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 811-21515
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TS&W / Claymore Tax-Advantaged Balanced Fund
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(Exact name of registrant as specified in charter)
2455 Corporate West Drive, Lisle, IL 60532
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(Address of principal executive offices) (Zip code)
J. Thomas Futrell, Chief Executive Officer
2455 Corporate West Drive, Lisle, IL 60532
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 505-3700
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2008
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
ANNUAL REPORT TS&W/ CLAYMORE | TYW
December 31, 2008 TAX-ADVANTAGED BALANCED FUND |
[PHOTO]
Logo: THOMPSON, SIEGEL & WALMSLEY LLC
INVESTMENT MANAGEMENT
Logo: CLAYMORE(SM)
WWW.CLAYMORE.COM/TYW
... HOME PORT FOR THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
TS&W/CLAYMORE TAX-ADVANTAGED BALANCED FUND
TYW TS&W/Claymore
LISTED Tax-Advantaged
NYSE(R) Balanced Fund
Logo: THOMPSON, SIEGEL & WALMSLEY LLC
INVESTMENT MANAGEMENT
Logo: CLAYMORE(SM)
There can be no assurance the Fund will achieve its investment objective.
The value of the Fund will fluctuate with the value of the Underlying
securities. Historically, closed-end funds often trade at a discount to
their net asset value.
NOT FDIC INSURED o NOT BANK-GUARANTEED o MAY LOSE VALUE
The shareholder report you are reading right now is just the beginning of the
story. Online at WWW.CLAYMORE.COM/TYW, you will find:
o Daily, weekly and monthly data on share prices, distributions and more
o Portfolio overviews and performance analyses
o Announcements, press releases and special notices
o Fund and adviser contact information
Thompson, Siegel & Walmsley LLC and Claymore are continually updating and
expanding shareholder information services on the Fund's website, in an ongoing
effort to provide you with the most current information about how your Fund's
assets are managed, and the results of our efforts. It is just one more way we
are working to keep you better informed about your investment in the Fund.
2 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Dear SHAREHOLDER |
We thank you for your investment in the TS&W/Claymore Tax-Advantaged Balanced
Fund (the "Fund"). This report covers the Fund's performance for the fiscal year
ended December 31, 2008. This has been an extraordinarily difficult time for all
investors, and we are disappointed to report that the Fund's return was negative
for the period.
The Fund's investment objective is to provide a high level of total after-tax
return, including attractive tax-advantaged income. The Fund primarily focuses
its investments on (i) municipal securities, the interest on which is exempt
from regular Federal income tax, and which is not a preference item for purposes
of the alternative minimum tax (such securities referred to generally as
"municipal securities") and (ii) common stocks and preferred securities that are
eligible to pay dividends which, for individual shareholders, qualify for the
long-term capital gains rate. The portfolio is comprised primarily of municipal
securities, equity securities, preferred securities and high-yield debt
securities.
Claymore Advisors, LLC is the Investment Adviser to the Fund, with
responsibility for managing the Fund's overall asset allocation. Claymore
entities provided supervision, management, servicing and/or distribution on
approximately $10.4 billion in assets as of December 31, 2008. Two Investment
Sub-Advisers are responsible for day-to-day management of the Fund's
investments. Thompson, Siegel & Walmsley LLC ("TS&W") manages the Fund's equity
portfolio and other non-municipal income-producing securities. As of December
31, 2008,TS&W managed or supervised approximately $5.4 billion in assets. SMC
Fixed Income Management, LP ("SMC") is responsible for the Fund's portfolio of
municipal bonds. As of December 31, 2008, SMC managed or supervised
approximately $300 million in assets.
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the 12 months ended
December 31, 2008, the Fund generated total returns -43.70% and -37.97% based on
market price and NAV, respectively. As of December 31, 2008, the Fund's market
price of $6.65 per share represented a discount of 21.49% to its NAV of $8.47
per share. Past performance is not a guarantee of future results.
The market value and NAV of the Fund's shares fluctuate from time to time, and
the Fund's market value may be higher or lower than its NAV. The current
discount to NAV may provide an opportunity for suitable investors to purchase
shares of the Fund below the market value of the securities in the underlying
portfolio. We believe that, over the long term, the progress of the NAV will be
reflected in the market price return to shareholders.
In an effort to enhance shareholder value, the Fund announced on January 2,
2009, the adoption of an open-market share repurchase plan (the "Plan")
authorizing the purchase of up to 5% of its outstanding common shares in the
open market on a quarterly basis, subject to applicable regulatory and legal
restrictions and in consideration of certain operational and market factors,
including the size of the market price discount to net asset value of the Fund.
There is no assurance that the Fund will purchase shares at any particular
discount levels or in any particular amounts. There is also no assurance that
the market price of the Fund's shares, either absolutely or relative to the net
asset value, will increase as a result of any share repurchases.
Annual Report | December 31, 2008 | 3
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | DEAR SHAREHOLDER continued
We encourage shareholders to consider the opportunity to reinvest their
distributions from the Fund through the Dividend Reinvestment Plan ("DRIP"),
which is described in detail on page 30 of the Fund's annual report. When shares
trade at a discount to NAV, the DRIP takes advantage of the discount by
reinvesting the quarterly dividend distribution in common shares of the Fund
purchased in the market at a price less than NAV. Conversely, when the market
price of the Fund's common shares is at a premium above NAV, the DRIP reinvests
participants' dividends in newly-issued common shares at NAV, subject to an IRS
limitation that the purchase price cannot be more than 5% below the market price
per share. The DRIP provides a cost-effective means to accumulate additional
shares and enjoy the benefits of compounding returns over time. Since the Fund
endeavors to maintain a steady quarterly distribution rate, the DRIP plan
effectively provides an income averaging technique, which causes shareholders to
accumulate a larger number of Fund shares when the market price is depressed
than when the price is higher.
The Fund paid quarterly dividends on its common shares of $0.2525 on March 31,
June 30, September 30 and December 31, 2008. This represents an annualized
distribution rate of 15.19%, based on the Fund's closing market price of $6.65
per share on December 31, 2008.
To learn more about the Fund's performance and investment strategy, we encourage
you to read the Questions & Answers section of the report, which begins on page
5. You will find information about what impacted the performance of the Fund
during 2008 and the Investment Adviser's and Sub-Advisers' views on the market
environment.
We appreciate your investment and look forward to serving your investment needs
in the future. For the most up-to-date information on your investment, please
visit the Fund's website at www.claymore.com/tyw.
Sincerely,
J.Thomas Futrell
/s/ J.Thomas Futrell
- -----------------------
TS&W/Claymore Tax-Advantaged Balanced Fund
4 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
QUESTIONS & ANSWERS |
The TS&W/Claymore Tax-Advantaged Balanced Fund (the "Fund") is managed jointly
by Thompson, Siegel & Walmsley LLC ("TS&W") and SMC Fixed Income Management, LP
("SMC"). The portfolio management teams employ their specialized experience to
different sleeves within the Fund, but work closely with one another to
collectively guide the overall operations of the Fund. The individuals named
below are responsible for managing the Fund.
VINCENT R. GIORDANO, PORTFOLIO MANAGER, MANAGING MEMBER SMC FIXED INCOME
MANAGEMENT, LP
Mr. Giordano is a Managing Member of SMC. He leads SMC's municipal fixed-income
investment management team and co-manages the Fund's municipal securities
portfolio. Prior to joining SMC, Mr. Giordano was employed by Claymore Advisors,
LLC ("Claymore") and Merrill Lynch. He has more than 30 years of investment
experience.
ROBERTO W. ROFFO, PORTFOLIO MANAGER, MANAGING DIRECTOR SMC FIXED INCOME
MANAGEMENT, LP
Mr. Roffo co-manages the Fund's municipal securities portfolio. He has more than
15 years of investment management experience focused on the municipal securities
market. Prior to joining SMC, Mr. Roffo was employed by Claymore and Merrill
Lynch. He has worked closely with Mr. Giordano throughout his career. He holds a
Bachelor's Degree from the University of Massachusetts.
PAUL A. FERWERDA, CFA, PORTFOLIO MANAGER, SENIOR VICE PRESIDENT -DOMESTIC EQUITY
AND RESEARCH THOMPSON, SIEGEL & WALMSLEY, LLC
Mr. Ferwerda is responsible for the day-to-day management of the Fund's common
stock portfolio. He has been with TS&W for over 20 years and has more than 25
years of investment experience. Mr. Ferwerda has extensive equity research
experience within the financial sector and holds an MBA from Duke University.
WILLIAM M. BELLAMY, CFA, PORTFOLIO MANAGER, VICE PRESIDENT THOMPSON, SIEGEL
& WALMSLEY, LLC
Mr. Bellamy joined TS&W in 2002. He has over 20 years of investment industry
experience focused on the fixed-income markets. Mr. Bellamy is responsible for
managing the Fund's taxable fixed-income securities. He holds an MBA from Duke
University.
In the following interview, Claymore, TS&W and SMC share their thoughts on the
market and discuss the factors that influenced the Fund's performance for the
fiscal year ended December 31, 2008.
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WILL YOU REMIND US OF THIS FUND'S OBJECTIVE AND HOW YOU SEEK TO ACHIEVE IT?
The Fund's investment objective is to provide a high level of total after-tax
return, including attractive tax-advantaged income. The Fund seeks to achieve
its objective by investing in a portfolio of assets consisting primarily of (i)
municipal securities, the interest on which is exempt from regular Federal
income tax, and which is not a preference item for purposes of the alternative
minimum tax (such securities referred to generally as "municipal securities")
and (ii) common stocks and preferred securities that are eligible to pay
dividends which, for individual shareholders, qualify for the long-term capital
gains rate. The portfolio is comprised primarily of municipal securities, equity
securities, preferred securities and high-yield debt securities.
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM DURING 2008?
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the 12 months ended
December 31, 2008, the Fund provided a total return based on market price of
- -43.70% and a total return based on NAV of -37.97%. As of December 31, 2008, the
Fund's market price of $6.65 per share represented a discount of 21.49% to its
NAV of $8.47 per share. Past performance is not a guarantee of future results.
The market value and NAV of the Fund's shares fluctuate from time to time, and
the Fund's market value may be higher or lower than its NAV. The current
discount to NAV may provide an opportunity for suitable investors to purchase
shares of the Fund below the market value of the securities in the underlying
port-folio. We believe that, over the long term, the progress of the NAV will be
reflected in the market price return to shareholders.
For NAV performance comparison purposes, the municipal bond market, as measured
by the Barclays Capital U.S. Municipal Long Bond Index ("Barclays Municipal
Index"), (1) a widely used measure of the municipal bond market as a whole,
returned -14.68% for the 12 months ended December 31, 2008. The broad equity
market, as measured by the S&P 500, (2) returned -37.00%. The high-yield bond
market, as measured by the Merrill Lynch High Yield Master II Index, (3)
returned -26.39% for the period, and the Merrill Lynch Fixed Rate Preferred
Stock Index(4) returned -25.24%.
The Fund paid quarterly dividends of $0.2525 on March 31, June 30, September 30
and December 31, 2008. This represents an annualized distribution rate of 15.19%
based on the Fund's closing market price of $6.65 on December 31, 2008.
- ----------
Indices are unmanaged and it is not possible to invest directly in an index.
(1) Barclays Capital U.S. Municipal Long Bond Index is a rules-based,
market-value-weighted index engineered for the long-term (22+ years)
tax-exempt bond market.
(2) The S&P 500 is an unmanaged, capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries.
(3) The Merrill Lynch High Yield Master II Index is a commonly used benchmark
index for high yield corporate bonds and is a measure of the broad high
yield market.
(4) The Merrill Lynch Fixed Rate Preferred Securities Index is designed to
replicate the total return of a diversified group of investment-grade
preferred securities. The Index is rebalanced on a monthly basis.
Annual Report | December 31, 2008 | 5
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | QUESTIONS & ANSWERS continued
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HOW ARE ASSETS ALLOCATED AMONG THE VARIOUS ASSET CLASSES?
The Fund invests at least 50%, and may invest up to 60%, of its total assets in
municipal securities. As of December 31, 2008, approximately 54.6% of the Fund's
assets was invested in municipal securities. Of the remaining assets in the
Fund's portfolio as of December 31, 2008, approximately 35.5% were invested in
equity securities consisting primarily of large-cap dividend-paying stocks, and
approximately 9.9% were invested in other taxable income-producing securities,
which include but are not limited to high-yield bonds, preferred stocks and real
estate investment trusts. From time to time, assets are rebalanced to maintain
at least 50% of the Fund's total assets in municipal securities.
- --------------------------------------------------------------------------------
HOW DOES THE FUND EMPLOY LEVERAGE?
TYW, like many closed-end funds, utilizes leverage as part of its investment
strategy. As of December 31, 2008, the Fund had $120 million of leverage
outstanding in the form of Auction Market Preferred Shares ("AMPS"). AMPS
holders receive a dividend that is reset every seven or 28 days, depending on
the tranche. (5) The purpose of leverage is to finance the purchase of
additional securities that provide increased income and potentially greater
appreciation potential to common shareholders than could be achieved from a
portfolio that is not leveraged. However, when leveraged investments fall in
price, leverage reduces overall return, and this was the case during 2008.
Please keep in mind, the use of leverage will also result in greater volatility
of the net asset value (NAV) and market price of Common Shares because changes
in the value of the Fund's portfolio investments, including investments
purchased with the proceeds of the financial leverage, are borne entirely by the
holders of Common Shares.
The broad auction-rate preferred securities market experienced considerable
disruption during 2008, and your Fund was not immune to this disruption. The
result has been an increasing number of failed auctions on many, if not all,
auction-rate preferred shares, including the AMPS issued by the Fund. Investors
should be aware that a failed auction is not a default, nor does it require the
redemption of a fund's auction-rate preferred shares. Provisions in the offering
documents of the Fund's AMPS provide a mechanism to set a maximum rate in the
event of a failed auction, and, thus, investors will continue to be entitled to
receive payment for holding the Fund's AMPS. This maximum rate is determined
based upon a multiple of or a spread to the London Interbank Offered Rate
("LIBOR") (6), whichever is greater.
The Fund has two series of AMPS, one that auctions each week and one that
auctions every 28 days. The most recent auctions for these series have failed.
As of December 31, 2008, the maximum rates established as a result of failed
auctions were 1.52% for the Fund's 7-day AMPS and 2.13% for the 28-day AMPS.
These maximum rates are not significantly different from, and in many cases are
lower than, past successful auctions.
The following questions are related to the municipal securities portfolio and
are answered by Portfolio Managers Vincent R. Giordano and Roberto W. Roffo, who
have managed the municipal securities portfolio since the Fund's inception.
- --------------------------------------------------------------------------------
WILL YOU PROVIDE AN OVERVIEW OF THE MUNICIPAL BOND MARKET DURING 2008?
Six months ago, in the Fund's semi-annual report for the period ended June 30,
2008, we said that the first half of 2008 represented the worst period in many
years for the bond market. In the last half of the year, market conditions
became even worse. A pivotal event was the mid-September bankruptcy filing of
Lehman Brothers Holdings Inc., which created massive turmoil throughout the
global financial markets, including the market for municipal bonds. U.S.
Treasury securities rallied dramatically, while every other area of the
fixed-income market dropped sharply as credit spreads (the difference in
interest rates on bonds that carry credit risk versus U.S. Treasury bonds of
comparable maturities) widened dramatically. Even municipal bonds, which
historically have a very low default rate, performed very poorly; the Barclays
Municipal Index returned -14.68% for the 12 months ended December 31, 2008.
- --------------------------------------------------------------------------------
HOW DID THE MUNICIPAL BOND PORTION OF THE FUND PERFORM IN THIS ENVIRONMENT?
After outperforming the Barclays Municipal Index in the first half of the year,
the Fund's municipal bond portfolio underperformed the index in the last half of
the year, producing a negative return of -15.88% for the full year. As investors
became increasingly uncomfortable with risk, bonds with any degree of credit
risk performed poorly. Since the Barclays Municipal Index is composed mainly of
securities with the highest credit ratings, the Fund's investments in lower
rated securities, which contributed to the Fund's performance relative to the
Barclays Municipal Index in the first half of the year, detracted significantly
from the Fund's performance relative to the Barclays Municipal Index over the
last few months of 2008.
- ----------
(5) The term tranche is used to describe a specific series of AMPS. The Fund
has issued two tranches of AMPS.
(6) LIBOR is the interest rate that banks charge one another in the short-term
international interbank market.
6 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | QUESTIONS & ANSWERS continued
Fortunately, anticipating that the market would become illiquid, we had reduced
the Fund's holdings of A and lower rated securities, replacing them with bonds
whose principal and interest when due are guaranteed by the Texas Permanent
School Fund ("TPSF"), which represented more than 20% of the municipal bond
portfolio for a time; as of December 31, 2008, bonds guaranteed by the TPSF
represent 24.2% of the Fund's municipal bond portfolio. The TPSF bond guarantee
program was created by the state of Texas to help school districts secure higher
credit ratings so they could issue bonds with lower interest rates. These very
high quality bonds held up significantly better than the rest of the market in
2008, especially near the end of the year when they became scarce after the TPSF
announced that it would temporarily suspend its bond guarantee program for new
issues.
The greatest detriment to the performance of the municipal bond portfolio was
its hedging strategy, which had contributed significantly to performance in the
first half of the year. We generally use interest rate swaps to hedge the
municipal bond portfolio's exposure to fluctuations in interest rates or to
manage its duration. (An interest rate swap is an agreement between two parties
to exchange one stream of future interest payments for another based on a
specified principal amount. Duration is a measure of the interest rate
sensitivity of a bond of fixed-income portfolio which incorporates time to
maturity and coupon size. The longer the duration, the greater the risk
associated with interest rate movements.) The interest rate swaps used in the
municipal bond portfolio exchange the right to receive a floating rate payment
(typically based on either the Bond Market Association Municipal Swap Index
("BMA") or LIBOR) for the right to receive a fixed rate payment. Typically, when
the prices of municipal bonds drop, the value of the hedge increases and that
helps creates profits for the Fund. But during the fourth quarter of 2008, there
was extreme illiquidity in the municipal securities market and a massive flight
to quality in the U.S. Treasuries market, creating very wide spreads. Because of
rising prices for Treasury securities, the value of the hedge decreased at the
same time the Fund was losing money on municipal bond holdings; this reduced
total return for the year by approximately five percentage points. On an
unhedged basis, the Fund's municipal bond portfolio was down less than the
Barclays Municipal Index for the year.
- --------------------------------------------------------------------------------
HOW DO YOU SELECT MUNICIPAL SECURITIES FOR THE FUND?
We begin by analyzing broad macroeconomic trends and developments affecting the
fixed-income markets. Our team analyzes the economic outlook, market conditions
and perceived effects on interest rates and yield curves. From there, we
incorporate a bottom-up and top-down analysis that helps us construct a
portfolio that we believe optimizes federally tax-exempt income while seeking to
avoid undue credit risk and market timing risk. While we monitor interest rates
very closely and act quickly to adjust the portfolio to changing market rates,
we do not trade the portfolio in search of incremental gains that could be
achieved by active trading based on daily changes in rates. Our proprietary
unbiased research helps us identify undervalued sectors that we believe have the
potential for ratings upgrades and capital appreciation; however, there is no
guarantee that such events will occur.
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WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET, AND WHAT DOES THIS MEAN FOR
THE FUND?
The municipal bond market, like essentially all capital markets, continues to
face extraordinarily difficult conditions, although there have been some signs
of improvement since the third quarter of 2008, when the fixed-income markets
was essentially frozen. We have upgraded the overall credit quality and
liquidity of the portfolio over the last 12 months, and we feel this is a good
position to maintain until we see more signs of market stability. We do believe
that high quality municipal bonds currently offer a great value relative to rest
of the fixed income market. With a default rate that has traditionally been less
than 1%, we believe there is very little credit risk in municipal bonds. Yet
these bonds are yielding 200 to 300 basis points (2.0% to 3.0%) more than
Treasury securities. We have structured the portfolio to provide as much income
as possible without compromising credit quality, and we believe this approach
will result in good performance relative to Treasury securities in 2009.
Annual Report | December 31, 2008 | 7
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | QUESTIONS & ANSWERS continued
The Fund's equity portfolio and taxable fixed-income securities are managed by
TS&W. The following questions are related to those portions of the portfolio and
are answered by Portfolio Managers Paul A. Ferwerda and William M. Bellamy.
- --------------------------------------------------------------------------------
WILL YOU PROVIDE AN OVERVIEW OF THE U.S EQUITY AND HIGH-YIELD BOND MARKETS
DURING 2008?
In the Fund's semi-annual report for the period ended June 30, 2008, we
described the first half of 2008 as a time of economic uncertainty and turmoil
in the capital markets. Since that time, there has been pronounced deterioration
in equity and debt markets not only in the U.S. but throughout the world. Credit
markets became so intolerant of risk that for a time they were essentially
frozen. The combination of a housing slump, rising unemployment, a severe credit
crunch and falling equity prices has led to a general loss of confidence,
causing households and businesses to avoid spending and severely depressing
aggregate demand. In early December, the Business Cycle Dating Committee of the
National Bureau of Economic Research officially confirmed that the U.S. economy
has been in a recession since December 2007. Aggressive policy responses by the
U.S. government, including highly stimulative monetary policy, massive provision
of liquidity, capital infusions, and guarantees of bank debt, have helped to
keep the financial system viable and begun to loosen frozen credit markets.
Essentially all equity indices posted negative returns during 2008. The S&P 500,
an equity index that is generally regarded as a good indicator of the broad
stock market, returned -37.00% for the year. The entire market was so extremely
weak that it really made little difference whether an investor was focused on
large- or small-cap stocks, or whether a growth or value strategy was employed.
The large-cap Russell 1000(R) Index posted a return of -37.60%, while the
small-cap Russell 2000(R) Index(7) returned -33.79%. The return of the Russell
1000 Value Index was -36.25%, compared with -38.44% for the Russell 1000 Growth
Index. (8) All ten industry sectors within the S&P 500 posted negative returns.
The weakest sector was financials, down more than 50%; the strongest was
consumer staples with a negative return of -14.00%.
There was little difference between returns of stocks that paid substantial
dividends and those that did not; in fact some stocks that began the year with
high yields cut or eliminated their dividends and were among the very worst
performing issues. This was especially the case in the financial sector, which
has traditionally accounted for approximately 25% of all dividends paid by
companies in the S&P 500. Traditionally, low-beta(9), high-yield stocks tend to
perform relatively well in weak markets. But with factors specific to the
financial industry creating weakness in that sector, stocks with lower yields
generally performed better than high-yield stocks during the recent market
downturn.
With concerns about credit quality the major driver of the bond market in 2008,
by far the best performing fixed-income asset class was U.S. Treasury
securities, with the Barclays Capital U.S. Government/Credit Index(10) returning
5.70% for the 12 months ended December 31, 2008. The Barclays U.S. Aggregate
Bond Index, (11) which is considered indicative of broad bond market trends,
returned 5.24% for the 12 months ended December 31, 2008, while the return of
the Barclays U.S. Corporate High Yield Index(12) was -26.16% over the same
period.
As credit concerns became increasingly widespread, especially in the financial
industry, the U.S. federal government began to intervene, but the intervention
was inconsistent. Some large financial firms, most notably Lehman Brothers
Holdings Inc., were allowed to fail, while others were rescued and takeovers of
others that were failing were arranged. In early September, just days after
stating that Fannie Mae and Freddie Mac were financially sound and that they had
sufficient capital to survive the financial crisis, the U.S. Treasury and the
Federal Housing Finance Agency took over these government-sponsored entities. As
financial services companies with investment-grade bond ratings floundered, bond
investors began questioning the entire capital structure of the market, and
prices of all bonds with any credit risk, even industrial companies, dropped
sharply. For a time in October, the bond market was essentially frozen, with
huge spreads between bid and asked prices.
In late November, after the Federal Reserve Board (the "Fed") announced plans to
begin buying mortgages in the secondary market and the equity market began to
recover, conditions in the bond market improved as investors who had been
waiting on the sidelines began to re-enter the market. In late November and
December, there was a major rally in the bond market, both high yield and
investment grade. Between November 20 and the end
- ----------
(7) Russell 1000(R) Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 92% of
the total market capitalization of the Russell 3000 Index. Russell 2000(R)
Index measures the performance of the 2,000 smallest companies in the
Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index.
(8) The Russell 1000 Value Index measures the performance of those Russell
1000 companies with lower price-to-book ratios and lower forecasted growth
values, while the Russell 1000 Growth Index measures the performance of
those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values.
(9) Beta is a measure of a stock's sensitivity to general market trends.
(10) Barclays Capital U.S. Government Bond/Credit Index measures performance of
U.S. dollar denominated U.S. Treasuries, government-related, and
investment grade U.S. corporate securities that have a remaining maturity
of greater than or equal to 1 year. In Addition, the securities have $250
million or more of outstanding face value, and must be fixed rate and
non-convertible.
(11) Barclays U.S. Aggregate Bond Index represents securities that are U.S.
domestic, taxable, and dollar denominated. The index covers the U.S.
investment grade fixed rate bond market, with index components for
government and corporate securities, mortgage pass-through securities, and
asset-backed securities.
(12) Barclays U.S. Corporate High Yield Index is comprised of issues that meet
the following criteria: at least $150 million par value outstanding,
maximum credit rating of Ba1 (including defaulted issues) and at least one
year to maturity.
8 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | QUESTIONS & ANSWERS continued
of the year, high yield bonds, as represented by the Barclays U.S. Corporate
High Yield Index, moved up more than 7% and investment-grade bonds, as
represented by the Barclays U.S. Aggregate Bond Index, appreciated over 5%.
- --------------------------------------------------------------------------------
BEFORE WE DISCUSS THE SPECIFIC PERFORMANCE ATTRIBUTES OF THE PORTFOLIO, WILL YOU
DESCRIBE HOW YOU CHOOSE EQUITY AND HIGH-YIELD SECURITIES?
TS&W's investment process is value-driven and team-oriented. On the equity side,
we have a proprietary quantitative valuation model that we apply to more than
400 stocks. This directs our review process toward companies that we believe
have the highest expected return potential over a multi-year period. Our
in-house research analysts are responsible for validating the model inputs for
companies under their coverage and monitoring them over the holding period. Buys
and sells are discussed at weekly research meetings or more frequently as
needed. TS&W's fixed-income team is responsible for overall bond market strategy
as well as security selection. In-house analysts are used to support the credit
review process.
- --------------------------------------------------------------------------------
PLEASE TELL US ABOUT THE DIVIDEND INCOME EARNED ON THE FUND'S EQUITY
INVESTMENTS.
Our informal goal is for the common equity portfolio to generate a dividend
yield of about two times the yield on the S&P 500 Index, which was approximately
3% as of December 31, 2008. The annualized dividend yield of the Fund's equity
portfolio was 4.77% as of December 31, 2008; however, there is no guarantee that
this level of income will be maintained. With the equity market as weak as it
was in 2008, this yield target becomes less important; in fact, because so many
companies reduced or eliminated dividends, targeting a certain yield, either
absolute or relative to the market, would probably be detrimental to
performance. Also, we were cautious with regard to exposure to the financials
sector, which has traditionally provided a disproportionate level of income
relative to its weight in the S&P 500, but which has cut dividends significantly
in the last few months. We believe current stock prices offer some opportunities
for significant appreciation, and our present focus is mainly on total return.
- --------------------------------------------------------------------------------
HOW DID THE COMMON EQUITY PORTFOLIO PERFORM OVER THIS PERIOD?
We are pleased with the relative performance of the equity portion of the Fund
during 2008, even though absolute return was negative. The common equity portion
of the portfolio had a return of approximately -32.5%, about 450 basis points
(4.5%) better than the -37.00% return of the S&P 500 Index and -36.25% for the
Russell 1000 Value Index.
- --------------------------------------------------------------------------------
WHICH AREAS OF THE COMMON EQUITY PORTFOLIO HELPED PERFORMANCE?
Several sectors stand out as contributing to the relative performance of the
equity portfolio. The Fund's allocation of approximately 10% of its equity
portfolio to the utilities sector, which had a weight of approximately 4% in the
S&P 500 as of December 31, 2008, provided significant income and the stocks held
up relatively well in a down market. One utility holding that performed well was
TECO Energy, Inc. (1.0% of total investments), an electric utility with
significant reserves of Appalachian coal; the Fund held this stock for just part
of the year, selling it in strength and then buying it back. Other positives in
the utilities sector were Southern Company, (1.0% of total investments), one of
the largest electricity distributors in the U.S., and Pacific Gas and Electric
Company (not held in portfolio at period end), a utility serving customers in
Central and Northern California.
Also positive was stock selection in the financials sector, where we avoided
many of the industry leaders that were down sharply; most of the worst
performing stocks in the S&P 500 were in this sector. Holdings in this sector
that performed well on a relative basis include Wells Fargo & Company (1.7% of
total investments), one of the top U.S. banks with bank branches and mortgage
and consumer finance offices nationwide; and HSBC Holdings PLC (not held in the
portfolio at period end), one of the world's top banks by assets, which we sold
late in 2008.
An overweight allocation to the telecommunications sector relative to the S&P
500 and the Russell 1000 Value Index contributed to performance. Positions that
performed well include Verizon Communications, Inc. (3.0 % of total
investments), the second largest U.S. telecommunications services provider;
AT&T, Inc. (2.5% of total investments), a leading provider of voice, video and
data communications services; Deutsche Telekom AG, (1.1% of total investments) a
leading telecommunications company in Europe; and Vodafone Group PLC (not held
in portfolio at period end), the world's top wireless phone services carrier by
sales.
Annual Report | December 31, 2008 | 9
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | QUESTIONS & ANSWERS continued
One of the few stocks that actually gained ground for the year was Wal-Mart
Stores, Inc. (0.6% of total investments), a leading discount and grocery
retailer which appears to be benefiting from consumers' need to economize on
basic purchases. While we like the fundamentals of this stock, we have reduced
the position somewhat, as it doesn't provide much yield. To maintain the desired
weight in the consumer discretionary position, we have added positions in home
improvement retailer Lowe's Companies, Inc. and cable provider Comcast
Corporation (0.6% and 1.0% of total investments, respectively).
The equity portfolio's positioning in health care also contributed to relative
performance for the year, after detracting in the first half. This is a sector
that tends to hold up when the market falls precipitously, as it did in the
fourth quarter. Health care holdings that performed relatively well include
Quest Diagnostics Incorporated, a leading clinical lab that performs tests on
approximately 150 million specimens annually; and Bristol-Myers Squibb Co., a
leading pharmaceutical provider of a range of drugs from cardiovascular to
therapeutic (0.8% and 1.5% of total investments, respectively).
- --------------------------------------------------------------------------------
WHICH AREAS OF THE COMMON EQUITY PORTFOLIO HURT PERFORMANCE?
Most of the stocks that performed poorly are financials and industrial and
material stocks that are highly sensitive to broad economic trends. One of the
worst performing common stocks was ING Groep NV (not held in portfolio at period
end), a Dutch insurer. Also weak was Dow Chemical Co. (1.2% of total
investments), a leading producer of plastics and chemicals, which weakened along
with the entire materials sector.
For much of the year we had a position in cruise line Carnival Corp. (not held
in the portfolio at period end), believing that the company would benefit from
falling oil prices. Weak consumer spending trends turned out to have a much
greater impact on Carnival's business, and we have eliminated this position.
A major negative was a position in General Electric Co. (2.0% of total
investments), a company involved in a broad range of businesses from aircraft
engines, household appliances and financial services, which currently sells at
its lowest valuation in several decades, with a dividend yield above 4.5%. We
believe the concern in the market about GE Capital, the company's finance arm,
is excessive; the company is de-emphasizing this business, and some of GE's
other businesses, such as health care equipment services, are doing fine.
- --------------------------------------------------------------------------------
HOW DID THE PORTFOLIO'S HIGH-YIELD BONDS AND PREFERRED STOCKS PERFORM?
This portion of the portfolio performed very well on a relative basis, although
the absolute return was negative. The portfolio of high yield bonds and
preferred stocks returned -12.40%, substantially better than the -24.80% return
of our blended benchmark, which is 67% the Merrill Lynch High Yield Master II
Index (the "High Yield Index") and 33% the Merrill Lynch U.S Fixed Rate
Preferred Stock Index (the "Preferred Index"). For the 12-month period, the High
Yield Index returned -26.39%, and the Preferred Index returned -25.24%.
The main reason for the portfolio's strong performance relative to the benchmark
was the opportunity we took in the early months of the year to improve credit
quality. Whenever the market exhibited strength, we sold bonds or preferreds of
lower credit quality, replacing them with higher quality issues, including some
investment-grade bonds that were trading as if they were lower rated. When the
high yield market deteriorated rapidly in the third quarter, our portfolio
outperformed the blended benchmark quite a bit. We continue to keep a very
watchful eye on credit quality, taking action to sell positions that we believe
are deteriorating.
An important factor in the strong relative performance of the Funds high yield
bonds was that we avoided many of the financial companies that experienced
severe credit problems, concentrating instead on higher quality industrial
companies. A significant detractor from performance was our exposure to General
Motors Acceptance Corp. LLC (GMAC) (0.4 % of total investments), the finance
company that was spun off by General Motors Corp. several years ago, which
experienced problems as automobile sales plummeted.
Another position that detracted was a BB-rated Dillards, Inc. bond (0.2 % of
total investments) that performed poorly, reflecting weakness throughout the
retail industry resulting from consumers' reluctance to shop. Despite current
issues, we continue to hold this bond, which we consider to be of greater value
than recent prices indicate. Dillards, Inc. is a leading department store chain
in the Sun Belt and central U.S. and we like this family-run company in large
part because it owns much of the real estate under its stores. Even if the
business performs poorly, the real estate could prove a valuable asset for bond
holders.
Among the securities that contributed to performance was a bond of DRS
Technologies, Inc. (0.8% of total investments), a supplier of high-technology
products and services to the U.S. military and the defense industry. DRS has
reached an agreement
10 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | QUESTIONS & ANSWERS continued
to be acquired by an Italian company, and the DRS bonds performed well in the
expectation that the acquiring company would make a tender offer for the bonds,
which occurred in early January. An example of an investment grade bond we were
able to buy with a minimal reduction in yield versus a high-yield bond was a
BBB- rated Hess Corporation bond, which helped performance quite a bit in the
fourth quarter. Other bonds that performed well include BB-rated bonds of
Phillips-VanHeusen Corp. (0.7% of total investments), an apparel manufacturer
that continues to perform well, and DirectTV Holdings/DirecTV Financing Co.
(0.6% of total investments), a provider of digital television entertainment in
the U.S. and Latin America.
And then there was an unusual situation with a non-rated bond of Navistar
International Corporation (0.3% of total investments), a leading manufacturer of
heavy-duty trucks, school buses, diesel engines and replacement parts. We
received a request from an investor who was short these bonds and needed them to
respond to a redemption; with trading in these bonds basically non-existent at
the time, we were able to sell them at par, which was a much higher price than
would be considered a normal market value for the bonds in a more active market.
- --------------------------------------------------------------------------------
WHAT IS YOUR OUTLOOK FOR THE EQUITY AND HIGH-YIELD MARKETS IN THE MONTHS AHEAD?
The year just ended was a very difficult period for all investors, and, with the
economy in a recession, the weakness in capital markets could continue for some
time. Typically, the economy begins to pick up some 18 months after the first
Fed easing in monetary policy, which occurred in September 2007. If this
recovery follows that pattern, that would mean we should see some signs of a
recovery by the second or third quarter of 2009.
Since the stock market typically turns up several months ahead of the economy,
there is reason to believe that we could see a better equity market in 2009. The
market is dramatically lower than its peak level, and many stocks now look very
cheap relative to their historic price-earnings multiples. However, since we
continue to see many disappointing earnings reports, it is hard to have much
confidence in earnings estimates. Until we begin to see some good news, it is
unlikely that the market will show meaningful strength.
In the bond market, volatility remains extraordinarily high. However, as
discussed above, near the end of 2008, we saw some improvement in credit markets
and the mortgage market. We believe that defaults on high yield bonds could
increase in 2009, and that could have a negative impact on the market. Our major
strategy continues to be to seek opportunities to improve quality without giving
up yield. As of the end of 2008, approximately 41% of our bond and preferred
portfolio is in investment-grade securities, compared with 30% for the blended
benchmark. We may well increase the percentage in investment-grade securities in
the months ahead, taking advantage of opportunities to purchase quality bonds
with attractive yields that our own analysis suggests are priced below their
long-term values.
As difficult as the current market environment is, we believe it demonstrates
the value of active management. In both the equity and the high yield portions
of the Fund, we have been able to add to performance by avoiding some of the big
names that collapsed. We continue to seek opportunities with upside potential,
and we are equally vigilant in looking for stocks and high yield bonds to avoid.
Annual Report | December 31, 2008 | 11
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | QUESTIONS & ANSWERS continued
- --------------------------------------------------------------------------------
TYW RISKS AND OTHER CONSIDERATIONS
The views expressed in this report reflect those of the portfolio managers only
through the report period as stated on the cover. These views are subject to
change at any time, based on market and other conditions and should not be
construed as a recommendation of any kind. The material may also include forward
looking statements that involve risk and uncertainty, and there is no guarantee
that any predictions will come to pass. There can be no assurance that the Fund
will achieve its investment objectives. The value of the Fund will fluctuate
with the value of the underlying securities. Historically, closed-end funds
often trade at a discount to their net asset value. There can be no assurance
that the Fund will achieve its investment objective. The value of the Fund will
fluctuate with the value of the underlying securities. Historically, closed-end
funds often trade at a discount to their net asset value. The Fund is subject to
investment risk, including the possible loss of the entire amount that you
invest.
MUNICIPAL SECURITIES MARKET RISK. The yields on and market prices of municipal
securities are dependent on a variety of factors, including general conditions
of the municipal securities market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The value of outstanding
municipal securities will vary as a result of changing evaluations of the
ability of their issuers to meet interest and principal payments. Such values
will also change in response to changes in the interest rates payable on new
issues of municipal securities and changes in general interest rate levels.
Changes in the value of the municipal securities held in the Fund's portfolio
arising from these or other factors will cause changes in the Fund's net asset
value per share.
INCOME AND INTEREST RATE RISK. The income shareholders receive from the Fund is
based primarily on the dividends and interest earned by the Fund from its
investments, which can vary widely over the short and long term. The dividend
income from the Fund's investment in equity securities will be influenced by
both general economic activity and issuer-specific factors. In the event of a
recession or adverse events effecting a specific industry or issuer, the issuers
of the common stocks held by the Fund may reduce the dividends paid on such
common stocks. Interest rate risk is the risk that municipal securities and
other debt (and, in certain cases, equity) securities in which the Fund invests
(and the Fund's net assets) will decline in value because of changes in interest
rates.
LOWER GRADE SECURITIES. Investment in fixed income securities of
below-investment grade quality (commonly known as "Junk bonds") involves
substantial risk of loss. They are considered predominantly speculative with
respect to the issuer's ability to pay interest and repay principal and are
susceptible to default or decline in market value due to adverse economic and
business developments. Debt securities in the lowest investment grade category
may also be considered to have speculative characteristics by certain ratings
agencies. The market values for fixed income securities of below investment
grade quality tend to be more volatile, and these securities are less liquid,
than investment grade debt securities.
COMMON STOCK RISK. The common stocks and other equity securities in which the
Fund invests may experience substantial volatility in their market value.
Although common stocks typically provide higher returns than debt securities,
they are also more susceptible to adverse changes in market value due to
issuer-specific events. The market values of common stocks are also sensitive to
changes in investor perceptions as well as general movements in the equities
markets.
STATE CONCENTRATION RISK. To the extent the Fund concentrates its investments in
Texas municipal bonds, the Fund may be significantly impacted by political,
economic, or regulatory developments that affect issuers in Texas and their
ability to pay principal and interest on their obligations. The information
below was obtained from publicly available official documents and statements and
has not been independently verified by the Fund. Recent broad-based market
declines and volatility may have a significant adverse effect on the Texas
economy. To the extent that industries which account for significant portions of
the Texas economy are affected to a greater extent than the broader market, the
Texas economy may be more adversely affected. As a result, recent market and
economic developments may adversely affect municipal securities of Texas
issuers. The information below is intended only as a general summary and is not
intended as a discussion of any specific factor that may affect any particular
obligation or issuer.
LEVERAGE RISK. Certain risks are associated with the leveraging of common
stock. Both the net asset value and the market value of shares of common stock
may be subject to higher volatility and a decline in value.
AMPS RISK. There also risks associated with investing in Auction Market
Preferred Shares or AMPS. The AMPS are redeemable, in whole or in part, at the
option of the Fund on any dividend payment date for the AMPS, and will be
subject to mandatory redemption in certain circum-stances. The AMPS will not be
listed on an exchange. You may only buy or sell AMPS through an order placed at
an auction with or through a broker-dealer that has entered into an agreement
with the auction agent and the Fund or in a secondary market maintained by
certain broker dealers. These broker-dealers are not required to maintain this
market, and it may not provide you with liquidity. The federal tax advice
contained herein was not intended or written to be used, and it cannot be used
by any taxpayer, for the purpose of avoiding penalties that may be imposed on
the taxpayer; the advice was written to support the promotion or marketing of
the matters addressed; and the taxpayers should seek advice based on the
taxpayer's particular circumstances from an independent tax advisor.
In addition to the risks described above, the Fund is also subject to:
Investment Risk, Common Share Market Risk, Tax Risk, Credit Risk, Geographical
and Sector Risk, Interest Rate and Hedging Transactions Risk, Value Investing
Risk, Illiquid Investments Risk, Foreign Securities Risk, Small- and
Medium-Sized Company Risk, Fund Distribution Risk, Market Discount Risk,
Portfolio Turnover, and Current Developments. Please see www.claymore.com/tyw
for a more detailed discussion about Fund risks and considerations.
12 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Fund SUMMARY | AS OF DECEMBER 31, 2008 (unaudited)
FUND STATISTICS
- --------------------------------------------------------------------------------
Share Price $ 6.65
Common Share Net Asset Value $ 8.47
Premium/(Discount) to NAV -21.49%
Net Asset Applicable to Common Shareholders ($000) $ 130,445
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
(INCEPTION 4/28/04) MARKET NAV
- --------------------------------------------------------------------------------
One Year -43.70% -37.97%
Three Year - average annual -13.57% -11.60%
Since Inception - average annual -9.23% -4.26%
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS % OF TOTAL
MUNICIPAL PORTFOLIO* INVESTMENTS
- --------------------------------------------------------------------------------
California Health Facilities Financing Authority Revenue
BHAC Insured, AAA, Aaa, 5.25%, 11/15/2046 4.0%
Puerto Rico Housing Finance Authority Capital Fund Modernization
Program Subordinate Bonds, Series 2008, AA-, NR, 5.125%, 12/1/2027 3.1%
Frisco Independent School District
Unlimited Tax School Building Bonds, Series 2008, PSF
Guaranteed, AAA, NR, 6.00%, 8/15/2038 2.9%
Forney Independent School District Unlimited Tax School Building
Bonds, Series A, PSF Guaranteed, AAA, NR, 6.00%, 8/15/2037 2.8%
North Texas Tollway Authority Revenue Refunding-System-
First Tier-Series K-1, ASSURED, AAA, Aa2, 5.75%, 1/1/2038 2.7%
Port of Seattle Passenger Facilities Charge Revenue Port
Seattle-Passenger, Series A, BHAC/MBIA Insured, AAA, Aaa,
5.50%, 8/15/2035 2.1%
City of Detroit, Water Supply System Revenue, Rols RR II R 11448
BHAC/FGIC Insured, AAA, NR, 9.782%, 7/1/2026 2.1%
Seguin Independent School District Unlimited Tax School Building
Bonds, Series 2008, PSF Guaranteed, AAA, Aaa, 5.00%, 8/15/2035 2.1%
Alhambra Certificates of Participation Police Facilities 91-1-RMK,
AMBAC Insured, A, Baa1, 6.75%, 9/1/2023 2.1%
Metropolitan Transportation Authority Revenue (New York),
Transportation-Series 2008C, A, A2, 6.50%, 11/15/2028 2.0%
- --------------------------------------------------------------------------------
*Excludes short-term
TOP TEN HOLDINGS % OF TOTAL
EQUITY AND INCOME PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Verizon Communications, Inc. 1.5%
BP PLC, ADR (United Kingdom) 1.4%
AT&T, Inc. 1.3%
Royal Dutch Shell PLC, Class B, ADR (United Kingdom) 1.2%
Pfizer, Inc. 1.2%
Centerpoint Energy, Inc. 1.2%
Chevron Corp. 1.2%
Progress Energy, Inc. 1.1%
General Electric Co. 1.0%
Pitney Bowes, Inc. 1.0%
- --------------------------------------------------------------------------------
Securities and holdings are subject to change daily. For more current
information, please visit www.claymore.com/tyw. The above summaries are provided
for informational purposes only and should not be viewed as recommendations.
Past performance does not guarantee future results.
% OF TOTAL
TOP TEN SECTORS INVESTMENTS
- --------------------------------------------------------------------------------
General Obligation 12.5%
Health Care 8.8%
Water & Sewer 5.8%
Oil, Gas & Consumable Fuels 5.3%
Toll Roads 4.7%
Pharmaceuticals 4.6%
Special Tax 4.3%
Transportation 4.2%
Diversified Financial Services 3.7%
Diversified Telecommunication 3.4%
- --------------------------------------------------------------------------------
SHARE PRICE & NAV PERFORMANCE
- --------------------------------------------------------------------------------
[LINE CHART]
Share
Price NAV
12/31/07 $ 13.1 $ 14.94
13.2 14.88
13.42 14.93
13.17 14.83
13.04 14.95
13.03 14.82
13.11 14.94
13.26 14.99
13.14 14.92
13.3 14.99
13.16 14.83
13.14 14.84
13.05 14.58
12.88 14.46
12.75 14.37
12.95 14.56
12.86 14.53
12.81 14.39
12.95 14.54
13.11 14.55
13.13 14.51
13.13 14.68
13.3 14.81
13.21 14.71
12.97 14.48
12.99 14.46
13 14.46
13.05 14.44
13.05 14.46
13.01 14.53
13 14.61
12.63 14.39
12.59 14.32
12.68 14.24
12.58 14.24
12.55 14.12
12.4 14.16
12.57 14.14
12.56 14.13
12.48 13.96
12.28 13.67
11.84 13.29
11.72 13.43
11.69 13.57
11.91 13.7
11.9 13.61
11.76 13.61
11.72 13.52
11.89 13.67
11.77 13.36
11.66 13.33
11.45 13.18
11.33 13.1
11.49 13.39
11.36 13.13
11.45 13.35
11.63 13.46
11.76 13.49
11.74 13.43
11.66 13.34
11.54 13.29
11.6 13.34
11.89 13.6
11.84 13.65
11.97 13.69
12.03 13.7
12.06 13.74
12 13.79
12 13.82
11.94 13.84
11.7 13.73
11.82 13.7
11.82 13.74
11.91 13.93
11.99 13.9
12.04 13.98
12.06 13.92
11.99 13.85
12.03 13.87
12.08 13.9
12.14 13.95
12.09 13.94
12.09 13.98
12.15 13.98
12.27 14.11
12.31 14.13
12.31 14.08
12.37 14.12
12.27 14
12.29 14.05
12.25 14.04
12.42 14.13
12.43 14.09
12.42 14.16
12.52 14.26
12.55 14.33
12.56 14.33
12.54 14.28
12.45 14.2
12.42 14.21
12.34 14.13
12.43 14.13
12.47 14.14
12.54 14.13
12.56 14.21
12.55 14.13
12.54 14.11
12.53 14.07
12.6 14.17
12.55 13.99
6/30/08 12.37 13.97
12.48 13.85
12.08 13.48
11.95 13.42
11.95 13.49
11.87 13.49
11.84 13.43
11.75 13.31
11.76 13.24
11.63 13.01
11.42 12.98
11.38 12.96
11.35 13.04
11.26 12.87
11.26 12.85
11.11 12.95
11.29 12.98
11.39 12.91
11.4 12.95
11.32 12.88
11.31 13.03
11.23 12.92
11.2 12.95
11.03 12.8
10.98 12.67
10.78 12.57
10.88 12.65
10.82 12.7
10.94 12.72
10.93 12.73
10.99 12.76
11.15 12.76
11.09 12.67
10.84 12.62
10.81 12.53
10.91 12.63
10.97 12.75
10.91 12.7
11.01 12.68
11.08 12.65
11.18 12.79
11.01 12.78
10.88 12.77
11.11 12.96
11.25 13.02
11.39 13.01
11.24 12.95
11.27 13.02
11.18 13.09
11.12 13.01
11.04 12.88
11.01 12.84
11.09 12.9
11.08 12.97
10.99 12.85
11.04 12.85
11.05 12.85
11.04 12.98
10.96 12.91
11.02 12.92
11.04 12.95
11.03 12.8
11.04 12.84
11.12 13.02
10.93 12.81
10.93 12.8
10.62 12.58
10.63 12.58
10.3 12.09
9.72 11.91
9 11.45
8.85 11.51
9.59 12.16
9.6 11.81
9.27 11.64
9.19 11.54
9.47 11.67
9.32 11.59
8.89 10.81
8.99 11.05
9.3 11.08
9.2 10.86
9.2 10.9
8.46 10.52
7.83 10.04
7.13 9.66
6.52 8.89
5.68 8.33
6.45 8.99
6.92 8.91
6.6 8.28
6.38 8.43
6.65 8.42
6.95 8.78
7.15 8.88
6.9 8.93
7.04 9.21
7.03 9.08
7.05 8.98
7.26 9.44
7.5 9.44
7.67 9.43
8.19 9.53
8.06 9.57
8.15 9.87
8.52 9.58
8.36 9.33
8.26 9.57
8.22 9.48
8.03 9.35
7.63 8.99
7.7 9.38
7.68 9.12
7.26 8.97
7.4 8.96
7.03 8.51
6.64 7.93
6.75 8.18
6.66 8.46
6.6 8.37
6.7 8.54
6.71 8.61
6.49 8.01
6.43 8.16
6.65 8.24
6.54 7.96
6.5 8.06
6.8 8.19
6.62 7.98
6.67 8.04
6.23 7.61
6.35 7.61
6 7.52
6.22 7.85
6.45 7.88
6.14 7.89
6.42 8
6.21 8
6.65 8.02
6.36 8.06
6.54 8.11
6.41 8.12
6.43 8.31
12/31/08 6.65 8.47
PORTFOLIO CONCENTRATION BY ASSET CLASS*
- --------------------------------------------------------------------------------
[PIE CHART]
Municipal Bonds 54.6%
Common Stocks 35.5%
Corporate Bonds 6.1%
Preferred Stocks 3.8%
- --------------------------------------------------------------------------------
*As a percentage of total investments
- --------------------------------------------------------------------------------
CREDIT QUALITY*
- --------------------------------------------------------------------------------
[PIE CHART]
AAA 32.2%
AA 4.6%
A 14.9%
BBB 6.5%
BB 3.3%
B 1.6%
CCC/NR 1.5%
Common Stock/Other 35.4%
- --------------------------------------------------------------------------------
*Represents higher rating of either S&P, Moody's or Fitch as a percentage of
total investments
- --------------------------------------------------------------------------------
Annual Report | December 31, 2008 | 13
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Portfolio of INVESTMENTS | DECEMBER 31, 2008
OPTIONAL CALL
PRINCIPAL AMOUNT PROVISIONS VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS - 101.1%
ARIZONA - 5.0%
$ 4,500,000 Maricopa County Pollution Control Corp., Pollution Control Revenue
Refunding Public Service Co-A-RMK, BB+, Baa3
5.75%, 11/1/2022 5/1/09 @ 100 $ 3,327,885
3,000,000 Glendale Western Loop 101, Public Facilities Corp.
Third Lien Excise Tax Revenue, Series A, AA, A2
7.00%, 7/1/2033 1/1/14 @ 100 3,154,320
- --------------------------------------------------------------------------------------------------------------------------
6,482,205
- --------------------------------------------------------------------------------------------------------------------------
CALIFORNIA - 15.3%
4,810,000 Alhambra Certificates of Participation
Police Facilities 91-1-RMK, AMBAC Insured, A, Baa1
6.75%, 9/1/2023 N/A 5,254,348
11,250,000 California Health Facilities Financing Authority Revenue
Sutter Health, Series A, BHAC Insured, AAA, Aaa
5.25%, 11/15/2046 11/15/16 @ 100 10,325,588
2,100,000 California Statewide Communities Development Authority Revenue
Sub-Wildwood Elementary School, NR, NR
7.00%, 11/1/2029 11/1/09 @ 102 1,520,904
5,000,000 Golden State Tobacco Securitization Corporation
Tobacco Settlement Asset-Backed Bonds, Series 2007A-1, BBB, Baa3
5.75%, 6/1/2047 6/1/17 @ 100 2,851,550
- --------------------------------------------------------------------------------------------------------------------------
19,952,390
- --------------------------------------------------------------------------------------------------------------------------
FLORIDA - 0.5%
1,000,000 St. Johns County Industrial Development Authority Health Care
Glenmoor Project, Series 2006A, NR, NR
5.25% 1/1/2026 1/1/16 @ 100 592,080
- --------------------------------------------------------------------------------------------------------------------------
HAWAII - 1.4%
1,760,000 State of Hawaii
Hawaii State Highway Revenue, BHAC Insured, AAA, Aaa
4.75%, 1/1/2022 1/1/19 @ 100 1,779,571
- --------------------------------------------------------------------------------------------------------------------------
ILLINOIS - 2.9%
5,000,000 Illinois Finance Authority Revenue
OSF Healthcare System, Series 2007A, A, A2
5.75%, 11/15/2037 11/15/17 @ 100 3,752,600
- --------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS - 0.9%
1,820,000 Massachusetts Development Finance Agency Revenue
Evergreen Center, BBB-, NR
5.50%, 1/1/2035 1/1/15@ 100 1,131,803
- --------------------------------------------------------------------------------------------------------------------------
MICHIGAN - 4.1%
5,000,000 City of Detroit
Water Supply System Revenue, Rols RR II R 11448, BHAC/FGIC Insured, AAA, NR
(Underlying Obligor: City of Detroit Water Supply System) (a)
9.782%, 7/1/2026 7/1/18 @ 100 5,355,100
- --------------------------------------------------------------------------------------------------------------------------
OPTIONAL CALL
PRINCIPAL AMOUNT PROVISIONS VALUE
- --------------------------------------------------------------------------------------------------------------------------
MISSOURI - 4.0%
$ 4,690,000 Cole County Industrial Development Authority
Senior Living Facilities Revenue
Lutheran Senior Services Heisinger Project, NR, NR (b)
5.50%, 2/1/2035 2/1/14 @ 100 $ 3,072,654
3,000,000 Missouri State Health & Educational Facilities Authority Revenue
Senior Living Facilities Revenue
Lutheran Senior, Series A, NR, NR (b)
5.375%, 2/1/2035 2/1/15 @ 100 2,122,680
- --------------------------------------------------------------------------------------------------------------------------
5,195,334
- --------------------------------------------------------------------------------------------------------------------------
NEVADA - 0.8%
1,000,000 Clark County Highway Improvement Revenue
Refunding - Motor Fuel Vehicle, BHAC/AMBAC Insured, AAA, Aaa
5.00%, 7/1/2024 7/1/17 @ 100 1,015,120
- --------------------------------------------------------------------------------------------------------------------------
NEW YORK - 9.2%
5,000,000 New York State Dormitory Authority Income Tax Revenue
Saint Peters, Education - Series B, AAA, NR
5.75%, 3/15/2036 3/15/19 @ 100 5,131,500
5,000,000 Metropolitan Transportation Authority Revenue
Transportation - Series 2008C, A, A2
6.50%, 11/15/2028 11/15/18 @ 100 5,217,850
1,600,000 New York City Municipal Water Finance Authority Revenue
Water and Sewer System, 2009-Series A, AAA, Aa2
5.75%, 6/15/2040 6/15/18 @ 100 1,636,000
- --------------------------------------------------------------------------------------------------------------------------
11,985,350
- --------------------------------------------------------------------------------------------------------------------------
OHIO - 2.9%
2,760,000 Akron, Bath & Copley Joint Township Hospital District Revenue
Hospital Facilities-Summa Health Systems, Series A, RADIAN Insured, NR, A3
5.50%, 11/15/2034 11/15/14 @ 100 1,998,902
3,000,000 Buckeye Tobacco Settlement Financing Authority
Tobacco Settlement Asset-Backed Bonds, Series 2007A-2, BBB, Baa3
6.50%, 6/1/2047 6/1/17 @ 100 1,792,440
- --------------------------------------------------------------------------------------------------------------------------
3,791,342
- --------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA - 4.5%
7,500,000 Allegheny County Hospital Development Authority Health System Revenue
West Penn, Series 2007A, BB, Ba3 (b)
5.375%, 11/15/2040 11/15/17 @ 100 3,558,975
3,250,000 Pennsylvania Higher Educational Facilities Authority
Widener University Series 2003, BBB+, NR
5.375%, 7/15/2029 7/15/13 @ 100 2,261,578
- --------------------------------------------------------------------------------------------------------------------------
5,820,553
- --------------------------------------------------------------------------------------------------------------------------
PUERTO RICO - 9.1%
5,000,000 Puerto Rico Electric Power Authority
Power Revenue Revenue Bonds, Series WW, BBB+, A3 (b)
5.50%, 7/1/2038 7/1/18 @ 100 3,940,750
8,500,000 Puerto Rico Housing Finance Authority
Capital Fund Modernization Program Subordinate
Bonds, Series 2008, AA-, NR (b)
5.125%, 12/1/2027 12/1/18 @ 100 7,975,635
- --------------------------------------------------------------------------------------------------------------------------
11,916,385
- --------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
14 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | PORTFOLIO OF INVESTMENTS
continued
OPTIONAL CALL
PRINCIPAL AMOUNT PROVISIONS VALUE
- --------------------------------------------------------------------------------------------------------------------------
RHODE ISLAND - 0.4%
$ 500,000 Rhode Island State Health & Educational Building Corporation Revenue
Hospital Financing Lifespan, A-, A3
6.375%, 8/15/2021 8/15/12 @ 100 $ 479,690
- --------------------------------------------------------------------------------------------------------------------------
TEXAS - 33.5%
2,415,000 Aledo Independent School District
Unlimited Tax School Building Bonds, Series 2008, PSF Guaranteed, AAA, NR (b)
5.00%, 2/15/2039 2/15/18 @ 100 2,338,179
5,000,000 Burleson Independent School District
Unlimited Tax School Building Bonds, Series 2008, PSF Guaranteed, NR, Aaa
5.00%, 8/1/2038 8/1/18 @ 100 4,834,950
6,700,000 Forney Independent School District
Unlimited Tax School Building Bonds, Series A, PSF Guaranteed, AAA, NR
6.00%, 8/15/2037 8/15/18 @ 100 7,090,878
7,000,000 Frisco Independent School District
Unlimited Tax School Building and Refunding Bonds,
PSF Guaranteed, Series A, NR, Aaa
6.00%, 8/15/2038 8/15/18 @ 100 7,408,380
5,000,000 Livingston Independent School District
Unlimited Tax School Building Bonds, Series 2008,
PSF Guaranteed, AAA, NR
5.00%, 8/15/2038 8/15/18 @ 100 4,834,750
7,000,000 North Texas Tollway Authority Revenue
Refunding-System-First Tier-Series K-1, ASSURED, AAA, Aa2
5.75%, 1/1/2038 1/1/19 @ 100 6,826,540
5,000,000 North Texas Tollway Authority Revenue
Rols RR II R-11392-1, BHAC Insured, NR, Aaa
(Underlying Obligor: North Texas Tollway Authority) (a)
9.782%, 1/1/2040 1/1/18 @ 100 5,168,500
5,495,000 Seguin Independent School District
Unlimited Tax School Building Bonds, Series 2008,
PSF Guaranteed, AAA, Aaa (b)
5.00%, 8/15/2035 8/15/18 @ 100 5,352,679
- --------------------------------------------------------------------------------------------------------------------------
43,854,856
- --------------------------------------------------------------------------------------------------------------------------
WASHINGTON - 4.1%
4,930,000 Port of Seattle Passenger Facilities Charge Revenue
Port Seattle-Passenger, Series A, BHAC/MBIA Insured, AAA, Aaa
5.50%, 12/1/2019 N/A 5,403,083
- --------------------------------------------------------------------------------------------------------------------------
WISCONSIN - 2.5%
3,350,000 Wisconsin State Health & Educational Facilities Authority Revenue
Aurora Health Care, Series A, BBB+, A3
5.60%, 2/15/2029 2/15/09 @ 101 2,271,535
Wisconsin State Health & Educational Facilities Authority Revenue
Blood Center Southeastern Project, A-, NR
500,000 5.50%, 6/1/2024 6/1/14 @ 100 419,945
750,000 5.75%, 6/1/2034 6/1/14 @ 100 593,400
- --------------------------------------------------------------------------------------------------------------------------
3,284,880
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL BONDS - 101.1%
(Cost $147,671,853) 131,792,342
- --------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 69.2%
AEROSPACE & DEFENSE - 1.2%
40,000 Rockwell Collins, Inc. $ 1,563,600
- --------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 0.7%
15,000 Diageo PLC, ADR (United Kingdom) 851,100
- --------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 1.2%
100,000 Dow Chemical Co. (The) 1,509,000
- --------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.7%
75,000 Wells Fargo & Co. 2,211,000
- --------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 2.7%
100,000 Pitney Bowes, Inc. 2,548,000
30,000 Waste Management, Inc. 994,200
- --------------------------------------------------------------------------------------------------------------------------
3,542,200
- --------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 3.6%
132,500 Cisco Systems, Inc. (c) 2,159,750
125,000 Corning, Inc. 1,191,250
35,000 Harris Corp. 1,331,750
- --------------------------------------------------------------------------------------------------------------------------
4,682,750
- --------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.5%
155,000 Seagate Technology (Cayman Islands) 686,650
- --------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.6%
115,000 Bank of America Corp. 1,619,200
55,000 JPMorgan Chase & Co. 1,734,150
- --------------------------------------------------------------------------------------------------------------------------
3,353,350
- --------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION - 6.5%
115,000 AT&T, Inc. 3,277,500
90,000 Deutsche Telekom AG, ADR (Germany) 1,377,000
115,000 Verizon Communications, Inc. 3,898,500
- --------------------------------------------------------------------------------------------------------------------------
8,553,000
- --------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.1%
70,000 Progress Energy, Inc. 2,789,500
35,000 Southern Co. 1,295,000
- --------------------------------------------------------------------------------------------------------------------------
4,084,500
- --------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 1.7%
60,000 H.J.Heinz Co. 2,256,000
- --------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.8%
20,000 Quest Diagnostics, Inc. 1,038,200
- --------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.6%
40,000 Kimberly-Clark Corp. 2,109,600
- --------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 3.1%
25,000 3M Co. 1,438,500
162,500 General Electric Co. 2,632,500
- --------------------------------------------------------------------------------------------------------------------------
4,071,000
- --------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
Annual Report | December 31, 2008 | 15
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | PORTFOLIO OF INVESTMENTS
continued
NUMBER
0F SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
INSURANCE - 2.0%
17,500 PartnerRe Ltd. (Bermuda) $ 1,247,225
52,500 Willis Group Holdings Ltd. (Bermuda) 1,306,200
- --------------------------------------------------------------------------------------------------------------------------
2,553,425
- --------------------------------------------------------------------------------------------------------------------------
MACHINERY - 1.3%
20,000 Caterpillar, Inc. 893,400
30,000 Cummins, Inc. 801,900
- --------------------------------------------------------------------------------------------------------------------------
1,695,300
- --------------------------------------------------------------------------------------------------------------------------
MEDIA - 2.0%
80,000 Comcast Corp. 1,350,400
57,500 Walt Disney Co. (The) 1,304,675
- --------------------------------------------------------------------------------------------------------------------------
2,655,075
- --------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 1.0%
17,500 Kroger Co. (The) 462,175
13,500 Wal-Mart Stores, Inc. 756,810
- --------------------------------------------------------------------------------------------------------------------------
1,218,985
- --------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.4%
20,000 Freeport-McMoRan Copper & Gold, Inc. 488,800
- --------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 6.1%
237,500 Centerpoint Energy, Inc. 2,997,250
67,500 DTE Energy Co. 2,407,725
30,000 PG&E Corp. 1,161,300
110,000 TECO Energy, Inc. 1,358,500
- --------------------------------------------------------------------------------------------------------------------------
7,924,775
- --------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 9.3%
75,000 BP PLC, ADR (United Kingdom) 3,505,500
40,000 Chevron Corp. 2,958,800
35,000 ConocoPhillips 1,813,000
10,000 Exxon Mobil Corp. 798,300
60,719 Royal Dutch Shell PLC, Class B, ADR (United Kingdom) 3,122,778
- --------------------------------------------------------------------------------------------------------------------------
12,198,378
- --------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 9.0%
85,000 Bristol-Myers Squibb Co. 1,976,250
55,000 Eli Lilly & Co. 2,214,850
40,000 Johnson & Johnson 2,393,200
67,500 Merck & Co., Inc. 2,052,000
175,000 Pfizer, Inc. 3,099,250
- --------------------------------------------------------------------------------------------------------------------------
11,735,550
- --------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.3%
52,500 Rayonier, Inc. 1,645,875
- --------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 1.1%
30,000 Nintendo Co. Ltd., ADR (Japan) 1,432,500
- --------------------------------------------------------------------------------------------------------------------------
NUMBER
0F SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 1.6%
45,000 Best Buy Co., Inc. $ 1,264,950
38,000 Lowe's Cos., Inc. 817,760
- --------------------------------------------------------------------------------------------------------------------------
2,082,710
- --------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 0.9%
22,500 VF Corp. 1,232,325
- --------------------------------------------------------------------------------------------------------------------------
TOBACCO - 2.2%
100,000 Altria Group, Inc. 1,506,000
32,500 Philip Morris International, Inc. 1,414,075
- --------------------------------------------------------------------------------------------------------------------------
2,920,075
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS - 69.2%
(Cost $116,017,180) 90,295,723
- --------------------------------------------------------------------------------------------------------------------------
OPTIONAL CALL
PRINCIPAL AMOUNT PROVISIONS VALUE
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 11.5%
AEROSPACE & DEFENSE - 1.3%
$ 1,000,000 DRS Technologies, Inc., BBB-, Baa1
6.875%, 11/1/2013 11/1/09 @ 102.92 995,000
700,000 L-3 Communications Corp., BB+, Ba3
7.625%, 6/15/2012 6/15/09 @ 101.27 684,250
- --------------------------------------------------------------------------------------------------------------------------
1,679,250
- --------------------------------------------------------------------------------------------------------------------------
APPAREL - 0.7%
1,000,000 Phillips-Van Heusen Corp., BB+, Ba3
7.25%, 2/15/2011 2/15/09 @ 101.81 875,000
- --------------------------------------------------------------------------------------------------------------------------
AUTO MANUFACTURERS - 0.3%
476,000 Navistar International Corp., NR, NR
7.50%, 6/15/2011 6/15/09 @ 101.88 418,975
- --------------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.4%
600,000 Goodyear Tire & Rubber Co. (The), BB-, B2
7.857%, 8/15/2011 N/A 498,000
- --------------------------------------------------------------------------------------------------------------------------
BANKS - 0.7%
400,000 Capital One Financial Corp., BBB, Baa1
6.15%, 9/1/2016 N/A 281,479
100,000 FCB/NC Capital Trust I, BB+, A3
8.05%, 3/1/2028 3/1/09 @ 103.623 88,734
500,000 First Tennessee Bank NA, Bank Note, BBB+, A3
2.296%, 5/18/2009 (d) N/A 486,213
- --------------------------------------------------------------------------------------------------------------------------
856,426
- --------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 0.2%
350,000 Rent-A-Center, Inc., B+, B2
7.50%, 5/1/2010 5/1/09 @ 100.00 322,000
- --------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
16 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | PORTFOLIO OF INVESTMENTS
continued
OPTIONAL CALL
PRINCIPAL AMOUNT PROVISIONS VALUE
- --------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.3%
$ 1,750,000 Citigroup, Inc., BBB, Baa2
8.40%, 4/29/49 (e) 4/30/18 @ 100.00 $ 1,155,507
633,000 General Motors Acceptance Corp. LLC, NR, NR (f)
6.875%, 9/15/2011 N/A 518,592
- --------------------------------------------------------------------------------------------------------------------------
1,674,099
- --------------------------------------------------------------------------------------------------------------------------
ELECTRONICS - 0.4%
700,000 IMAX Corp. (Canada), CCC, Caa2
9.625%, 12/1/2010 12/1/09 @ 100.00 539,000
- --------------------------------------------------------------------------------------------------------------------------
FOOD - 1.5%
1,465,000 Dean Foods Co., B, B3
7.00%, 6/1/2016 N/A 1,245,250
935,000 Smithfield Foods, Inc., B, B3
7.00%, 8/1/2011 N/A 663,850
- --------------------------------------------------------------------------------------------------------------------------
1,909,100
- --------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER - 0.4%
239,000 Boise Cascade LLC, BB-, B2
7.125%, 10/15/2014 10/15/09 @ 103.56 133,840
500,000 Domtar Corp., BB-, Ba3
7.875%, 10/15/2011 N/A 425,000
- --------------------------------------------------------------------------------------------------------------------------
558,840
- --------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 0.5%
740,000 DaVita, Inc., B, B2
7.25%, 3/15/2015 3/15/10 @ 103.63 703,000
- --------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.7%
500,000 Odyssey Re Holdings Corp., BBB-,Baa3
7.65%, 11/1/2013 N/A 437,005
500,000 Presidential Life Corp., B+, B1
7.875%, 2/15/2009 N/A 470,625
- --------------------------------------------------------------------------------------------------------------------------
907,630
- --------------------------------------------------------------------------------------------------------------------------
IRON/STEEL - 0.4%
455,000 Allegheny Technologies, Inc., BBB-, Baa3
8.375%, 12/15/2011 N/A 484,283
- --------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.6%
750,000 DirecTV Holdings LLC/DirecTV Financing Co., BB, Ba3
8.375%, 3/15/2013 3/15/09 @ 102.79 746,250
- --------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.3%
500,000 Freeport-McMoRan Copper & Gold, Inc., BBB-, Ba2
8.375%, 4/1/2017 4/1/12 @ 104.19 410,000
- --------------------------------------------------------------------------------------------------------------------------
OFFICE/BUSINESS EQUIPMENT - 0.5%
1,000,000 Xerox Capital Trust I, BB+, Baa3
8.00%, 2/1/2027 2/1/09 @ 101.96 682,890
- --------------------------------------------------------------------------------------------------------------------------
OPTIONAL CALL
PRINCIPAL AMOUNT PROVISIONS VALUE
- --------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.4%
$ 500,000 Hess Corp., BBB-, Baa2
6.65%, 8/15/2011 N/A $ 499,802
- --------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.4%
700,000 Dillards, Inc., B+, B2
7.13%, 8/1/2018 N/A 234,500
475,000 Pantry, Inc. (The), B-, Caa1
7.75%, 2/15/2014 2/15/09 @ 103.88 327,750
- --------------------------------------------------------------------------------------------------------------------------
562,250
- --------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 0.5%
850,000 Overseas Shipholding Group, Inc., BB, Ba1
8.75%, 12/1/2013 N/A 690,625
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS - 11.5%
(Cost $18,180,943) 15,017,420
- --------------------------------------------------------------------------------------------------------------------------
NUMBER
0F SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 7.5%
DIVERSIFIED FINANCIAL SERVICES - 2.3%
60,000 ABN Amro Capital Funding Trust VII, Series G, 6.08%, BBB+, A1 597,000
31,650 Deutsche Bank Contingent Capital Trust II, 6.55%, A-, Aa3 471,585
134 GMAC Preferred Blocker, Inc., 9.00%, NR, NR (c)(f) 42,176
50,000 Bank of America Corp., Series 3, 6.375%, BBB+, Baa1 746,500
56,000 Bank of America Corp., Series MER, 8.625%, BBB+, Baa1 1,107,680
- --------------------------------------------------------------------------------------------------------------------------
2,964,941
- --------------------------------------------------------------------------------------------------------------------------
INSURANCE - 2.6%
50,000 Aegon NV (Netherlands), 6.50%, A-, A3 500,500
31,200 Allianz SE (Germany), 8.375%, A+, A3 608,400
25,000 Aspen Insurance Holdings, Ltd. (Bermuda), 7.401%, BBB-, Ba1 (d) 314,750
33,200 ING Groep NV (Netherlands), 7.375%, A, A2 418,320
50,000 Metlife, Inc., Series B, 6.50%, BBB, Baa1 853,500
48,600 Prudential PLC (United Kingdom), 6.50%, A-, Baa1 659,016
- --------------------------------------------------------------------------------------------------------------------------
3,354,486
- --------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
Annual Report | December 31, 2008 | 17
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | PORTFOLIO OF INVESTMENTS
continued
NUMBER
0F SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 2.6%
17,500 Apartment Investment & Management Co., Series U, 7.75%, B+, Ba3 $ 242,375
20,000 Brandywine Realty Trust, Series C, 7.50%, NR, NR 258,800
11,000 Capital Automotive LLC, Series A, 7.50%, NR, B1 44,000
16,100 CBL & Associates Properties, Inc., Series C, 7.75%, NR, NR 128,800
20,000 CBL & Associates Properties, Inc., Series D, 7.375%, NR, NR 154,000
12,500 Duke Realty Corp., Series L, 6.60%, BBB-, Baa3 128,625
15,000 First Industrial Realty Trust, Inc., Series J, 7.25%, BB, Baa3 150,000
18,100 Health Care REIT, Inc., Series D, 7.875%, BB, Baa3 342,090
13,000 Kimco Realty Corp., Series G, 7.75%, BBB-, Baa2 234,000
12,000 PS Business Parks, Inc., Series H, 7.00%, BB+, Baa3 201,000
24,500 Public Storage, Inc., Series M, 6.625%, BBB, Baa1 453,250
15,200 Regency Centers Corp., Series D, 7.25%, BBB-, Baa3 271,320
25,000 Taubman Centers, Inc., Series G, 8.00%, NR, B1 387,500
20,100 Vornado Realty Trust, Series E, 7.00%, BBB-, Baa3 341,700
- --------------------------------------------------------------------------------------------------------------------------
3,337,460
- --------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS - 7.5%
(Cost $17,071,466) 9,656,887
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS - 189.3%
(Cost $298,941,442) 246,762,372
- --------------------------------------------------------------------------------------------------------------------------
OPTIONAL CALL
PRINCIPAL AMOUNT PROVISIONS VALUE
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 6.2%
$ 500,000 Comerica Bank, Certificate of Deposit, A+, A1
1.903%, 1/9/2009 (d) N/A 499,250
7,700,000 New York City Municipal Water Finance Authority Revenue
Water and Sewer System, 2003-Sub-Series C-1, AAA, Aa2 (g)
9.00%, 6/15/2018 1/15/09 @ 100 7,700,000
- --------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments - 6.2%
(Cost $8,199,367) 8,199,250
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 195.5%
(Cost $307,140,809) 254,961,622
Liabilities in excess of Other Assets - (3.5%) (4,516,141)
Preferred Shares, at Liquidation Value - (-92.0% of Net Assets
Applicable to Common Shareholders or -47.1% of Total Investments) (120,000,000)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS - 100.0% $ 130,445,481
- --------------------------------------------------------------------------------------------------------------------------
ADR American Depositary Receipt
AMBAC Ambac Assurance Corporation
ASSURED Assured Guaranty Corp.
BHAC Bershire Hathaway Assurance Corp.
FGIC Financial Guaranty Insurance Company
LLC Limited Liability Corporation
MBIA MBIA Insurance Corporation
N/A Not Applicable
PLC Public Limited Company
PSF Permanent School Fund (Texas)
RADIAN Radian Asset Assurance, Inc
REIT Real Estate Investment Trust
(a) Inverse floating rate investment. Interest rate shown is that in effect at
December 31, 2008. See Note 2(e) in the "Notes to the Financial
Statements" section of this report.
(b) All or a portion of these securities have been physically segregated in
connection with swap agreements.
(c) Non-income producing security
(d) Floating or variable rate coupon. The rate shown is as of December 31,
2008.
(e) Security has a fixed rate coupon which will convert to a floating or
variable rate coupon on a future date.
(f) 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 December 31,
2008, these securities amounted to 0.43% of net assets applicable to
common shares.
(g) Security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate shown
is as of December 31, 2008.
Ratings shown are per Standard & Poor's and Moody's. Securities classified as NR
are not rated. (unaudited)
All percentages shown in the Portfolio of Investments are based on Net Assets
Applicable to Common Shareholders unless otherwise noted.
See notes to financial statements.
18 | ANNUAL REPORT | DECEMBER 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Statement of ASSETS AND LIABILITIES | DECEMBER 31, 2008
ASSETS
Investments in securities, at value (cost $307,140,809) $ 254,961,622
Cash 340,720
Interest receivable 2,573,224
Dividends receivable 394,951
Other assets 4,781
- ----------------------------------------------------------------------------------------------------------------------
Total assets 258,275,298
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Net unrealized depreciation on swaps 7,465,814
Advisory fee payable 144,008
Dividend payable - preferred shares 58,995
Administration fee payable 13,170
Accrued expenses and other liabilities 147,830
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 7,829,817
- ----------------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT REDEMPTION VALUE
$.01 par value per share; 4,800 Auction Market Preferred Shares authorized, issued and
outstanding at $25,000 per share liquidation preference 120,000,000
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 130,445,481
======================================================================================================================
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
Common stock, $.01 par value per share; unlimited number of shares authorized, 15,407,000
shares issued and outstanding $ 154,070
Additional paid-in capital 218,557,393
Accumulated net realized loss on investments and swaps (31,828,392)
Accumulated net unrealized depreciation on investments and swaps (59,645,001)
Accumulated undistributed net investment income 3,207,411
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 130,445,481
======================================================================================================================
NET ASSET VALUE APPLICABLE TO COMMON SHAREHOLDERS (BASED ON 15,407,000 COMMON SHARES OUTSTANDING) $ 8.47
======================================================================================================================
See notes to financial statements.
Annual Report | December 31, 2008 | 19
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Statement of OPERATIONS | FOR THE YEAR ENDED DECEMBER 31, 2008
INVESTMENT INCOME
Interest $ 11,644,860
Dividends (net of foreign withholding taxes of $47,082) 5,839,509
- ----------------------------------------------------------------------------------------------------------------------
Total income $ 17,484,369
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fee 2,171,216
Preferred share maintenance 316,870
Professional fees 171,486
Trustees' fees and expenses 149,269
Fund accounting 92,680
Administration fee 77,035
Printing expenses 53,637
Custodian fee 48,316
Miscellaneous 31,647
NYSE listing fee 21,228
Insurance 19,145
Transfer agent fee 17,998
Interest expense on floating rate note obligations 92,860
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 3,263,387
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 14,220,982
- ----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND SWAPS
Net realized gain (loss) on:
Investments (33,007,681)
Swaps 2,407,500
Net change in unrealized appreciation (depreciation) on:
Investments (55,285,084)
Swaps (7,768,245)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and swaps (93,653,510)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM
Net investment income (4,762,868)
- ----------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM
OPERATIONS $ (84,195,396)
======================================================================================================================
See notes to financial statements.
20 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Statement of CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS |
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
- ----------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS
Net investment income $ 14,220,982 $ 14,213,283
Net realized gain (loss) on investments and swaps (30,600,181) 11,807,236
Net change in unrealized depreciation on investments and swaps (63,053,329) (28,478,448)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From and in excess of net investment income (4,762,868) (4,541,977)
From realized gains - (1,746,672)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Shareholders (4,762,868) (6,288,649)
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in net assets applicable to common shareholders resulting
from operations (84,195,396) (8,746,578)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From and in excess of net investment income (15,561,070) (14,723,314)
From realized gains - (5,662,073)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to Common Shareholders (15,561,070) (20,385,387)
- ----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets applicable to common shareholders (99,756,466) (29,131,965)
NET ASSETS
Beginning of period 230,201,947 259,333,912
- ----------------------------------------------------------------------------------------------------------------------
End of period (including accumulated undistributed net investment income
of $3,207,411 and $9,558,496, respectively) $ 130,445,481 $ 230,201,947
======================================================================================================================
See notes to financial statements.
Annual Report | December 31, 2008 | 21
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Financial HIGHLIGHTS |
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE APRIL 28, 2004*
PER SHARE OPERATING PERFORMANCE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
PERIOD 31, 2008 31, 2007 31, 2006 31, 2005 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.94 $ 16.83 $ 15.44 $ 15.47 $ 14.33(b)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) 0.92 0.92 0.91 0.88 0.52
Net realized and unrealized gain (loss) on
investments, options and swaps (6.07) (1.08) 1.79 0.29 1.29
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From and in excess of net investment income
(common share equivalent basis) (0.31) (0.30) (0.37) (0.26) (0.07)
From realized gains (common share equivalent
basis) - (0.11) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred
Shareholders (0.31) (0.41) (0.37) (0.26) (0.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (5.46) (0.57) 2.33 0.91 1.74
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (1.01) (0.95) (0.94) (0.94) (0.47)
From realized gains - (0.37) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Shareholders (1.01) (1.32) (0.94) (0.94) (0.47)
- ------------------------------------------------------------------------------------------------------------------------------------
Common and Preferred Shares' offering expenses
charged to paid-in capital - - - -(g) (0.13)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.47 $ 14.94 $ 16.83 $ 15.44 $ 15.47
====================================================================================================================================
MARKET VALUE, END OF PERIOD $ 6.65 $ 13.10 $ 15.77 $ 13.35 $ 13.62
====================================================================================================================================
TOTAL INVESTMENT RETURN (c)
Net asset value -37.97% -3.60% 15.50% 6.02% 11.42%
Market value -43.70% -8.97% 25.98% 4.80% -6.05%
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to common shareholders, end
of period (thousands) $ 130,445 $ 230,202 $ 259,334 $ 237,818 $ 238,386
Preferred shares, at liquidation value ($25,000
per share liquidation preference) (thousands) $ 120,000 $ 120,000 $ 120,000 $ 120,000 $ 120,000
Preferred shares asset coverage per share $ 52,176 $ 72,959 $ 79,028 $ 74,545 $ 74,664
Ratios to average net assets applicable to common
shareholders: (d)
Total expenses (excluding interest expense on
floating rate note obligations) 1.67% 1.44% 1.46% 1.52% 1.36%
Total expenses (including interest expense on
floating rate note obligations (e)) 1.72% 1.53% 1.50% - -
Net investment income, prior to effect of
dividends to preferred shares 7.48% 5.60% 5.70% 5.73% 5.31%
Net investment income, after effect of dividends
to preferred shares 4.97% 3.81% 3.41% 4.05% 4.58%
Ratios to average managed assets: (d)(f)
Total expenses (excluding interest expense on
floating rate note obligations) 1.02% 0.98% 0.98% 1.01% 0.98%
Total expenses (including interest expense on
floating rate note obligations (e)) 1.05% 1.04% 1.01% - -
Net investment income, prior to effect of
dividends to preferred shares 4.58% 3.80% 3.84% 3.80% 3.83%
Portfolio turnover rate 181% 114% 159% 103% 75%
Asset coverage per $1,000 unit of indebtedness (h) $ - $ 74,727 $ 29,902 $ - $ -
====================================================================================================================================
* Commencement of investment operations.
(a) Based on average shares outstanding during the period.
(b) Before reimbursement 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 or the prices obtained under 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 for periods less than one year.
(e) See note 2(e) of the Notes to Financial Statements for more information on
floating rate note obligations.
(f) Managed assets is equal to net assets applicable to common shareholders
plus outstanding leverage, such as the liquidation value of preferred
shares.
(g) Amount is less than $0.01.
(h) Calculated by subtracting the Fund's total liabilities (not including the
floating rate note obligations) from the Fund's total assets and dividing
by the total number of indebtedness units, where one unit equals $1,000 of
indebtedness.
See notes to financial statements.
22 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Notes to FINANCIAL STATEMENTS | DECEMBER 31, 2008
Note 1 - ORGANIZATION:
TS&W/Claymore Tax-Advantaged Balanced Fund (the "Fund") was organized as a
Delaware statutory trust on February 12, 2004. The Fund is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940.
Under normal market conditions, the Fund will invest at least 50%, but less than
60% of its total assets in debt securities and other obligations issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from regular federal income
tax and which is not a preference item for purposes of the alternative minimum
tax (the "Municipal Securities Portfolio") and at least 40%, but less than 50%,
of its total assets in common stocks, preferred securities and other income
securities (the "Equity and Income Securities Portfolio").
Note 2 - ACCOUNTING POLICIES:
The preparation of the financial statement 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
The Fund values equity securities at the last reported sale price on the
principal exchange or in the principal Over-the-Counter ("OTC") market in which
such securities are traded, as of the close of regular trading on the New York
Stock Exchange ("NYSE") on the day the securities are being valued or, if there
are no sales, at the mean between the last available bid and asked prices on
that day. Securities traded on the NASDAQ are valued at the NASDAQ Official
Closing Price. Preferred stocks are valued at their sales price as of the close
of the exchange on which they are traded. Preferred stocks for which the last
sales price is not available are valued at the last available bid price. Debt
securities are valued at the last available bid price for such securities or, if
such prices are not available, at prices for securities of comparable maturity,
quality and type. Foreign securities are translated from the local currency into
U.S. dollars using the current exchange rate. The Fund's securities that are
primarily traded in foreign markets may be traded in such markets on days that
the NYSE is closed. As a result, the net asset value of the Fund may be
significantly affected on days when holders of common shares have no ability to
trade common shares on the NYSE. Investment Companies are valued at the last
available closing price. For those securities where quotations or prices are not
available, valuations are determined in accordance with procedures established
in good faith by the Board of Trustees. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost, which approximates
market value.
For those securities whose quotations or prices are not available, the
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Valuations in accordance with these procedures
are intended to reflect each security's (or asset's) "fair value". Such "fair
value" is the amount that the Fund might reasonably expect to receive for the
security (or asset) upon its current sale. Each such determination should be
based on a consideration of all relevant factors, which are likely to vary from
one pricing context to another. Examples of such factors may include, but are
not limited to: (i) the type of security, (ii) the initial cost of the security,
(iii) the existence of any contractual restrictions on the security's
disposition, (iv) the price and extent of public trading in similar securities
of the issuer or of comparable companies, (v) quotations or evaluated prices
from broker-dealers and/or pricing services, (vi) information obtained from the
issuer, analysts, and/or the appropriate stock exchange (for exchange traded
securities), (vii) an analysis of the company's financial statements, and (viii)
an evaluation of the forces that influence the issuer and the market(s) in which
the security is purchased and sold (e.g. the existence of pending merger
activity, public offerings or tender offers that might affect the value of the
security).
In September, 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No.157,"Fair Valuation Measurements"
("FAS 157"). This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosures about the use of fair value measurements. FAS 157
establishes three different categories for valuations. Level 1 valuations are
those based upon quoted prices in active markets. Level 2 valuations are those
based upon quoted prices in inactive markets or based upon significant
observable inputs (i.e. yield curves; benchmark interest rates; indices). Level
3 valuations are those based upon unobservable inputs (i.e. discounted cash flow
analysis; non-market based methods used to determine fair valuation). Details of
the valuations as of December 31, 2008 were as follows:
Valuations at December 31, 2008
DESCRIPTION SECURITIES DERIVATIVES TOTAL
- --------------------------------------------------------------------------------
(value in $000s)
Assets:
Level 1 $ 99,953 $ - $ 99,953
Level 2 155,009 - 155,009
Level 3 - - -
- --------------------------------------------------------------------------------
Total $ 254,962 $ - $ 254,962
================================================================================
Liabilities
Level 1 $ - $ - $ -
Level 2 - 7,466 7,466
Level 3 - - -
- --------------------------------------------------------------------------------
Total $ - $ 7,466 $ 7,466
================================================================================
(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) SWAPS
A swap is an agreement to exchange the return generated by one instrument for
the return generated by another instrument. The Fund may enter into swap
agreements to manage its exposure to interest rates or to manage the duration of
its portfolio. The swaps are valued at current market value and any unrealized
gain or loss is included in the Statement of Operations. Gain or loss is
realized on the termination date of the swap and is equal to the difference
between the Fund's basis in the swap and the proceeds of the closing
transaction, including any fees. During the period that the swap agreement is
open, the Fund may be subject to risk from the potential inability of the
counterparty to meet the terms of the agreement. The swaps involve elements of
both market and credit risk in excess of the amounts reflected on the Statement
of Assets and Liabilities. The Fund usually invests in Forward Interest Rate
Swaps. Forward interest rate swap transactions involve the Fund's agreement with
a counterparty to pay, in the future, a fixed or variable rate payment in
exchange for the counterparty paying the Fund a variable or fixed rate payment,
the accruals for which would begin at a specified date in the future (the
"effective date"). The Fund may terminate the swap contract prior to the
effective date, at which point a realized gain or loss is recognized.
Annual Report | December 31, 2008 | 23
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | NOTES TO FINANCIAL STATEMENTS
continued
Details of the swap agreements outstanding as of December 31, 2008 were as
follows:
NOTIONAL UNREALIZED
TERMINATION AMOUNT FIXED FLOATING APPRECIATION/
COUNTERPARTY DATE (000) RATE RATE (DEPRECIATION)
- --------------------------------------------------------------------------------
3 Month
JP Morgan Chase & Co.* 12/18/2038 $ 20,000 4.556% LIBOR $ (7,465,814)
- --------------------------------------------------------------------------------
LIBOR - London Interbank Offered Rate
* For the swap noted, the Fund pays a fixed rate and receives a floating rate.
(d) DISTRIBUTIONS TO SHAREHOLDERS
The Fund declares and pays quarterly dividends to common shareholders. These
dividends consist of tax-exempt income and investment company taxable income,
which generally includes qualified dividend income, ordinary income and
short-term capital gains. Any net realized long-term capital gains are
distributed annually to common shareholders.
Distributions to shareholders are recorded on the ex-dividend date. The amount
and timing of distributions are determined in accordance with federal income tax
regulations, which may differ from U.S. generally accepted accounting
principles.
(e) INVERSE FLOATING RATE INVESTMENTS AND FLOATING RATE NOTE OBLIGATIONS Inverse
floating rate instruments are notes whose coupon rate fluctuates inversely to a
predetermined interest rate index. These instruments typically involve greater
risks than a fixed rate municipal bond. In particular, the holder of these
inverse floating rate instruments retain all credit and interest rate risk
associated with the full underlying bond and not just the par value of the
inverse floating rate instrument. As such, these instruments should be viewed as
having inherent leverage and therefore involve many of the risks associated with
leverage. Leverage is a speculative technique that may expose the Fund to
greater risk and increased costs. Leverage may cause the Fund's net asset value
to be more volatile than if it had not been leveraged because leverage tends to
magnify the effect of any increases or decreases in the value of the Fund's
portfolio securities. The use of leverage may also cause the Fund to liquidate
portfolio positions when it may not be advantageous to do so in order to satisfy
its obligations with respect to inverse floating rate instruments. The Fund may
invest in inverse floating rate securities through either a direct purchase or
through the transfer of bonds to a dealer trust in exchange for cash and/or
residual interests in the dealer trust.
For those inverse floating rate securities purchased directly, the instrument is
included in the Portfolio of Investments with income recognized on an accrual
basis.
For those inverse floating rate securities purchased through a transfer of a
fixed rate bond to a dealer trust in exchange for cash and/or residual interests
in the dealer trusts' assets and cash flows, FASB Statement No.140,Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities (FAS 140) calls for this transaction to be accounted for as a
financing by the dealer trust of the transferred fixed rate bond. In these
transactions, the dealer trusts fund the purchases of the fixed rate bonds by
issuing floating rate notes to third parties and allowing the Fund to retain
residual interests in the bonds. The residual interests held by the Fund (the
inverse floating rate investments) include the right of the Fund to cause the
holders of the floating rate notes to tender their notes at par at the next
interest rate reset date and to transfer the municipal bond from the dealer
trusts to the Fund, thereby collapsing the dealer trusts. The Fund accounts for
the transfer of bonds to the dealer trusts as secured borrowings, with the
securities transferred remaining in the Fund's Portfolio of Investments, and the
related floating rate notes reflected as a liability under the caption "Floating
rate note obligations" on the Statement of Assets and Liabilities. The Fund
records the interest income from the fixed rate bonds under the caption
"Interest" and records the expenses related to floating rate note obligations
and any administrative expenses of the dealer trusts under the caption "Interest
expense on floating rate note obligations" on the Fund's Statement of
Operations. The notes issued by the dealer trusts have interest rates that reset
weekly and the floating rate note holders have the option to tender their notes
to the dealer trusts for redemption at par at each reset date. The average
floating rate notes outstanding and average annual interest rate during the year
ended December 31, 2008 were $ 4,164,894 and 2.87%, respectively. At December
31, 2008, the Fund had no outstanding investments in floating rate notes
purchased through a transfer of a fixed rate bond to a dealer trust.
Note 3 - INVESTMENT ADVISORY AGREEMENT, INVESTMENT SUB-ADVISORY AGREEMENT AND
OTHER AGREEMENTS:
Pursuant to an Investment Advisory Agreement (the "Agreement") between the Fund
and Claymore Advisors, LLC (the "Adviser"), the Adviser is responsible for
managing, either directly or through others selected by it, the investment
activities of the Fund and the Fund's business affairs and other administrative
matters. The Adviser received a fee, payable monthly, at an annual rate equal to
0.70% of the Fund's average daily managed assets (total assets including the
assets attributable to the proceeds from any financial leverage but excluding
the assets attributable to floating rate note obligations, minus liabilities,
other than debt representing financial leverage).
The Adviser has entered into an Investment Sub-Advisory Agreement (the
"Sub-Advisory Agreement") with Thompson, Siegel & Walmsley LLC (the
"Sub-Adviser"). The Sub-Adviser is responsible for day-to-day portfolio
management of the Fund's assets allocated to the Equity and Income Securities
Portfolio. Under the terms of the Sub-Advisory Agreement between the Adviser and
the Sub-Adviser, the Adviser pays monthly to the Sub-Adviser a fee at the annual
rate of 0.42% of the Fund's average daily managed assets attributable to the
Equity and Income Securities Portfolio.
On July 11, 2006, the Adviser entered into an Investment Sub-Advisory Agreement
(the "Sub-Advisory Agreement 2") with SMC Fixed Income Management, LP (the
"Sub-Adviser 2"). The Sub-Adviser 2 is responsible for day-to-day portfolio
management of the Fund's assets allocated to the Municipal Securities Portfolio.
Under the terms if the Sub-Advisory Agreement 2 between the Adviser and the
Sub-Adviser 2, the Adviser pays monthly to the Sub-Adviser 2 a fee at the annual
rate of 0.30% of the Fund's average daily managed assets attributable to the
Municipal Securities Portfolio. Prior to July 11, 2006 the Adviser was
responsible for the day-to-day portfolio management for the Municipal Securities
Portfolio.
The Bank of New York Mellon ("BNY") acts as the Fund's custodian, accounting
agent, auction agent and transfer agent. As custodian, BNY is responsible for
the custody of the Fund's assets. As accounting agent, BNY is responsible for
maintaining the books and records of the Fund's securities and cash. As auction
agent, BNY is responsible for conducting the auction of the preferred shares. As
transfer agent, BNY is responsible for performing transfer agency services for
the Fund.
24 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | NOTES TO FINANCIAL STATEMENTS
continued
Under a separate Fund Administration agreement (the "Administration Agreement'),
the Adviser provides fund administration services to the Fund. As compensation
for services performed under the Administration Agreement, the Adviser receives
an administration fee payable monthly at the annual rate set forth below as a
percentage of the average daily managed assets of the Fund:
MANAGED ASSETS RATE
- --------------------------------------------------------------------------------
First $200,000,000 0.0275%
Next $300,000,000 0.0200%
Next $500,000,000 0.0150%
Over $1,000,000,000 0.0100%
Certain officers and trustees of the Fund are also officers and directors of the
Adviser, Sub-Adviser, or Muni Sub-Adviser. The Fund does not compensate its
officers or trustees who are officers of the aforementioned firms.
Note 4 - FEDERAL INCOME TAXES:
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing substantially all of its ordinary income and long-term
capital gains, if any, during each calendar year, the Fund intends not to be
subject to U.S. federal excise tax.
Due to inherent differences in the recognition of income, expense and realized
gains/losses under U.S. generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
have been identified and appropriately reclassified on the Statement of Assets
and Liabilities. A permanent book and tax basis difference relating to a
distribution reclass in the amount of $8,619 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain. Also,
permanent book to tax differences relating to the Fund's investments in real
estate investment trusts totaling $256,748 were reclassified from accumulated
undistributed net investment income to accumulated net realized gain.
At December 31, 2008, for federal tax purposes, the Fund had a capital loss
carryforward of $23,316,538 available to offset possible future capital gains.
The capital loss carryforward is set to expire on December 31, 2016.
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer capital losses of
$8,573,495.
Information on the tax components of investments and net assets as of December
31, 2008 is as follows:
NET TAX
COST OF UNREALIZED
INVESTMENTS GROSS TAX GROSS TAX APPRECIATION/
FOR TAX UNREALIZED UNREALIZED (DEPRECIATION)
PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- --------------------------------------------------------------------------------
$ 307,099,793 $ 3,829,134 $ (55,967,305) $ (52,138,171)
- --------------------------------------------------------------------------------
NET TAX UNDISTRIBUTED
UNREALIZED LONG-TERM
APPRECIATION/ UNDISTRIBUTED CAPITAL GAINS/
(DEPRECIATION) ORDINARY (ACCUMULATED
ON DERIVATIVES INCOME* CAPITAL LOSS)
- --------------------------------------------------------------------------------
$ (7,465,814) $ 3,228,036 $ (31,890,033)
- --------------------------------------------------------------------------------
*Includes tax-exempt income
The differences between book basis and tax basis unrealized
appreciation/(depreciation) is attributable to additional income accrued for tax
purposes on wash sales, swaps and investments in real estate investment trusts.
For the years ended December 31, 2008 and 2007, the tax character of
distributions paid to common and preferred shareholders as reflected in the
Statement of Changes in Net Assets was as follows:
DISTRIBUTIONS PAID FROM: 2008 2007
- --------------------------------------------------------------------------------
Ordinary income $ 7,252,594 $ 6,067,201
Tax-exempt income $ 13,062,725 $ 7,772,917
Long-term capital gain $ 8,619 $ 12,833,918
- --------------------------------------------------------------------------------
Total Distributions $ 20,323,938 $ 26,674,036
- --------------------------------------------------------------------------------
The Fund adopted the provisions of the Financial Accounting Standards Board
("FASB") Interpretation No.48 ("FIN 48") Accounting for Uncertainty in Income
Taxes on December 31, 2007.FIN 48 sets forth a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return. The implementation of FIN 48 did not result in any
unrecognized tax benefits in the accompanying financial statements.
Tax years for 2005, 2006 and 2007 are still subject to examination by major
jurisdictions.
Note 5 - INVESTMENT IN SECURITIES:
For the year ended December 31, 2008, purchases and sales of investments,
excluding short-term securities, were $558,146,974 and $584,381,716,
respectively.
Note 6 - CAPITAL:
COMMON SHARES
The Fund has an unlimited amount of common shares, $0.01 par value, authorized
and 15,407,000 issued and outstanding. In connection with the Fund's dividend
reinvestment plan, the Fund did not issue any shares during the years ended
December 31, 2008 and 2007.
At December 31, 2008 Claymore Securities, Inc., an affiliate of the Adviser,
owned 7,245 shares of the Fund.
PREFERRED SHARES
On April 29, 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. The Fund may also borrow or issue debt securities
collectively with preferred shares for leveraging purposes. Preferred shares
issued by the Fund have seniority over the common shares.
On July 1, 2004, the Fund issued 2,400 shares of Preferred Shares Series M7 and
2,400 shares of Preferred Shares Series T28 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. Distribution
of net realized capital gains, if any, are paid annually.
Annual Report | December 31, 2008 | 25
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | NOTES TO FINANCIAL STATEMENTS
continued
The board auction-rate preferred securities market, including the Fund's Auction
Market Preferred Shares ("AMPS"), has experienced considerable disruption in the
past several months. The result has been failed auctions on nearly all
auction-rate preferred shares, including the Fund's AMPS. A failed auction is
not a default, nor does it require the redemption of the Fund's AMPS. Provisions
on the offering documents of the Fund's AMPS provide a mechanism to set a
maximum rate in the event of a failed auction. The maximum rate is LIBOR + 1.25%
or LIBOR x 125%, whichever is greater.
For the year ended December 31, 2008, the annualized dividend rates ranged from:
HIGH LOW AT 12/31/08
- --------------------------------------------------------------------------------
Series M7 5.94% 1.52% 1.70%
Series T28 6.19% 2.13% 2.13%
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 on 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 - INDEMNIFICATIONS:
In the normal course of business, the Fund enters into contracts that contain a
variety of representations, which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown, as this would require
future claims that may be made against the Fund that have not yet occurred.
However, the Fund expects the risk of loss to be remote.
Note 8 - RECENT ACCOUNTING PRONOUNCEMENT:
In March 2008, the FASB issued Statement of Financial Accounting Standard No.161
("SFAS No.161"),"Disclosures about Derivative Instruments and Hedging
Activities. "This standard is intended to enhance financial statement
disclosures for derivative instruments and hedging activities and enable
investors to understand: a) how and why a fund uses derivative instruments, b)
how derivatives instruments and related hedge fund items are accounted for, and
c) how derivative instruments and related hedge items affect a fund's financial
position, results of operations and cash flows. SFAS No.161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. As of December 31, 2008, management does not believe the
adoption of SFAS No.161 will impact the financial statement amounts; however,
additional footnote disclosures may be required about the use of derivative
instruments and hedging items.
Note 9 - SUBSEQUENT EVENT:
On January 2, 2009, the Fund's Board of Trustees approved an open-market
repurchase plan (the "Plan"). Under the terms of the Plan, the Fund is
authorized to purchase 5% of its outstanding common shares in the open market on
a quarterly basis, subject to applicable regulatory and legal restrictions and
in consideration of certain operational and market factors, including the size
of the market price discount to net asset value of the Fund. The amount and
timing of the repurchases will be at the discretion of the Investment Adviser to
the Fund, and subject to market conditions and investment considerations.
26 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
TS&W/CLAYMORE TAX-ADVANTAGED BALANCED FUND
We have audited the accompanying statement of assets and liabilities of
TS&W/Claymore Tax-Advantaged Balanced Fund (the "Fund"), including the portfolio
of investments, as of December 31, 2008, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four years in the period then ended and for the period from April 28, 2004
(commencement of investment operations) through December 31, 2004. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2008, by correspondence with the Fund's
custodian and brokers. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
TS&W/Claymore Tax-Advantaged Balanced Fund as of December 31, 2008, and the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the four years in the period then ended and for the period from
April 28, 2004 (commencement of investment operations) through December 31,
2004, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 18, 2009
Annual Report | December 31, 2008 | 27
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Supplemental INFORMATION | (unaudited)
FEDERAL INCOME TAX INFORMATION
Qualified dividend income of as much as $5,018,241 was received by the Fund
through December 31, 2008. The Fund intends to designate the maximum amount of
dividends that qualify for the reduced tax rate pursuant to the Jobs and Growth
Tax Relief Reconciliation Act of 2003.
For corporate shareholders, $4,079,964 of investment income qualifies for the
dividends-received deduction.
Subchapter M on the Internal Revenue Code of 1986, as amended, required the Fund
to advise shareholders within 60 days of the Fund's tax year end as to the
federal tax status of dividends and distributions received by shareholders
during such tax period. The Fund hereby designates $8,619 as long-term capital
gains according to IRC Section 852(b)(3)(C). The Fund hereby designates
$13,062,725 as tax-exempt income according to IRC Section 852(b)(5)(A).
In January 2009, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to the federal tax status of the distributions received by you in the
calendar year 2008.
RESULT OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Fund was held on July 21, 2008.
Holders of the Fund's auction market preferred shares, par value $0.01 per
share, liquidation preference $25,000 per share ("Preferred Shares") voted on
the election of a Class III Trustee. Holders of the Preferred Shares and holders
of the Fund's common share of beneficial interest, par value $0.01 per share
("Common Shares") voted together as a single class on the election of Class I
Trustees.
Voting results with respect to the election of a Class III Trustee by the
holders of Preferred Shares voting as a separate class are set forth below:
# OF SHARES # OF SHARES
IN FAVOR WITHHELD
- --------------------------------------------------------------------------------
Nicholas Dalmaso 4,388 229
Voting results with respect to the election of Class I Trustees by holders of
Preferred Shares and holders of Common Shares voting as a single class are set
forth below:
# OF SHARES # OF SHARES
IN FAVOR WITHHELD
- --------------------------------------------------------------------------------
Randall C. Barnes 14,685,693 242,690
Robert M. Hamje 14,684,354 244,029
The other Trustees of the Fund whose terms did not expire in 2008 are L. Kent
Moore, Ronald A. Nyberg, Matthew J. Appelstein, Steven D. Cosler and Ronald
E. Toupin, Jr.
TRUSTEES
The Trustees of the TS&W/Claymore Tax-Advantaged Balanced Fund and their
principal occupations during the past five years:
NUMBER OF
NAME, ADDRESS*, YEAR OF TERM OF OFFICE** PRINCIPAL OCCUPATIONS DURING PORTFOLIOS IN THE
BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND FUND COMPLEX*** OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Randall C. Barnes Since 2005 Private Investor (2001-present). Formerly, 43 None.
Year of Birth: 1951 Senior Vice President & Treasurer, PepsiCo.,
Trustee Inc. (1993-1997), President, Pizza Hut
International (1991-1993) and Senior Vice
President, Strategic Planning and New
Business Development (1987-1990) of PepsiCo,
Inc. (1987-1997).
- ------------------------------------------------------------------------------------------------------------------------------------
Steven D. Cosler Since 2005 Formerly, President, Chief Executive Officer 2 Trustee, SXC
Year of Birth: 1955 and Director of Priority Healthcare Health Solutions.
Trustee Corp. (2002-2005). Formerly, President and
Chief Operating Officer of Priority
Healthcare Corp. (2001-2002). Formerly,
Executive Vice President and Chief Operating
Officer of Priority Healthcare
Corp. (2000-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Hamje Since 2004 Adviser to the Cleveland Foundation 2 Trustee, Old Mutual
Year of Birth: 1942 Investment Committee. Formerly, President and Advisor Mutual
Trustee Chief Investment Officer of TRW Investment Funds.
Management Co. (1990-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
L.Kent Moore Since 2004 Partner at WilSource Enterprise (December 2 Trustee, Old Mutual
Year of Birth: 1955 2005-present). Formerly, Managing Director Advisor Mutual
Trustee High Sierra Energy L.P., (2004-2005). Funds.
Formerly, Portfolio Manager and Vice
President of Janus Capital Corp. (2000-2002)
and Senior Analyst/Portfolio Manager of
Marsico Capital Management (1997-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Since 2004 Partner of Nyberg & Cassioppi, LLC, a law 46 None.
Year of Birth: 1953 firm specializing in corporate law, estate
Trustee planning and business transactions
(2000-present). Formerly, Executive Vice
President, General Counsel and Corporate
Secretary of Van Kampen Investments
(1982-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald E. Toupin, Jr. Since 2004 Retired. Formerly, Vice President, Manager and 43 None.
Year of Birth: 1958 Portfolio Manager of Nuveen Asset
Trustee Management(1998-1999), Vice President of
Nuveen Investment Advisory Corp. (1992-1999),
Vice President and Manager of Nuveen Unit
Investment Trusts (1991-1999), and Assistant
Vice President and Portfolio Manager of
Nuveen Unit Investment Trusts (1988-1999),
each of John Nuveen & Company,
Inc. (1982-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
28 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund | SUPPLEMENTAL INFORMATION
(unaudited) continued
NUMBER OF
NAME, ADDRESS*, YEAR OF TERM OF OFFICE** PRINCIPAL OCCUPATIONS DURING PORTFOLIOS IN THE
BIRTH AND POSITION(S) AND LENGTH OF THE PAST FIVE YEARS AND FUND COMPLEX*** OTHER DIRECTORSHIPS
HELD WITH REGISTRANT TIME SERVED OTHER AFFILIATIONS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew J. Appelstein+ Since 2005 Senior Vice President of Product Strategy and 2 None.
Year of Birth: 1961 Retirement Solutions Planning, Director of
Trustee Investment Services, Old Mutual Asset
Management (2003-present). Formerly, Senior
Vice President of Consulting Relationships,
Fidelity Management Trust Co. (1998-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso++ Since 2004 Attorney. Formerly, Senior Managing Director 45 None.
Year of Birth: 1965 and Chief Administrative Officer (2007-2008)
Trustee and General Counsel (2001-2007) of Claymore
Advisors, LLC and Claymore Securities,
Inc. Formerly, Senior Managing Director and
General Counsel of Claymore Group, Inc.,
Claymore Advisors, LLC and Claymore
Securities, Inc. (2001-2007). Assistant General
Counsel, John Nuveen and Co.,
Inc. (1999-2001). Former Vice President and
Associate General Counsel of Van Kampen
Investments, Inc. (1992-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
* Address for all Trustees: 2455 Corporate West Drive, Lisle, IL 60532
** After a Trustees' initial term, each Trustee is expected to serve a
three-year term concurrent with the class of Trustees for which he serves:
- Messrs. Moore and Nyberg, as Class I Trustees, are expected to stand
for re-election at the Fund's 2009 annual meeting of shareholders.
- Messrs. Appelstein, Cosler and Toupin, as Class II Trustees, are
expected to stand for re-election at the Fund's 2010 annual meeting
of shareholders.
*** The Claymore Fund Complex consists of U.S. registered investment companies
advised or serviced by Claymore Advisors, LLC or Claymore Securities,
Inc. The Claymore Fund Complex is overseen by multiple Boards of Trustees.
+ Mr. Appelstein is an "interested person" (as defined in Section 2(a)(19)
of the 1940 Act) of the Fund because of his position as an officer of Old
Mutual Asset Management, the parent company of the Fund's Sub-Adviser.
++ Mr. Dalmaso is an "interested person" (as defined in Section 2(a)(19) of
the 1940 Act) of the Fund as a result of his former position as an officer
of, and his equity ownership in, the Adviser and certain of its
affiliates.
OFFICERS
The Officers of the TS&W/Claymore Tax-Advantaged Balanced Fund and their
principal occupations during the past five years:
NAME, ADDRESS*, YEAR OF BIRTH AND TERM OF OFFICE** AND PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS AND
POSITION(S) HELD WITH REGISTRANT LENGTH OF TIME SERVED OTHER AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell Since 2008 Senior Managing Director, Chief Investment Officer (2008-present) of
Year of birth: 1955 Claymore Advisors, LLC and Claymore Securities, Inc.; Chief Executive of
Chief Executive Officer birth:1955 Officer of certain other Funds advised by Claymore Advisors,
LLC. Formerly, Managing Director in charge of Research (2000-2007) for
Nuveen Asset Management.
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin Robinson Since 2008 Senior Managing Director and General Counsel of Claymore Advisors, LLC,
Year of birth: 1959 Claymore Securities, Inc. and Claymore Group, Inc. (2007-present). Chief
Chief Legal Officer of birth:1959 Legal Officer of certain other funds in the Fund Complex.
Formerly, Associate General Counsel and Assistant Corporate Secretary of
NYSE Euronext, Inc. (2000-2007).
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Hill Since 2004 Senior Managing Director of Claymore Advisors, LLC and Claymore
Year of Birth: 1964 Securities, Inc. (2005-present); Formerly, Chief Financial Officer of
Chief Financial Officer, Chief Claymore Group Inc. (2005-2006); Managing Director of Claymore Advisors,
Accounting Officer and Treasurer LLC and Claymore Securities, Inc. (2003-2005); Treasurer of Henderson
Global Funds and Operations Manager for Henderson Global Investors (NA)
Inc., (2002-2003); Managing Director, FrontPoint Partners LLC
(2001-2002);Vice President, Nuveen Investments (1999-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
Vincent R. Giordano Since 2004 Senior Managing Director of SMC Fixed Income Management, LP.
Year of Birth: 1948 (2006-present) Formerly, Senior Managing Director of Claymore Advisors,
Vice President LLC (2004-2006); Senior Vice President and Portfolio Manager of Merrill
Lynch Asset Management, Inc. (1985-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
George Gregorio Since 2004 Managing Director of SMC Fixed Income Management, LP (2006-present).
Year of Birth: 1949 Formerly, Managing Director of Claymore Advisors, LLC (2004-2006); Sell
Vice President Side Analyst for JB Hanauer & Co.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberto W. Roffo Since 2004 Managing Director of SMC Fixed Income Management, LP (2006-present).
Year of Birth: 1966 Formerly, Managing Director of Claymore Advisors, LLC (2004-2006);
Vice President Director and Vice President of Merrill Lynch Investment Managers.
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce Saxon Since 2006 Vice President, Fund Compliance Officer of Claymore Group, Inc.
Year of Birth: 1957 (2006-present). Formerly, Chief Compliance Officer/Assistant Secretary of
Chief Compliance Officer Harris Investment Management, Inc. (2003-2006); Director-Compliance of
Harrisdirect LLC (1999-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew J. Patterson Since 2006 Vice President, Assistant General Counsel of Claymore Group, Inc. (2006-
Year of Birth: 1971 Present). Secretary of certain funds in the Fund Complex. Formerly, Chief
Secretary Compliance Officer and Clerk, The Preferred Group of Mutual Funds
(2005-2006). Chief Compliance Officer and Secretary, Caterpillar
Investment Management Ltd (2005-2006). Securities Counsel, Caterpillar
Inc. (2004-2006); Associate, Skadden, Arps, Slate, Meagher & Flom LLP
(2002-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* Address for all Officers:2455 Corporate West Drive, Lisle, IL 60532
** Officers serve at the pleasure of the Board of Trustees and until his or
her successor is appointed and qualified or until his or her earlier
resignation or removal.
Annual Report | December 31, 2008 | 29
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Dividend Reinvestment PLAN | (unaudited)
Unless the registered owner of common shares elects to receive cash by
contacting the Plan Administrator, all dividends declared on common shares of
the Fund will be automatically reinvested by The Bank of New York Mellon (the
"Plan Administrator"), Administrator for shareholders in the Fund's Dividend
Reinvestment Plan (the "Plan"), in additional common shares of the Fund.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by notice if received and processed by the
Plan Administrator prior to the dividend record date; otherwise such termination
or resumption will be effective with respect to any subsequently declared
dividend or other distribution. Some brokers may automatically elect to receive
cash on your behalf and may re-invest that cash in additional common shares of
the Fund for you. If you wish for all dividends declared on your common shares
of the Fund to be automatically reinvested pursuant to the Plan, please contact
your broker.
The Plan Administrator will open an account for each common shareholder under
the Plan in the same name in which such common shareholder's common shares are
registered. Whenever the Fund declares a dividend or other distribution
(together, a "Dividend") payable in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the equivalent in common
shares. The common shares will be acquired by the Plan Administrator for the
participants' accounts, depending upon the circumstances described below, either
(i) through receipt of additional unissued but authorized common shares from the
Fund ("Newly Issued Common Shares") or (ii) by purchase of outstanding common
shares on the open market ("Open-Market Purchases") on the New York Stock
Exchange or elsewhere. If, on the payment date for any Dividend, the closing
market price plus estimated brokerage commission per common share is equal to or
greater than the net asset value per common share, the Plan Administrator will
invest the Dividend amount in Newly Issued Common Shares on behalf of the
participants. The number of Newly Issued Common Shares to be credited to each
participant's account will be determined by dividing the dollar amount of the
Dividend by the net asset value per common share on the payment date; provided
that, if the net asset value is less than or equal to 95% of the closing market
value on the payment date, the dollar amount of the Dividend will be divided by
95% of the closing market price per common share on the payment date. If, on the
payment date for any Dividend, the net asset value per common share is greater
than the closing market value plus estimated brokerage commission, the Plan
Administrator will invest the Dividend amount in common shares acquired on
behalf of the participants in Open-Market Purchases.
If, before the Plan Administrator has completed its Open-Market Purchases, the
market price per common share exceeds the net asset value per common share, the
average per common share purchase price paid by the Plan Administrator may
exceed the net asset value of the common shares, resulting in the acquisition of
fewer common shares than if the Dividend had been paid in Newly Issued Common
Shares on the Dividend payment date. Because of the foregoing difficulty with
respect to Open-Market Purchases, the Plan provides that if the Plan
Administrator is unable to invest the full Dividend amount in Open-Market
Purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Administrator may cease
making Open-Market Purchases and may invest the uninvested portion of the
Dividend amount in Newly Issued Common Shares at net asset value per common
share at the close of business on the Last Purchase Date provided that, if the
net asset value is less than or equal to 95% of the then current market price
per common share; the dollar amount of the Dividend will be divided by 95% of
the market price on the payment date.
The Plan Administrator maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Common shares in the account
of each Plan participant will be held by the Plan Administrator on behalf of the
Plan participant, and each shareholder proxy will include those shares purchased
or received pursuant to the Plan. The Plan Administrator will forward all proxy
solicitation materials to participants and vote proxies for shares held under
the Plan in accordance with the instruction of the participants. There will be
no brokerage charges with respect to common shares issued directly by the Fund.
However, each participant will pay a pro rata share of brokerage commission
incurred in connection with Open-Market Purchases. The automatic reinvestment of
Dividends will not relieve participants of any Federal, state or local income
tax that may be payable (or required to be withheld) on such Dividends.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan; however,
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants.
All correspondence or questions concerning the Plan should be directed to the
Plan Administrator, BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh,
Pennsylvania 15252-8015, Attention: Shareholder Services Department, Phone
Number: (866) 488-3559.
30 | Annual Report | December 31, 2008
This Page Intentionally Left Blank.
This Page Intentionally Left Blank.
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
Fund INFORMATION |
BOARD OF TRUSTEES
Matthew J. Appelstein*
Randall C. Barnes
Steven D. Cosler
Nicholas Dalmaso**
Robert M. Hamje
L. Kent Moore
Ronald A. Nyberg
Ronald E. Toupin, Jr.
* Trustee is an "interested person" of the Fund as defined in the Investment
Company Act of 1940, as amended.
** Trustee is an "interested person' of the Trust as defined in the
Investment Company Act of 1940, as amended, as a result of his former
position as an officer of, and his equity ownership in, the Adviser and
certain of its affiliates.
OFFICERS
J. Thomas Futrell
Chief Executive Officer
Kevin Robinson
Chief Legal Officer
Steven M. Hill
Chief Financial Officer,
Chief Accounting Officer and Treasurer
Vincent R. Giordano
Vice President
George Gregorio
Vice President
Roberto W. Roffo
Vice President
Bruce Saxon
Chief Compliance Officer
Matthew J. Patterson
Secretary
INVESTMENT MANAGER - EQUITY AND INCOME
Thompson, Siegel &
Walmsley LLC
Richmond, Virginia
INVESTMENT MANAGER - MUNICIPALS
SMC Fixed Income
Management, LP
Princeton, New Jersey
INVESTMENT ADVISER AND ADMINISTRATOR
Claymore Advisors, LLC
Lisle, Illinois
CUSTODIAN AND TRANSFER AGENT
The Bank of New York Mellon
New York, New York
PREFERRED STOCK - DIVIDEND PAYING AGENT
The Bank of New York Mellon
New York, New York
LEGAL COUNSEL
Skadden, Arps, Slate,
Meagher & Flom LLP
Chicago, Illinois
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, Illinois
PRIVACY PRINCIPLES OF TS&W/CLAYMORE TAX-ADVANTAGED BALANCED FUND FOR
SHAREHOLDERS
The Fund is committed to maintaining the privacy of its 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 non-public personal information
relating to its shareholders, although certain non-public personal information
of its shareholders may become available to the Fund. The Fund does not disclose
any non-public personal information about its shareholders or former
shareholders to anyone, except as permitted by law or as is necessary in order
to service shareholder accounts (for example, to a transfer agent or third party
administrator).
The Fund restricts access to non-public personal information about the
shareholders to Claymore Advisors, LLC employees with a legitimate business need
for the information. The Fund maintains physical, electronic and procedural
safeguards designed to protect the non-public personal information of its
shareholders.
Questions concerning your shares of TS&W/Claymore Tax-Advantaged Balanced Fund?
o If your shares are held in a Brokerage Account, contact your Broker.
o If you have physical possession of your shares in certificate form,
contact the Fund's Custodian and Transfer Agent:
The Bank of New York Mellon, 101 Barclay 11E, New York, NY 10286;
(866)488-3559
This report is sent to shareholders of TS&W/Claymore Tax-Advantaged Balanced
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 (866)882-0688.
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 (866)882-0688
or by accessing the Fund's Form N-PX on the SEC's website at www.sec.gov or
www.claymore.com.
The Fund files it complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is
available on the SEC website at www.sec.gov or www.claymore.com. The Fund's Form
N-Q may also be viewed and copied at the SEC's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling (800) SEC-0330 or at www.sec.gov.
In August 2008, the Fund submitted a CEO annual certification to the NYSE in
which the Fund's principal executive officer certified that he was not aware, as
of the date of the certification, of any violation by the Fund of the NYSE's
Corporate Governance listing standards. In addition, as required by Section 302
of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund's principal
executive and principal financial officers have made quarterly certifications,
included in filings with the SEC on Forms N-CSR and N-Q, relating to, among
other things, the Fund's disclosure controls and procedures and internal control
over financial reporting.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may from time to time purchase its shares of
common stock in the open market.
Annual Report | December 31, 2008 | 33
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
About the FUND MANAGERS |
TS&W/Claymore Tax-Advantaged Balanced Fund (TYW) is managed jointly by seasoned
investment professionals from SMC Fixed Income Management, LP and Thompson,
Siegel & Walmsley LLC. The teams employ their specialized experience to
different sleeves within the Fund, but work closely with one another to
collectively guide the overall operations of TYW.
CLAYMORE ADVISORS, LLC
Claymore Advisors, LLC is a registered investment adviser that provides
investment management and research-related services to registered investment
companies. Claymore Advisors, LLC is responsible for the Fund's overall asset
allocation.
SMC FIXED INCOME MANAGEMENT, LP
SMC Fixed Income Management, LP ("SMC") is a subsidiary of Spring Mountain
Capital LP ("Spring Mountain"). Spring Mountain is an investment management firm
founded in July 2001 that specializes in alternative investments and advisory
services for both broad asset allocation and/or focused portfolios.
SMC'S INVESTMENT PHILOSOPHY AND PROCESS
SMC attempts to identify investment grade and below-investment grade municipal
securities that are trading at attractive valuations relative to the Firm's
evaluation of the issuer's creditworthiness, and with respect to private
activity bonds, the profit potential of the corporation from which the revenue
supporting the bonds is derived.
The municipal management team begins their credit selection process by analyzing
broad macroeconomic trends and developments affecting the fixed-income markets.
The managers analyze the economic outlook, market conditions and perceived
effects on interest rates and yield curves. From there they incorporate a
bottom-up and top-down analysis that helps construct a portfolio that the
managers believe optimizes federally tax-exempt income while seeking to avoid
undue credit risk and market timing risk. SMC's proprietary, unbiased research
helps the managers identify undervalued sectors that they believe have the
potential for ratings upgrades and capital appreciation.
THOMPSON, SIEGEL & WALMSLEY LLC (TS&W)
Thompson, Siegel & Walmsley LLC (TS&W) is a registered investment adviser
founded in 1969 in Richmond, Virginia and provides investment management
services to corporations, pension and profit-sharing plans, 401(k) and thrift
plans, open and closed-end mutual funds, trusts, estates and other institutions
and individuals. The firm is a majority owned subsidiary of Old Mutual (US)
Holdings Inc. TS&W is responsible for the day-today management of the equity and
taxable income securities portion of the Fund.
TS&W INVESTMENT PHILOSOPHY AND PROCESS
Thompson, Siegel & Walmsley LLC's investment process is value-driven and
team-oriented. TS&W pursues a relative value-oriented philosophy and focuses its
equity selection on the higher dividend paying stocks that meet its investment
criteria. TS&W's investment process uses a combination of quantitative and
qualitative methods based on a four-factor screen. Parts one and two of the
screen attempt to assess a company's attractiveness based on cash flows relative
to other stocks and as compared to their industry or sector peers. The third
factor considers the relative earnings prospects of the company. The fourth
factor involves looking at the company's recent price action. TS&W generally
limits its investment universe to those companies with a minimum of three years
of sound operating history.
TS&W's analysts also perform rigorous fundamental analysis, exploring numerous
factors that may affect the outlook for a company. They evaluate publicly
available information including sell-side research, company filings, and trade
periodicals. The analysts may speak with company management to hear their
perspectives and outlook on the pertinent business issues. They apply a
consistent and disciplined review in a team environment that encourages critical
thinking and analysis for each company considered for investment.
Established positions in the portfolio are ranked daily and are reviewed
regularly in the same manner to re-examine their fundamental and valuation
characteristics. The product team meets periodically to discuss each stock's
place in the portfolio. TS&W employs a consistent sell discipline.
TS&W's Fixed-Income team is responsible for overall bond market strategy as well
as security selection. In-house analysts are used to support the credit review
process.
34 | Annual Report | December 31, 2008
TYW | TS&W/Claymore Tax-Advantaged Balanced Fund
This Page Intentionally Left Blank.
Annual Report | December 31, 2008 | 35
CLAYMORE SECURITIES, INC.
2455 Corporate West Drive
Lisle, IL 60532
Member FINRA/SIPC (02/09)
TYW
LISTED
NYSE(R)
TYW-AR-1208
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.
(b) No information need be disclosed pursuant to this paragraph.
(c) During the registrant's fiscal year ended December 31, 2008, the Code of
Ethics was not amended.
(d) The registrant has not granted a waiver or an implicit waiver to its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions from a provision
of its Code of Ethics during the period covered by this report.
(e) Not applicable.
(f) (1) The registrant's Code of Ethics is attached hereto as an exhibit.
(2) Not applicable.
(3) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that it has at least one audit
committee financial expert serving on its audit committee, Ronald E. Toupin, Jr.
Mr. Toupin is an "independent" Trustee for purposes of Item 3 of Form N-CSR. Mr.
Toupin qualifies as an audit committee financial expert by virtue of his
experience obtained as a portfolio manager and research analyst, which included
review and analysis of offering documents and audited and unaudited financial
statements using GAAP to show accounting estimates, accruals and reserves.
(Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for the purposes of Section 11 of the Securities
Act of 1933, as amended, as a result of being designated or identified as an
audit committee financial expert. The designation or identification of a person
as an audit committee financial expert does not impose on such person any
duties, obligations, or liabilities that are greater than the duties,
obligations, and liabilities imposed on such person as a member of the audit
committee and Board of Trustees in the absence of such designation or
identification. The designation or identification of a person as an audit
committee financial expert doesn't affect the duties, obligations or liability
of any other member of the audit committee or Board of Trustees.)
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees: the aggregate fees billed for the fiscal year 2008 for
professional services rendered by the principal accountant for the audit of the
registrant's annual financial statements were approximately $40,500. The
aggregate fees billed for the fiscal year 2007 for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements were $39,000.
(b) Audit-Related Fees: the aggregate fees billed for the fiscal year 2008 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 were $6,300. The
Audit-Related Fees for the fiscal year 2007 were $6,000. Specifically, this
amount represents the amount paid for the audit of the preferred shares asset
coverage test.
(c) Tax Fees: the aggregate fees billed for the fiscal year 2008, for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning were $6,500. The Tax Fees for the fiscal year 2007
were $6,200.
(d) All Other Fees: the aggregate fees billed for the fiscal year 2008, for
products and services provided by the principal accountant, other than the
services reported in paragraphs (a) and (c) of this Item were $0. The Other
Audit Fees for the fiscal year 2007 were $0.
The registrant's principal accountant did not bill fees for non-audit services
that required approval by the registrant's audit committee pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X during the Registrant's last two
fiscal years.
(e) Audit Committee Pre-Approval Policies and Procedures.
The Registrant's audit committee reviews, and in its sole discretion,
pre-approves, pursuant to written pre-approval procedures (A) all engagements
for audit and non-audit services to be provided by the principal accountant to
the registrant and (B) all engagements for non-audit services to be provided by
the principal accountant (1) to the registrant's investment adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and (2) to any entity
controlling, controlled by or under common control with the registrant's
investment adviser that provides ongoing services to the registrant; but in the
case of the services described in subsection (B)(1) or (2), only if the
engagement relates directly to the operations and financial reporting of the
registrant; provided that such pre-approval need not be obtained in
circumstances in which the pre-approval requirement is waived under rules
promulgated by the Securities and Exchange Commission or New York Stock Exchange
listing standards. Sections IV.C.2 and IV.C.3 of the audit committee's revised
Audit Committee Charter contain the Audit Committee's Pre-Approval Policies and
Procedures and such sections are included below.
IV.C.2 Pre-approve any engagement of the independent auditors to provide any
non-prohibited services to the Trust, including the fees and other
compensation to be paid to the independent auditors (unless an
exception is available under Rule 2-01 of Regulation S-X).
(a) The Chairman or any member of the Audit Committee may grant the
pre-approval of services to the Fund for non-prohibited services up to
$10,000. All such delegated pre-approvals shall be presented to the
Audit Committee no later than the next Audit Committee meeting.
IV.C.3 Pre-approve any engagement of the independent auditors, including
the fees and other compensation to be paid to the independent
auditors, to provide any non-audit services to
the Adviser (or any "control affiliate" of the Adviser providing
ongoing services to the Trust), if the engagement relates directly to
the operations and financial reporting of the Trust (unless an
exception is available under Rule 2-01 of Regulation S-X).
(a) The Chairman or any member of the Audit Committee may grant the
pre-approval for non-prohibited services to the Adviser up to $10,000.
All such delegated pre-approvals shall be presented to the Audit
Committee no later than the next Audit Committee meeting.
(ii) None of the services described in each of Items 4(b) through (d) were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
(f) Not Applicable.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant (not including a sub-adviser whose
role is primarily portfolio management and is sub-contracted with or overseen by
another investment adviser) that directly related to the operations and
financial reporting of the registrant for the fiscal year 2008 were $12,800 and
for the fiscal year 2007 were $12,200.
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) 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: Randall C. Barnes, Steven D. Cosler, Robert M. Hamje, L. Kent Moore,
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 the investment sub-adviser of its equity portfolio, Thompson,
Siegel & Walmsley LLC ("TS&W"). TS&W's proxy voting polices and procedures are
included as an exhibit hereto.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) TS&W is responsible for the day-to-day management of the equity and
income securities portion of the registrant's portfolio. SMC Fixed Income
Management, LP ("SMC") also serves as investment sub-adviser to the registrant
and is responsible for the day-to-day management of the municipal securities
portion of the registrant's portfolio.
TS&W Portfolio Managers
The following individuals at TS&W share primary responsibility for the
management of the equity and income securities portion of the registrant's
portfolio:
NAME SINCE PROFESSIONAL EXPERIENCE
- ---- ----- -----------------------
William M. Bellamy, CFA, 2004 Mr. Bellamy is a member of the Investment Policy Committee and has
Portfolio Manager over 17 years of experience working with fixed income securities.
Prior to joining Thompson, Siegel & Walmsley LLC in 2002, Mr.
Bellamy was with Trusco Capital Management where he served as a Vice
President, Fixed Income Portfolio Manager. Prior to Trusco, he was
employed with First Union Capital Markets, Clayton Brown & Associates and
Merrill Lynch Capital Markets in Institutional Fixed Income Sales. Mr.
Bellamy received his Bachelor of Science from Cornell University and his
MBA from Duke University.
Paul A. Ferwerda, CFA, 2004 Mr. Ferwerda is a member of the Investment Policy Committee and
Portfolio Manager brings to the investment team 20 years experience with the firm
and 24 years overall investment experience. Mr. Ferwerda
contributes significant research expertise within the Financial
sector. Prior to joining the firm, Mr. Ferwerda was a Portfolio Manager with
AmSouth Bank in Birmingham, AL. He received his Bachelor of Science degree
from Auburn University and his MBA from Duke University.
Mr. Ferwerda is responsible for managing the qualified dividend income ("QDI")
portion of the Fund. Mr. Bellamy is responsible for managing the non-QDI portion
of the Fund, including high yield bonds, preferred stocks and real estate
investment trusts.
SMC Portfolio Managers
The following individuals at SMC share primary responsibility for the management
of the municipal securities portion of the registrant's portfolio:
NAME SINCE PROFESSIONAL EXPERIENCE
- ---- ----- -----------------------
Vincent R. Giordano 2004 Senior Managing Director and Portfolio Manager of SMC Fixed Income
Management. Previously, Senior Managing Director of Claymore
Advisors, LLC; Senior Vice President and Portfolio Manager of
Merrill Lynch Asset Management, Inc.
Roberto W. Roffo 2004 Senior Managing Director and Portfolio Manager of SMC Fixed Income
Management. Previously, Senior Managing Director of Claymore
Advisors, LLC;
Director and Vice President of Merrill Lynch Investment Managers.
Mr. Roffo is responsible for identifying investment opportunities and executing
transactions on behalf of the municipal securities portion of the registrant's
portfolio. Mr. Giordano oversees Mr. Roffo's activities and works jointly with
Mr. Roffo to formulate investment strategies.
The information disclosed in this paragraph (a)(1) of Item 8 is provided as of
December 31, 2008.
(a)(2)
TS&W Other Accounts Managed
TS&W does not manage any accounts for which the advisory fee is based upon the
performance of the account. The following table summarizes information regarding
each of the other accounts managed by the TS&W portfolio managers as of December
31, 2008:
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES OTHER ACCOUNTS
-------------------------- ---------------------------- ----------------------------
# OF # OF # OF
NAME ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS
- ---- -------- ------------ -------- ------------ -------- ------------
William M. Bellamy 1 $ 45.6M 0 0 17 $ 727.1M
Paul A. Ferwerda
1 $ 37.0M 0 0 128 $1,400.0M
SMC Other Accounts Managed
SMC does not manage any accounts for which the advisory fee is based upon the
performance of the account. The following table summarizes information regarding
each of the other accounts managed by the SMC portfolio managers as of December
31, 2008:
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES OTHER ACCOUNTS
-------------------------- ---------------------------- ----------------------------
# OF # OF # OF
NAME ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS
- ---- -------- ------------ -------- ------------ -------- ------------
Vincent R. Giordano 0 0 0 0 9 $30,660,413
Roberto W. Roffo 0 0 0 0 9 $30,660,413
TS&W Potential Conflicts of Interest
Three of the products TS&W advises are long-short strategies and may sell
securities short. Procedures are in place to ensure that no primary security
holding in accounts managed by TS&W will be shorted by any account advised by
TS&W that utilizes the Four Factor investment process. The term "primary
holdings" refer to any core holding in any of the firm's equity products,
including TYW. Primary holdings specifically exclude miscellaneous securities
most frequently held in the taxable portfolios of TS&W's clients.
Mr. Bellamy and Mr. Ferwerda do not manage accounts that can short securities.
The portfolio managers responsible for those portfolios that can short
securities are not separated from the rest of TS&W's investment personnel and
therefore have access to full information about TS&W's investment research and
the strategies being employed for accounts managed by TS&W.
Some other accounts managed by TS&W pay TS&W management fees at rates comparable
to and in some cases lower than those paid by the registrant and other accounts
managed by TS&W. Two of the long-short strategies that TS&W manages have
performance fee incentives. As a result, TS&W may have a conflict between its
own interests and the interests of its other investment advisory clients in
managing these long-short accounts. TS&W has adopted various procedures and
safeguards to mitigate these potential conflicts.
SMC Potential Conflicts of Interest
At times there may be instances when securities are being purchased or sold by
SMC for more than one account. On a daily basis, SMC's Chief Compliance Officer
reviews and approves all trades for all accounts assuring that there has been
fair allocation among accounts. When necessary, SMC's Chief Compliance Officer
will question the portfolio managers to assure fair allocation among all
accounts managed has taken place.
(a)(3)
TS&W Portfolio Manager Compensation
TS&W compensates Mr. Bellamy and Mr. Ferwerda for their management of the equity
and income producing securities portion of the registrant's portfolio.
Compensation is comprised of a fixed base salary and discretionary performance
bonus that is based on the overall success of the firm, an individual's
responsibility and his/her performance versus expectations, which are reviewed
annually. That evaluation includes the professional's own self-assessment of
their years' work relative to their responsibilities and also includes peer and
supervisor evaluations. TS&W's compensation strategy is to provide reasonable
base salaries commensurate with an individual's responsibility and provide
performance bonus awards that can exceed base salary. A summary of
the input goes to the Remuneration Committee of TS&W's Board of Directors and
they determine the specific compensation, salary plus bonus, for the individual.
Total compensation of TS&W's portfolio managers is not related to fund
performance. In concurrence with Old Mutual (US) Holdings Inc., in May 2007,
TS&W began to offer key employees the opportunity to purchase equity interest in
TS&W and facilitate the awarding of equity interest to certain key employees as
a component of long-term incentive compensation. Old Mutual (US) Holdings Inc.
remains a majority owner.
Additionally, there is a qualified profit sharing plan and a long-term incentive
plan, which is eligible for participation by all TS&W associates.
SMC Portfolio Manager Compensation
SMC compensates Mr. Giordano and Mr. Roffo for their management of the municipal
securities portion of the registrant's portfolio. Compensation consists of a
fixed based salary and is based on the experience and qualifications of each
portfolio manager. All SMC employees are also eligible to participate in a
401(k) plan, which does not include matching funds from any other party.
(a)(4)
TS&W Portfolio Manager Securities Ownership
The following table discloses the dollar range of equity securities of the
registrant beneficially owned by each TS&W portfolio manager as of December 31,
2008:
DOLLAR RANGE OF EQUITY
NAME OF PORTFOLIO MANAGER SECURITIES IN FUND
- --------------------------------------------------------------------------------
William M. Bellamy None
Paul A. Ferwerda $10,001-$50,000
SMC Portfolio Manager Securities Ownership
The following table discloses the dollar range of equity securities of the
registrant beneficially owned by each SMC portfolio manager as of December 31,
2008:
DOLLAR RANGE OF EQUITY
NAME OF PORTFOLIO MANAGER SECURITIES IN FUND
- --------------------------------------------------------------------------------
Vincent R. Giordano $10,001-$50,000
Roberto W. Roffo $1-$10,000
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 20, 2009, the registrant's Board of Trustees (the "Board") approved a
revised written charter (the "Nominating and Governance Committee Charter") for
its nominating and governance committee (the "Nominating and Governance
Committee") that contains changes to the procedures by which shareholders may
recommend nominees to the Board.
Under the Nominating and Governance Charter, the previously existing procedures
by which shareholders may recommend nominees to the Board, as described in the
registrant's proxy statement filed with the Securities and Exchange Commission
on June 25, 2008, remain in effect. In addition to these previously existing
procedures, the Nominating and Governance Charter includes a new requirement
that following the submission by a shareholder of a Trustee candidate
recommendation, a Trustee candidate must (i) be prepared to submit written
answers to a questionnaire seeking professional and personal information that
will assist the Nominating and Governance Committee to evaluate the candidate
and to determine, among other matters, whether the candidate would qualify as a
Trustee who is not an "interested person" of the registrant as such term is
defined under the Investment Company Act of 1940; (ii) be prepared to submit
character references and agree to appropriate background checks; and (iii) be
prepared to meet with one or more members of the Nominating and Governance
Committee at a time and location convenient to those Nominating and Governance
Committee members in order to discuss the nominee's qualifications.
A copy of the Nominating and Governance Committee Charter will be filed with the
Securities and Exchange Commission as an appendix to the registrant's 2009 proxy
statement.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded based on such evaluation, that the
registrant's disclosure controls and procedures were effective as of that date
in ensuring that information required to be disclosed by the registrant in this
Form N-CSR was recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the registrant's second fiscal quarter of the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics for Chief Executive and Senior Financial Officer.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Rule 30a-2 of the Investment Company Act of 1940.
(b) Certifications 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) TS&W/Claymore Tax-Advantaged Balanced Fund
By: /s/ J. Thomas Futrell
---------------------------------------------------------------------
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: March 5, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ J. Thomas Futrell
---------------------------------------------------------------------
Name: J. Thomas Futrell
Title: Chief Executive Officer
Date: March 5, 2009
By: /s/ Steven M. Hill
---------------------------------------------------------------------
Name: Steven M. Hill
Title: Treasurer and Chief Financial Officer
Date: March 5, 2009