clay49143-ncsrs.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM N-CSR
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
 
Investment Company Act file number                 811-21455 
 
Claymore Dividend & Income Fund 

(Exact name of registrant as specified in charter)
 
 2455 Corporate West Drive
Lisle, IL 60532

(Address of principal executive offices) (Zip code)
 
J. Thomas Futrell
Claymore Advisors, LLC
2455 Corporate West Drive
Lisle, IL 60532   

(Name and address of agent for service)
 
Registrant's telephone number, including area code:   (630) 505-3700  
 
Date of fiscal year end:  October 31
 
Date of reporting period:  April 30, 2010
 
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 semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), is as follows:
 

Semiannual
   
Report
Claymore 
 
April 30, 2010
Dividend & Income Fund 
DCS
(Unaudited)
   









 
 

 


www.claymore.com/dcs
 

... your path to the LATEST,
 
 most up-to-date INFORMATION about the
 
Claymore Dividend & Income Fund
 

The shareholder report you are reading right now is just the beginning of the story. Online at www.claymore.com/dcs, you will find:
 
  • Daily, weekly and monthly data on share prices, net asset values, distributions and more
 
  • Monthly portfolio overviews and performance analyses
 
  • Announcements, press releases and special notices
 
  • Fund and adviser contact information
 
We are constantly updating and expanding shareholder information services on the Fund’s website in an ongoing effort to provide you with the most current information about how your Fund’s assets are managed and the results of our efforts. It is just one more small way we are working to keep you better informed about your investment in the Fund.

| Semiannual Report | April 30, 2010
 
 
 

 

DCS | Claymore Dividend & Income Fund

 
Dear Shareholder|
 
We thank you for your investment in the Claymore Dividend & Income Fund (the “Fund”). This report covers the Fund’s performance for the semiannual period ended April 30, 2010.
 
The Fund’s primary investment objective is to provide a high level of current income, with a secondary objective of capital appreciation. Equities are selected for the portfolio using a highly disciplined approach to identifying stocks of companies with substantial free cash flow relative to their market capitalization, with an emphasis on companies that pay a significant portion of free cash flow back to shareholders in the form of dividends.
 
Claymore Advisors, LLC (“Claymore”), a wholly-owned subsidiary of Guggenheim Partners, LLC (“Guggenheim Partners”), serves as the Adviser to the Fund. As of March 31, 2010, Claymore entities provided supervision, management, and/or servicing on approximately $15.9 billion in assets. Guggenheim Partners, is a global diversified financial services firm with more than $100 billion in assets under supervision.
 
The Fund’s investment sub-adviser, Manning & Napier Advisors, Inc. (“Manning & Napier”), is responsible for day-to-day management of the Fund’s investments. Founded in 1970, Manning & Napier is an employee-owned firm that manages more than $20 billion in client assets as of April 30, 2010.
 
All Fund returns cited—whether based on net asset value (“NAV”) or market price—assume the reinvestment of all distributions. For the six-month period ended April 30, 2010, the Fund generated a total return based on market price of 4.24% and a return of 15.09% based on NAV. As of April 30, 2010, the Fund’s market price of $14.50 represented a discount of 13.28% to NAV of $16.72. As of October 31, 2009, the Fund’s market price of $14.25 represented a discount of 4.10% to NAV of $14.86.
 
The Fund paid quarterly dividends of $0.100 per common share in November 2009 and February 2010. In addition, the Fund paid a supplemental distribution of $0.161 per common share on December 29, 2009 to shareholders of record as of December 23, 2009. This supplemental distribution, which was made from ordinary income, was made in order to allow the Fund to meet its distribution requirements and avoid excise taxes for 2009.
 
We encourage shareholders to consider the opportunity to reinvest their distributions from the Fund through the Dividend Reinvestment Plan (“DRIP”), which is described in detail on page 29 of the Fund’s semiannual report. When shares trade at a discount to NAV, the DRIP takes advantage of the discount by reinvesting the quarterly dividend distribution in common shares of the Fund purchased in the market at a price less than NAV. Conversely, when the market price of the Fund’s common shares is at a premium above NAV, the DRIP reinvests participants’ dividends in newly-issued common shares at NAV, subject to an Internal Revenue Service (“IRS”) limitation that the purchase price cannot be more than 5% below the market price per share. The DRIP provides a cost-effective means to accumulate additional shares and enjoy the potential benefits of compounding returns over time.
 
In January 2010, the Fund announced that, in accordance with a previously announced in-kind tender offer to repurchase up to 4,085,947 of its issued and outstanding common shares of beneficial interest (“Common Shares”) at 99.5% of NAV, the Fund had accepted 4,085,893 properly tendered shares, representing approximately 45% of the Fund’s Common Shares outstanding, at a price per Common Share of approximately $16.24. The total value of assets of the Fund distributed in payment for such properly tendered Common Shares was approximately $66.35 million.
 
In the past, the Fund’s leverage has been achieved through the issuance of Auction Market Preferred Shares (“AMPSSM”). AMPS holders received a dividend that was reset typically every
 


Semiannual Report | April 30, 2010 | 3



 
 

 


DCS | Claymore Dividend & Income Fund | Dear Shareholder continued
 
 
seven or 28 days, depending on the series. In August 2009, the Fund obtained a new financing facility through BNP Paribas, a leading European bank. Since that time, the Fund completed its redemption in February 2010 of all of its AMPS at par value, with the redemption financed in part by the proceeds of this credit facility. As of April 30, 2010, the Fund’s outstanding leverage was $33 million of debt via the credit facility. On October 31, 2009, the Fund’s outstanding leverage had been $60 million.
 
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 Manning & Napier’s investment philosophy and discipline, its views on the market environment and how it structured the Fund’s portfolio based on its views.
 
We appreciate your investment and look forward to serving your investment needs in the future. For the most up-to-date information on your investment, please visit the Fund’s website at www.claymore.com/dcs.
 
Sincerely,
 
J. Thomas Futrell
Chief Executive Officer
Claymore Dividend & Income Fund
 
May 31, 2010
 

| Semiannual Report | April 30, 2010

 
 

 

DCS | Claymore Dividend & Income Fund

Questions & Answers|
 
Claymore Dividend & Income Fund (the “Fund”) is managed by a team of seasoned professionals at Manning & Napier Advisors, Inc. (“Manning & Napier”). This investment team includes Jeffrey S. Coons, PHD, CFA, Co-Director of Research; Jack Bauer, Managing Director of Fixed Income; Christopher Petrosino, CFA, Senior Analyst, Quantitative Strategies Group; and, Keith Harwood, Senior Fixed Income Analyst. In the following discussion, members of the team provide insight into the Fund’s strategies and results during the six-month period ended April 30, 2010.
 
 

1. Please describe the Fund’s objective and management strategies.

The Fund’s investment objective is to provide a high level of current income, with a secondary objective of capital appreciation.
 
Under normal market conditions, the Fund will invest at least 80% of its total assets in dividend-paying or other income-producing securities, and at least 65% of the Fund’s total assets will consist of investments in dividend-paying common and preferred stocks. The Fund’s investments are focused on securities considered by Manning & Napier to be undervalued or inexpensive relative to other investments.
 
The Fund may invest up to 40% of its total assets, with the percentage measured at the time of the investment, in U.S. dollar-denominated securities of foreign issuers. There is no minimum credit rating for preferred stocks and debt securities in which the Fund may invest, although the Fund will not invest more than 10% of its total assets in non-convertible fixed-income securities of below investment-grade quality. In addition, the Fund may purchase and sell certain derivative instruments, including, but not limited to, options, futures contracts and options on futures contracts, for various portfolio management purposes including to seek income or capital appreciation, facilitate portfolio management and help reduce risk.
 
Manning & Napier’s process is opportunistic and is characterized by the shift of investment dollars toward areas of the market that are generally believed by Manning & Napier to be undervalued and away from areas that are overvalued. In order to be truly opportunistic, it is important to take a global view of investment opportunities, since roughly 75% of potential investment opportunities are located outside the U.S.
 
Equities are selected for the portfolio using a highly disciplined approach to identifying companies with substantial free cash flow relative to their market capitalization. Free cash flow is defined as earnings before taxes, depreciation and amortization, but after capital expenditures. Recognizing that companies have many choices of how to use their free cash flow, Manning & Napier emphasizes companies that pay a substantial portion of it back to shareholders in the form of dividends, unlocking shareholder value. This means that the equity portion of the Fund’s portfolio should generally have a higher dividend yield than the overall stock market. Also important is that a company under consideration has a low estimated risk of bankruptcy, in other words, a financially sound balance sheet.

Free cash flow yield is the amount of free cash flow per share divided by the market price of stock. When a company’s stock price is low relative to free cash flow, the free cash flow yield is high. If a stock’s price appreciates sharply without a major increase in free cash flow, thus causing the free cash flow yield to go lower than is considered desirable by Manning & Napier, that company would be screened out of the portfolio upon a rebal-ance. This discipline has a tendency to move the portfolio into more undervalued sectors of the market and away from higher risk sectors where the free cash flow yield is considered too low. It is a process that continuously moves the portfolio toward companies that are very solid, that are paying dividends, and where the stock price has not appreciated dramatically relative to free cash flow.
 
Historically, this strategy tends to produce a portfolio that holds up well in down markets and participates nicely in up markets, providing good balance in a wide variety of market conditions. However, when a market moves into a speculative phase, this strategy will typically underperform more momentum-driven indices like the S&P 500 Index. Historical data indicates that this approach has provided attractive returns over a full market cycle; however, past performance is no guarantee of future results and there is no guarantee that the perceived fair value of any security will be realized.
 
The portfolio is evaluated on a continuous basis and changes are made as necessary to ensure that all holdings are consistent with Manning & Napier’s definition of value. Once a year, generally in April, near the middle of the Fund’s fiscal year, there is a major rebalancing that not only evaluates all the holdings in the portfolio but also seeks to identify new investments that have become attractive based on Manning & Napier’s screening criteria. As part of the rebalancing process, all securities listed on major U.S. exchanges are screened using a quantitative discipline that focuses on four key criteria that Manning & Napier believes are good indicators of value: 1) high free cash flow yield; 2) good solvency, with low estimated bankruptcy risk; 3) adequate capitalization for consistent liquidity; 4) dividend yield above the average of the Standard & Poor’s 500 Index (the “S&P 500”). This process generally produces 100 to 150 names that become candidates for inclusion in the Fund’s portfolio. This process is useful in identifying emerging opportunities; Manning & Napier has found that, over time, the market begins to recognize the qualities of these stocks, and their valuations begin to rise. In the course of the rebalancing, companies in the portfolio that no longer meet the valuation criteria described previously are generally eliminated
 
Semiannual Report | April 30, 2010 | 5

 
 

 


DCS | Claymore Dividend & Income Fund | Questions & Answers continued
 
and replaced with other companies that meet the criteria described by these screens. The result of this process is that most of the changes in the portfolio take place at the time of rebal-ancing, although continuous analysis may result in modest changes throughout the year.

The strategy for the fixed income portion of the portfolio, which is approximately 20% of the Fund’s total assets, is a bottom-up, fundamentally-driven approach that seeks to invest in high quality companies that generate good cash flow and that Manning & Napier feel have good prospects. Bond investments may include securities with yields that seem high relative to their prospects, often because the issuing companies are out of favor. In the fixed income portion of the portfolio, various sectors, such as treasury securities, corporate bonds, mortgage-backed securities, and non-U.S. based bonds will be emphasized, depending on the relative value offered by each. In selecting bonds, the research of Manning & Napier’s 30-plus team of industry specialists is a significant factor, as they use their disciplined approach to evaluating company and industry fundamentals to assist the credit analysts in identifying companies that meet the value-oriented total return criteria for selecting bond investments. The goal is always to generate an attractive level of income, while taking only the level of risk that is warranted by the expected return.
 

2. Please tell us about the economic and market environment over the last six months.

The economic recovery that began in the second half of 2009 appeared to solidify and strengthen in the first few months of 2010. The early stages of the recovery were driven mainly by monetary and fiscal stimulus and an upturn in the inventory cycle. More recently, activity appears to be more sustainable, with improving conditions in the labor market, firming aggregate demand and reviving confidence. In late April, the Bureau of Economic Analysis made a preliminary announcement that real gross domestic product expanded at an annual rate of 3.2% in the first quarter of 2010, and most estimates call for growth in this same range for the remainder of the year.
 
During the six months from October 31, 2009, through April 30, 2010, the recovery in the equity market that began in the first quarter of 2009 continued. The Standard & Poor’s 500 Index, which is generally regarded as a good indicator of the broad U.S. stock market, returned 15.66% for the six-month period. Return of the Russell 1000 Value Index, which is the Fund’s main benchmark, was 16.77%.
 
Credit markets also continued to strengthen, with returns from high-yield bonds much higher than for investment-grade bonds, as investors demonstrated an increasing appetite for risk. Return of the Barclays U.S. Aggregate Bond Index (the “Barclays Aggregate”), which measures return of the U.S. bond market as a whole, was 2.54%. Return of the Merrill Lynch High Yield Master II Index, which measures performance of the high-yield bond market, was 11.65% for the six months ended April 30, 2010.
 
This was a challenging period for the Fund’s style of investing. In general, lower quality stocks, based on criteria such as Standard & Poor’s ratings for earnings growth and stability, performed better than higher quality issues. Also, stocks with lower dividend yields performed better than higher-yielding stocks. Stocks in the financial sector performed very well, after experiencing extreme weakness in 2008 and early 2009. The financial sector has a large allocation within both the S&P 500 and the Russell 1000 Value indices but has minimal representation in the Fund because few stocks in the sector meet Manning & Napier’s selection criteria. The strength of the financial sector was a major reason for the Fund’s modest underperformance relative to the benchmark over the six months ended April 30, 2010.
 

3. How did the Fund perform in this environment?

All Fund returns cited—whether based on net asset value (“NAV”) or market price—assume the reinvestment of all distributions. For the six-month period ending April 30, 2010, the Fund generated a total return based on market price of 4.24% and a return of 15.09% based on NAV. As of April 30, 2010, the Fund’s market price of $14.50 represented a discount of 13.28% to NAV of $16.72. As of October 31, 2009, the Fund’s market price of $14.25 represented a discount of 4.10% to NAV of $14.86.
 
The market value of the Fund’s shares fluctuates from time to time, and it may be higher or lower than the Fund’s NAV. The current discount to NAV provides an opportunity for investors to purchase shares of the Fund at prices below the market value of the securities in the underlying portfolio.
 

 4. What were the major investment decisions that affected the Fund’s performance over this six-month period?

The Fund’s position in the materials sector contributed positively to performance. Holdings in this sector that performed especially well include BHP Billiton Limited (not held in the portfolio at period end), a diversified natural resources company, and Rio Tinto PLC (not held in the portfolio at period end), which is engaged in metal and mineral production. Other sectors that also contributed positively to performance were industrials, consumer staples, and energy. Some positions that did well in those sectors include Emerson Electric Co., a diversified global technology company (0.9% of long-term investments); PepsiCo, Inc., a global food, snack and beverage company (2.6% of long-term investments); and Chevron Corp., an integrated energy company (3.2% of long-term investments). While most of the Fund’s positions had positive returns in a fairly strong market environment, names that detracted slightly from performance include Repsol YPF SA, ADR, an integrated oil and gas company based in Spain
 
| Semiannual Report | April 30, 2010
 
 
 

 


DCS | Claymore Dividend & Income Fund | Questions & Answers continued
 
(0.6% of long-term investments); Taiwan Semiconductor Manufacturing Co. Ltd. (ADR), a manufacturer of integrated circuits (1.3% of long-term investments); and Hellenic Telecommunications Organization S.A. (ADR), a provider of telecommunications and related services in Greece and other nations in eastern Europe (not held in portfolio at period end).
 
In early 2010, there was evidence that investors were becoming increasingly comfortable with the concept of a strong cyclical recovery, with the result that there was considerable strength in economically sensitive sectors such as materials, consumer discretionary and industrials. Many of the investments that made the strongest contributions to performance over the six-month period ended April 30, 2010, are no longer in the portfolio, and that illustrates one of the strengths of Manning & Napier’s stock selection process. When a stock’s price appreciates to the point that the free cash flow yield is below the specified hurdle rate, it is sold and replaced by a stock that meets the criteria for value at the rebalance date.

The Fixed Income portion of the portfolio outperformed the Barclays Aggregate due to the portfolio’s higher exposure to corporate bonds. As mentioned earlier, credit markets strengthened over the period. Corporate yield spreads continued to contract as investor risk appetite increased and alternative fixed income sectors, such as U.S. Treasury and agency securities and mortgages, offered little yield.


 5. What changes were made in the recent portfolio rebalance?

The most notable change was a reduction in the weight of the materials sector, which was reduced from approximately 8% at the end of March to approximately 3% at the end of April. This change was made because several fairly large holdings experienced significant appreciation, contributing to the Fund’s performance as noted above. Manning & Napier believes that these stocks moved up in anticipation of increasing demand as world economies improve; the question now is whether that demand will be sustainable.

The Fund’s position in the consumer staples sector was increased, with the addition of retailer Wal-Mart Stores, Inc. (2.3% of long-term investments) and The Procter & Gamble Co. (2.3% of long-term investments), which produces and markets branded consumer packaged goods. Both of these are high quality companies with good dividend yields and strong free cash flow. Because holdings are weighted by market capitalization, and these are very large companies, these additions account for a significant portion of the increase in the consumer staples sector.

The U.S. versus international positioning was not changed significantly. Approximately 24% of the portfolio is invested in companies headquartered outside the U.S., mainly in developed markets.


 6. Please discuss the Fund’s leverage strategy and how it has affected performance.

The Fund utilizes leverage (borrowing) as part of its investment strategy, to finance the purchase of additional securities that provide increased income and potentially greater appreciation potential to common shareholders than could be achieved from an unleveraged portfolio. During the six months ended April 30, 2010, the leverage contributed positively to performance, since the portfolio’s return was greater than the cost of leverage.

In the past, the Fund’s leverage had been achieved through the issuance of Auction Market Preferred Shares (“AMPSSM”). AMPS holders received a dividend that was reset typically every seven or 28 days, depending on the series. In August 2009, the Fund obtained a new financing facility through BNP Paribas, a leading European bank. Since that time, the Fund has redeemed all of its AMPS, with the redemption financed in part by the proceeds of this credit facility. As of April 30, 2010, the Fund’s outstanding leverage was $33 million of debt via the credit facility.
 
Manning & Napier’s leverage strategy is to adjust the amount of leverage based on the market environment, reducing leverage when there appears to be greater risk in the market and increasing leverage when appropriate to take advantage of attractive investment opportunities in weaker markets.
 
There is no guarantee that the Fund’s leverage strategy will be successful, and the Fund’s use of leverage may cause the Fund’s NAV and market price of common shares to be more volatile.
 

 7. What is the outlook for the economy and the securities markets in the coming months?

Manning & Napier believes that economic growth in the U.S. and worldwide may be rather sluggish following the rebound from the credit crisis lows in economic activity. With heavy debt burdens faced by much of the developed world’s consumers and governments and capacity utilization around the developed world near 70%, it’s hard to make the case for high demand. The U.S. equity market has moved up impressively since it began to recover from multi-decade lows more than a year ago. Now, there is an increasing sense that investor sentiment may be overly positive based on the near-term potential for growth.
 
Given this rather moderate outlook for growth, Manning & Napier believes that some of the most rewarding investments are likely to be in good quality companies that derive a significant portion of their revenue from exports to the growth areas of the world. Of the seven billion people in the world, only one billion
 
Semiannual Report | April 30, 2010 | 7
 
 
 

 

DCS | Claymore Dividend & Income Fund | Questions & Answers continued
 
are in the developed nations. An emerging middle class in many of these developing nations, especially in Asia, will create demand for small ticket consumer staples, which may provide these products with an opportunity for sustained moderate growth.
 
In addition to disciplined investment strategies, many economic, valuation, and liquidity indicators are signaling that opportunities in equities remain favorable. In the fixed income markets, both investment grade and below investment grade corporate bonds remain relatively attractive.


 Index Definitions:

Indices are unmanaged and it is not possible to invest directly in an index.
 
S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Russell 1000 Value Index measures performance of companies with lower price-to-book ratios and lower forecasted growth values than the overall market.
 
The Barclays Capital US Aggregate Bond Index covers the U.S. dollar-denominated, investment-grade, fixed rate, taxable bond market of SEC-registered securities. The Index includes bonds from the Treasury, government-related, corporate, mortgage-backed securities (agency fixed-rate and hybrid ARM passthroughs), asset-backed securities and collateralized mortgage-backed securities sectors.
 
Merrill Lynch High Yield Master II Index is a commonly used benchmark index for high yield corporate bonds. It is a measure of the broad high yield market.
 

 DCS Risks and Other Considerations

The views expressed in this report reflect those of the Portfolio Managers and Claymore only through the report period as stated on the cover. These views are subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any kind. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass. There can be no assurance that the Fund will achieve its investment objectives. The value of the Fund will fluctuate with the value of the underlying securities. Historically, closed-end funds often trade at a discount to their net asset value. Past performance does not guarantee future results.

Not a Complete Investment Program.The Fund is intended for investors seeking a high level of current income and capital appreciation over the long term. The Fund is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. An investment in the Common Shares of the Fund should not be considered a complete investment program. Each Common Shareholder should take into account the Fund’s investment objectives as well as the Common Shareholder’s other investments when considering an investment in the Fund.

Equity Risk. Substantially all of the Fund’s assets will be invested in common stocks and preferred equity securities, and therefore a principal risk of investing in the Fund is equity risk. Equity risk is the risk that securities held by the Fund will fall due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate, and the particular circumstances and performance of particular companies whose securities the Fund holds. For example, an adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by the Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks and other equity securities held by the Fund. In addition, common stock of an issuer in the Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Common equity securities in which the Fund will invest are structurally subordinated to preferred stocks, bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject to greater dividend risk than preferred stocks or debt instruments of such issuers. In addition, while broad market measures of commons stocks have historically generated higher average returns than fixed income securities, common stocks have also experienced significantly more volatility in those returns.

| Semiannual Report | April 30, 2010
 
 
 

 
 
DCS | Claymore Dividend & Income Fund | Questions & Answers continued
 
Preferred Securities Risk.There are special risks associated with investing in preferred securities, including: Deferral. Preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes although it has not yet received such income. Non-Cumulative Dividends. Some preferred stocks are non-cumulative, meaning that the dividends do not accumulate and need not ever be paid. A portion of the portfolio may include investments in non-cumulative preferred securities, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred stock held by the Fund determine not to pay dividends on such stock, the amount of dividends the Fund pays may be adversely affected. There is no assurance that dividends or distributions on non-cumulative preferred stocks in which the Fund invests will be declared or otherwise made payable. Subordination. Preferred securities are subordinated to bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments. Liquidity. Preferred securities may be substantially less liquid than many other securities, such as common stocks or U.S. government securities. Limited Voting Rights. Generally, preferred security holders (such as the Fund) have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may have the right to elect a number of directors to the issuer’s board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights. Special Redemption Rights. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a redemption by the issuer may negatively impact the return of the security held by the Fund.

Income Risk. The income Common Shareholders receive from the Fund is based primarily on the dividends and interest it earns from its investments, which can vary widely over the short- and long term. If prevailing market interest rates drop, distribution rates of the Fund’s portfolio holdings of preferred securities and debt securities may decline which then may adversely affect the Fund’s distributions on Common Shares as well. The Fund’s income also would likely be affected adversely when prevailing short-term interest rates increase and the Fund is utilizing Financial Leverage.
 
“Value Investing” Risk. The Fund focuses its investments on dividend paying or other income producing securities that the Investment Manager believes are undervalued or inexpensive relative to other investments. These types of securities may present risks in addition to the general risks associated with investing in securities. These securities generally are selected on the basis of an issuer’s fundamentals relative to current market price. Such securities are subject to the risk of misestimation of certain fundamental factors. In addition, during certain time periods market dynamics may strongly favor ‘’growth’’ securities of issuers that do not display strong fundamentals relative to market price based upon positive price momentum and other factors. Disciplined adherence to a ‘’value’’ investment mandate during such periods can result in significant underperformance relative to overall market indices and other managed investment vehicles that pursue growth style investments and/or flexible style mandates.

Interest Rate Risk. Interest rate risk is the risk that fixed income securities such as preferred and debt securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of such securities generally will fall. The Fund’s investment in such securities means that the net asset value and market price of the Common Shares will tend to decline if market interest rates rise. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest in lower yielding securities. This is known as call or prepayment risk. Preferred and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem such a security if the issuer can refinance it at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. In typical interest rate environments, prices of fixed income securities with longer maturities generally fluctuate more in response to changes in interest rates than do the prices of fixed income securities with shorter-term maturities. Because the Fund may invest a portion of its assets in fixed-income securities without regard to their maturities, to the extent the Fund invests in fixed income securities with longer maturities, the net asset value and market price of the Common Shares would fluctuate more in response to changes in interest rates than if the Fund were to invest such portion of its assets in shorter-term fixed income securities. Market interest rates for investment grade fixed income securities in which the Fund may invest have recently declined significantly below the recent historical average rates for such securities. This decline may have increased the risk that these rates will rise in the future (which would cause the value of the Fund’s net assets to decline) and the degree to which asset values may decline in such events.
 
Inflation Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Common Shares and distributions thereon can decline. In addition, during any periods of rising inflation, the interest or dividend rates payable by the Fund on any Financial Leverage the Fund may have issued would likely increase, which would tend to further returns to holders of Common Shares.
 
Lower Grade Securities. The Fund may invest up to 10% of its total assets in non-convertible fixed income securities of below investment grade quality. The prices of these lower grade securities are more sensitive to negative developments, such as a decline in the issuer’s revenues or a general economic downturn, than are the prices of higher-grade securities. Securities of below investment grade quality are predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default and are commonly referred to as “junk bonds”.
 
Foreign Securities.The Fund may invest in U.S. dollar-denominated securities of foreign issuers, including, but not limited to American Depositary Receipts (“ADRs”). The prices of such U.S. dollar-denominated securities of foreign issuers may be affected by factors not present with securities traded in the U.S. markets, including, political and economic conditions, less stringent regulation and higher volatility. As a result, such securities may be less liquid and more volatile than U.S. securities.
 
Derivatives Risk.The Fund may participate in certain derivative transactions, such as futures contracts, options or swap transactions. Such transactions entail certain execution, market, liquidity, hedging and tax risks. Participation in these markets involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If the Investment Manager’s prediction of movements in the direction of the securities and interest rate markets is inaccurate, the consequences to the Fund may leave the Fund in a worse position than if it had not used such strategies.

Illiquid Securities Risk. The Fund may invest in securities for which there is no readily available trading market or that are otherwise illiquid. It may be difficult to sell such securities at a price representing the fair value and, where registration of such securities is required, a considerable period may elapse between a decision to sell the securities and the time when the Fund would be permitted to sell.

Semiannual Report | April 30, 2010 | 9
 
 
 

 
 
DCS | Claymore Dividend & Income Fund | Questions & Answers continued
 
Fund Distribution Risk. Pursuant to its distribution policy, the Fund intends to make regular quarterly distributions on its Common Shares. In order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment judgment may not dictate such action. In addition, the Fund’s ability to make distributions more frequently than annually from any net realized capital gains by the Fund is subject to the Fund obtaining exemptive relief from the Securities and Exchange Commission, which cannot be assured. To the extent the total quarterly distributions for a year exceed the Fund’s net investment company income and net realized capital gain for that year, the excess will generally constitute a return of the Fund’s capital to its Common Shareholders. Such return of capital distributions generally are tax-free up to the amount of a Common Shareholder’s tax basis in the Common Shares (generally, the amount paid for the Common Shares). In addition, such excess distributions will decrease the Fund’s total assets and may increase the Fund’s expense ratio.
 
Market Discount Risk. Whether investors will realize gains or losses upon the sale of Common Shares of the Fund will depend upon the market price of the Common Shares at the time of sale, which may be less or more than the Fund’s net asset value per Common Share. Since the market price of the Common Shares will be affected by such factors as the relative demand for and supply of the Common Shares in the market, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether the Common Shares will trade at, below or above net asset value or at, below or above the public offering price. Shares of closed-end funds often trade at a discount to their net asset values and the Fund’s Common Shares may trade at such a discount. This risk may be greater for investors expecting to sell their Common Shares of the Fund soon after completion of the public offering. The Common Shares of the Fund were designed primarily for long-term investors, and investors in the Common Shares should not view the Fund as a vehicle for trading purposes.
 
Industry Concentration Risk.The Fund may invest up to 25% of its total assets in the securities of companies principally engaged in a single industry. In the event the Fund makes substantial investments in a single industry, the Fund would become more susceptible to adverse economic or regulatory occurrences affecting that industry.
 
Other Investment Companies. The Fund may invest up to 10% of the Fund’s total assets in securities of other open- or closed-end investment companies that invest primarily in securities of the types in which the Fund may invest directly. The Fund expects that these investments will be primarily in exchange traded funds. As a stockholder in an investment company, the Fund will bear its ratable share of that investment company’s expenses, and would remain subject to payment of the Fund’s investment management fees with respect to the assets so invested. Common Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks.

Non-Diversified Status.The Fund is classified as a “non-diversified” investment company under the 1940 Act, which means the Fund is not limited by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer. As a non-diversified investment company, the Fund may invest in the securities of individual issuers to a greater degree than a diversified investment company. However, the Fund intends to conduct its operations so as to qualify as a regulated investment company for purposes of the Code, which generally will relieve the Fund of any liability for U.S. federal income tax to the extent its earnings are distributed to shareholders. To so qualify, among other requirements, the Fund must comply with the diversification requirements of the Code applicable to regulated investment companies. See “Taxation.” Because the Fund, as a non-diversified investment company, may invest in a smaller number of individual issuers than a diversified investment company, the Fund may be more vulnerable to events affecting a single issuer and therefore, subject to greater volatility than a fund that is more broadly diversified. Accordingly, an investment in the Fund may present greater risk to an investor than an investment in a diversified company.

Financial Leverage. Although the use of Financial Leverage by the Fund may create an opportunity for increased net income and capital appreciation for the Common Shares, it also results in additional risks and can magnify the effect of any losses. If the income and gains earned on securities purchased with Financial Leverage proceeds are greater than the cost of Financial Leverage, the Fund’s return will be greater than if Financial Leverage had not been used. Conversely, if the income or gain from the securities purchased with such proceeds does not cover the cost of Financial Leverage, the return to the Fund will be less than if Financial Leverage had not been used. There is no assurance that a leveraging strategy will be successful. Financial Leverage involves risks and special considerations for shareholders including: • 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; • the risk that fluctuations in interest rates on borrowings and short-term debt or in the dividend rates on any Financial Leverage that the Fund must pay will reduce the return to the holders of Common Shares; and • the effect of Financial Leverage in a declining market, which is likely to cause a greater decline in the net asset value of the Common Shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the Common Shares. It is also possible that the Fund will be required to sell assets, possibly at a loss, in order to redeem or meet payment obligations on any leverage. Such a sale would reduce the Fund’s net asset value and also make it difficult for the net asset value to recover. The Fund in its best judgment nevertheless may determine to continue to use Financial Leverage if it expects that the benefits to the Fund’s shareholders of maintaining the leveraged position will out-weigh the current reduced return. The Fund’s use of Financial Leverage may also impair the ability of the Fund to maintain its qualification for federal income tax purposes as a regulated investment company.

Management Risk.The Investment Manager, in acting as investment manager of the Fund’s portfolio securities, will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results
 
Recent Market Developments. Following the worldwide market turmoil experienced in late 2008, governmental and regulatory bodies have taken action in an attempt to stabilize the financial markets. It is unclear what effect these programs, and their eventual termination, may have on the markets for credit securities in which the fund may invest over the near- and long-term. Such programs may have positive or negative effects on the liquidity, valuation and performance of the Fund’s portfolio holdings.
 
Legislation Risk. Legislation may be enacted that could negatively affect the assets of the Fund or the issuers of such assets. Legislation or regulation may also change the way in which the Fund itself is regulated.
 
Market Disruption and Geopolitical Risk. Terrorist attacks, the war in Iraq and its aftermath and other geopolitical events around the world have led to, and may in the future lead to, increased short-term market volatility and may have long-term effects on the U.S. and world economies and markets and may cause further economic uncertainties or deterioration in the U.S. and worldwide. Similar events in the future or other disruptions of financial markets could affect interest rates, securities exchanges, auctions, secondary trading, rating, credit risk, inflation and other factors relating to the Common Shares.
 
Anti-takeover Provisions. The Fund’s Governing Documents include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund.
 
Please see www.claymore.com/dcs for a more detailed discussion about Fund risks and considerations.

10 | Semiannual Report | April 30, 2010
 
 
 

 
 
DCS | Claymore Dividend & Income Fund

Fund Summary|As of April 30, 2010 (unaudited)

Fund Statistics
           
Share Price
        $ 14.50  
Common Share Net Asset Value
        $ 16.72  
Premium/Discount to NAV
          -13.28 %
Net Assets Applicable to Common Shares ($000)
        $ 83,507  
Total Returns
             
(Inception 1/27/04)
 
Market
   
NAV
 
Six Month
    4.24 %     15.09 %
One Year
    65.17 %     50.91 %
Three Year - average annual
    -45.22 %     -45.12 %
Five Year - average annual
    -25.77 %     -25.76 %
Since Inception - average annual
    -21.34 %     -19.67 %
           
% of Long-Term
 
Sector Breakdown*
         
Investments
 
Consumer Staples
            19.9 %
Health Care
            17.8 %
Energy
            16.7 %
Industrials
            11.4 %
Financials
            10.5 %
Consumer Discretionary
            9.3 %
Information Technology
            7.5 %
Materials
            2.7 %
Telecommunication Services
            2.2 %
Utilities
            2.0 %
           
% of Long-Term
 
Country Breakdown
         
Investments
 
United States
            76.3 %
United Kingdom
            8.7 %
France
            2.6 %
Taiwan
            1.6 %
Cayman Islands
            1.4 %
Switzerland
            1.4 %
Norway
            1.0 %
Japan
            0.9 %
Canada
            0.9 %
Spain
            0.6 %
Finland
            0.6 %
Netherlands
            0.6 %
Ireland
            0.5 %
Sweden
            0.5 %
South Africa
            0.4 %
Luxembourg
            0.4 %
Chile
            0.4 %
Mexico
            0.2 %
Germany
            0.2 %
Brazil
            0.2 %
Philippines
            0.2 %
Israel
            0.1 %
Belgium
            0.1 %
Hungary
            0.1 %
New Zealand
            0.1 %
Past performance does not guarantee future results. All portfolio data is subject to change daily. For
more current information, please visit www.claymore.com/dcs. The above summaries are provided for
informational purposes only and should not be viewed as recommendations.
* Securities are classified by sectors that represent broad groupings of related industries.

   
% of Long-Term
 
Top Ten Issuers
 
Investments
 
Chevron Corp.
    3.2 %
BP PLC
    3.2 %
Johnson & Johnson
    3.1 %
Intel Corp.
    3.0 %
Coca-Cola Co. (The)
    2.9 %
Pfizer, Inc.
    2.6 %
Total SA
    2.6 %
PepsiCo, Inc.
    2.6 %
Exxon Mobil Corp.
    2.3 %
GlaxoSmithKline PLC
    2.3 %

Share Price & NAV Performance*

Portfolio Composition (% of Total Investments)

Semiannual Report | April 30, 2010 | 11

 
 
 

 

DCS | Claymore Dividend & Income Fund

Portfolio of Investments|April 30, 2010 (unaudited)

Number
         
of Shares
     
Value
 
   
 Total Long-Term Investments - 136.1%
     
   
  Common Stocks - 109.7%
     
   
 Consumer Discretionary - 8.5%
     
  2,186  
 Darden Restaurants, Inc.
  $ 97,824  
  3,115  
 Garmin Ltd. (Cayman Islands)
    116,439  
  4,273  
 Genuine Parts Co.
    182,884  
  2,107  
 Hasbro, Inc.
    80,825  
  46,330  
 Home Depot, Inc. (d)
    1,633,133  
  3,999  
 Leggett & Platt, Inc.
    98,095  
  8,885  
 Limited Brands, Inc.
    238,118  
  9,849  
 Mattel, Inc.
    227,019  
  28,907  
 McDonald’s Corp. (d)
    2,040,545  
  8,507  
 McGraw-Hill Cos., Inc. (The)
    286,856  
  4,906  
 Omnicom Group, Inc.
    209,290  
  15,488  
 Pearson PLC, ADR (United Kingdom)
    247,343  
  1,653  
 Sherwin-Williams Co. (The)
    129,050  
  19,371  
 Thomson Reuters Corp. (Canada) (d)
    695,031  
  960  
 Tupperware Brands Corp.
    49,027  
  2,933  
 VF Corp.
    253,470  
  1,528  
 Whirlpool Corp.
    166,353  
  7,086  
 Yum! Brands, Inc.
    300,588  
            7,051,890  
     
 Consumer Staples - 27.1%
       
  55,627  
 Altria Group, Inc. (d)
    1,178,736  
  9,716  
 Archer-Daniels-Midland Co.
    271,465  
  8,198  
 Avon Products, Inc.
    265,041  
  2,180  
 Brown-Forman Corp. - Class B
    126,832  
  9,012  
 Campbell Soup Co.
    323,170  
  61,714  
 Coca-Cola Co. (The) (d)
    3,298,613  
  7,460  
 Colgate-Palmolive Co. (d)
    627,386  
  1,519  
 Delhaize Group SA, ADR (Belgium)
    125,728  
  16,348  
 Diageo PLC, ADR (United Kingdom) (d)
    1,113,953  
  1,925  
 Emotelladora Andina SA, ADR - Class B (Chile)
    42,100  
  8,236  
 General Mills, Inc.
    586,238  
  6,107  
 Hershey Co. (The)
    287,090  
  8,666  
 HJ Heinz Co.
    406,175  
  2,047  
 Hormel Foods Corp.
    83,436  
  2,537  
 JM Smucker Co. (The)
    154,935  
  10,037  
 Kellogg Co.
    551,433  
  11,390  
 Kimberly-Clark Corp. (d)
    697,751  
  34,419  
 Kraft Foods, Inc. - Class A (d)
    1,018,802  
  3,271  
 Lorillard, Inc.
    256,348  
  3,229  
 McCormick & Co., Inc.
    127,772  
  2,864  
 Molson Coors Brewing Co. - Class B
    127,047  
  44,616  
 PepsiCo, Inc. (d)
    2,909,856  
  38,749  
 Philip Morris International, Inc. (d)
    1,901,801  
  41,681  
 Procter & Gamble Co. (The) (d)
    2,590,891  
  4,422  
 Reynolds American, Inc.
    236,223  
  18,360  
 Sara Lee Corp.
    261,079  
  15,669  
 Sysco Corp.
    494,200  
  47,909  
 Wal-Mart Stores, Inc. (d)
    2,570,318  
            22,634,419  
     
 Energy - 21.5%
       
  68,901  
 BP PLC, ADR (United Kingdom) (d)
    3,593,187  
  44,271  
 Chevron Corp. (d)
    3,605,430  
  39,836  
 ConocoPhillips (d)
    2,357,893  
  39,146  
 Exxon Mobil Corp. (d)
    2,656,056  
  29,443  
 Repsol YPF SA, ADR (Spain) (d)
    690,438  
  12,222  
 Sasol Ltd., ADR (South Africa)
    496,824  
  46,509  
 Statoil ASA, ADR (Norway) (d)
    1,124,123  
  11,495  
 Tenaris SA, ADR (Luxembourg)
    466,812  
  53,890  
 Total SA, ADR (France) (d)
    2,930,538  
            17,921,301  
     
 Financials - 0.8%
       
  1,803  
 Eaton Vance Corp.
    63,538  
  2,757  
 Federated Investors, Inc. - Class B
    66,499  
  14,387  
 Marsh & McLennan Cos., Inc.
    348,453  
  3,811  
 Plum Creek Timber Co., Inc. - REIT
    151,678  
  1,809  
 Waddell & Reed Financial, Inc. - Class A
    67,150  
            697,318  
     
 Health Care - 22.2%
       
  39,030  
 Abbott Laboratories (d)
    1,996,775  
  38,880  
 AstraZeneca PLC, ADR (United Kingdom) (d)
    1,719,662  
  9,387  
 Baxter International, Inc.
    443,254  
  3,654  
 Becton Dickinson and Co.
    279,056  
  3,162  
 Biovail Corp. (Canada)
    53,754  
  46,136  
 Bristol-Myers Squibb Co. (d)
    1,166,780  
  31,013  
 Eli Lilly & Co. (d)
    1,084,525  
  4,535  
 Fresenius Medical Care AG & Co. KGaA, ADR (Germany)
    244,618  
  69,853  
 GlaxoSmithKline PLC, ADR (United Kingdom) (d)
    2,604,818  
  54,946  
 Johnson & Johnson (d)
    3,533,028  
  67,606  
 Merck & Co., Inc. (d)
    2,368,914  
  175,674  
 Pfizer, Inc. (d)
    2,937,269  
  1,739  
 Pharmaceutical Product Development, Inc.
    47,823  
  610  
 Teleflex, Inc.
    37,405  
            18,517,681  
     
 Industrials - 12.5%
       
  18,564  
 3M Co. (d)
    1,646,070  
  34,769  
 ABB Ltd., ADR (Switzerland) (d)
    666,174  
  2,912  
 Avery Dennison Corp.
    113,655  
  4,283  
 Cooper Industries PLC (Ireland)
    210,295  

See notes to financial statements.

12 | Semiannual Report | April 30, 2010
 
 
 

 

DCS | Claymore Dividend & Income Fund | Portfolio of Investments (unaudited) continued

Number
         
of Shares
     
Value
 
   
 Industrials (continued)
     
  3,741  
 Dover Corp.
  $ 195,355  
  785  
 Dun & Bradstreet Corp.
    60,422  
  660  
 Elbit Systems Ltd. (Israel)
    40,689  
  19,819  
 Emerson Electric Co. (d)
    1,035,146  
  5,830  
 General Dynamics Corp.
    445,179  
  15,282  
 Honeywell International, Inc. (d)
    725,437  
  1,467  
 Hubbell, Inc. - Class B
    68,171  
  13,410  
 Illinois Tool Works, Inc. (d)
    685,251  
  2,759  
 ITT Corp.
    153,318  
  19,256  
 Koninklijke Philips Electronics NV (Netherlands) (d)
    641,995  
  5,765  
 Lockheed Martin Corp.
    489,391  
  9,283  
 Masco Corp.
    150,663  
  6,314  
 Northrop Grumman Corp.
    428,279  
  2,157  
 Pentair, Inc.
    77,997  
  5,595  
 Pitney Bowes, Inc.
    142,113  
  5,904  
 Raytheon Co.
    344,203  
  5,474  
 RR Donnelley & Sons Co.
    117,636  
  1,389  
 Snap-On, Inc.
    66,922  
  3,258  
 Tomkins PLC, ADR (United Kingdom)
    49,750  
  8,937  
 Tyco International Ltd. (Switzerland)
    346,666  
  14,313  
 United Technologies Corp. (d)
    1,072,759  
  12,999  
 Waste Management, Inc.
    450,805  
            10,424,341  
     
 Information Technology - 9.4%
       
  13,553  
 Automatic Data Processing, Inc.
    587,658  
  2,099  
 Broadridge Financial Solutions, Inc.
    49,977  
  1,953  
 Harris Corp.
    100,541  
  148,950  
 Intel Corp. (d)
    3,400,529  
  2,094  
 Konami Corp., ADR (Japan)
    40,940  
  5,916  
 Linear Technology Corp.
    177,835  
  3,718  
 National Semiconductor Corp.
    54,952  
  56,034  
 Nokia OYJ, ADR (Finland) (d)
    681,373  
  9,883  
 Paychex, Inc.
    302,420  
  136,782  
 Taiwan Semiconductor Manufacturing Co. Ltd., ADR (Taiwan) (d)
    1,448,521  
  46,944  
 Telefonaktiebolaget LM Ericsson, ADR (Sweden)
    539,856  
  19,309  
 Texas Instruments, Inc.
    502,227  
            7,886,829  
     
 Materials - 2.7%
       
  2,915  
 Bemis Co., Inc.
    88,645  
  500  
 Compass Minerals International, Inc.
    37,655  
  12,823  
 CRH PLC, ADR (Ireland) (d)
    366,610  
  24,448  
 EI Du Pont de Nemours & Co. (d)
    974,008  
  889  
 Greif, Inc. - Class A
    52,611  
  1,905  
 International Flavors & Fragrances, Inc.
    95,421  
  2,551  
 MeadWestvaco Corp.
    69,311  
  1,572  
 Packaging Corp. of America
      38,876  
  4,380  
 PPG Industries, Inc.
      308,221  
  2,473  
 RPM International, Inc.
      54,604  
  2,456  
 Sealed Air Corp.
      52,804  
  2,634  
 Sonoco Products Co.
      87,264  
  1,499  
 Valspar Corp.
      46,949  
              2,272,979  
     
 Telecommunication Services - 3.1%
         
  1,969  
 Cellcom Israel Ltd. (Israel)
      59,661  
  19,048  
 Chunghwa Telecom Co. Ltd., ADR (Taiwan)
      371,817  
  5,207  
 Magyar Telekom Telecommunications PLC, ADR (Hungary)
      92,372  
  67,523  
 NTT DoCoMo, Inc., ADR (Japan) (d)
      1,047,282  
  4,011  
 Partner Communications Co. Ltd., ADR (Israel)
      78,776  
  3,937  
 Philippine Long Distance Telephone Co., ADR (Philippines)
      221,417  
  9,117  
 Rogers Communications, Inc. - Class B (Canada)
      324,656  
  9,903  
 Telecom Corp. of New Zealand Ltd., ADR (New Zealand)
      77,540  
  18,467  
 Telefonos de Mexico SAB de CV, ADR (Mexico)
      283,468  
              2,556,989  
     
 Utilities - 1.9%
         
  2,761  
 Cia de Saneamento Basico do Estado de Sao Paulo, ADR (Brazil)
      108,645  
  7,640  
 Cia Energetica de Minas Gerais, ADR (Brazil)
      123,378  
  2,402  
 DPL, Inc.
      67,688  
  4,136  
 Empresa Nacional de Electricidad SA, ADR (Chile)
      192,117  
  9,872  
 Enersis SA, ADR (Chile)
      196,354  
  9,977  
 Exelon Corp.
      434,898  
  13,388  
 Public Service Enterprise Group, Inc.
      430,156  
  1,637  
 UGI Corp.
      45,001  
              1,598,237  
     
 Total Common Stocks - 109.7%
         
     
 (Cost $79,859,127)
      91,561,984  
     
 Preferred Stocks - 1.7%
         
     
 Financials - 1.7%
         
  204,504  
 Scottish Re Group Ltd., 7.250% (Cayman Islands) (b)
         
     
 (Cost $5,096,600)
      1,431,528  
     
 Convertible Preferred Stocks - 1.5%
         
     
 Financials - 1.5%
         
  342  
 Fannie Mae, 5.375%
         
     
 (Cost $33,154,000)
      1,282,500  
Principal
   
Optional
       
Amount
   
Call Provisions
 
Value
 
     
 Corporate Bonds - 23.0%
         
     
 Consumer Discretionary - 4.2%
         
$ 400,000  
 British Sky Broadcasting Group PLC, BBB+, 9.500%, 11/15/18
         
     
 (United Kingdom) (a)
N/A
    520,605  
  394,000  
 Comcast Corp., BBB+, 6.550%, 7/1/39
N/A
    418,319  

See notes to financial statements.

Semiannual Report | April 30, 2010 | 13
 
 
 

 

DCS | Claymore Dividend & Income Fund | Portfolio of Investments (unaudited) continued

Principal
Amount
   
Optional
Call Provisions
 
Value
 
   
  Consumer Discretionary (continued)
       
$ 410,000  
  Fortune Brands, Inc., BBB-, 6.625%, 7/15/28
N/A   $ 412,105  
  394,000  
  Home Depot, Inc., BBB+, 5.875%, 12/16/36
N/A     395,556  
  404,000  
  International Game Technology, BBB, 7.500%, 6/15/19
N/A     471,200  
  399,000  
  Kohl’s Corp., BBB+, 6.875%, 12/15/37
N/A     459,186  
  265,000  
  Time Warner, Inc., BBB, 7.700%, 5/1/32
N/A     311,867  
  397,000  
  Walt Disney Co. (The), A, 7.000%, 3/1/32
N/A     482,946  
              3,471,784  
     
  Energy - 1.3%
         
  405,000  
  Anadarko Petroleum Corp., BBB-, 8.700%, 3/15/19
N/A     510,015  
  411,000  
  Weatherford International Ltd., BBB, 9.625%, 3/1/19 (Switzerland)
N/A     532,386  
              1,042,401  
     
  Financials - 10.0%
         
  137,000  
  American Express Co., BB, 6.800%, 9/1/66 (b)
9/1/16@ 100.00
    135,973  
  399,000  
  American Express Co., BBB+, 8.125%, 5/20/19
N/A     489,508  
  398,000  
  American International Group, Inc., A-, 5.375%, 10/18/11
N/A      406,473  
  301,000  
  AvalonBay Communities, Inc., BBB+, 6.100%, 3/15/20
N/A     326,812  
  198,000  
  Bank of America Corp., BB, 8.000%, 12/31/49 (b)
1/30/18@ 100.00
    199,605  
  301,000  
  Boston Properties LP, A-, 5.875%, 10/15/19
N/A     319,778  
  301,000  
  Camden Property Trust, BBB, 5.700%, 5/15/17
N/A     300,047  
  260,000  
  Caterpillar Financial Services Corp., A, 7.150%, 2/15/19
N/A     311,149  
  401,000  
  Citigroup, Inc., A, 8.500%, 5/22/19
N/A     474,165  
  400,000  
  Coffeyville Resources LLC/Coffeyville Finance, Inc., BB-,
         
     
  9.000%, 4/1/15 (a)
4/1/12@ 106.75
    410,000  
  300,000  
  Fidelity National Financial, Inc., BBB-, 6.600%, 5/15/17
N/A     300,294  
  199,000  
  GE Capital Trust I, A+, 6.375%, 11/15/67 (b)
11/15/17@ 100.00
    191,786  
  397,000  
  General Electric Capital Corp., AA+, 6.750%, 3/15/32
N/A     434,238  
  200,000  
  Goldman Sachs Capital II, BBB, 5.793%, 12/29/49 (b)
6/1/12@ 100.00
    159,250  
  404,000  
  Goldman Sachs Group, Inc. (The), A-, 6.750%, 10/1/2037
N/A     392,923  
  301,000  
  HCP, Inc., BBB, 6.700%, 1/30/18
N/A     314,996  
  269,000  
  Hughes Network Systems LLC/HNS Finance Corp., B,
         
     
  9.500%, 4/15/14
6/4/10@ 104.75
    278,415  
  202,000  
  JPMorgan Chase & Co., BBB+, 7.900%, 4/29/49 (b)
4/30/18@ 100.00
    212,857  
  396,000  
  JPMorgan Chase & Co., A+, 6.300%, 4/23/19
N/A     440,234  
  405,000  
  Manufacturers & Traders Trust Co., A-, 6.625%, 12/4/17
N/A     441,201  
  400,000  
  Merrill Lynch & Co., Inc., A-, 6.110%, 1/29/37
N/A     371,125  
  400,000  
  Morgan Stanley, A, 5.550%, 4/27/17
N/A     402,500  
  405,000  
  PNC Bank NA, A, 5.250%, 1/15/17
N/A     420,020  
  298,000  
  Simon Property Group LP, A-, 10.350%, 4/1/19
N/A     386,759  
  202,000  
  Wells Fargo & Co., A-, 7.980%, 3/15/49 (b)
3/15/18@ 100.00
    214,120  
              8,334,228  
     
  Health Care - 2.0%
         
  399,000  
  Aetna, Inc., A-, 6.750%, 12/15/37
N/A     441,181  
  404,000  
  Inverness Medical Innovations, Inc., B-,
         
     
  9.000%, 5/15/16
5/15/13@ 104.50
    413,090  
  399,000  
  UnitedHealth Group, Inc., A-, 6.500%, 6/15/37
N/A     423,023  
  397,000  
  WellPoint, Inc., A-, 5.950%, 12/15/34
N/A     399,273  
              1,676,567  
   
   Industrials - 3.0%
       
  399,000  
   CSX Corp., BBB-, 6.000%, 10/1/36
N/A     409,966  
  400,000  
   Delta Air Lines, Inc., BB-, 9.500%, 9/15/14 (a)
9/15/11@ 107.125
    425,500  
  408,000  
   FedEx Corp., BBB, 8.000%, 1/15/19
N/A     510,275  
  407,000  
   Southwest Airlines Co., BBB, 5.125%, 3/1/17
N/A     404,398  
  274,000  
   Textron, Inc., BBB-, 7.250%, 10/1/19
N/A     301,806  
  405,000  
   Waste Management, Inc., BBB, 7.375%, 3/11/19
N/A     481,537  
              2,533,482  
     
   Information Technology - 0.7%
         
  262,000  
   Corning, Inc., BBB+, 6.625%, 5/15/19
N/A     299,065  
  264,000  
   Oracle Corp., A, 6.125%, 7/8/39
N/A     289,245  
              588,310  
     
   Materials - 0.9%
         
  275,000  
   Alcoa, Inc., BBB-, 6.750%, 7/15/18
N/A     292,094  
  411,000  
   International Paper Co., BBB, 7.500%, 8/15/21
N/A     483,718  
              775,812  
     
   Utilities - 0.9%
         
  401,000  
   Exelon Generation Co. LLC, BBB, 6.200%, 10/1/17
N/A     445,216  
  264,000  
   Southwestern Electric Power Co., BBB, 6.450%, 1/15/19
N/A     294,326  
              739,542  
     
   Total Corporate Bonds - 23.0%
         
     
   (Cost $17,677,003)
      19,162,126  
Number
of Shares
       
Value
 
     
   Limited Partnership - 0.2%
         
     
   Real Estate - 0.2%
         
  400,000  
   Kodiak Funding, LP (c)
         
     
   (Cost $3,516,000)
      192,000  
     
   Total Long-Term Investments - 136.1%
         
     
   (Cost $139,302,730)
      113,630,138  
     
   Short-Term Investments - 2.8%
         
  2,372,916  
   Dreyfus Money Market Bond Fund
         
     
   (Cost $2,372,916)
      2,372,916  
     
   Total Investments - 138.9%
         
     
   (Cost $141,675,646)
      116,003,054  
     
   Other Assets in excess of Liabilities - 0.6%
      503,524  
     
   Borrowings - (39.5%)
      (33,000,000 )
     
   Net Assets Applicable to Common Shares - 100.0%
    $ 83,506,578  

See notes to financial statements.

14 | Semiannual Report | April 30, 2010

 
 

 

DCS | Claymore Dividend & Income Fund | Portfolio of Investments (unaudited) continued
 
ADR - American Depositary Receipt
AG - Stock Corporation
ASA - Stock Company
KGaA - Limited Partnership
LLC - Limited Liability Company
LP - Limited Partnership
NV - Publicly Limited Liability Corporation
PLC - Public Limited Company
REIT - Real Estate Investment Trust
SA - Corporation
SAB de CV - Variable Capital Company

(a)
Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At April 30, 2010, these securities amounted to 1.6% of net assets applicable to Common Shares.
 
(b)
Floating or variable rate security.
 
(c)
Security is valued in accordance with Fair Valuation procedures established in good faith by the Board of Trustees. The total market value of such securities is $192,000 which represents 0.2% of Net Assets Applicable to Common Shares.
 
(d)
All or a portion of these securities were segregated as collateral for the borrowings. As of April 30, 2010, the total amount segregated was $71,037,407.
 
Ratings (unaudited) shown are per Standard & Poor’s; securities classified NR are not rated by Standard & Poor’s.
 
All percentages shown in the Portfolio of Investments are based on Net Assets Applicable to Common Shares unless otherwise noted.

See notes to financial statements.

Semiannual Report | April 30, 2010 | 15
 
 
 

 

DCS | Claymore Dividend & Income Fund

Statement of Assets and Liabilities|April 30, 2010 (unaudited)

Assets
     
   Investments in securities, at value (cost $141,675,646)
  $ 116,003,054  
   Dividends and interest receivable
    445,753  
   Cash
    385,670  
   Other assets
    79,105  
      Total assets
    116,913,582  
Liabilities
       
   Borrowings
    33,000,000  
   Payable for securities purchased
    299,691  
   Advisory fee payable
    74,263  
   Interest due on borrowings
    2,494  
   Administrative fee payable
    2,154  
   Accrued expenses and other liabilities
    28,402  
      Total liabilities
    33,407,004  
Net Assets Applicable to Common Shareholders
  $ 83,506,578  
Composition of Net Assets Applicable to Common Shareholders
       
   Common stock, $.01 par value per share; unlimited number of shares authorized, 4,993,991 shares issued and outstanding
  $ 49,940  
   Additional paid-in capital
    777,393,650  
   Accumulated net unrealized depreciation on investments
    (25,672,592 )
   Accumulated net realized loss on investments, and currency transactions
    (668,620,131 )
   Accumulated undistributed net investment income
    355,711  
Net Assets Applicable to Common Shareholders
  $ 83,506,578  
Net Asset Value Applicable to Common Shareholders
       
   (based on 4,993,991 common shares outstanding)
  $ 16.72  

See notes to financial statements.

16 | Semiannual Report | April 30, 2010
 
 
 

 

DCS | Claymore Dividend & Income Fund

Statement of Operations|For the six months ended April 30, 2010 (unaudited)

Investment Income
           
   Dividends (net of foreign withholding taxes of $70,369)
  $ 2,211,648        
   Interest
    892,154        
      Total income
          $ 3,103,802  
Expenses
               
   Advisory fee
    631,817          
   Professional fees
    137,081          
   Trustees’ fees and expenses
    83,627          
   Printing expenses
    64,638          
   Fund accounting
    29,017          
   Administrative fee
    20,383          
   Custodian fee
    15,913          
   Auction agent fee - preferred shares
    15,178          
   Transfer agent fee
    10,597          
   Insurance expense
    9,122          
   Rating agency fee
    8,652          
   NYSE listing fee
    6,335          
   Miscellaneous
    47,857          
   Interest expense
    190,840          
      Total expenses
            1,271,057  
          Advisory fees waived
            (59,465 )
      Net expenses
            1,211,592  
      Net investment income
            1,892,210  
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions
               
   Net realized gain on:
               
      Investments
            3,708,048  
      Foreign currency transactions
            97  
   Net change in unrealized appreciation on:
               
      Investments
            12,373,378  
      Foreign currency translation
            2  
   Net gain on investments and foreign currency transactions
            16,081,525  
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Operations
            17,973,735  
Distributions to Preferred Shares from
               
   Net investment income
            (126,017 )
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Operations
          $ 17,847,718  

See notes to financial statements.

Semiannual Report | April 30, 2010 | 17
 
 
 

 
 
DCS | Claymore Dividend & Income Fund
 
Statement of Changes in Net Assets
Applicable to Common Shareholders|
   
For the
Six Months Ended
April 30, 2010
(unaudited)
   
For the
Year Ended
October 31, 2009
 
Increase (decrease) in Net Assets Applicable to Common
           
   Shareholders Resulting from Operations
           
   Net investment income
  $ 1,892,210     $ 8,154,646  
   Net realized gain (loss) on investments, redemption - in kind, futures, options and currency transactions
    3,708,145       (440,501,096 )
   Net change in unrealized appreciation on investments, futures, options and currency transactions
    12,373,380       396,803,212  
Distributions to Preferred Shareholders from
               
   Net investment income
    (126,017 )     (1,895,225 )
   Net increase (decrease) in net assets applicable to common shareholders resulting from operations
    17,847,718       (37,438,463 )
Distributions to Common Shareholders
               
   From and in excess of net investment income
    (2,869,249 )     (5,901,925 )
Capital Share Transactions
               
   Cost of common shares repurchased
    (66,354,778 )      
      Total decrease in net assets applicable to common shareholders
    (51,376,309 )     (43,340,388 )
Net Assets
               
   Beginning of period
    134,882,887       178,223,275  
   End of period (including accumulated undistributed net investment income of $355,711 and
               
$ 1,458,767, respectively)
  $ 83,506,578     $ 134,882,887  

See notes to financial statements.

18 | Semiannual Report | April 30, 2010

 
 

 

DCS | Claymore Dividend & Income Fund
Statement of Cash Flows|For the six months ended April 30, 2010 (unaudited)

Cash Flows from Operating Activities:
     
   Net increase in net assets resulting from operations
  $ 17,973,735  
Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to
       
   Net Cash Used in Operating and Investing Activities:
       
   Net change in unrealized appreciation on investments
    (12,373,378 )
   Net realized gain on investments
    (3,708,048 )
   Purchase of long-term investments
    (29,887,914 )
   Proceeds from sale of long-term investments
    60,548,111  
   Amortization of premium and other
    17,358  
   Net sales of short-term investments
    1,871,865  
   Decrease in dividends and interest receivable
    253,121  
   Increase in other assets
    (37,088 )
   Increase in securities purchased payable
    299,691  
   Decrease in advisory fee payable
    (55,652 )
   Decrease in dividends payable - preferred shares
    (6,731 )
   Decrease in administrative fee payable
    (1,981 )
   Decrease in accrued expenses and other liabilities
    (263,704 )
   Decrease in interest expense payable
    (31,423 )
   Decrease in due to custodian payable
    (37,888 )
      Net Cash Provided in Operating and Investing Activities
    34,560,074  
Cash Flows From Financing Activities:
       
   Redemption of auction market preferred shares
    (30,000,000 )
   Distributions to preferred shareholders
    (126,017 )
   Dividends paid to common shareholders
    (2,869,249 )
   Proceeds from borrowings
    3,000,000  
   Cash payment in connection with common shares tendered for repurchase
    (4,179,138 )
      Net Cash Provided by Financing Activities
    (34,174,404 )
   Net increase in cash
    385,670  
Cash at Beginning of Period
     
Cash at End of Period
  $ 385,670  
Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest
  $ 188,346  

See notes to financial statements.

Semiannual Report | April 30, 2010 | 19

 
 

 

DCS | Claymore Dividend & Income Fund

Financial Highlights|
 
 
Per share operating performance for a common share outstanding throughout the period *
 
For the
Six Months Ended
April 30, 2010 (unaudited)
   
For the
Year Ended
October 31, 2009
   
For the
Year Ended
October 31, 2008
   
For the
Year Ended
October 31, 2007
   
For the
Year Ended
October 31, 2006
   
For the
Year Ended
October 31, 2005
 
Net asset value, beginning of period
$
14.86
 
$
19.65
 
$
113.95
 
$
119.55
 
$
103.10
 
$
94.45
 
Income from investment operations
                                   
   Net investment income (a)
 
0.28
   
0.90
   
6.75
   
7.70
   
7.09
   
6.00
 
   Net realized and unrealized gain (loss) on investments, futures and swap transactions
 
1.96
   
(4.83
)
 
(92.50
)
 
(4.30
)
 
18.08
   
10.55
 
   Distributions to Preferred Shareholders
                                   
   From net investment income and return of capital (common share equivalent basis)
 
(0.02
)
 
(0.21
)
 
(2.05
)
 
(2.50
)
 
(2.22
)
 
(1.40
)(h)
      Total from investment operations
 
2.22
   
(4.14
)
 
(87.80
)
 
0.90
   
4.59
   
15.15
 
Distributions to Common Shareholders
                                   
   From and in excess of net investment income
 
(0.36
)
 
(0.65
)
 
(4.73
)(e)  
(6.50
)
 
(6.50
)
 
(6.50
)
   Return of capital
 
   
   
(1.77
)(e)  
   
   
0.00
(i)
      Total distributions to Common Shareholders
 
(0.36
)
 
(0.65
)
 
(6.50
)
 
(6.50
)
 
(6.50
)
 
(6.50