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
Dreman/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)
Nicholas Dalmaso, Chief Legal and Executive Officer
Dreman/Claymore Dividend & Income Fund
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, 2004
Date of reporting period: October 31, 2004
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 is as follows: [Provide full text
of semi-annual report.]
Annual Dreman / Claymore |
Report Dividend & Income Fund | DCS
October 31, 2004 |
[GRAPHIC APPEARS HERE]
[LOGO OF DREMAN VALUE MANAGEMENT, LLC] [LOGO OF CLAYMORE(R)]
www.dremanclaymore.com
your path to the LATEST,
most up-to-date INFORMATION about the
Dreman / Claymore Dividend & Income Fund
[GRAPHICS APPEARS HERE]
The shareholder report you are reading right now is just the beginning of the
story. Online at dremanclaymore.com, you will find:
. Daily, weekly and monthly data on share prices, distributions, dividends
and more
. Monthly portfolio overviews and performance analyses
. Announcements, press releases and special notices
. Fund and advisor contact information
Dreman Value Management and Claymore Securities 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.
DCS | Dreman/Claymore Dividend & Income Fund
Dear Shareholders
[GRAPHIC APPEARS HERE]
David N. Dreman
We are delighted to submit our first annual report to the shareholders of the
Dreman/Claymore Dividend & Income Fund ("DCS"). The Fund's investment objective
is to construct a portfolio of high-quality investments which provide a high
level of current income, with a secondary objective of capital appreciation,
while taking advantage of the new, favorable tax rates on dividend income. In
keeping with the Dreman Value Management approach of seeking to identify
superior companies which we perceive are extremely attractive valuations, we
have constructed a portfolio that we believe is consistent with this objective.
While the Fund's common shares returned - 7.33% based on market price from
inception of the Fund (January 27, 2004) to October 31, 2004, the Fund's return
on net asset value (NAV) increased 2.47%, outperforming the S&P 500 Index which
returned -0.89% during this same period. The Fund's NAV return represents the
portfolio value of the Fund and assumes the reinvestment of the $0.65 per common
share of dividends that were paid during the period. The out-performance of the
Fund can be attributed to our stock selection in the value sector, which
significantly outperformed the S&P 500, as well as the above-average yields from
the securities that produce qualified dividend income for the Fund. As of
October 31, 2004 the portfolio is comprised of 79% common stocks, 18% preferred
securities, and 3% in a combination of corporate bonds, investment companies and
other short-term investments. The top four sectors are financials (41.4%);
consumer staples (23.9%); utilities (14.4%) and energy (10.6%) which together
aggregate approximately 90% of the Fund's portfolio.
The Year in Review
2004 has been a somewhat lackluster year in the equity markets. Numerous factors
have intertwined to increase investor uncertainty as well as cloud the economic
future. These include: the Presidential election, the Federal Reserve move to an
increasing rate environment, oil prices exceeding $50 per barrel, and the
stimulus of tax cuts fading. Looking forward, our wall of worry includes the
future strength of the consumer, the prospects for higher inflation and the
outlook for the dollar.
Little has changed in our economic outlook over the last year or so. We have
been concerned for some time about the growth of the US economy as the huge
amount of stimulus from tax cuts, historically low interest rates, and the
refinancing boom winds down. The unemployment rate, though slowly improving,
will likely remain around 5.4% until job growth exceeds the 200,000 per month
level. The historically low savings rate, driven by a consumer's willingness to
spend, is causing a huge demand for foreign capital that is driving up the
percentage of US debt held by foreigners. We believe that these trends will
impact economic growth in the coming year, but we still believe that the US will
experience reasonable Gross Domestic Product growth over the next several
quarters.
Our emphasis on high-quality, dividend-paying companies, we feel, has positioned
the portfolio to weather our cautious outlook although there never can be any
guarantees. We believe our holdings in the consumer staples and energy sectors
will serve our shareholders well, as they meet this profile.
2005 and Beyond
Although value stocks have performed well since 2000, we expect their
outperformance to continue especially if our cautious outlook materializes.
Higher interest rates, moderate economic and earnings growth and persistently
higher energy prices bode well for the performance of value stocks relative to
growth. Dot.com and Technology stocks remain richly priced relative to their
fundamentals. By contrast, value stocks continue to trade at significant
discounts to the valuation of the S&P 500.
More than ever, we expect the equity markets to have ever increasing volatility.
Some of this concern stems from our view that investors have an increasing
appetite for risk. Google's ("GOOG") recent initial public offering is an
example of how initial skepticism can move to exuberance in a flash without
significant change in the fundamentals. With the overall market valuation high
by historic terms and growth slowing, we would expect investors to reduce their
risk profile. Seeking out strong, well-managed companies where earnings growth
is more predictable and valuations attractive should accomplish that objective.
Our focus on consumer staples, energy and financials would fit the theme of
predictable earnings growth.
Portfolio Discussion
The portfolio's energy holdings were the best performing stocks for the fiscal
year rising more than 25% as a group based on the higher than expected increase
in oil and gas prices. Chevron Texaco (2.2% of the portfolio), ConocoPhilips
(2.3% of the portfolio) and Devon Energy (1% of the portfolio) returned 24%,
27.5% and 25.75%, respectively. Though energy names in general have had strong
price appreciation, the major integrated oil companies
Annual Report | October 31, 2004 | 1
DCS | Dreman/Claymore Dividend & Income Fund | Dear Shareholder Letter continued
and exploration and production companies remain at attractive valuations. It is
our opinion that higher commodity prices are here to stay and many are
underestimating the sustainability of tight supply/demand dynamics occurring
globally. Therefore, we expect major upward revisions in 2005 earnings for the
sector overall.
The financial sector continues to represent the largest weight in the portfolio
at 41%. The exposure is very broad through commercial banks, thrifts & mortgage
finance, REITs and insurance companies. Bank stocks have traditionally been
solid performers for value managers and we will continue to ferret out new ideas
in the industry. The portfolio has been positioned more in the larger banks
because of more attractive valuations, greater diversification across business
lines, more focus on fee businesses such as asset management and exposure to
overall capital markets activity. We anticipate these companies will hold up
much better in a higher interest-rate environment, as they are less reliant on
the consumer mortgage business that could see pressure going forward.
Our biggest positions in this group are Bank of America ("BAC", 1.9% of the
portfolio) and Washington Mutual ("WM", 3.7% of the portfolio). The latter has
experienced a number of challenges as management has tried to pull together
legacy acquisitions. Problems have arisen in their mortgage origination and
mortgage servicing rights business, as hedges have not performed as expected.
These issues have forced WM to guide down earnings expectations several times
thereby disappointing investors. The stock price has reacted accordingly
declining 12.6%. All this said we continue to believe that senior management is
adequately addressing the problems. The valuation continues to be compelling
with a 4.4% yield. WM is considered one of the best retail franchises and could
be viewed as a consolidation opportunity for another major financial
institution. Bank of America has been a stellar performer within the industry
appreciating nearly 9% from 1/27/04 through 10/31/04. They are successfully
integrating their most recent acquisition of Fleet and have a formidable
presence in the northeastern U.S. where much of the existing and expected wealth
growth is occurring. BAC is truly a national banking powerhouse positioned well
to compete with the likes of JPMorganChase and Citigroup with a comparable
valuation.
Fannie Mae ("FNM") and Freddie Mac ("FRE") represent approximately 10% of the
portfolio. Here it has been a tale of two stocks as FRE has performed well
increasing 4.4% while FNM is down 10.7%. Over the past couple of years, these
stocks have endured significant political criticism of their dominance in the
housing market, appropriate regulatory oversight and, more recently, their
handling of sensitive accounting issues. We believe much of the criticism is
overstated. Both companies have above average earnings growth and trade at less
than half the price to earnings multiple of the S&P 500. Consequently, we think
they represent first-rate value at current prices.
Consumer Staples comprise the second highest sector with a weight of
approximately 24% . This group has significantly outperformed the market from
inception to date. The holdings are primarily a varied group of tobacco stocks.
The best performers in the group include; Reynolds American (5.7% of the
portfolio) up 22%; U.S. Tobacco (4.4% of the portfolio) up 21% and Carolina
Group (3.1% of the portfolio) up 10%. The worst performer was Altria Group (9.3%
of the portfolio), down 8%. We believe that the litigation risk facing these
companies has decreased significantly over the last few years. Looking ahead to
the next several quarters, the overhang of court cases should diminish as
decisions come on the Engle, Price/Miles and the Department of Justice RICO
cases currently in the courts. Positive outcomes in one or all cases should move
the stock price of Altria higher. If not, the company has publicly stated that
they will consider breaking the company up to unleash the value. Our estimate of
the breakup value is in the $80 - $85 per share range. In the meantime, the
attractive yield and significant cash flow should support the stock.
In Conclusion
Though we believe significant growth will be challenging in the next 12 months
we continue to seek out new ideas. Our mantra has always been to be
opportunistic and to look to capitalize on the overreactions that inevitably
impact the market. This approach requires patience, fortitude and quality
research in order to react in a timely manner.
We thank all our shareholders for their commitment to the Dreman/Claymore
Dividend & Income Fund and its contrarian style of investing. We look forward to
a prosperous year ahead for all.
Sincerely,
/s/ David N. Dreman
-------------------
David N. Dreman
Founder, Chairman and Chief Investment Officer of Dreman Value Management, LLC
and Trustee of Dreman/Claymore Dividend & Income Fund
December 15, 2004
2 | Annual Report | October 31, 2004
DCS | Dreman/Claymore Dividend & Income Fund
Questions & Answers
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How have the equity markets performed during the period and what do you foresee
for value stocks going forward?
The fiscal year ending October 31, 2004 saw a great divergence in equity market
sentiment. The end of 2003 was the conclusion of a notable yearlong rebound for
equities following three consecutive down years. However, in early 2004 there
was a decided turn in market sentiment, as investor worries over rising energy
costs, the ongoing conflict in Iraq and the possibility of higher interest rates
combined to temper equity returns. The somewhat lackluster performance that
arrived after the beginning of the New Year is not overly surprising given the
impressive returns seen in the market over the final nine months of 2003.
We believe that stocks are positioned to perform reasonably well considering the
potential for rising inflation and the perceived looming increase in interest
rates and sustained higher energy prices. Historically speaking, the effects of
rising rates have their most pronounced effect on stocks at the beginning of a
cycle of increasing rates. Generally, as rates rise, stocks go up as well,
though maybe not at the same pace. In the past, stocks have outperformed when
interest rate increases have slowed down. During the period of 1977-1981,
inflation increased at around 10% per year and stocks increased at about an 8%
rate per year. In 1982, when inflation retreated, stocks returned 22%, making up
for the previous years' underperformance. However, there is no guarantee that
this historical trend will be repeated in future markets.
We are of the opinion that value stocks, particularly those with above-market
dividend yields, will be able to shake the negative headwinds caused by investor
nervousness over the potential for rising interest rates. We would anticipate
that in a rising-rate environment, growth stocks without consistent and
established earning streams would be far more vulnerable. Value stocks have
outperformed the NASDAQ 100 Index by 13% annually since the beginning of 2000,
and we would expect this out-performance to continue.
--------------------------------------------------------------------------------
How have the Fund's net asset value ("NAV") and market share price performed
since inception through October 31, 2004?
The Dreman/Claymore Dividend & Income Fund ("DCS") completed the initial public
offering of its common shares on January 27th of this year and began trading on
the New York Stock Exchange on January 28th. The Fund was initially priced at
$20 per common share and closed the period with a share price of $17.88,
resulting in a total return at market of -7.33%, assuming the reinvestment of
dividends. The Fund's NAV held up much better during this period generating a
total return at NAV of 2.47% which outperformed the -0.89% return of the S&P 500
Index during the same time. The Fund's NAV return represents the portfolio value
of the Fund and assumes the reinvestment of the $0.65 dividends paid to common
shareholders during the period. Much of the increase in the Fund's NAV can be
attributed to the portfolios' exposure to the energy sector which returned more
than 25%. We continue to favor energy based on valuation, future earnings
revisions, and expectations for tighter global oil supply/demand.
The concern over the economy and rising interest rates had a particularly
pronounced effect on closed-end funds; especially those funds that are focused
on dividend and interest income. Even though the Fund has a fixed-income
component, it is focused more on dividend-paying stocks, which have historically
performed better in rising-rate environments than pure fixed-income investments.
Additionally, the Fund sold US Treasury futures contracts in an effort to hedge
the interest rate exposure for a portion of the fixed-income component of its
portfolio. As a result, the Fund's NAV should hold up better in a rising
interest-rate environment as gains on the interest-rate hedge should help reduce
declines on interest rate sensitive assets in the Fund, such as preferred
stocks, bonds, utilities, REITs, etc.
DCS, like many closed-end funds, utilizes leverage as part of its investment
strategy. In executing this strategy, the Fund issued Auction Market Preferred
Shares (AMPS). As a result of this strategy, leveraged funds are typically more
vulnerable to rising interest rates which would have an unfavorable effect on
the performance of common shares. Rising short-term interest rates increase a
fund's
Annual Report | October 31, 2004 | 3
DCS | Dreman/Claymore Dividend & Income Fund | Questions & Answers continued
cost of leverage while rising long-term rates generally place pressure on the
valuation of a fund's long-term, fixed-income holdings. Additionally the use of
leverage will increase the Fund's volatility.
Given the current cost of the Fund's AMPS, the Fund is realizing significant
benefit due to the spread between the return generated by the Fund's portfolio
and the short-term interest rates paid to the preferred holders. Even with a 50
basis point increase in short-term rates, leverage is extremely profitable to
the Fund. We continue to evaluate the possibility of locking in the short-term
rates on the AMPS for longer periods of time.
--------------------------------------------------------------------------------
Are there any specific sectors that you have avoided or over-weighted?
As of October 31, Financials, Consumer Staples, Energy and Utilities represented
the top sectors in the Fund. These four sectors comprise a large majority of the
Fund's equity exposure (approximately 90% of the total investments). Each of
these four sectors has performed admirably, particularly energy, which is up
25%.
We believe that the financials in the portfolio will still do well even with the
possibility of increasing interest rates. Financials do not necessarily
under-perform as a group in an environment of rising interest rates for a couple
of reasons. First, banks are more protected from rising interest rates today
than in the past. This is especially true for the large universal banks that we
hold in the portfolio, where fee income represents a significant portion of
revenues. Also, the large money center banks have a much better ability to hedge
their potential losses associated with a rise in rates. These banks also enjoy
the comfort of a more diversified revenue stream than some of their smaller
brethren. Additionally, rising interest rates allow the banks to charge higher
rates to their customers, thereby helping to offset any potential loss of
business.
Two of the Fund's largest weightings in the financial sector are Freddie Mac
("Freddie") and Fannie Mae ("Fannie"); each has experienced some negative
headline news in the past six months. We believe that the negative press that
has haunted these two names recently is greatly exaggerated. The news that
Freddie had understated earnings was treated very harshly by the press. It is
important to note that earnings were understated, which is a far cry from the
gross overstatement of earnings that plagued such names as WorldCom and Global
Crossing. We are confident in Freddie and Fannie's ability to effectively manage
any exposure to rising interest rates. In fact, because of their aggressive
management of interest-rate risk, Freddie and Fannie have about half the
negative correlation to interest rates than traditional banks. In a rising-rate
environment, Fannie and Freddie often have opportunities to profitably increase
their mortgage portfolio holdings, whereas traditional banks, with less
sophisticated hedging programs, sell down their holdings of mortgages. Trading
at only 9 to 10 times 2004 earnings and with a growth rate of almost 10%, we
feel that both Freddie and Fannie are still compelling investments.
Our holdings in the Consumer Staples sector are currently comprised of tobacco
stocks. Altria Group (9.3% of the portfolio) and Reynolds America (5.7% of the
portfolio) are the two largest positions. As a group, these stocks currently
yield approximately 5%, which is significantly higher than the dividend yield
offered by the overall market and very generous compared to most fixed-income
alternatives. Given their strong current yield, we are content to hold these
stocks as we wait for what we perceive to be their full valuations based on
their fundamentals. We feel that these stocks in particular will remain a viable
source of dividend income for the foreseeable future. However, there is no
guarantee that the dividend yield will continue in the future or that the
perceived intrinsic value of these stocks will be realized.
Utilities are another large component of the Fund. Utilities are often looked
upon in the same light as fixed-income securities and as such are subject to the
same problems as other fixed-income investments in a rising-rate environment.
However, as noted previously, the interest rate exposure for a portion of the
Fund's fixed-income portfolio is hedged. That being said, we are still confident
in their continued ability to remain a stable and growing source of qualified
dividend income for the Fund and its shareholders.
One sector that we are significantly under-weight in is the technology sector.
The technology sector has historically been a low yielding sector and these
stocks often maintain high price to earnings ratios. We feel that the majority
of this sector is fully priced and thus we have avoided most technology
securities.
4 | Annual Report | October 31, 2004
DCS | Dreman/Claymore Dividend & Income Fund
Fund Summary | As of October 31, 2004 (unaudited)
Fund Statistics
----------------------------------------------------
Share Price $ 17.88
Common Share Net Asset Value $ 18.89
Premium/(Discount) to NAV (5.35)%
Net Assets Applicable to
Common Shares ($000) $ 857,388
----------------------------------------------------
Total Returns (non-annualized)
----------------------------------------------------
(Inception 1/27/04) Market NAV
----------------------------------------------------
Six-month 7.13% 5.97%
----------------------------------------------------
Since Inception -7.33% 2.47%
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% of Long-Term
Sector Breakdown Investments
----------------------------------------------------
Financials 41.4%
Consumer Staples 23.9%
Utilities 14.4%
Energy 10.6%
Healthcare 4.4%
Telecommunications 3.0%
Other 2.3%
----------------------------------------------------
% of Long-Term
Industry Breakdown Investments
----------------------------------------------------
Tobacco 23.6%
Commercial Banks 15.3%
Thrifts & Mortgage Finance 14.0%
Electric Utilities 11.2%
Oil & Gas 10.6%
Real Estate & Real Estate Investment Trusts 6.6%
Pharmaceuticals 4.2%
Insurance 3.3%
Other 11.2%
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Share Price & NAV Performance
[CHART APPEARS HERE]
Portfolio Composition (% of Total Investments)
[CHART APPEARS HERE]
Asset Class
-----------------------------
Common Stocks 79.2%
Preferred Securities 18.0%
Investment Companies 1.7%
Corporate Bonds 0.7%
Short-Term Investment 0.4%
-----------------------------
% of Long-Term
Top Ten Issuers Investments
----------------------------------------------------
Altria Group, Inc. 9.3%
Reynolds American, Inc. 5.7%
Freddie Mac 5.7%
US Tobacco, Inc. 4.4%
Fannie Mae 4.2%
Washington Mutual, Inc. 3.7%
Loews Corp.- Carolina Group 3.1%
SBC Communications, Inc. 3.0%
Ameren Corp. 2.8%
Bristol-Myers Squibb Co. 2.7%
----------------------------------------------------
Annual Report | October 31, 2004 | 5
DCS | Dreman/Claymore Dividend & Income Fund
Portfolio of Investments | October 31, 2004
Number of Shares Value
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Long-Term Investments - 148.7%
Common Stocks - 118.2%
Consumer Staples - 35.1%
2,451,700 Altria Group, Inc. (d) $ 118,809,382
1,452,300 Loews Corp. - Carolina Group (d) 39,299,238
1,052,600 Reynolds American, Inc. (d) 72,482,036
166,800 Universal Corp. 7,636,104
1,363,000 US Tobacco, Inc.(d) 56,101,080
404,775 Vector Group Ltd. 6,257,822
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300,585,662
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Energy - 12.1%
203,600 BP Prudhoe Bay Royalty Trust 9,115,172
530,600 ChevronTexaco Corp. 28,153,636
343,100 ConocoPhillips 28,926,761
168,000 Devon Energy Corp. 12,426,960
50,900 Enerplus Resources Fund 1,664,430
201,800 Kerr-McGee Corp. 11,950,596
131,500 Pengrowth Energy Trust - Class A 2,293,360
150,800 San Juan Basin Royalty Trust 4,810,520
240,400 Williams Coal Seam Gas Royalty Trust 4,161,324
-------------------------------------------------------------------------------
103,502,759
-------------------------------------------------------------------------------
Financials - 38.9%
225,000 American Home Mortgage Investment Corp. 6,216,750
180,900 American International Group, Inc. 10,982,439
540,000 Bank of America Corp. 24,186,600
759,100 Fannie Mae (d) 53,250,865
1,087,200 Freddie Mac (d) 72,407,520
338,500 Impac Mortgage Holding, Inc. 7,653,485
724,800 KeyCorp 24,346,032
794,100 Luminent Mortgage Capital, Inc. 9,132,150
1,163,300 MFA Mortgage Investments, Inc. 9,818,252
150,000 New Century Financial Corp. 8,272,500
181,700 Newcastle Investment Corp. 5,561,837
254,000 Novastar Financial, Inc. 10,993,120
233,600 PNC Financial Services Group 12,217,280
415,000 Regions Financial Corp. 14,558,200
448,600 U.S. Bancorp 12,834,446
65,000 Wachovia Corp. 3,198,650
1,232,800 Washington Mutual, Inc. 47,721,688
-------------------------------------------------------------------------------
333,351,814
-------------------------------------------------------------------------------
Number of Shares Value
-------------------------------------------------------------------------------
Healthcare - 6.5%
1,465,000 Bristol-Myers Squibb Co. $ 34,324,950
80,700 Medco Health Solutions, Inc. (c) 2,736,537
328,100 Merck & Co., Inc. 10,272,811
300,000 Pfizer, Inc. 8,685,000
-------------------------------------------------------------------------------
56,019,298
-------------------------------------------------------------------------------
Telecommunications - 4.4%
1,495,000 SBC Communications, Inc. 37,763,700
-------------------------------------------------------------------------------
Utilities - 21.2%
735,600 Ameren Corp. 35,308,800
659,700 Consolidated Edison, Inc. 28,663,965
354,200 DTE Energy Co. 15,127,882
361,900 Empire District Electric Co. 7,541,996
327,200 Great Plains Energy, Inc. 9,321,928
221,400 Hawaiian Electric Industries, Inc. 6,208,056
155,200 KeySpan Corp. 6,200,240
108,300 Nicor, Inc. 4,063,416
525,000 OGE Energy Corp. 13,319,250
374,700 Peoples Energy Corp. 16,029,666
385,100 Pepco Holdings, Inc. 7,936,911
433,800 Progress Energy, Inc. 17,915,940
311,300 Public Service Enterprise Group, Inc. 13,258,267
190,200 Star Gas Partners, L.P. 1,329,498
-------------------------------------------------------------------------------
182,225,815
-------------------------------------------------------------------------------
Total Common Stocks
(Cost $1,013,609,897) 1,013,449,048
-------------------------------------------------------------------------------
Preferred Stocks - 26.9%
Consumer Discretionary - 0.4%
125,000 Westcoast Hospitality Co.,9.500% 3,231,250
-------------------------------------------------------------------------------
Consumer Staples - 0.5%
40,000 Dairy Farmers Of America, 7.875% (a) 4,146,252
-------------------------------------------------------------------------------
Energy - 3.6%
440,000 EL Paso Tennessee Pipe,Series A,8.250% 20,886,272
385,500 Southern Union Co., 7.550% 10,524,150
-------------------------------------------------------------------------------
31,410,422
-------------------------------------------------------------------------------
See notes to financial statements.
6 | Annual Report | October 31, 2004
DCS | Dreman/Claymore Dividend & Income Fund | Portfolio of Investments
continued
Number of Shares Value
-------------------------------------------------------------------------------
Financials - 22.2%
7,000,000 Abbey Natl Cap Trust I, 8.963%, (b) $ 9,674,021
58,000 Abbey National PLC, Series B, ADR, 7.375% 1,578,760
200,000 ABN AMRO Capital Fund Trust VII,6.080% 4,950,000
200,000 Affordable Residential, Series A,8.250% 5,050,000
18,000 Apartment Investment & Management Co., 10.100% 484,380
80,000 Banco Santander, 6.410%, (a) 1,979,680
10,000,000 Barclays Bank PLC,8.550%,(a)(b) 12,315,480
9,000,000 CA Preferred Fund Trust, 7.000% 9,314,622
189,300 Chevy Chase Bank, 8.000% 5,224,680
1,000 Doral Financial Corp., Series B, 8.350% 26,700
8,660 Doral Financial Corp., Series C, 7.250% 229,447
7,042,000 HSBC Capital Funding, LP,10.176%,(a)(b) 10,937,860
12,840,000 HSBC Capital Funding LP,9.547%, (a)(b) 16,257,096
140,500 Lehman Brothers Holdings, Series F,6.500% 3,730,275
2,000,000 Lloyds TSB Bank PLC, 6.900% 2,080,200
80,000 LTC Properties, Inc., Series F,8.000% 2,055,200
21,000 Novastar Financial, Inc., Series C,8.900% 535,500
13,354,000 Old Mutual Cap Funding, 8.000% 13,770,645
400,000 Omega Healthcare, Series D,8.375% 10,400,000
31,000,000 Prudential PLC, 6.500% 30,443,984
6,400,000 RBS Capital Trust B,6.800% 6,599,200
12,000,000 Royal Bank Of Scotland,9.118% 14,769,252
5,750,000 Royal Bank Of Scotland, 7.648%, (b) 6,949,594
16,775,000 UBS Pfd Funding Trust I,8.622%, (b) 20,606,527
-------------------------------------------------------------------------------
189,963,103
-------------------------------------------------------------------------------
Utilities - 0.2%
80,000 Alabama Power Co.,5.300% 1,983,200
-------------------------------------------------------------------------------
Total Preferred Stocks
(Cost $229,600,671) 230,734,227
-------------------------------------------------------------------------------
Investment Companies - 2.6%
116,000 Cohen & Steers REIT and Preferred Income
Fund, Inc. 3,005,560
296,200 Evergreen Income Advantage Fund 4,756,972
232,600 Hyperion Total Return Fund 2,381,824
240,000 Nuveen Preferred and Convertible Income
Fund II 3,415,200
211,200 Nuveen Quality Preferred Income Fund II 3,237,696
295,200 Pioneer High Income Trust 4,953,456
6,400 Salomon Brothers Worldwide Income Fund, Inc. 104,576
-------------------------------------------------------------------------------
Total Investment Companies
(Cost $21,925,956) 21,855,284
-------------------------------------------------------------------------------
Principal Amount Value
-------------------------------------------------------------------------------
Corporate Bonds - 1.0%
Financials - 0.6%
$ 5,000,000 BF Saul REIT, B+
7.500%, 3/01/14 $ 5,137,500
-------------------------------------------------------------------------------
Telecommunications Equipment - 0.4%
3,500,000 SBA Communications Corp., CCC-
10.250%,2/01/09 3,749,375
-------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $8,527,772) 8,886,875
-------------------------------------------------------------------------------
Total Long-Term Investments
(Cost $1,273,664,296) 1,274,925,434
-------------------------------------------------------------------------------
Number of Shares Value
-------------------------------------------------------------------------------
Short-Term Investments - 0.6%
Money Market Fund - 0.6%
5,099,441 JP Morgan Prime Money Market Fund
(Cost $5,099,441) $ 5,099,441
-------------------------------------------------------------------------------
Total Investments
(Cost $1,278,763,737) - 149.3% 1,280,024,875
Other Assets in Excess of Liabilities - 0.3% 2,363,383
Preferred Shares, at Liquidation Value -
(-49.6% of Net Assets Available to Common
Shares or -33.2% of Total Investments) (425,000,000)
-------------------------------------------------------------------------------
Net Assets Applicable to Common Shares
-100.0% $ 857,388,258
===============================================================================
Ratings shown are per Standard & Poor's,securities classified NR are not rated
by Standard & Poor's.
PLC-Public Limited 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 October 31,
2004, these securities amounted to $45,636,368 or 5.32% of net assets.
(b) Floating or Variable rate security.
(c) Non-income producing security.
(d) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
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.
Annual Report | October 31, 2004 | 7
DCS | Dreman/Claymore Dividend & Income Fund
Statement of Assets and Liabilities | October 31, 2004
Assets
Investments in securities, at value (cost $1,278,763,737) $ 1,280,024,875
Dividends and interest receivable 5,627,578
Other assets 12,585
-------------------------------------------------------------------------------
Total assets 1,285,665,038
-------------------------------------------------------------------------------
Liabilities
Variation margin payable 1,986,188
Advisory fee payable 917,989
Dividend payable - preferred shares 175,373
Offering costs payable 29,343
Administrative fee payable 19,114
Accrued expenses and other liabilities 148,773
-------------------------------------------------------------------------------
Total liabilities 3,276,780
-------------------------------------------------------------------------------
Preferred Shares, at redemption value
$.01 par value per share; 17,000 Auction Market Preferred
Shares authorized, issued and outstanding at $25,000 per
share liquidation preference 425,000,000
-------------------------------------------------------------------------------
Net Assets Applicable to Common Shareholders $ 857,388,258
===============================================================================
Composition of Net Assets Applicable to Common Shareholders
Common stock, $.01 par value per share;
unlimited number of shares authorized,
45,399,424 shares issued and outstanding $ 453,994
Additional paid-in capital 859,769,814
Undistributed net investment income 4,346,173
Net realized gain on investments and futures transactions 3,225,991
Net unrealized depreciation on investments and futures
transactions (10,407,714)
-------------------------------------------------------------------------------
Net Assets Applicable to Common Shareholders $ 857,388,258
===============================================================================
Net Asset Value Applicable to Common Shareholders
(based on 45,399,424 common shares outstanding) $ 18.89
===============================================================================
See notes to financial statements.
8 | Annual Report | October 31, 2004
DCS | Dreman/Claymore Dividend & Income Fund
Statement of Operations | For the Period January 27,2004* through October 31,
2004
Investment Income
Dividends (net of foreign withholding
taxes of $31,169) $ 41,568,165
Interest 6,806,308
-------------------------------------------------------------------------------
Total income $ 48,374,473
===============================================================================
Expenses
Advisory fee 7,707,580
Auction agent fee - preferred shares 645,498
Administrative fee 169,192
Fund accounting 128,003
Transfer agent fee 99,724
Custodian fee 86,481
Professional fees 76,199
Trustees' fees and expenses 69,822
Printing expenses 41,072
Insurance 32,858
NYSE listing fee 28,751
Miscellaneous 20,534
Interest expense on line of credit 450,242
-------------------------------------------------------------------------------
Total expenses 9,555,956
-------------------------------------------------------------------------------
Net investment income 38,818,517
-------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments and Futures Transactions
Net realized gain (loss) on:
Investments 3,778,380
Futures (1,643,708)
Net unrealized appreciation (depreciation) on:
Investments 1,261,138
Futures (11,668,852)
-------------------------------------------------------------------------------
Net loss on investments and futures transactions (8,273,042)
-------------------------------------------------------------------------------
Distributions to Preferred Shares from
Net investment income (3,950,767)
-------------------------------------------------------------------------------
Net Increase in Net Assets Applicable to
Common Shareholders Resulting from Operations $ 26,594,708
===============================================================================
* Commencement of investment operations.
See notes to financial statements.
Annual Report | October 31, 2004 | 9
DCS | Dreman/Claymore Dividend & Income Fund
Statement of Changes in Net Assets Applicable to Common Shareholders
For the Period January 27, 2004* through October 31, 2004
Increase in Net Assets Applicable to Common Shareholders Resulting from
Operations
Net investment income $ 38,818,517
Net realized gain on investments and futures transactions 2,134,672
Net unrealized depreciation on investments and futures
transactions (10,407,714)
Distributions to Preferred Shares from
Net investment income (3,950,767)
-------------------------------------------------------------------------------
Net increase in net assets applicable to Common
Shareholders resulting from operations 26,594,708
-------------------------------------------------------------------------------
Distributions to Common Shareholders from
Net investment income (29,430,258)
-------------------------------------------------------------------------------
Capital Share Transactions
Net proceeds from the issuance of common shares 862,365,000
Reinvestment of dividends 4,314,724
Common and preferred share offering expenses charged to
paid-in-capital (6,556,000)
-------------------------------------------------------------------------------
Net increase from capital share transactions 860,123,724
-------------------------------------------------------------------------------
Total increase in net assets applicable to common
shareholders 857,288,174
Net Assets
Beginning of period 100,084
-------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $4,346,173) $ 857,388,258
===============================================================================
* Commencement of investment operations.
See notes to financial statements.
10 | Annual Report | October 31, 2004
DCS | Dreman/Claymore Dividend & Income Fund
Financial Highlights | For the Period January 27, 2004* through October 31, 2004
Per share operating performance for a common share outstanding throughout the
period/(a)/
Net asset value, beginning of period $ 19.10/(b)/
---------------------------------------------------------------------------
Income from investment operations
Net investment income 0.86
Net realized and unrealized loss on investments and futures
transactions (0.18)
Distributions to preferred shares from net investment income
(common share equivalent basis) (0.09)
---------------------------------------------------------------------------
Total from investment operations 0.59
---------------------------------------------------------------------------
Distributions to Common Shareholders (0.65)
---------------------------------------------------------------------------
Common and preferred shares' offering expenses charged to
paid-in-capital (0.15)
---------------------------------------------------------------------------
Net asset value, end of period $ 18.89
===========================================================================
Market value, end of period $ 17.88
---------------------------------------------------------------------------
Total investment return/(c)/
Net asset value 2.47%
Market value -7.33%
Ratios and supplemental data
Net assets, applicable to common shareholders, end of
period (thousands) $ 857,388
Preferred Shares,at liquidation value, ($25,000 per share
liquidation preference) (thousands) $ 425,000
Preferred Shares asset coverage per share $ 75,435
Ratios to Average Net Assets applicable to Common Shares:/(d)/
Total expenses, including interest expense 1.53%
Interest expense 0.07%
Net investment income, prior to effect of dividends to
preferred shares 6.20%
Net investment income, after effect of dividends to
preferred shares 5.57%
Ratios to Average Managed Assets:/(d)//(e)/
Total expenses, including interest expense 1.05%
Interest expense 0.05%
Net investment income, prior to effect of dividends to
preferred shares 4.28%
Portfolio turnover 6%
* Commencement of operations.
(a) Based on average shares outstanding during the period.
(b) Before deduction of offering expenses charged to capital.
(c) Total investment return is calculated assuming a purchase of a common share
at the beginning of the period and a sale on the last day of the period
reported either at net asset value ("NAV") or market price per share.
Dividends and distributions are assumed to be reinvested at NAV for NAV
returns and in accordance with the Fund's dividend reinvestment plan for
market value returns. Total investment return does not reflect brokerage
commissions. A return calculated for a period of less than one year is not
annualized.
(d) Annualized.
(e) Managed assets is equal to net assets applicable to common shareholders
plus outstanding leverage, such as the liquidation value of preferred
shares.
See notes to financial statements.
Annual Report | October 31, 2004 | 11
DCS | Dreman/Claymore Dividend & Income Fund
Notes to Financial Statements | October 31, 2004
Note 1 - Organization:
Dreman/Claymore Dividend & Income Fund (the "Fund") was organized as a Delaware
statutory trust on October 20, 2003.The Fund is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940,as amended, and the Securities Act of 1933,as amended.
The Fund's primary investment objective is to provide a high level of current
income, with a secondary objective of capital appreciation.The Fund will pursue
its investment objectives by investing its assets primarily in dividend-paying
common and preferred stocks.There can be no assurance that the Fund will achieve
its investment objectives.The Fund's investment objectives are considered
fundamental and may not be changed without shareholder approval.
Note 2 - Accounting Policies:
The preparation of the financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
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 are generally
valued at their last 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. 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.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Advisor to be
over-the-counter, but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices.
Additionally, certain fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed by the
Trustees to reflect the fair value of such securities.
Short-term debt securities having a remaining maturity of sixty days or less are
valued at amortized cost, which approximates market value.
(b) Investment Transactions and Investment Income
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Dividend
income is recorded net of applicable withholding taxes on the ex-dividend date
and interest income is recorded on an accrual basis. Discounts or premiums on
debt securities purchased are accreted or amortized to interest income over the
lives of the respective securities using the effective interest method.
(c) Futures
A futures contract is an agreement to buy or sell a financial instrument at a
particular price on a stipulated future date. Upon entering into a futures
contract, the Fund is required to make an initial margin deposit established by
the exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the counterparty an amount of cash equal
to the daily fluctuation in the value of the contract. Such receipt or payment
is known as the variation margin and is recorded by the Fund as unrealized
appreciation or depreciation.The Fund bears the market risk that arises from the
change in the value of these financial instruments.
During the period, the Fund sold futures contracts on US Treasury securities in
an effort to hedge a portion of the fixed-income component of its portfolio
against rising interest rates.
At October 31, 2004, the following futures contracts were outstanding:
Short Number of Expiration Original Value at Unrealized
Contracts Contracts Month Value October 31, 2004 Depreciation
------------------------------------------------------------------------------------------
US Treasury
Bonds (CBT) 2,889 Dec-04 $ 317,225,742 $ 328,894,594 $ (11,668,852)
------------------------------------------------------------------------------------------
Note 3 - Investment Advisory Agreement, Sub-Advisory Agreement and Other
Agreements:
Pursuant to an Investment Advisory Agreement (the"Agreement") between the Fund
and Claymore Advisors, LLC (the "Advisor"), the Advisor will furnish offices,
necessary facilities and equipment, provide administrative services, oversee the
activities of the Fund's Investment Manager, provide personnel, including
certain officers required for the Fund's administrative management and
compensate all officers and trustees of the Fund who are its affiliates. As
compensation for these services, the Fund will pay the Investment Advisor a fee,
payable monthly, in an amount equal to 0.85% of the Fund's average managed
assets (net assets plus any assets attributable to financial leverage).
The Advisor has entered into a Sub-Advisory Agreement with Dreman Value
Management, LLC (the "Investment Manager"). Pursuant to the terms of this
agreement, the Investment Manager, under the supervision of the Fund's Board of
Trustees and the Advisor, will provide a continuous investment program for the
Fund's portfolio, provide investment research and make and execute
recommendations for the purchase and sale of securities; and provide certain
facilities and personnel, including officers required for the Fund's
administrative management and compensation of all officers and trustees of the
Fund who are its affiliate. For these services, the Advisor has agreed to pay
the Investment Manager an aggregate amount equal to 60% of the investment
advisory fees paid to the Advisor by the Fund, net of any additional
compensation payments to underwriters of the common share offering.
The Bank of New York ("BNY") acts as the Fund's custodian, administrator and
transfer agent. As custodian, BNY is responsible for the custody of the Fund's
assets. As administrator, BNY is responsible for maintaining the books and
records of the Fund's securities and cash. As transfer agent, BNY is responsible
for performing transfer agency services for the Fund.
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.
12 | Annual Report | October 31. 2004
DCS | Dreman/Claymore Dividend & Income Fund | Notes to Financial Statements
continued
In order to present paid-in capital in excess of par and accumulated net
realized gains or losses on the statement of assets and liabilities that more
closely represent their tax character, certain adjustments have been made to
undistributed net investment income and accumulated net realized gains or losses
on investments. For the period ended October 31, 2004, the adjustments were to
increase accumulated net realized gain on investment by $1,091,319 and decrease
undistributed net investment income by $1,091,319 due to permanent differences
in the treatment for book and tax purposes of certain real estate investment
trusts.
Information on the tax components of capital as of October 31, 2004 is as
follows:
Net tax
Cost of unrealized
investments Gross tax Gross tax appreciation Undistributed
for tax unrealized unrealized on ordinary
purposes appreciation depreciation investments income
------------------------------------------------------------------------------
$ 1,277,894,738 $ 58,767,179 $ (56,637,042) $ 2,130,137 $ 4,380,565
------------------------------------------------------------------------------
The differences between book basis and tax basis unrealized
appreciation/(depreciation) is attributable to income reclassifications from
real estate investment trusts, and investments in preferred securities.
For the period ended October 31, 2004, the tax character of distributions paid
to common and preferred shareholders of $29,430,258 and $3,950,767,
respectively, as reflected in the statement of changes in net assets, was
ordinary income.
For federal income tax purposes, the Fund has a capital loss carryforward of
$9,346,252, which expires October 31, 2012. Capital loss carryforwards are
available to offset future capital gains, if any.
Note 5 - Investments in Securities:
For the period ended October 31, 2004, purchases and sales of investments, other
than short-term securities, were $1,345,555,787 and $74,200,194, respectively.
Note 6 - Capital:
Common Shares
The Fund has an unlimited amount of common shares, $0.01 par value, authorized
and has issued 40,500,000 shares of common stock in its initial public
offering.These shares were all issued at $19.10 per share after deducting the
sales load but before a reimbursement of expenses to the underwriters of
$0.00667 per share. In connection with the initial public offering of the Fund's
common shares, the underwriters were granted an option to purchase additional
common shares.On February 12, 2004,and March 16, 2004,the underwriters
purchased, at a price of $19.10 per common share (after deducting the sales load
but before underwriters'expense reimbursement), 2,750,000 and 1,900,000 common
shares, respectively, of the Fund pursuant to the over-allotment option.
Offering costs, estimated at $1,806,000 or $0.04 per share, in connection with
the issuance of the common shares have been borne by the Fund and were charged
to paid-in-capital.The Advisor has agreed to reimburse the Fund's organizational
expenses, which are estimated at $25,000.
In connection with the Fund's dividend reinvestment plan, the Fund issued
244,184 shares during the period.
Preferred Shares
On February 12, 2004, the Fund's Board of Trustees authorized the issuance of
preferred shares, in addition to the existing common shares, as part of the
Fund's leverage strategy. Preferred shares issued by the Fund have seniority
over the common shares. Offering costs associated with the issuance of preferred
shares, estimated at $4,750,000, have been borne by the common shareholders as a
direct reduction to paid-in-capital
On March 23, 2004, the Fund issued 3,400 shares of Preferred Shares Series M7,
3,400 shares of Preferred Shares Series T28, 3,400 shares of Preferred Shares
Series W7, 3,400 shares of Preferred Shares Series TH28 and 3,400 shares of
Preferred Shares Series F7 each with a net asset and liquidation value of
$25,000 per share plus accrued dividends. Dividends are accumulated daily at an
annual rate set through auction procedures. Distributions of net realized
capital gains, if any,are paid annually.
For the period ended October 31, 2004, the annualized dividend rates range from:
High Low At October 31, 2004
--------------------------------------------------------------
Series M7 1.90% 1.08% 1.85%
--------------------------------------------------------------
Series T28 1.93% 1.10% 1.93%
--------------------------------------------------------------
Series W7 1.95% 1.08% 1.86%
--------------------------------------------------------------
Series TH28 2.04% 1.10% 2.04%
--------------------------------------------------------------
Series F7 1.93% 1.05% 1.85%
--------------------------------------------------------------
The Fund is subject to certain limitations and restrictions while Preferred
Shares are outstanding. Failure to comply with these limitations and
restrictions could preclude the Fund from declaring any dividends or
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of Preferred Shares at their liquidation value.
Preferred Shares, which are entitled to one vote per share, generally vote with
the common stock but vote separately as a class to elect two Trustees and on any
matters affecting the rights of the Preferred Shares.
Note 7 - Line of Credit:
Prior to the issuance of preferred shares, the Fund entered into an agreement
with the Bank of New York to provide a line of credit to the Fund. Interest on
amount borrowed was based on the Federal Funds Rate plus 0.75%.The average daily
borrowings under the agreement was $230,957,000 with an average annual interest
rate of 1.75%.The line of credit was outstanding for forty days and was
discontinued when the preferred shares were issued.
Note 8 - Subsequent Event:
On November 1 the Board of Trustees declared a quarterly dividend of $.325 per
common share.This dividend was payable on November 30, 2004 to shareholders of
record on November 15, 2004.
Annual Report | October 31, 2004 | 13
DCS | Dreman/Claymore Dividend & Income Fund
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Dreman/Claymore Dividend & Income Fund
We have audited the accompanying statement of assets and liabilities of
Dreman/Claymore Dividend & Income Fund (the"Fund"), including the portfolio of
investments, as of October 31, 2004, and the related statement of operations,
statement of changes in net assets, and financial highlights for the period from
January 27, 2004 (commencement of operations) through October 31, 2004.These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 2004, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides 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
Dreman/Claymore Dividend & Income Fund at October 31, 2004, and the results of
its operations, changes in its net assets, and the financial highlights for the
period from January 27, 2004 through October 31, 2004, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
December 16, 2004
14 | Annual Report | October 31, 2004
DCS | Dreman/Claymore Dividend & Income Fund
Supplemental Information | (unaudited)
Federal Income Tax Information
Qualified dividend income of as much as $32,041,389 was taxable to the Fund
through October 31, 2004.The Fund intends to designate the maximum amount of
dividends that qualify for the reduced tax rate pursuant to the Jobs and Growth
Tax Relief Reconciliation Act of 2003.
For corporate shareholders, $32,041,389 of investment income qualifies for the
dividends-received deduction.
In January 2005, 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 2004.
Trustees
The trustees of the Dreman/Claymore Dividend & Income Fund and their principal
occupations during the past five years:
Name, Address*, Age Term of Office Principal Occupation during Other Directorships
and Position(s) held and Length of the Past Five Years and Held by
with Registrant Time Served Other Affiliations Trustee
------------------------------------------------------------------------------------------------------------------------------------
Independent Trustees:
------------------------------------------------------------------------------------------------------------------------------------
Richard L. Crandall Since 2004 Managing Partner of Aspen Partners, LLC since Director, Novell, Inc., Diebold,
Age: 60 2003,Senior Advisor and Shareholder in BPC Group Inc., Pelstar, LLC, iTRACS Corp. and
Trustee and Bryant Park Capital since 2003,Founding Illinois Energy, LLC
Co-Partner of Arbor Venture Partners, LLC since
2000, and Chairman of Enterprise Software
Roundtable since 1994.Formerly, Director and
Special Advisor of GIGA Information Group
(1995-2003) and Chairman of GIGA Information
Group (2002-2003).
------------------------------------------------------------------------------------------------------------------------------------
Roman Friedrich III Since 2004 Founder of Roman Friedrich & Company, which Director, Strategic Minerals
Age: 57 specializes in the provision of financial Corporation, Brazilian Emeralds,
Trustee advisory services to corporations in the resource Inc., StrataGold Corporation and
sector. Previously, Managing Director at TD Gateway Gold Corp.
Securities.
------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Since 2004 Principal of Ronald A. Nyberg, Ltd. a law firm Trustee, Advent Claymore Convertible
Age: 51 specializing in corporate law, estate planning Securities and Income Fund, MBIA
Trustee and business transactions from 2000-present. Capital/Claymore Managed Duration
Formerly, Executive Vice President, General Investment Grade Municipal Income
Counsel and Corporate Secretary of Van Kampen Fund, Western Asset/Claymore U.S.
Investments (1982-1999). Treasury Inflation Protected
Securities Fund, Western Asset/
Claymore U.S. Treasury Inflation
Protected Securities Fund 2,
TS&W/Claymore Tax-Advantaged
Balanced Fund and Madison/
Claymore Covered Call Fund.
------------------------------------------------------------------------------------------------------------------------------------
Ronald E. Toupin, Jr. Since 2004 Formerly, Vice President, Manager and Portfolio Trustee, Advent Claymore Convertible
Age: 46 Manager of Nuveen Asset Management (1998-1999), Securities and Income Fund, MBIA
Trustee Vice President of Nuveen Investment Advisory Capital/Claymore Managed Duration
Corporation (1992-1999), Vice President and Investment Grade Municipal Fund,
Manager of Nuveen Unit Investment Trusts Western Asset/Claymore U.S. Treasury
(1991-1999), and Assistant Vice President and Inflation Protected Securities Fund,
Portfolio Manager of Nuveen Unit Investment Western Asset/Claymore U.S. Treasury
Trusts (1988-1999), each of John Nuveen & Inflation Protected Securities Fund
Company, Inc. (1982-1999). 2, TS&W/Claymore Tax-Advantaged
Balanced Fund and Madison/Claymore
Covered Call Fund.
------------------------------------------------------------------------------------------------------------------------------------
Interested Trustees:
------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso Since 2004 Senior Managing Director and General Counsel of Trustee, Advent Claymore Convertible
Age: 39 Claymore Advisors, LLC and Claymore Securities, Securities and Income Fund, MBIA
Trustee and Chief Legal Inc. (2001-present). Manager, Claymore Fund Capital/Claymore Managed Duration
and Executive Officer Management Company, LLC, Vice President Boyar Investment Grade Municipal Fund,
Value Fund. Formerly, Assistant General Counsel, Western Asset/Claymore U.S. Treasury
John Nuveen and Company, Inc. (1999-2000). Former Inflation Protected Securities Fund,
Vice President and Associate General Counsel of Flaherty & Crumrine/Claymore
Van Kampen Investments, Inc. (1992-1999). Preferred Securities & Income Fund,
Inc., Flaherty & Crumrine/Claymore
Total Return Fund, Western
Asset/Claymore U.S. Treasury
Inflation Protected Securities Fund
2, TS&W/ Claymore Tax-Advantaged
Balanced Fund and Madison/Claymore
Covered Call Fund.
------------------------------------------------------------------------------------------------------------------------------------
David N. Dreman Since 2004 Founder, Chairman and Chief Investment Officer of Trustee, The Institute of Behavioral
10 Exchange Place Dreman Value Management, LLC, an investment Finance, Berkshire School, Jazz
Jersey City, NJ 07302 advisory firm with $12 billion under management, Aspen and University of Manitoba.
Age: 67 in various mutual funds including several branded
Trustee under the Scudder-Dreman name; annuity products;
institutional accounts, including pension,
foundation and endowment funds; and SMAs for high
net-worth individuals. Author of several books
including Contrarian Investment Strategies: The
Next Generation and Psychology and the Stock
Market. Forbes columnist for 24 years and
co-editor of the academic journal, The Journal of
Behavioral Finance.
------------------------------------------------------------------------------------------------------------------------------------
* Address for all Trustees unless otherwise noted: 2455 Corporate West Drive,
Lisle, IL 60532
Annual Report | October 31, 2004 | 15
DCS | Dreman/Claymore Dividend & Income Fund
Dividend Reinvestment Plan
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 (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,The Bank of New York, 2 Hanson Place, Brooklyn, New York,
11217, Phone Number: (718) 315-4818
16 | Annual Report October 31, 2004
DCS | Dreman/Claymore Dividend & Income Fund
Fund Information
Board of Trustees Investment Manager
Richard L. Crandall Dreman Value Management, L.L.C.
Nicholas Dalmaso 10 Exchange Place, Suite 2150
David N. Dreman Jersey City, New Jersey 07302-3913
Roman Friedrich III, Chairman
Ronald A. Nyberg Investment Advisor
Ronald E. Toupin, Jr. Claymore Advisors, LLC.
Lisle, Illinois
Officers
Nicholas Dalmaso Administrator, Custodian and
Chief Executive and Legal Officer Transfer Agent
The Bank of New York
Steven M. Hill New York, New York
Chief Financial Officer and Treasurer
Preferred Stock - Dividend Paying Agent
Heidemarie Gregoriev The Bank of New York
Secretary New York, New York
Lloyd K. Jagai Legal Counsel
Vice President Skadden, Arps, Slate, Meagher & Flom LLP
Chicago, Illinois
Thomas W. Littauer
Vice President Independent Registered Public
Accounting Firm
Nelson P. Woodard Ernst & Young LLP
Vice President Chicago, Illinois
Privacy Principles of Dreman/Claymore Dividend & Income Fund for Shareholders
The Fund is committed to maintaining the privacy of shareholders and to
safeguarding its non-public personal information. The following information is
provided to help you understand what personal information the Fund collects, how
we protect that information and why, in certain cases, we may share information
with select other parties.
Generally, the Fund does not receive any nonpublic personal information relating
to its shareholders, although certain nonpublic personal information of its
shareholders may become available to the Fund. The Fund does not disclose any
nonpublic 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 nonpublic 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 nonpublic personal information of its
shareholders.
Questions concerning your shares of Dreman/Claymore Dividend & Income Fund?
. If your shares are held in a Brokerage Account, contact your Broker.
. If you have physical possession of your shares in certificate form, contact
the Fund's Administrator, Custodian and Transfer Agent:
The Bank of New York, 111 Sanders Creek Parkway, East Syracuse, New York 13057
1-800-701-8178
This report is sent to shareholders of Dreman/Claymore Dividend & Income Fund
for their information. It is not a Prospectus, circular or representation
intended for use in the purchase or sale of shares of the Fund or of any
securities mentioned in this report.
A description of the Fund's proxy voting policies and procedures related to
portfolio securities is available without charge, upon request, by calling the
Fund at 1-800-345-7999 or on the U.S. Securities and Exchange Commission's
website at http://www.sec.gov
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) 345-7999
or by accessing the Fund's Form N-PX on the Commission's website at
http://www.sec.gov.
The Fund files it complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Form N-Q are available on the SEC website at
http://www.sec.gov.The Fund's Form N-Q may also be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling (800)
SEC-0330.
Annual Report | October 31, 2004 | 17
DCS | Dreman/Claymore Dividend & Income Fund
About the Investment Manager
Dreman Value Management, LLC
Dreman Value Management is an independently owned investment management firm
founded in 1997,however,David Dreman has been Chairman and Chief Investment
Officer of a series of investment advisory firms bearing his name since 1977.As
of September 30, 2004 the Firm had over $11 billion in assets under management
primarily through multiple sub-advisory relationships as well as numerous
institutional accounts and SMAs. Employee owned, the firm is one of the pioneers
in contrarian investing and behavioral finance and the psychology of investment
decision-making. The firm places its primary emphasis on low P/E common stocks
with growing dividends, avoiding concept stocks without justifiable valuations.
Investment Philosophy
Dreman Value Management is one of the pioneers of contrarian value investing.
Our investment philosophy is based on a disciplined, low P/E approach to stock
selection.
. We invest in undervalued companies that exhibit strong fundamentals,
above-market dividend yields and historic earnings growth, which our
analysis indicates will persist.
. Our strategy is to own strong, fundamentally sound companies and to avoid
speculative stocks or potential bankruptcies.
. We believe that the markets are not perfectly efficient and that, in
particular, behavioral finance plays a considerable role in investor
actions and overreactions and subsequently in stock price movements.
Investment Process
Our research studies, numerous academic papers and our long-term performance
record show that out-of-favor stocks (those with low P/E ratios) consistently
and predictably outperform the market
. Screen for stocks with below market P/E ratios.
. Further refine candidates by applying additional value screens.
. Fundamental analysis is applied to remaining candidates.
. Stocks that pass all the screens and analysis are recommended to the
Investment Committee for approval
Dreman Value Management, L.L.C.
10 Exchange Place, Suite 2150
Jersey City, New Jersey 07302-3913 [LOGO OF DCS LISTED NYSE(R)]
DCS-AR-1004
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.
(b) No information need be disclosed pursuant to this paragraph.
(c) A provision regarding the procedures for reporting violations under the
Code of Ethics was amended during the period covered by the shareholder report
presented in Item 1.
(d) The registrant has not granted a waiver or an implicit waiver from a
provision of its Code of Ethics during the period covered by the 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, Ronald E. Toupin, Jr.
Mr. Toupin is an "independent" Trustee. Mr. Toupin qualifies as an audit
committee financial expert by virtue of his experience obtained as a portfolio
manager and research analyst, which included review and analysis of offering
documents and audited and un-audited financial statements using GAAP to show
accounting estimates, accruals and reserves.
Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for the purposes of Section 11 of the Securities
Act of 1933, as a result of being designated or identified as an audit committee
financial expert. The designation or identification of a person as an audit
committee financial expert does not impose on such person any duties,
obligations, or liabilities that are greater than the duties, obligations, and
liabilities imposed on such person as a member of the audit committee and Board
of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
a). Audit Fees: the aggregate fees billed for the fiscal year 2004, for
professional services rendered by the principal accountant for the audit is
$42,000. The aggregate fees billed for fiscal year 2003 for professional
services rendered by the principal accountant is $0 as this fund was not in
existence in 2003.
b). Audit-Related Fees: the aggregate fees billed for the fiscal year 2004, 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 (a) of this item is $3,500. Specifically,
this amount represents the amount paid for the audit of the preferred shares
asset coverage test. The Audit-Related Fees for 2003 is $0 as this fund was not
in existence in 2003.
c). Tax Fees, the aggregate fees billed for the fiscal year 2004, for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning is $2,000. The Tax Fees for 2003 is $0 as this fund
was not in existence in 2003.
d). All Other Fees, the aggregate fees billed for the fiscal year 2004, for
products and services provided by the principal accountant, other than the
services reported in paragraphs (a) and (c) of this Item is $0. The Other Audit
Fees for 2003 is $0 as this fund was not in existence in 2003.
(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. The pre-approval policies are attached as an exhibit hereto.
The policies provide for both "general pre-approval" and "specific pre-approval"
as defined therein. During the fiscal period ended October 31, 2004, the
registrant utilized only the specific pre-approval method.
APPENDIX A
AUDIT COMMITTEE
PRE-APPROVAL POLICY AND PROCEDURES OF
DREMAN/CLAYMORE DIVIDEND & INCOME FUND
1. STATEMENT OF PRINCIPLES
The Audit Committee (the "Committee") of the Board is required to review
and, in its sole discretion, pre-approve all Covered Services to be provided by
the Independent Auditors to the Fund and Covered Entities in order to assure
that services performed by the Independent Auditors do not impair the auditor's
independence from the Fund./1/
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Committee ("general pre-approval"); or require the specific pre-approval of the
Committee ("specific pre-approval"). The Committee believes that the combination
of these two approaches in this Policy will result in an effective and efficient
procedure to preapprove services performed by the Independent Auditors. As set
forth in this Policy, unless a type of service has received general
pre-approval, it will require specific pre-approval by the Committee (or by any
member of the Committee to which pre-approval authority has been delegated) if
it is to be provided by the Independent Auditors. Any proposed services
exceeding pre-approved cost levels or budgeted amounts will also require
specific pre-approval by the Committee.
For both types of pre-approval, the Committee will consider whether such
services are consistent with the SEC's rules on auditor independence. The
Committee will also consider whether the Independent Auditors are best
positioned to provide the most effective and efficient services, for reasons
such as its familiarity with the Fund's business, people, culture, accounting
systems, risk profile and other factors, and whether the service might enhance
the Fund's ability to manage or control risk or improve audit quality. All such
factors will be considered as a whole, and no one factor should necessarily be
determinative.
The Committee is also mindful of the relationship between fees for audit
and non-audit services in deciding whether to pre-approve any such services and
may determine for each fiscal year, the appropriate ratio between the total
amount of fees for Audit, Audit-related and Tax services for the Fund (including
any Audit-related or Tax service fees for Covered Entities that were subject to
pre-approval), and the total amount of fees for certain
----------
/1/ Terms used in this Policy and not otherwise defined herein shall have
the meanings as defined in the Audit Committee Charter.
permissible non-audit services classified as All Other services for the Fund
(including any such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Committee. The term
of any general pre-approval is 12 months from the date of pre-approval, unless
the Committee considers and provides a different period and states otherwise.
The Committee will annually review and pre-approve the services that may be
provided by the Independent Auditors without obtaining specific pre-approval
from the Committee. The Committee will add to or subtract from the list of
general pre-approved services from time to time, based on subsequent
determinations.
The purpose of this Policy is to set forth the policy and procedures by
which the Committee intends to fulfill its responsibilities. It does not
delegate the Committee's responsibilities to pre-approve services performed by
the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believe
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. Delegation
As provided in the Act and the SEC's rules, the Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Committee at its next scheduled meeting.
3. Audit Services
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the
Committee, the Committee may grant general pre-approval to other Audit services,
which are those services that only the Independent Auditors reasonably can
provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1 A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.l must be specifically
pre-approved by the Committee (or by any member of the Committee to which
pre-approval has been delegated).
4. Audit-Related Services
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements or, to the extent they are Covered Services, the Covered
Entities' financial statements, or that are traditionally performed by the
Independent Auditors. Because the Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence, the Committee may grant
general pre-approval to Audit-related services. Audit-related services include,
among others, accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "Audit services"; assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
related to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Committee has pre-approved the Audit-related services in Appendix
B.2. All other Audit-related services not listed in Appendix B.2 must be
specifically pre-approved by the Committee (or by any member of the Committee to
which pre-approval has been delegated).
5. Tax Services
The Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services. Hence, the Committee believes it may grant general
pre-approval to those Tax services that have historically been provided by the
Independent Auditors, that the Committee has reviewed and believes would not
impair the independence of the Independent Auditors, and that are consistent
with the SEC's rules on auditor independence. The Committee will not permit the
retention of the Independent Auditors in connection with a transaction initially
recommended by the Independent Auditors, the sole business purpose of which may
be tax avoidance and the tax treatment of which may not be supported in the
Internal Revenue Code and related regulations. The Committee will consult with
management personnel responsible for tax compliance or outside counsel to
determine that the tax planning and reporting positions are consistent with this
policy.
Pursuant to the preceding paragraph, the Committee has pre-approved the
Tax services in Appendix B.3. All Tax services involving large and complex
transactions not listed in Appendix B.3 must be specifically pre-approved by the
Committee (or by any member of the Committee to which pre-approval has been
delegated), including Tax services proposed to be provided by the Independent
Auditors to any executive officer or trustee of
the Fund, in his or her individual capacity, where such services are paid for by
the Fund (generally applicable only to internally managed investment companies).
6. All Other Services
The Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Committee believes
it may grant general pre-approval to those permissible non-audit services
classified as All Other services that it believes are routine and recurring
services, would not impair the independence of the auditor and are consistent
with the SEC's rules on auditor independence.
The Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Committee (or by any member of the Committee to which
pre-approval has been delegated).
7. Prohibited Non-Audit Services
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix B.5. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these services and the
applicability of exceptions to certain of the prohibitions.
8. Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Committee. The Committee is mindful of the overall
relationship of fees for audit and non-audit services in determining whether to
pre-approve any such services. For each fiscal year, the Committee may determine
the appropriate ratio between the total amount of fees for Audit, Audit-related,
and Tax services for the Fund (including any Audit-related or Tax services fees
for Covered Entities subject to pre-approval), and the total amount of fees for
certain permissible non-audit services classified as All Other services for the
Fund (including any such services for Covered Entities subject to pre-approval).
9. Procedures
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Committee will
be submitted to the Fund's principal financial officer and must include a
detailed description of the services to be rendered. The Fund's principal
financial officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Committee.
The Committee will be informed on a timely basis of any such services rendered
by the Independent Auditors. Requests or applications to provide services that
require specific approval by the Committee will be submitted to the Committee by
both the Independent Auditors and the Fund's principal financial officer, and
must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Committee has designated the Fund's principal financial officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's principal financial officer will report to the Committee on a periodic
basis on the results of its monitoring. A sample report is included as Appendix
B.6. Both the Fund's principal financial officer and management will immediately
report to the chairman of the Committee any breach of this Policy that comes to
the attention of the Fund's principal financial officer or any member of
management.
10. Additional Requirements
The Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
financial, employment and business relationships (as such terms are defined in
Regulation S-X) between the Independent Auditors and the Fund and discussing
with the Independent Auditors its methods and procedures for ensuring
independence.
11. Covered Entities
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). The Committee must
pre-approve non-audit services provided not only to the Fund but also to the
Covered Entities if the engagements relate directly to the operations and
financial reporting of the Fund.
Appendix B.1
Service Range of Fees
------- ---------------------
The Covered
Fund(s)* Entities*
-------- ---------
Statutory audits or financial audits for the Fund
Services associated with SEC registration
statements (including new funds), periodic reports
and other documents filed with the SEC or other
documents issued in connection with securities
offerings (e.g., comfort letters for closed-end
fund offerings, consents), and assistance in
responding to SEC comment letters
Consultations by the Fund's management as to the
accounting or disclosure treatment of transactions
or events and/or the actual or potential impact of
final or proposed rules, standards or
interpretations by the SEC, FASB, or other
regulatory or standard setting bodies (Note: Under
SEC rules, some consultations may be "audit related"
services rather than "audit" services)
Appendix B.2
Service Range of Fees
------- ---------------------
The Covered
Fund(s) Entities
-------- ---------
Attest procedures not required by statute or
regulation (including agreed upon procedures related
to the Closed-End Fund asset coverage tests required
by the rating agencies and/or lenders)
Due diligence services pertaining to potential fund
mergers
Consultations by the Fund's management as to the
accounting or disclosure treatment of transactions
or events and/or the actual or potential impact of
final or proposed rules, standards or
interpretations by the SEC, FASB, or other
regulatory or standard-setting bodies (Note: Under
SEC rules, some consultations may be "audit"
services rather than "audit-related" services)
Information systems reviews not performed in
connection with the audit (e.g., application data
center and technical reviews)
General assistance with implementation of the
requirements of SEC rules or listing standards
promulgated pursuant to the Sarbanes-Oxley Act
Appendix B.3
Service Range of Fees
------- ---------------------
The Covered
Fund(s) Entities
-------- ---------
U.S. federal, state and local tax planning and
advice
U.S. federal, state and local tax compliance
International tax planning and advice
International tax compliance
Review of federal, state, local and international
income, franchise, and other tax returns
Identification of Passive Foreign Investment
Companies
Review of closed-end funds pro rata allocation of
taxable income and capital gains to common and
preferred shares.
Domestic and foreign tax planning, compliance, and
advice
Assistance with tax audits and appeals before the
IRS and similar state, local and foreign agencies
Tax advice and assistance regarding statutory,
regulatory or administrative developments
(e.g., excise tax reviews, evaluation of Fund's tax
compliance function)
Review the calculations of taxable income from
corporate actions including reorganizations related
to bankruptcy filings and provide guidance related
to the foregoing
Appendix B.4
Service Range of Fees
------- ---------------------
The Covered
Fund(s) Entities
-------- ---------
* Aggregate fees related to the pre-approved services will be limited to 10%
of each of the respective Independent Auditor's approved 2003 annual fees
for audit and tax services.
. Bookkeeping or other services related to the accounting records
or financial statements of the audit client
. Financial information systems design and implementation
. Appraisal or valuation services, fairness opinions or
contribution-in-kind reports
. Actuarial services
. Internal audit outsourcing services
. Management functions
. Human resources
. Broker-dealer, investment adviser or investment banking services
. Legal services
. Expert services unrelated to the audit
(ii) 100% of services described in each of Items 4(b) through (d)
were approved by the audit committee pursuant to paragraph (c)(7)(A) of Rule
2-01 of Regulation S-X.
(f) The percentage of hours expended on the principal accountant's
engagement to audit the Fund's financial statements for the most recent fiscal
year attributable to work performed by persons other than the principal
accountant's full-time, permanent employees was 0%.
(g) The aggregate non-audit fees billed by the Registrant's accountant for
services rendered to the Fund, the Advisor or any entity controlling, controlled
by, or under common control with the Advisor that provides ongoing services to
the registrant (except for any sub-advisor whose role is primarily portfolio
management and is subcontracted with or overseen by another investment advisor)
that directly impacted the Fund for the period from January 27, 2004 to October
31, 2004 were $5,500.
(h) Not Applicable
Item 5. Audit Committee of Listed Registrants.
The registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee of the registrant is comprised of: Richard L. Crandall,
Roman Friedrich III, Ronald A. Nyberg and Ronald E. Toupin, Jr.
(b) Not Applicable.
Item 6. Schedule of Investments.
The Schedule of Investments is included as part of Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The registrant has delegated the voting of proxies relating to its voting
securities to its investment sub-adviser, Dreman Value Management, LLC (the
"Sub-Adviser"). The Sub-Adviser's Proxy Voting Policies and Procedures are
included as an exhibit hereto.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
None.
Item 9. Submission of Matters to a Vote of Security Holders.
During the period covered by this report, the registrant adopted written
procedures by which shareholders may recommend nominees to the registrant's
Board of Trustees.
Item 10. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of this filing and have concluded 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 timely.
(b) There was no change in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting.
Item 11. Exhibits.
(a)(1) Code of Ethics.
(a)(2) Certification of principal executive officer and principal financial
officer pursuant to Rule30a-2.
(b) Certification of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(c) Proxy Voting Policies and Procedures.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Dreman/Claymore Dividend & Income Fund
By:
------------------------------------------
Name: Nicholas Dalmaso
Title: Chief Legal and Executive Officer
Date:
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:
------------------------------------------
Name: Nicholas Dalmaso
Title: Chief Legal and Executive Officer
Date:
By:
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Name: Steven M. Hill
Title: Treasurer and Chief Financial Officer
Date: