature of such discussions
with Guggenheim and the Adviser's operating and financial results. In the
spring of 2009, the Adviser informed the Board that Guggenheim had arranged up
to $20 million of subordinated loans to Claymore Group as interim financing for
working capital and for inventory purchases in connection with its business of
creating, distributing and supervising unit investment trusts and other
investment products.
Following the execution of a merger agreement between Claymore and Guggenheim
(the "Merger Agreement"), a telephonic meeting was held on July 28, 2009, and
attended by certain members of the Board, the chief executive officer of
Claymore Group and the chief executive officer of Guggenheim. Such executive
officers summarized the principal terms of the Merger Agreement, and described
the Transaction, the business plans for the Adviser following the consummation
of the Transaction and answered such questions as were raised at the meeting.
Representatives of the Board requested additional information regarding the
Transaction, Guggenheim and the impact of the Transaction on the Shareholders
of the Fund.
During the third quarter of 2009, the Committee received reports on the
progress of the Transaction, including the debt financing and additional equity
financing arranged by Guggenheim. As part of its review process, the Committee
was represented by independent legal counsel. The Committee reviewed materials
received from the Adviser, Guggenheim and independent legal counsel. The Adviser
and Guggenheim provided, among other information, information regarding the
terms of the Transaction and potential benefits to the Adviser from the
Transaction. The information provided regarding Guggenheim included (i)
financial information, (ii) information regarding senior executives of the firm,
(iii) information regarding other Guggenheim affiliated investment managers,
(iv) information regarding litigation and regulatory matters and (v) potential
conflicts of interest. The Adviser and Guggenheim also provided information
regarding Guggenheim's and the Adviser's intentions for the business, operations
and personnel of the Adviser following the closing of the Transaction. The
Committee met and discussed the Transaction and the Interim Advisory Agreement
and the New Advisory Agreement in September 2009. Additional supplemental
information regarding the Transaction and Guggenheim was provided by the Adviser
and Guggenheim and reviewed by the Committee.
Subsequent to these meetings, the Board met in person to consider the Interim
Advisory Agreement and the New Advisory Agreement at a meeting held on
September 23, 2009. The Board met with representatives of the Adviser and
Guggenheim to discuss the Transaction. Representatives from the Adviser and
Guggenheim discussed the Transaction with, and answered questions from, the
Board. The Committee met in executive session to discuss the Transaction and
the information provided at the Board meeting. The Committee concluded that it
was in the best interest of the Fund to approve the Interim Advisory Agreement
and New Advisory Agreement and, accordingly, recommended to the Board the
approval of the Interim Advisory Agreement and New Advisory Agreement. The
Board subsequently approved the Interim Advisory Agreement and approved the New
Advisory Agreement for a one-year term. The Board also determined to consider
the continuation of the agreement during the course of the one-year term by
conducting a thorough review of the various information that is part of the
Board's regular annual consideration of the continuation of the Fund's advisory
agreement. In reaching the conclusion to approve the Interim Advisory Agreement
and New Advisory Agreement, no single factor was determinative in the Board's
analysis, but rather the Board considered a variety of factors. Provided below
is an overview of the primary factors the Board considered in connection with
the review of the Interim Advisory Agreement and the New Advisory Agreement.
In connection with the Board's consideration of the Interim Advisory Agreement
and the New Advisory Agreement, the Trustees considered, among other
information, the following factors:
o within the last year, the Board had engaged in a thorough review of
the various factors, including fees and performance, that are part of
the decision whether to continue an advisory agreement;
o Board approval of the Fund's Investment Advisory Agreements was a
condition to the closing of the Transaction;
o Claymore's statement to the Board that the manner in which the Fund's
assets are managed will not change as a result of the Transaction;
o the aggregate advisory fee rate payable by the Fund will not change
under the Interim Advisory Agreement or New Advisory Agreement;
o there are no material differences between the terms of the Interim
Advisory Agreement and New Advisory Agreement and the terms of the
Fund's prior advisory agreement, except for those provisions in the
Interim Advisory Agreement which are necessary to comply with Rule
15a-4 under the 1940 Act;
o the capabilities of the Adviser's personnel who will provide advisory
(if applicable), management, shareholder servicing and
administrative services to the Fund are not expected to change, and
the key personnel who currently provide advisory (if applicable),
management, shareholder servicing and administrative services to the
Fund are expected to continue to do so after the Transaction;
o the assurance from the Adviser and Guggenheim that following the
Transaction there will not be any diminution in the nature, quality
and extent of services provided to the Fund;
o the Adviser's current financial condition;
28 | Annual Report | December 31, 2009
MCN | Madison/Claymore Covered Call & Equity Strategy Fund | BOARD
CONSIDERATIONS continued
o the impact of the Transaction on the Adviser's day-to-day operations;
o the reputation, capabilities, experience, organizational structure and
financial resources of Guggenheim;
o the long-term business goals of Guggenheim and the Adviser with regard
to the business and operations of the Adviser;
o that Shareholders of the Fund will not bear any costs in connection
with the Transaction, inasmuch as the Adviser will bear the costs,
fees and expenses incurred by the Fund in connection with the Fund's
Proxy Statement and any other costs of the Fund associated with the
Transaction; and
o that the Adviser and relevant acquisition subsidiaries have agreed to
refrain from imposing or seeking to impose, for a period of two years
after the Closing, any "unfair burden"(within the meaning of Section
15(f) of 1940 Act) on the Fund.
Nature, Extent and Quality of Services Provided by the Adviser. The Board noted
that key management personnel servicing the Fund are expected to remain with
the Adviser following the Transaction and that the services provided to the
Fund by the Adviser are not expected to change. The Board also considered the
Adviser's and Guggenheim's representations to the Board that Guggenheim intends
for the Adviser to continue to operate following the closing of the Transaction
in much the same manner as it operates today, and that the impact of the
Transaction on the day-to-day operations of the Adviser would be neutral or
positive. The Board also considered Guggenheim's statement that the Adviser's
compliance policies and procedures, disaster recovery plans, information
security controls and insurance program would not change materially following
consummation of the Transaction. Based on this review, the Board concluded that
the range and quality of services provided by the Adviser to the Fund were
expected to continue under the Interim Advisory Agreement and the New Advisory
Agreement at the same or improved levels.
Advisory Fees. The Board also considered the fact that the advisory fee rates
payable to the Adviser would be the same under the Interim Advisory Agreement
and New Advisory Agreement as they are under the Fund's prior advisory
agreement, which had within the last year been determined to be reasonable. The
Board concluded that these factors supported approval of the Interim Advisory
Agreement and New Advisory Agreement.
Performance. With respect to the performance of the Fund, the Board considered
that, the Investment Manager would continue to manage the Fund's portfolio
following the closing of the Transaction, subject to Shareholder approval of
the New Investment Management Agreement. The Board concluded that these factors
supported approval of the Interim Advisory Agreement and New Advisory
Agreement.
Profitability. The Board noted that it was too early to predict how the
Transaction may affect the Adviser's future profitability from its relationship
with the Fund, but concluded that this matter would be given further
consideration on an annual basis going forward. The Board also noted that the
Adviser's fee rates under the Interim Advisory Agreement and New Advisory
Agreement are the same as those assessed under the Fund's prior advisory
agreement.
Economies of Scale. The Board considered any potential economies of scale that
may result from the Transaction. The Board further noted Guggenheim's statement
that such economies of scale could not be predicted in advance of the closing
of the Transaction.
Other Benefits. The Board noted its prior determination that the advisory fees
were reasonable, taking into consideration other benefits to the Adviser
(including the receipt by Claymore of an administrative fee). The Board also
considered other benefits to the Adviser, Guggenheim and their affiliates
expected to be derived from their relationships with the Fund as a result of
the Transaction and noted that no additional benefits were reported by the
Adviser or Guggenheim as a result of the Transaction. Therefore, the Board
concluded that the advisory fees continued to be reasonable, taking into
consideration other benefits.
NEW INVESTMENT MANAGEMENT AGREEMENT AND INTERIM INVESTMENT MANAGEMENT
AGREEMENT
In conjunction with the consideration of the Transaction and the approval of a
New Advisory Agreement and Interim Advisory Agreement, the Board, including the
Independent Trustees, also considered the Fund's New Investment Management
Agreement and Interim Investment Management Agreement. The Board noted that
while the closing of the Transaction would result in the termination of the
prior investment management agreement pursuant to its terms, the Investment
Manager was not a party to the Transaction and the operations of the Investment
Manager and the services to be provided by the Investment Manager would be
unaffected by the Transaction.
The Board determined that there were no material differences between the terms
of the Interim Investment Management Agreement and the corresponding prior
investment management agreement, except with respect to those provisions
required to comply with Rule 15a-4 under the 1940 Act, and that there were no
material differences between the terms of the New Investment Management
Agreement and the prior investment management agreement. The Board noted that
the compensation to be received by the Investment Manager under the Interim
Investment Management Agreement and New Investment Management Agreement is not
greater than the compensation the Investment Manager would have received under
the prior investment management agreement. The Board noted that the scope and
quality of services to be provided to the Fund under the Interim Investment
Management Agreement and New Investment Management Agreement would be at least
equivalent to the scope and quality of services provided under the prior
investment management agreement. The Board noted that, within the last year, it
had engaged in a thorough review of the various factors, including fees and
performance, that are part of the evaluation of the renewal or approval of an
investment management agreement.
The Board noted that the factors previously considered with respect to approval
of the prior investment management agreement continued to support the approval
of the New Investment Management Agreement and Interim Investment Management
Agreement. The Board also determined to consider such factors again within one
year of the execution of the New Investment Management Agreement. Based upon
its review, the Board concluded that it was in the best interest of the Fund to
approve the New Investment Management Agreement and Interim Investment
Management Agreement.
OVERALL CONCLUSIONS
Based upon all of the information considered and the conclusions reached, the
Board determined that the terms of the Advisory Agreements are fair and
reasonable and that approval of the Advisory Agreements is in the best
interests of the Fund.
Annual Report | December 31, 2009 | 29
This Page Intentionally Left Blank.
MCN | Madison/Claymore Covered Call & Equity Strategy Fund
Fund INFORMATION|
BOARD OF TRUSTEES OFFICERS INVESTMENT ADVISER
Randall C. Barnes J. Thomas Futrell Madison Asset Management, LLC
Chief Executive Officer 550 Science Drive
Frank Burgess* Madison, WI 53711
Kevin M. Robinson
James Imhoff, Jr. Chief Legal Officer INVESTMENT ADVISER
Claymore Advisors, LLC
Ronald A. Nyberg Steven M. Hill 2455 Corporate West Drive
Chief Financial Officer, Chief Lisle, IL 60532
Ronald E.Toupin, Jr. Accounting Officer and Treasurer
ADMINISTRATOR
Frank Burgess Claymore Advisors, LLC
Lorence Wheeler Senior Vice President 2455 Corporate West Drive
Lisle, IL 60532
* Trustee is an "interested person" Mark Mathiasen
of the Fund as defined in the Secretary CUSTODIAN AND TRANSFER AGENT
Investment Company Act of 1940, The Bank of NewYork Mellon
as amended. Jay Sekelsky New York, New York
Vice President
LEGAL COUNSEL
Kay Frank Vedder Price P.C.
Vice President Chicago, Illinois
Ray Di Bernado INDEPENDENT REGISTERED
Vice President PUBLIC ACCOUNTING FIRM
Ernst &Young LLP
Greg Hoppe Chicago, Illinois
Vice President
Bruce Saxon
Chief Compliance Officer
Elizabeth H. Hudson
Asst. Secretary
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.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market.
Annual Report | December 31, 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 $15 billion in
individual, corporate, pension, insurance, endowment and mutual fund assets as
of December 31, 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 02/10
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
MCN
LISTED
NYSE
MCN-AR-1209
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions (the "Code of Ethics").
(b) No information need be disclosed pursuant to this paragraph.
(c) The registrant has not amended its Code of Ethics during the period covered
by the report presented in Item 1 hereto.
(d) The registrant has not granted a waiver or an implicit waiver to its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions from a provision
of its Code of Ethics during the period covered by this report.
(e) Not applicable.
(f) (1) The registrant's Code of Ethics is attached hereto as an exhibit.
(2) Not applicable.
(3) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that it has at least one audit
committee financial expert serving on its audit committee (the "Audit
Committee"), Randall C. Barnes. Mr. Barnes is an "independent" Trustee for
purposes of this Item 3 of Form N-CSR. Mr. Barnes qualifies as an audit
committee financial expert by virtue of his experience obtained as a former
Senior Vice President, Treasurer of PepsiCo, Inc.
(Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for the purposes of Section 11 of the Securities
Act of 1933, as amended, as a result of being designated or identified as an
audit committee financial expert. The designation or identification of a person
as an audit committee financial expert does not impose on such person any
duties, obligations, or liabilities that are greater than the duties,
obligations, and liabilities imposed on such person as a member of the Audit
Committee and Board of Trustees in the absence of such designation or
identification. The designation or identification of a person as an audit
committee financial expert does not affect the duties, obligations or liability
of any other member of the Audit Committee or Board of Trustees.)
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees: the aggregate fees billed for professional services rendered by
the principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements were $46,000 and
$46,500 for the fiscal years ended December 31, 2009 and December 31, 2008,
respectively.
(b) Audit-Related Fees: the aggregate fees billed for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph 4(a) were $0 and $0 for the fiscal years ended December
31, 2009 and December 31, 2008, respectively.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
(c) Tax Fees: the aggregate fees billed for professional services rendered by
the principal accountant for tax compliance, tax advice, and tax planning were
$6,900 and $6,000 for the fiscal years ended December 31, 2009 and December 31,
2008, respectively.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
(d) All Other Fees: the aggregate fees billed for products and services provided
by the principal accountant, other than the services reported in paragraphs (a)
and (c) of this Item were $0 and $0 for the fiscal years ended December 31, 2009
and December 31, 2008, respectively.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii)
of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years.
(e) Audit Committee Pre-Approval Policies and Procedures.
(i) The Audit Committee reviews, and in its sole discretion,
pre-approves, pursuant to written pre-approval procedures (A) all engagements
for audit and non-audit services to be provided by the principal accountant to
the registrant and (B) all engagements for non-audit services to be provided by
the principal accountant (1) to the registrant's investment adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and (2) to any entity
controlling, controlled by or under common control with the registrant's
investment adviser that provides ongoing services to the registrant; but in the
case of the services described in subsection (B)(1) or (2), only if the
engagement relates directly to the operations and financial reporting of the
registrant; provided that such pre-approval need not be obtained in
circumstances in which the pre-approval requirement is waived under rules
promulgated by the Securities and Exchange Commission or New York Stock Exchange
listing standards. Sections IV.C.2 and IV.C.3 of the Audit Committee's revised
Audit Committee Charter contain the Audit Committee's Pre-Approval Policies and
Procedures and such sections are included below.
IV.C.2 Pre-approve any engagement of the independent auditors to provide any
non-prohibited services to the I Trust, including the fees and other
compensation to be paid to the independent auditors (unless an
exception is available under Rule 2-01 of Regulation S-X).
(a) The Chairman or any member of the Audit Committee may grant the
pre-approval of services to the Fund for non-prohibited services up to
$10,000. All such delegated pre-approvals shall be presented to the
Audit Committee no later than the next Audit Committee meeting.
IV.C.3 Pre-approve any engagement of the independent auditors, including the
fees and other compensation to be paid to the independent auditors, to
provide any non-audit services to the Adviser (or any "control I
affiliate" of the Adviser providing ongoing services to the Trust), if
the engagement relates directly to the operations and financial
reporting of the Trust (unless an exception is available under Rule
2-01 of Regulation S-X).
(a) The Chairman or any member of the Audit Committee may grant
the pre-approval for non-prohibited services to the Adviser up
to $10,000. All such delegated pre-approvals shall be
presented to the Audit Committee no later than the next Audit
Committee meeting.
(ii) None of the services described in each of Items 4(b) through (d)
were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant (not including a sub-adviser whose
role is primarily portfolio management and is sub-contracted with or overseen by
another investment adviser) that directly related to the operations and
financial reporting of the registrant were $6,900 and $6,000 for the fiscal
years ended December 31, 2009 and December 31, 2008, respectively.
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Audit Committee was established in accordance with Section 3(a)(58)(A)
of the Securities Exchange Act of 1934. The Audit Committee is comprised of:
Randall C. Barnes, James R. Imhoff, Jr., Ronald A. Nyberg, Ronald E. Toupin, Jr.
and Lorence D. Wheeler.
(b) Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included as part of Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant has delegated the responsibility for voting of proxies relating
to its voting securities to its investment manager, Madison Asset Management,
LLC (the "Investment Manager"). The Investment Manager's proxy voting policies
and procedures are included as an exhibit hereto.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) Frank E. Burgess, the President and founder of the adviser to the
registrant and Madison Investment Advisors, Inc., and Ray Di Bernardo, Portfolio
Manager of the adviser to the registrant and Vice President of Madison
Investment Advisors, Inc., are jointly responsible for the day-to-day management
of the registrant. The adviser to the registrant, Madison Asset Management, LLC,
is a wholly owned subsidiary of Madison Investment Advisors, Inc., founded by
Mr. Burgess in 1974.
(a) (2) Other portfolios managed.
As of the end of the registrant's most recent fiscal year, the portfolio
managers were involved in the management of the following accounts (assets are
rounded to the nearest million):
FRANK BURGESS:
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TOTAL ASSETS IN
ACCOUNTS WITH ACCOUNTS WITH
NUMBER OF OTHER TOTAL ASSETS IN PERFORMANCE-BASED PERFORMANCE-BASED
TYPES OF ACCOUNTS ACCOUNTS MANAGED ACCOUNTS ADVISORY FEES ADVISORY FEES
---------------------------------------------------------------------------------------------------------
Registered Investment 4 (including the 297 million 1 $6 million
Companies Trust)
---------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles
---------------------------------------------------------------------------------------------------------
Other Accounts 0 $0 0 $0
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RAY DI BERNARDO:
---------------------------------------------------------------------------------------------------------
TOTAL ASSETS IN
ACCOUNTS WITH ACCOUNTS WITH
NUMBER OF OTHER TOTAL ASSETS IN PERFORMANCE-BASED PERFORMANCE-BASED
TYPES OF ACCOUNTS ACCOUNTS MANAGED ACCOUNTS ADVISORY FEES ADVISORY FEES
---------------------------------------------------------------------------------------------------------
Registered Investment 4 (including the 297 million 1 $6 million
Companies Trust)
---------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles
---------------------------------------------------------------------------------------------------------
Other Accounts 0 $0 0 $0
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MATERIAL CONFLICTS OF INTEREST THAT MAY ARISE IN CONNECTION WITH THE MANAGER'S
MANAGEMENT OF THE TRUST'S INVESTMENTS AND THE INVESTMENTS OF THE OTHER ACCOUNTS:
Note that of the four funds managed, the Madison Institutional Equity Option
Fund, an open-end series of Madison Mosaic Equity Trust ("MADOX"), with
investment strategies similar to the Trust, contains a fulcrum fee that rewards
the adviser to the Trust if MADOX outperforms the BXM Index and penalizes the
adviser for underperforming such index. As of the date of this filing, MADOX
assets were approximately $4 million. The adviser's compliance program includes
procedures to monitor trades by MADOX, the Trust and other funds managed by the
portfolio manager. In addition, potential conflicts of interest may arise
because the adviser engages in portfolio management activities for clients other
than the funds. However, Madison has adopted a variety of portfolio security
aggregation and allocation policies which are designed to provide reasonable
assurance that buy and sell opportunities are allocated fairly among clients.
(a) (3) Compensation.
The adviser believes investment professionals should receive compensation for
the performance of the firm's client accounts, their individual effort, and the
overall profitability of the firm. As such, investment professionals receive a
base salary, as well as an incentive bonus based on the attainment of certain
goals and objectives in the portfolio management process (described below). The
manager also participates in the overall profitability of the firm directly,
through an ownership interest in the firm, or indirectly, through a
firm-sponsored profit sharing plan. The adviser believes its portfolio managers'
goals are aligned with those of long-term investors, recognizing client goals to
outperform over the long-term, rather than focused on short-term performance
contests.
With regard to incentive compensation, the incentive pools are calculated based
on revenue from each investment strategy. Managers are rewarded for performance
relative to their benchmark(s) over both one and three year periods. Incentive
compensation earned is paid out over a three year period, so that if a portfolio
manager leaves the employ of the Madison organization, he or she forfeits a
percentage of his or her incentive compensation. The purpose of this structured
payout is to aid in the retention of investment personnel. With the exception of
Mr. Burgess, all investment professionals are eligible to participate in the
incentive compensation pool.
The incentive compensation pool shared by the members of the firm's equity
management team (all portfolio managers listed above except Mr. Burgess) is
based on the performance of the firm's various equity composites measured
against the appropriate index benchmarks. All firm equity accounts, including
mutual funds, regardless of whether they are included in such composites, are
managed with the same general investment philosophy, approach and applicable
allocations, quality and other portfolio characteristics.
There is no difference in terms of the way the firm compensates portfolio
managers for managing a mutual fund or a private client account (or any other
type of account for that matter). Instead, compensation is based on the entire
employment relationship, not based on the performance of any single account or
type of account.
(a) (4) Ownership of Securities.
As of December 31, 2009, the portfolio manager beneficially owned the following
amounts of the registrant:
NAME OF MANAGER NAME OF REGISTRANT RANGE OF OWNERSHIP INTEREST
--------------- ------------------------ ---------------------------
Frank Burgess Madison/Claymore Covered Call & Equity
Strategy Fund $100,001 - $500,000
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not made any material changes to the procedures by which
shareholders may recommend nominees to the registrant's Board of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act) as of a date within 90 days
of this filing and have concluded based on such evaluation, as requred by Rule
30a-3(b) under the Investment Company Act, that the registrant's disclosure
controls and procedures were effective, as of that date, in ensuring that
information required to be disclosed by the registrant in this Form N-CSR was
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that
occurred during the registrant's second fiscal quarter of the period covered by
this report that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics for Chief Executive and Senior Financial Officer.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2(a) of the Investment Company Act.
(a)(3) Not Applicable.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(c) Madison Asset Management, LLC Proxy Voting Policies
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Madison / Claymore Covered Call & Equity Strategy Fund
------------------------------------------------------
By: /s/ J. Thomas Futrell
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: March 4, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ J. Thomas Futrell
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: March 4, 2010
By: /s/ Steven M. Hill
Name: Steven M. Hill
Title: Treasurer and Chief Financial Officer
Date: March 4, 2010