|
|
|
Clough Global Funds
|
|
Notes to Financial Statements
|
|
|
September 30, 2012 (Unaudited)
|
The following is a reconciliation of assets in which significant unobservable inputs (Level 3)
were used in determining fair value:
CLOUGH GLOBAL ALLOCATION FUND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in
Securities
|
|
Balance as of
March 31, 2012
|
|
|
Realized
gain/(loss)
|
|
Change in
unrealized
appreciation/
(depreciation)
|
|
|
Net
Purchases
|
|
|
Net
Sales
|
|
Transfer
into
Level 3
|
|
|
Transfer
out of
Level 3
|
|
|
Balance as of
September
30, 2012
|
|
|
Net change
in
unrealized appreciation/
(depreciation) included
in the Statement of
Operations attributable
to Level 3 investments
still held at
September 30, 2012
|
|
Common Stocks
|
|
|
$19,963
|
|
|
$(71,735)
|
|
|
$72,065
|
|
|
|
$
|
|
|
$(10,909)
|
|
|
$
|
|
|
|
$
|
|
|
|
$9,384
|
|
|
|
$72,065
|
|
|
|
Total
|
|
|
$19,963
|
|
|
$(71,735)
|
|
|
$72,065
|
|
|
|
$
|
|
|
$(10,909)
|
|
|
$
|
|
|
|
$
|
|
|
|
$9,384
|
|
|
|
$72,065
|
|
|
|
CLOUGH GLOBAL EQUITY FUND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in
Securities
|
|
Balance
as of
March 31, 2012
|
|
|
Realized
gain/(loss)
|
|
Change in
unrealized
appreciation/
(depreciation)
|
|
|
Net
Purchases
|
|
|
Net
Sales
|
|
Transfer
into
Level 3
|
|
|
Transfer out
of
Level 3
|
|
Balance
as of
September
30, 2012
|
|
|
Net change in
unrealized
appreciation/
(depreciation)
included in
the
Statement of
Operations
attributable
to Level 3
investments
still
held
at
September
30, 2012
|
|
Common Stocks
|
|
|
$ 29,944
|
|
|
$(107,609)
|
|
|
$ 108,105
|
|
|
|
$
|
|
|
$(16,365)
|
|
|
$
|
|
|
$
|
|
|
$14,075
|
|
|
|
$ 108,105
|
|
|
|
Asset/Mortgage Backed Securities
|
|
|
585,045
|
|
|
2,523
|
|
|
(83,525
|
)
|
|
|
|
|
|
(201,871)
|
|
|
$
|
|
|
$(302,172)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ 614,989
|
|
|
$(105,086)
|
|
|
$ 24,580
|
|
|
|
$
|
|
|
$(218,236)
|
|
|
$
|
|
|
$(302,172)
|
|
|
$14,075
|
|
|
|
$ 108,105
|
|
|
|
CLOUGH GLOBAL OPPORTUNITIES FUND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in
Securities
|
|
Balance as of
March 31, 2012
|
|
|
Realized
gain/(loss)
|
|
Change in
unrealized
appreciation/
(depreciation)
|
|
|
Net
Purchases
|
|
|
Net
Sales
|
|
Transfer
into
Level 3
|
|
|
Transfer
out of
Level 3
|
|
|
Balance as of
September
30, 2012
|
|
|
Net change
in
unrealized appreciation/
(depreciation) included
in the Statement of
Operations attributable
to Level 3 investments
still held at
September 30, 2012
|
|
Common Stocks
|
|
|
$69,869
|
|
|
$(251,107)
|
|
|
$252,264
|
|
|
|
$
|
|
|
$(38,188)
|
|
|
$
|
|
|
|
$
|
|
|
|
$32,838
|
|
|
|
$252,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$69,869
|
|
|
$(251,107)
|
|
|
$252,264
|
|
|
|
$
|
|
|
$(38,188)
|
|
|
$
|
|
|
|
$
|
|
|
|
$32,838
|
|
|
|
$252,264
|
|
|
|
Foreign Securities:
Each Fund may invest a portion of its assets in foreign securities. In the event that a
Fund executes a foreign security transaction, the Fund will generally enter into a forward foreign currency contract to settle the foreign security transaction. Foreign securities may carry more risk than U.S. securities, such as political, market
and currency risks.
The accounting records of each Fund are maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of exchange at period end. Amounts related to the purchase and sale of foreign securities and investment income are translated at the rates of exchange prevailing on the respective
dates of such transactions.
The effect of changes in foreign currency exchange rates on investments is reported with all other foreign
currency realized and unrealized gains and losses in the Funds Statements of Operations.
A foreign currency contract is a
commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. Each Fund may enter into foreign currency contracts to settle specific purchases or sales of securities denominated in a foreign currency and for protection
from adverse exchange rate fluctuation. Risks to a Fund include the potential inability of the counterparty to meet the terms of the contract.
|
|
|
Semi-Annual
Report | September 30, 2012
|
|
37
|
|
|
|
Notes to Financial Statements
|
|
Clough Global Funds
|
September 30, 2012 (Unaudited)
|
|
|
The net U.S. dollar value of foreign currency underlying all contractual commitments held by a
Fund and the resulting unrealized appreciation or depreciation are determined using prevailing forward foreign currency exchange rates. Unrealized appreciation and depreciation on foreign currency contracts are reported in the Funds Statements
of Assets and Liabilities as a receivable or a payable and in the Funds Statements of Operations with the change in unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies. These spot
contracts are used by the broker to settle investments denominated in foreign currencies.
A Fund may realize a gain or loss upon the
closing or settlement of the foreign transaction. Such realized gains and losses are reported with all other foreign currency gains and losses in the Statements of Operations.
As of September 30, 2012, the Funds had the following open spot foreign currency contracts:
Spot Foreign Exchange
Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy/Sell
|
|
Foreign
Currency Type
|
|
Cost USD
|
|
|
Market Value USD
|
|
|
Settlement Date
|
|
Unrealized
Gain/(Loss)
|
|
Clough Global Allocation Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
GBP
|
|
$
|
25,977
|
|
|
$
|
25,829
|
|
|
10/2/12
|
|
$
|
(147)
|
|
Sell
|
|
MYR
|
|
|
(27,823)
|
|
|
|
(27,927)
|
|
|
10/2/12
|
|
|
(105)
|
|
|
|
|
|
$
|
(1,846)
|
|
|
$
|
(2,098)
|
|
|
|
|
$
|
(252)
|
|
|
|
|
|
|
|
|
|
Clough Global Equity Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
GBP
|
|
$
|
42,372
|
|
|
$
|
42,132
|
|
|
10/2/12
|
|
$
|
(240)
|
|
Sell
|
|
MYR
|
|
|
(45,555)
|
|
|
|
(45,726)
|
|
|
10/2/12
|
|
|
(171)
|
|
|
|
|
|
$
|
(3,183)
|
|
|
$
|
(3,594)
|
|
|
|
|
$
|
(411)
|
|
|
|
|
|
|
|
Clough Global Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
GBP
|
|
$
|
110,130
|
|
|
$
|
109,507
|
|
|
10/2/12
|
|
$
|
(623)
|
|
Sell
|
|
MYR
|
|
|
(119,436)
|
|
|
|
(119,885)
|
|
|
10/2/12
|
|
|
(449)
|
|
|
|
|
|
$
|
(9,306)
|
|
|
$
|
(10,378)
|
|
|
|
|
$
|
(1,072)
|
|
|
|
Short Sales:
Each Fund may sell a security it does not own in anticipation of a decline in the fair value of
that security. When a Fund sells a security short, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale. A gain, limited to the price at which a Fund sold the security short, or a loss,
unlimited in size, will be recognized upon the termination of the short sale.
Each Funds obligation to replace the borrowed
security will be secured by collateral deposited with the broker-dealer, usually cash, U.S. government securities or other liquid securities. Each Fund will also be required to designate on its books and records similar collateral with its custodian
to the extent, if any, necessary so that the aggregate collateral value is at all times at least equal to the current market value of the security sold short. The cash amount is reported on the Statement of Assets and Liabilities as Deposit with
broker for securities sold short. The market value of securities held as collateral for securities sold short as of September 30, 2012, was $38,409,276, $54,129,685 and $120,980,701 for Clough Global Allocation Fund, Clough Global Equity Fund and
Clough Global Opportunities Fund, respectively. Each Fund is obligated to pay interest to the broker for any debit balance of the margin account relating to short sales. The interest incurred on the Funds for the year ended September 30, 2012 is
reported on the Statement of Operations as Interest expense margin account. Interest amounts payable by the Funds as of September 30, 2012 are reported on the Statement of Assets and Liabilities as Interest payable margin account.
Each Fund may also sell a security short if it owns at least an equal amount of the security sold short or another security convertible
or exchangeable for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box). In a short sale against-the-box, the short seller is exposed to the risk of being forced to deliver stock that it
holds to close the position if the borrowed stock is called in by the lender, which would cause gain or loss to be recognized on the delivered stock. Each Fund expects normally to close its short sales against-the-box by delivering newly acquired
stock.
Derivatives Instruments and Hedging Activities:
The following discloses the Funds use of derivative instruments and
hedging activities.
The Funds investment objectives not only permit the Funds to purchase investment securities, they also allow
the Funds to enter into various types of derivative contracts, including, but not limited to, purchased and written options and warrants. In doing so, the Funds will employ strategies in differing combinations to permit them to increase, decrease,
or change the level or types of exposure to market factors. Central to those strategies
|
|
|
Clough Global Funds
|
|
Notes to Financial Statements
|
|
|
September 30, 2012 (Unaudited)
|
are features inherent to derivatives that make them more attractive for this purpose than equity
securities; they require little or no initial cash investment, they can focus exposure on only certain selected risk factors, and they may not require the ultimate receipt or delivery of the underlying security (or securities) to the contract. This
may allow the Funds to pursue their objectives more quickly and efficiently than if they were to make direct purchases or sales of securities capable of effecting a similar response to market factors.
Market Risk Factors:
In pursuit of their investment objectives, certain Funds may seek to use derivatives to increase or decrease their
exposure to the following market risk factors:
Equity Risk: Equity risk relates to the change in value of equity
securities as they relate to increases or decreases in the general market.
Risk of Investing in Derivatives: The Funds
use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Funds are using derivatives to decrease or hedge exposures to market risk factors for securities held by
the Funds, there are also risks that those derivatives may not perform as expected, resulting in losses for the combined or hedged positions.
Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows
the Funds to increase their market value exposure relative to their net assets and can substantially increase the volatility of the Funds performance.
Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Funds. Typically, the associated risks are not the
risks that the Funds are attempting to increase or decrease exposure to, per their investment objectives, but are the additional risks from investing in derivatives.
Examples of these associated risks are liquidity risk, which is the risk that the Funds will not be able to sell the derivative in
the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Funds. Associated risks can be different for each type of derivative and are discussed by each
derivative type in the notes that follow.
Option Writing/Purchasing:
Each Fund may purchase or write (sell) put and call
options. One of the risks associated with purchasing an option among others, is that a Fund pays a premium whether or not the option is exercised. Additionally, a Fund bears the risk of loss of premium and change in market value should the
counterparty not perform under the contract. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums
paid. Each Fund is obligated to pay interest to the broker for any debit balance of the margin account relating to options. The interest incurred on the Funds for the six months ended September 30, 2012 is reported on the Statement of Operations as
Interest expense margin account. Interest amounts payable by the Funds as of September 30, 2012 are reported on the Statement of Assets and Liabilities as Interest payable margin account.
When a Fund writes an option, an amount equal to the premium received by a Fund is recorded as a liability and is subsequently adjusted to the
current value of the option written. Premiums received from writing options that expire unexercised are treated by a Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is recorded as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether a
Fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by a Fund. Each Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security
underlying the written option.
Written option activity for the six months ended September 30, 2012 was as follows:
CLOUGH GLOBAL ALLOCATION FUND:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written Call Options
|
|
|
Written Put Options
|
|
|
|
Contracts
|
|
|
Premiums
|
|
|
Contracts
|
|
|
Premiums
|
|
Outstanding, March 31, 2012
|
|
|
23
|
|
|
$
|
40,409
|
|
|
|
|
|
|
$
|
|
|
Positions opened
|
|
|
2,666
|
|
|
|
185,704
|
|
|
|
1,200
|
|
|
|
1,226,588
|
|
Exercised
|
|
|
(23)
|
|
|
|
(40,409)
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,020)
|
|
|
|
(89,363)
|
|
|
|
|
|
|
|
|
|
Closed
|
|
|
(400)
|
|
|
|
(12,390)
|
|
|
|
(1,200)
|
|
|
|
(1,226,588)
|
|
Split
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2012
|
|
|
1,246
|
|
|
$
|
83,951
|
|
|
|
|
|
|
$
|
|
|
Market Value, September 30, 2012
|
|
|
|
|
|
$
|
(68,417)
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
Semi-Annual
Report | September 30, 2012
|
|
39
|
|
|
|
Notes to Financial Statements
|
|
Clough Global Funds
|
September 30, 2012 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOUGH GLOBAL EQUITY FUND:
|
|
|
|
|
|
Written Call Options
|
|
|
Written Put Options
|
|
|
|
Contracts
|
|
|
Premiums
|
|
|
Contracts
|
|
|
Premiums
|
|
Outstanding, March 31, 2012
|
|
|
38
|
|
|
$
|
66,763
|
|
|
|
|
|
|
$
|
|
|
Positions opened
|
|
|
4,317
|
|
|
|
297,970
|
|
|
|
2,000
|
|
|
|
2,044,313
|
|
Exercised
|
|
|
(38)
|
|
|
|
(66,763)
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,690)
|
|
|
|
(143,208)
|
|
|
|
|
|
|
|
|
|
Closed
|
|
|
(600)
|
|
|
|
(18,584)
|
|
|
|
(2,000)
|
|
|
|
(2,044,313)
|
|
Split
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2012
|
|
|
2,027
|
|
|
$
|
136,178
|
|
|
|
|
|
|
$
|
|
|
Market Value, September 30, 2012
|
|
|
|
|
|
$
|
(111,330)
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOUGH GLOBAL OPPORTUNITIES FUND:
|
|
|
|
|
|
Written Call Options
|
|
|
Written Put Options
|
|
|
|
Contracts
|
|
|
Premiums
|
|
|
Contracts
|
|
|
Premiums
|
|
Outstanding, March 31, 2012
|
|
|
4,601
|
|
|
$
|
601,577
|
|
|
|
|
|
|
$
|
|
|
Positions opened
|
|
|
14,956
|
|
|
|
918,655
|
|
|
|
4,800
|
|
|
|
4,906,351
|
|
Exercised
|
|
|
(101)
|
|
|
|
(177,450)
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(3,500)
|
|
|
|
(355,181)
|
|
|
|
|
|
|
|
|
|
Closed
|
|
|
(10,600)
|
|
|
|
(626,571)
|
|
|
|
(4,800)
|
|
|
|
(4,906,351)
|
|
Split
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2012
|
|
|
5,356
|
|
|
$
|
361,030
|
|
|
|
|
|
|
$
|
|
|
Market Value, September 30, 2012
|
|
|
|
|
|
$
|
(294,378)
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps:
During the period the Fund engaged in total return swaps. A swap is an agreement that obligates two
parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The Fund may utilize swap agreements as a means to gain
exposure to certain assets and/or to hedge or protect the Fund from adverse movements in securities prices or interest rates. The Fund is subject to equity risk and interest rate risk in the normal course of pursuing its investment
objective through investments in swap contracts. Swap agreements entail the risk that a party will default on its payment obligation to the Fund. If the other party to a swap defaults, the Fund would risk the loss of the net amount of the payments
that it contractually is entitled to receive. If the Fund utilizes a swap at the wrong time or judges market conditions incorrectly, the swap may result in a loss to the Fund and reduce the Funds total return. Swap agreements traditionally
were privately negotiated and entered into in the over-the-counter market. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) of 2010 now permits certain swap agreements to be cleared through a
clearinghouse and traded on an exchange or swap execution facility. New regulations under the Dodd-Frank Act could, among other things, increase the cost of such transactions.
Total return swaps involve an exchange by two parties in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying
asset, which includes both the income it generates and any capital gains over the payment period. The Funds maximum risk of loss from counterparty risk or credit risk is the discounted value of the payments to be received from/paid to the
counterparty over the contracts remaining life, to the extent that the amount is positive. The risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral to the Fund to cover the
Funds exposure to the counterparty.
International Swaps and Derivatives Association, Inc. Master Agreements (ISDA Master
Agreements) govern OTC financial derivative transactions entered into by a Fund and those counterparties. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or
termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to early terminate could
be material to the financial statements.
During the six months ended September 30, 2012, the Funds invested in swap agreements
consistent with the Funds investment strategies to gain exposure to certain markets or indices. There were no open swap agreements in the Funds at the end of the period.
Warrants:
Each Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a set price. Funds
typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of
purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid
|
|
|
Clough Global Funds
|
|
Notes to Financial Statements
|
|
|
September 30, 2012 (Unaudited)
|
than exchange-traded options. In addition, the terms of warrants or rights may limit each Funds ability to exercise the warrants or rights at such times and in such quantities as each Fund
would otherwise wish. Each Fund held no rights or warrants at the end of the period. The following tables disclose the amounts related to each Funds use of derivative instruments.
The effect of derivatives instruments on each Funds Balance Sheet as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Fund
|
|
Risk Exposure
|
|
Statement of Assets and
Liabilities Location
|
|
Contracts
|
|
|
Fair Value
|
|
Clough Global Allocation Fund
|
|
Equity Contracts
|
|
Investments, at value
|
|
|
624
|
|
|
$
|
1,560
|
|
Clough Global Equity Fund
|
|
Equity Contracts
|
|
Investments, at value
|
|
|
939
|
|
|
$
|
2,347
|
|
Clough Global Opportunities Fund
|
|
Equity Contracts
|
|
Investments, at value
|
|
|
8,306
|
|
|
$
|
1,121,033
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
Fund
|
|
Risk Exposure
|
|
Statement of Assets and
Liabilities Location
|
|
Contracts
|
|
|
Fair Value
|
|
Clough Global Allocation Fund
|
|
Equity Contracts
|
|
Options written, at value
|
|
|
1,246
|
|
|
$
|
(68,417
|
)
|
Clough Global Equity Fund
|
|
Equity Contracts
|
|
Options written, at value
|
|
|
2,027
|
|
|
$
|
(111,330
|
)
|
Clough Global Opportunities Fund
|
|
Equity Contracts
|
|
Options written, at value
|
|
|
5,356
|
|
|
$
|
(294,378
|
)
|
The effect of derivatives instruments on each Funds Statement of Operations for the six months ended
September 30, 2012:
|
|
|
|
|
|
|
|
|
Fund
|
|
Risk Exposure
|
|
Statement of Operations Location
|
|
Realized Gain/(Loss) on
Derivatives Recognized
in Income
|
|
Change in
Unrealized
Gain/(Loss) on
Derivatives
Recognized
in Income
|
Clough Global Allocation Fund
|
|
Equity
Contracts
|
|
Net realized gain/(loss) on Investment securities/Net realized gain/(loss) on Written options/Net realized gain/(loss) on total return swap
contracts/Net change in unrealized appreciation/(depreciation) on Investment securities/Net change in unrealized appreciation/(depreciation) on Written options
|
|
$ (2,507,484)
|
|
$ (430,949)
|
Clough Global Equity Fund
|
|
Equity
Contracts
|
|
Net realized gain/(loss) on Investment securities/Net realized gain/(loss) on Written options/Net realized gain/(loss) on total return swap
contracts /Net change in unrealized appreciation/(depreciation) on Investment securities/Net change in unrealized appreciation/(depreciation) on Written options
|
|
(4,161,916)
|
|
(709,497)
|
Clough Global Opportunities Fund
|
|
Equity
Contracts
|
|
Net realized gain/(loss) on Investment securities/Net realized gain/(loss) on Written options/Net realized gain/(loss) on total return swap
contracts /Net change in unrealized appreciation/(depreciation) on Investment securities/Net change in unrealized appreciation/(depreciation) on Written options
|
|
(8,628,074)
|
|
(3,914,070)
|
|
|
|
Semi-Annual
Report | September 30, 2012
|
|
41
|
|
|
|
Notes to Financial Statements
|
|
Clough Global Funds
|
September 30, 2012 (Unaudited)
|
|
|
The average purchased and written option contracts volume and the average purchased and written
option contracts notional volume during the six months ended September 30, 2012 is noted below for each of the Funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Average Purchased
Option Contract
Volume
|
|
Average Purchased
Option Contract
Notional Volume
|
|
|
Average Written
Option Contract
Volume
|
|
|
Average Written
Option Contract
Notional Volume
|
|
Clough Global Allocation Fund
|
|
3,499
|
|
$
|
37,270,844
|
|
|
|
881
|
|
|
$
|
31,909,283
|
|
Clough Global Equity Fund
|
|
5,667
|
|
|
61,376,649
|
|
|
|
1,435
|
|
|
|
52,864,155
|
|
Clough Global Opportunities Fund
|
|
22,603
|
|
|
184,265,812
|
|
|
|
5,643
|
|
|
|
138,001,848
|
|
The average contracts volume and the average total return swap contracts notional volume during the six months
ended September 30, 2012 is noted below for each of the Funds.
|
|
|
|
|
|
|
|
|
Fund
|
|
Average Contract
Volume
|
|
Average Notional Volume
|
|
|
|
Clough Global Allocation Fund
|
|
380,991
|
|
$
|
218,546
|
|
|
|
Clough Global Equity Fund
|
|
618,734
|
|
|
355,578
|
|
|
|
Clough Global Opportunities Fund
|
|
1,614,647
|
|
|
925,619
|
|
|
|
Income Taxes:
Each Funds policy is to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. During the six months ended September 30, 2012, none of the Funds recorded a
liability for any uncertain tax positions in the accompanying financial statements.
Each Fund files income tax returns in the U.S.
federal jurisdiction and Colorado. The statute of limitations on each Funds federal and state tax filings remains open for the fiscal years ended March 31, 2012, March 31, 2011, March 31, 2010, and March 31, 2009 as well as for March 31, 2008
for state purposes only.
Distributions to Shareholders:
Each Fund intends to make a level dividend distribution each quarter to
Common Shareholders after payment of interest on any outstanding borrowings. The level dividend rate may be modified by the Board of Trustees from time to time. Any net capital gains earned by a Fund are distributed at least annually to the extent
necessary to avoid federal income and excise taxes. Distributions to shareholders are recorded by each Fund on the ex-dividend date. Each Fund has received approval from the Securities and Exchange Commission (the Commission) for
exemption from Section 19(b) of the Investment Company Act of 1940, as amended (the 1940 Act), and Rule 19b-1 there under permitting each Fund to make periodic distributions of long-term capital gains, provided that the distribution
policy of a fund with respect to its Common Shares calls for periodic (e.g. quarterly/monthly) distributions in an amount equal to a fixed percentage of each Funds average net asset value over a specified period of time or market price per
common share at or about the time of distributions or pay-out of a level dollar amount. At this time, none of the Funds have implemented a managed distribution plan as permitted under the exemption.
Securities Transactions and Investment Income:
Investment security transactions are accounted for as of trade date basis. Dividend income is
recorded on the ex-dividend date. Certain dividend income from foreign securities will be recorded, in the exercise of reasonable diligence, as soon as a Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend
date and may be subject to withholding taxes in these jurisdictions. Interest income, which includes amortization of premium and accretion of discount, is recorded on the accrual basis. Realized gains and losses from securities transactions and
unrealized appreciation and depreciation of securities are determined using the highest cost basis for both financial reporting and income tax purposes.
Counterparty Risk:
Each of the Funds run the risk that the issuer or guarantor of a fixed income security, the counterparty to an over-the-counter derivatives contract, a borrower of each Funds
securities or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to make timely principal, interest, or settlement payments or otherwise honor its obligations. In addition, to the extent that each of the
Funds use over-the-counter derivatives, and/or has significant exposure to a single counterparty, this risk will be particularly pronounced for each of the Funds.
Other Risk Factors:
Investing in the Funds may involve certain risks including, but not limited to, the following:
Unforeseen developments in market conditions may result in the decline of prices of, and the income generated by, the securities held by the Funds. These events may have adverse effects on the Funds such as a
decline in the value and liquidity of many securities held by the Funds, and a decrease in net asset value. Such unforeseen developments may limit or preclude the Funds ability to achieve their investment objective.
Investing in stocks may involve larger price fluctuation and greater potential for loss than other types of investments. This may cause the
securities held by the Funds to be subject to larger short-term declines in value.
|
|
|
Clough Global Funds
|
|
Notes to Financial Statements
|
|
|
September 30, 2012 (Unaudited)
|
The Funds may have elements of risk due to concentrated investments in foreign issuers located in
a specific country. Such concentrations may subject the Funds to additional risks resulting from future political or economic conditions and/or possible impositions of adverse foreign governmental laws or currency exchange restrictions. Investments
in securities of non-U.S. issuers have unique risks not present in securities of U.S. issuers, such as greater price volatility and less liquidity. At September 30, 2012, Clough Global Allocation Fund, Clough Global Equity Fund and Clough Global
Opportunities Fund each had a significant concentration of their investment securities in companies based in the United States 111.53%, 110.10% and 113.05% of net assets, respectively.
Fixed income securities are subject to credit risk, which is the possibility that a security could have its credit rating downgraded or that the
issuer of the security could fail to make timely payments or default on payments of interest or principal. Additionally, fixed income securities are subject to interest rate risk, meaning the decline in the price of debt securities that accompanies
a rise in interest rates. Bonds with longer maturities are subject to greater price fluctuations than bonds with shorter maturities.
The Funds invest in bonds which are rated below investment grade. These high yield bonds may be more susceptible than higher grade bonds to real or
perceived adverse economic or industry conditions. The secondary market, on which high yield bonds are traded, may also be less liquid than the market for higher grade bonds.
2. TAXES
Classification of Distributions:
Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal
year in which the income or realized gain was recorded by the Funds. The amount and characteristics of the tax basis distributions and composition of distributable earnings/(accumulated losses) are finalized at fiscal year end; accordingly, tax
basis balances have not been determined as of September 30, 2012.
The tax character of the distributions paid by the Funds during the year ended March
31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clough Global Allocation
Fund
|
|
|
Clough Global Equity
Fund
|
|
|
Clough Global Opportunities
Fund
|
|
Ordinary Income
|
|
$
|
12,521,527
|
|
|
$
|
20,279,371
|
|
|
$
|
54,503,782
|
|
Long-Term Capital Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Capital
|
|
|
|
|
|
|
415,846
|
|
|
|
1,372,025
|
|
Total
|
|
$
|
12,521,527
|
|
|
$
|
20,695,217
|
|
|
$
|
55,875,807
|
|
|
|
Net unrealized appreciation/(depreciation) of investments based on federal tax cost as of September 30, 2012, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clough Global
Allocation Fund
|
|
|
Clough Global
Equity Fund
|
|
|
Clough Global
Opportunities Fund
|
|
Gross unrealized appreciation on investments (excess of value over tax cost)
|
|
|
$18,468,568
|
|
|
|
$31,588,632
|
|
|
|
$71,405,572
|
|
Gross unrealized depreciation on investments (excess of tax cost over value)
|
|
|
(5,301,080
|
)
|
|
|
(9,535,873
|
)
|
|
|
(24,558,205
|
)
|
Net unrealized appreciation
|
|
|
13,167,488
|
|
|
|
22,052,759
|
|
|
|
46,847,367
|
|
|
|
Cost of investments for income tax purposes
|
|
|
$232,967,013
|
|
|
|
$378,583,821
|
|
|
|
$997,941,360
|
|
|
|
3. CAPITAL TRANSACTIONS
Common Shares:
There are an unlimited
number of no par value common shares of beneficial interest authorized for each Fund.
Transactions in common shares were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clough Global Allocation Fund
|
|
|
Clough Global Equity Fund
|
|
|
Clough Global Opportunities
Fund
|
|
|
|
For the
Six Months
Ended
September 30,
2012
|
|
|
For the
Year Ended
March
31,
2012
|
|
|
For the
Six Months
Ended
September 30,
2012
|
|
|
For the
Year Ended
March
31,
2012
|
|
|
For the
Six Months
Ended
September 30,
2012
|
|
|
For the
Year Ended
March
31,
2012
|
|
Common Shares Outstanding - beginning of period
|
|
|
10,434,606
|
|
|
|
10,434,606
|
|
|
|
17,840,705
|
|
|
|
17,840,705
|
|
|
|
51,736,859
|
|
|
|
51,736,859
|
|
Common shares issued as reinvestment of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding - end of period
|
|
|
10,434,606
|
|
|
|
10,434,606
|
|
|
|
17,840,705
|
|
|
|
17,840,705
|
|
|
|
51,736,859
|
|
|
|
51,736,859
|
|
|
|
|
|
|
Semi-Annual
Report | September 30, 2012
|
|
43
|
|
|
|
Notes to Financial Statements
|
|
Clough Global Funds
|
September 30, 2012 (Unaudited)
|
|
|
4. PORTFOLIO SECURITIES
Purchases and sales of investment
securities, other than short-term securities, for the six months ended September 30, 2012, are listed in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Purchases
of Securities
|
|
|
Proceeds from
Sales
of
Securities
|
|
|
Purchases of
Long-Term
U.S. Government
Obligations
|
|
|
Proceeds from
Sales of
Long-Term
U.S. Government
Obligations
|
|
Clough Global Allocation Fund
|
|
$
|
173,483,485
|
|
|
$
|
183,571,440
|
|
|
$
|
53,353,783
|
|
|
$
|
42,148,671
|
|
Clough Global Equity Fund
|
|
|
296,784,118
|
|
|
|
310,014,250
|
|
|
|
48,825,487
|
|
|
|
37,078,272
|
|
Clough Global Opportunities Fund
|
|
|
736,464,067
|
|
|
|
780,834,785
|
|
|
|
222,802,985
|
|
|
|
175,964,123
|
|
5. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
Clough Capital Partners L.P.
(Clough) serves as each Funds investment adviser pursuant to an Investment Advisory Agreement (each an Advisory Agreement and collectively, the Advisory Agreements) with each Fund. As compensation for its
services to the Fund, Clough receives an annual investment advisory fee of 0.70%, 0.90% and 1.00% based on Clough Global Allocation Funds, Clough Global Equity Funds and Clough Global Opportunities Funds, respectively, average
daily total assets, computed daily and payable monthly. ALPS Fund Services, Inc. (ALPS) serves as each Funds administrator pursuant to an Administration, Bookkeeping and Pricing Services Agreement with each Fund. As compensation
for its services to the Fund, ALPS receives an annual administration fee of 0.285%, 0.32%, and 0.32% based on Clough Global Allocation Funds, Clough Global Equity Funds and Clough Global Opportunities Funds, respectively, average
daily total assets, computed daily and payable monthly. ALPS will pay all expenses incurred by each Fund, with the exception of advisory fees, trustees fees, portfolio transaction expenses, litigation expenses, taxes, expenses of conducting
repurchase offers for the purpose of repurchasing fund shares, interest on margin accounts, interest on loans, dividends on short sales, and extraordinary expenses.
Both Clough and ALPS are considered to be affiliates of the Funds as defined in the 1940 Act.
6.
COMMITTED FACILITY AGREEMENT AND LENDING AGREEMENT
In January 2009, each Fund entered into a financing package that includes a Committed Facility Agreement (the Agreement) with BNP Paribas Prime Brokerage, Inc. (BNP) that allowed each Fund
to borrow funds. Each Fund is currently borrowing the maximum commitment covered by the agreement. Borrowings under the Agreement are secured by assets of each Fund that are held by a Funds custodian in a separate account (the pledged
collateral) valued at $162,109,038, $284,081,511 and $745,254,139 for Clough Global Allocation Fund, Clough Global Equity Fund and Clough Global Opportunities Fund, respectively. Each Fund may, with 30 days notice, reduce the Maximum
Commitment Financing (Initial Limit amount plus the increased borrowing amount in excess of the Initial Limit) to a lesser amount if drawing on the full amount would result in a violation of the applicable asset coverage requirement of Section 18 of
the 1940 Act. Interest is charged at the three month LIBOR (London Inter-bank Offered Rate) plus 1.10% on the amount borrowed and 1.00% on the undrawn balance. Each Fund also pays a one time arrangement fee of 0.25% on (i) the Initial Limit and (ii)
any increased borrowing amount in the excess of the Initial Limit, paid in monthly installments for the six months immediately following the date on which borrowings were drawn by the Fund. For the six months ended September 30, 2012 the average
borrowings outstanding for Clough Global Allocation Fund, Clough Global Equity Fund and Clough Global Opportunities Fund under the agreement were $89,800,000, $147,000,000 and $388,900,000, respectively, and the average interest rate for the
borrowings was 1.55%. As of September 30, 2012, the outstanding borrowings for Clough Global Allocation Fund, Clough Global Equity Fund and Clough Global Opportunities Fund were $89,800,000, $147,000,000 and $388,900,000, respectively. The interest
rate applicable to the borrowings of Clough Global Allocation Fund, Clough Global Equity Fund and Clough Global Opportunities Fund on September 30, 2012 was 1.46%.
The Lending Agreement is a separate side-agreement between each Fund and BNP pursuant to which BNP may borrow a portion of the pledged collateral (the Lent Securities) in an amount not to exceed the
outstanding borrowings owed by a Fund to BNP under the Agreement. The Lending Agreement is intended to permit each Fund to significantly reduce the cost of its borrowings under the Agreement. BNP has the ability to reregister the Lent Securities in
its own name or in another name other than the Fund to pledge, re-pledge, sell, lend or otherwise transfer or use the collateral with all attendant rights of ownership. (It is each Funds understanding that BNP will perform due diligence to
determine the creditworthiness of any party that borrows Lent Securities from BNP.) Each Fund may designate any security within the pledged collateral as ineligible to be a Lent Security, provided there are eligible securities within the pledged
collateral in an amount equal to the outstanding borrowing owed by a Fund. During the period in which the Lent Securities are outstanding, BNP must remit payment to each Fund equal to the amount of all dividends, interest or other distributions
earned or made by the Lent Securities.
Under the terms of the Lending Agreement, the Lent Securities are marked to market daily, and if
the value of the Lent Securities exceeds the value of the then-outstanding borrowings owed by a Fund to BNP under the Agreement (the Current Borrowings), BNP must, on that day, either (1) return Lent Securities to each Funds
custodian in an amount sufficient to cause the value of the outstanding Lent Securities to equal the Current Borrowings; or (2) post
|
|
|
Clough Global Funds
|
|
Notes to Financial Statements
|
|
|
September 30, 2012 (Unaudited)
|
cash collateral with each Funds custodian equal to the difference between the value of the Lent Securities and the value of the Current Borrowings. If BNP fails to perform either of these
actions as required, each Fund will recall securities, as discussed below, in an amount sufficient to cause the value of the outstanding Lent Securities to equal the Current Borrowings. Each Fund can recall any of the Lent Securities and BNP shall,
to the extent commercially possible, return such security or equivalent security to each Funds custodian no later than three business days after such request. If a Fund recalls a Lent Security pursuant to the Lending Agreement, and BNP fails
to return the Lent Securities or equivalent securities in a timely fashion, BNP shall remain liable for the ultimate delivery to each Funds custodian of such Lent Securities, or equivalent securities, and for any buy-in costs that the
executing broker for the sales transaction may impose with respect to the failure to deliver. Each Fund shall also have the right to apply and set-off an amount equal to one hundred percent (100%) of the then-current fair market value of such Lent
Securities against the Current Borrowings.
The Board of Trustees has approved each Agreement and the Lending Agreement. No violations
of the Agreement or the Lending Agreement have occurred during the six months ended September 30, 2012.
Each Fund receives income from
BNP based on the value of the Lent Securities. This income is recorded as Hypothecated Securities income on the Statements of Operations. The interest incurred on borrowed amounts is recorded as Interest on Loan in the Statements of Operations, a
part of Total Expenses.
7. OTHER
The Independent Trustees of each Fund
receive from each Fund a quarterly retainer of $3,500 and an additional $1,500 for each board meeting attended. The Chairman of the Board of Trustees of each Fund receives a quarterly retainer from each Fund of $4,200 and an additional $1,800 for
each board meeting attended. The Chairman of the Audit Committee of each Fund receives a quarterly retainer from each Fund of $3,850 and an additional $1,650 for each board meeting attended.
8. SUBSEQUENT EVENTS
The Funds have evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no adjustments were required to
the financial statements.
|
|
|
Semi-Annual
Report | September 30, 2012
|
|
45
|
|
|
|
Dividend Reinvestment Plan
|
|
Clough Global Funds
|
September 30, 2012 (Unaudited)
|
|
|
Unless the registered owner of Common Shares elects to receive cash by contacting Computershare
(the Plan Administrator), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in each Funds Dividend Reinvestment Plan (the Plan), in additional Common
Shares. Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares are held in street or other nominee name,
then to such nominee) by Computershare as dividend disbursing agent. You may elect not to participate in the Plan and to receive all dividends in cash by contacting Computershare, as dividend disbursing agent, at the address set forth below.
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 reinvest that cash in additional Common Shares for you. If you wish for all
dividends declared on your Common Shares 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 Shareholders Common Shares are registered. Whenever a Fund declares a dividend or other distribution (together, a
Dividend) payable in cash, nonparticipants 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 a Fund (Newly Issued Common Shares) or (ii) by purchase of outstanding
Common Shares on the open market (OpenMarket Purchases) on the American Stock Exchange or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions 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
participants 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 commissions, the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in OpenMarket Purchases. In the event of a market discount on the payment
date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an exdividend basis or 30 days after the payment date for such Dividend, whichever is
sooner (the Last Purchase Date), to invest the Dividend amount in Common Shares acquired in OpenMarket Purchases. If, before the Plan Administrator has completed its OpenMarket 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 OpenMarket Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount
in OpenMarket 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 OpenMarket Purchases and may invest the uninvested portion of the
Dividend amount in Newly Issued Common Shares at the 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 instructions of the participants.
In the case of Common
Shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record
shareholders name and held for the account of beneficial owners who participate in the Plan.
There will be no brokerage charges
with respect to Common Shares issued directly by a Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with OpenMarket 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. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.
Each 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, each 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, Computershare, P.O. Box 358035, Pittsburgh, PA 15252-8035.
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Clough Global Funds
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Additional Information
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September 30, 2012 (Unaudited)
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FUND PROXY VOTING POLICIES & PROCEDURES
Each Funds policies and procedures used
in determining how to vote proxies relating to portfolio securities are available on the Funds website at http://www.cloughglobal.com. Information regarding how each Fund voted proxies relating to portfolio securities held by each Fund for the
period ended June 30, are available without charge, upon request, by contacting the Funds at 1-877-256-8445 and on the Commissions website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Funds file their complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form
NQ within 60 days after the end of the period. Copies of the Funds Form NQ are available without a charge, upon request, by contacting the Funds at 18772568445 and on the Commissions website at
http://www.sec.gov. You may also review and copy Form NQ at the Commissions Public Reference Room in Washington, D.C. For more information about the operation of the Public Reference Room, please call the Commission at
1800SEC0330.
NOTICE
Notice is hereby given in accordance with
Section 23(c) of the Investment Company Act of 1940 that each Fund may purchase at market prices from time to time shares of its common stock in the open market.
SHAREHOLDER MEETING
On July 16, 2012, the Funds held their annual meeting of Shareholders for the purpose of voting on a proposal to re-elect Trustees of the Funds. The
results of the proposal for each Fund were as follows:
Proposal:
To re-elect the following trustees to the Clough Global Allocation Fund
Board.
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James E. Canty
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Robert L. Butler
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Richard C. Rantzow
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For
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9,488,498
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9,502,154
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9,483,444
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Withheld
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206,210
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192,553
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211,263
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Proposal:
To re-elect the following trustees to the Clough Global Equity Fund Board.
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Andrew C. Boynton*
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Adam D. Crescenzi
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Jerry G. Rutledge
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For
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16,368,087
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16,332,575
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16,333,666
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Withheld
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337,006
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372,518
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371,427
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Proposal:
To re-elect the following trustees to the Clough Global Opportunities Fund Board.
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Edmund J. Burke
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John F. Mee
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For
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47,123,827
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46,996,186
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Withheld
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1,921,419
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2,049,060
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*
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Effective September 28, 2012, Andrew C. Boynton resigned as a Trustee of each Fund due to other time commitments.
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Semi-Annual
Report | September 30, 2012
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47
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Investment Advisory Agreement Approval
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Clough Global Funds
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September 30, 2012 (Unaudited)
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On July 11, 2012, the Board of Trustees of each Fund met in person to, among other things, review
and consider the renewal of the Advisory Agreements. In its consideration of the Advisory Agreements, the Trustees, including the non-interested Trustees, considered in general the nature, quality and scope of services to be provided by Clough.
Prior to the beginning of their review of the Advisory Agreements, counsel to the Funds, who also serves as independent counsel to the
non-interested Trustees, discussed with the Trustees their fiduciary responsibilities in general and also specifically with respect to the renewal of the Advisory Agreements.
Representatives from Clough presented Cloughs materials regarding consideration of renewal of the Advisory Agreements. The Board noted that included in the Board materials were responses by Clough to a
questionnaire drafted by legal counsel to the Funds to assist the Board in evaluating whether to renew the Advisory Agreements (the 15(c) Materials). The Board noted that the 15(c) Materials were extensive, and included information
relating to: each Funds investment results; portfolio composition; advisory fee and expense comparisons; financial information regarding Clough; descriptions such as compliance monitoring and portfolio trading practices; information about the
personnel providing investment management services to the Funds; and the nature of services provided under the Advisory Agreements.
The
Board reviewed the organizational structure of Clough and the qualifications of Clough and its principals to act as each Funds investment adviser. The Board considered the professional experience of the portfolio managers, including the
biographies of Eric A. Brock, James E. Canty and Charles I. Clough, Jr., Partners at Clough, as well as Robert Zduncyzk, portfolio manager of the Clough Global Allocation Fund and Clough Global Opportunities Fund, emphasizing that Messrs. Brock,
Canty, Clough and Zduncyzk each had substantial experience as an investment professional. The Trustees, all of whom currently serve as Trustees for the Funds, acknowledged their familiarity with the expertise and standing in the investment community
of Messrs. Brock, Canty, Clough and Zduncyzk, and their satisfaction with the expertise of Clough and the services provided by Clough to the Funds. The Trustees concluded that the portfolio management team was well qualified to serve the Funds in
those functions.
The Board next reviewed Cloughs procedures relating to compliance and oversight with respect to Cloughs
brokerage allocation and soft dollar policies. The Trustees noted that Cloughs order management systems contain pre-trade compliance functions that review each trade against certain of the Funds investment restrictions and applicable
1940 Act and Internal Revenue Code restrictions, and noted the efforts that Cloughs Chief Compliance Officer will undertake to summarize monthly for Cloughs management, and quarterly for the Trustees, any violations that may occur, as
well as any other violations detected through the manual monitoring that supplements the order management systems testing. The Board noted the recent addition of certain personnel by Clough. The Board discussed with representatives from Clough
the various other investment products managed by Clough other than the Funds. The Board also noted the adequacy of Cloughs facilities. The Trustees concluded that Clough appeared to have adequate procedures and personnel in place to ensure
compliance by Clough with applicable law and with each Funds investment objectives and restrictions.
The Board next reviewed the
terms of the Advisory Agreements, noting that Clough would receive a fee of 0.70%, 0.90% and 1.00% based on Clough Global Allocation Funds, Clough Global Equity Funds and Clough Global Opportunities Funds, respectively, average
daily total assets. The Trustees reviewed the fees charged by Clough to other clients for which it provides comparable services. The Trustees then reviewed Cloughs income statement for the year ended December 31, 2011, and its balance sheet as
of that date. The Trustees further reviewed a profit and loss analysis as it relates to Cloughs advisory business and compared the profitability analysis to that provided by Clough to the Board in previous years.
The Board discussed the possible benefits Clough may accrue because of its relationship with the Funds as well as potential benefits that accrue to
the Funds because of their relationship with Clough. The Board noted that Clough does not realize any direct benefits due to the allocation of brokerage and related transactions on behalf of the Funds.
The Board reviewed and discussed materials prepared and distributed in advance of the meeting regarding the comparability of the investment
advisory fees of the Funds with the investment advisory fees of other investment companies, which had been prepared at the request of ALPS by Lipper Analytical Services (Lipper). Lippers report contained information regarding
investment performance, comparisons of cost and expense structures of each Fund with other funds cost and expense structures, as well as comparisons of each Funds performance with the performance during similar periods of members of an
objectively identified peer group and related matters.
As the Funds are unique in the marketplace, Lipper had a difficult time
presenting a large peer group for comparison. The Trustees compared fees from ten (10) other leveraged closed-end investment companies versus each Funds fees. The investment advisory fee for this group ranged from 0.70% to 1.00%, with a median
of 0.913%. The Board noted that as prepared by Lipper, the gross total expenses for this group ranged from 1.154% to 2.049%, with a median of 1.510% and the Clough Global Allocation Funds, Clough Global Equity Funds and Clough Global
Opportunities Funds gross total expenses were 1.743%, 1.961% and 2.049%, respectively. The Board discussed the other non-management expenses category included in Lippers expense ratio components. Discussion ensued and the Board noted
that the total expense ratio includes investment related expenses such as the interest on each Funds leverage and dividend interest on short sales. The Board noted that they believe investment related expenses are operational in nature and
should not be considered a management expense. Excluding the investment related expenses from the total expense ratio, the Board noted that each Funds net overall expenses are comparable to their peer group. The Board further noted that in
addition to the
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Clough Global Funds
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Investment Advisory Agreement Approval
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September 30, 2012 (Unaudited)
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Lipper report, the Board has received in the past from Clough a comparative fund universe with a
peer universe more similar in nature to the Funds. The Trustees then reviewed each Funds performance as compared to the performance of the closed-end fund universe selected by Lipper. For the one-year ended performance as of March 31, 2012,
the performance data ranged from a high of 6.08% to a low of -14.27% with a median of 1.19%. The Cough Global Allocation Funds, Clough Global Equity Funds and Clough Global Opportunities Funds performance during such time period
was -3.48%, -4.08% and -3.88%, respectively.
The Trustees further noted that the objectives of the funds in the Lipper analysis
differed from each Funds objectives and policies. The Trustees believed that the Lipper report, augmented by Cloughs analysis received at previous meetings, provided a sufficient comparative universe.
At this point, Mr. Burke and Mr. Canty, both interested persons of the Funds, as well as the other representatives of ALPS and Clough,
left the meeting. The non-interested Trustees, with the assistance of legal counsel, reviewed and discussed in more detail the information that had been presented relating to Clough, the Advisory Agreements and Cloughs profitability.
Mr. Burke, Mr. Canty, and the representatives of ALPS and Clough re-joined the meeting. The Board of Trustees of the Fund, present in
person, with the non-interested Trustees present in person voting separately, unanimously concluded that the investment advisory fee of 0.70%, 0.90% and 1.00% based on Clough Global Allocation Funds, Clough Global Equity Funds and Clough
Global Opportunities Funds, respectively, average daily total assets are fair and reasonable for each respective Fund and that the renewal of the Advisory Agreements is in the best interests of each Fund and its shareholders.
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Semi-Annual
Report | September 30, 2012
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49
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Item 2.
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Code of Ethics.
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Not applicable to semi-annual report.
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Item 3.
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Audit Committee Financial Expert.
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Not applicable to semi-annual report.
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Item 4.
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Principal Accountant Fees and Services.
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Not applicable to semi-annual report.
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Item 5.
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Audit Committee of Listed Registrants.
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Not applicable.
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Item 6.
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Schedule of Investments.
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Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.
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Item 7.
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Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
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Not applicable to semi-annual report.
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Item 8.
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Portfolio Managers of Closed-End Management Investment Companies.
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Not applicable to semi-annual report.
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Item 9.
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Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
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Not applicable.
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Item 10.
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Submission of Matters to a Vote of Security Holders.
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There have been no material changes by which shareholders may recommend nominees to the Board of Trustees.
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Item 11.
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Controls and Procedures.
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(a)
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The registrants principal executive officer and principal financial officer have concluded that the Registrants disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
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(b)
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There was no change in the Registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as
amended) during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting.
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(a)(1) Not applicable to semi-annual report.
(a)(2) The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, and Section 302 of the
Sarbanes-Oxley Act of 2002 are attached hereto as Ex-99.Cert.
(a)(3) Not applicable.
(b) A certification for the Registrants Principal Executive Officer and Principal Financial Officer, as required by Rule 30a-2(b)
of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as Ex-99.906Cert.
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.
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CLOUGH GLOBAL ALLOCATION FUND
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By:
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/s/ Edmund J. Burke
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Edmund J. Burke
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President & Trustee
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Date:
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December 7, 2012
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
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CLOUGH GLOBAL ALLOCATION FUND
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By:
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/s/ Edmund J. Burke
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Edmund J. Burke
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President/Principal Executive Officer
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Date:
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December 7, 2012
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By:
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/s/ Jeremy O. May
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Jeremy O. May
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Treasurer/Principal Financial Officer
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Date:
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December 7, 2012
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