IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
_____ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485.
__X__ ON OCTOBER 9, 2007 PURSUANT TO PARAGRAPH (B) OF RULE 485.
_____ 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1) OF RULE 485.
_____ ON [DATE] PURSUANT TO PARAGRAPH (A) OF RULE 485.
_____ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2) OF RULE 485.
_____ ON [DATE] PURSUANT TO PARAGRAPH (A) OF RULE 485.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, Claymore Advisors, LLC, the Fund's
investment adviser (the "Investment Adviser"), or the Fund's distributor,
Claymore Securities, Inc. This Prospectus does not constitute an offer by the
Fund or by the Fund's distributor to sell or a solicitation of an offer to buy
any of the securities offered hereby in any jurisdiction to any person to whom
it is unlawful for the Fund to make such an offer in such jurisdiction.
The Claymore Exchange-Traded Fund Trust (the "Trust") is an investment
company currently consisting of 25 separate exchange-traded "index funds."
The investment objective of each of the funds is to replicate as closely as
possible, before fees and expenses, the performance of a specified market
index. Claymore Advisors, LLC is the investment adviser for the funds (the
"Investment Adviser").
This prospectus relates to one fund of the Trust, Claymore/Zacks Dividend
Rotation ETF (the "Fund").
The Fund has applied to list its shares (the "Shares"), subject to notice
of issuance, on the American Stock Exchange (the "AMEX"). The Fund's Shares
will trade at market prices that may differ to some degree from the net
asset value ("NAV") of the Shares. Unlike conventional mutual funds, the
Fund issues and redeems Shares on a continuous basis, at NAV, only in large
specified blocks of 50,000 Shares, each of which is called a "Creation
Unit." Creation Units are issued and redeemed principally in-kind for
securities included in a specified index. Except when aggregated in
Creation Units, Shares are not redeemable securities of the Fund.
The Fund is designed for investors who seek a relatively low-cost "passive"
approach for investing in a portfolio of equity securities of companies in
a specified index. The Fund may be suitable for long-term investment in the
market represented by a specified index and may also be used as an asset
allocation tool or as a speculative trading instrument.
Unlike interests in many conventional mutual funds, the Shares are traded
throughout the day on a national securities exchange, whereas mutual fund
interests are typically only bought and sold at closing net asset values.
The Shares have been designed to be tradable in the secondary market on a
national securities exchange on an intra-day basis, and to be created and
redeemed principally in-kind in Creation Units at each day's next
calculated NAV. These arrangements are designed to protect ongoing
shareholders from adverse effects on the Fund's portfolio that could arise
from frequent cash creation and redemption transactions. In a conventional
mutual fund, redemptions can have an adverse tax impact on taxable
shareholders because of the mutual fund's need to sell portfolio securities
to obtain cash to meet fund redemptions. These sales may generate taxable
gains for the shareholders of the mutual fund, whereas the Shares' in-kind
redemption mechanism generally will not lead to a tax event for the Fund or
its ongoing shareholders.
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 9, 2007
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus dated October 9, 2007 for the Claymore/Zacks
Dividend Rotation ETF, a series of the Claymore Exchange-Traded Fund Trust (the
"Trust"), as it may be revised from time to time. Capitalized terms used herein
that are not defined have the same meaning as in the Prospectus, unless
otherwise noted. A copy of the Prospectus may be obtained without charge by
writing to the Trust's Distributor, Claymore Securities, Inc., or by calling
toll free 1-800-345-7999.
TABLE OF CONTENTS
Page
GENERAL DESCRIPTION OF THE TRUST AND THE FUND...........................1
EXCHANGE LISTING AND TRADING............................................1
INVESTMENT RESTRICTIONS AND POLICIES....................................2
INVESTMENT POLICIES AND RISKS...........................................4
GENERAL CONSIDERATIONS AND RISKS........................................7
MANAGEMENT..............................................................9
BROKERAGE TRANSACTIONS.................................................17
ADDITIONAL INFORMATION CONCERNING THE TRUST............................18
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS..................21
TAXES .................................................................31
FEDERAL TAX TREATMENT OF FUTURES AND OPTIONS CONTRACTS.................33
DETERMINATION OF NAV...................................................33
DIVIDENDS AND DISTRIBUTIONS............................................33
MISCELLANEOUS INFORMATION..............................................34
FINANCIAL STATEMENTS...................................................34
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GENERAL DESCRIPTION OF THE TRUST AND THE FUND
The Trust was organized as a Delaware statutory trust on May 24, 2006 and
is authorized to have multiple series or portfolios. The Trust is an open-end
management investment company, registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Trust currently consists of 25 investment
portfolios. This Statement of Additional Information relates to the following
one investment portfolio: Claymore/Zacks Dividend Rotation ETF (the "Fund"). The
Fund is "non-diversified" and, as such, the Fund's investments are not required
to meet certain diversification requirements under the 1940 Act. The shares of
the Fund are referred to herein as "Shares" or "Fund Shares."
The Fund is managed by Claymore Advisors, LLC ("Claymore Advisors" or the
"Investment Adviser").
The Fund offers and issue Shares at net asset value ("NAV") only in
aggregations of a specified number of Shares (each a "Creation Unit" or a
"Creation Unit Aggregation"), generally in exchange for a basket of equity
securities included in the relevant Underlying Indices (the "Deposit
Securities"), together with the deposit of a specified cash payment (the "Cash
Component"). The Fund anticipates that its Shares will be listed on the American
Stock Exchange (the "AMEX") at market prices that may be below, at or above NAV.
Shares are redeemable only in Creation Unit Aggregations and, generally, in
exchange for portfolio securities and a specified cash payment. Creation Units
are aggregations of 50,000 Shares. In the event of the liquidation of the Fund,
the Trust may lower the number of Shares in a Creation Unit.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Fund Shares. Fund Shares may be issued in advance of receipt of
Deposit Securities subject to various conditions including a requirement to
maintain on deposit with the Trust cash at least equal to 115% of the market
value of the missing Deposit Securities. See the "Creation and Redemption of
Creation Unit Aggregations" section. In each instance of such cash creations or
redemptions, transaction fees may be imposed that will be higher than the
transaction fees associated with in-kind creations or redemptions. In all cases,
such fees will be limited in accordance with the requirements of the Securities
and Exchange Commission (the "SEC") applicable to management investment
companies offering redeemable securities.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the AMEX necessary to
maintain the listing of Shares of the Fund will continue to be met. The AMEX
may, but is not required to, remove the Shares of the Fund from listing if (i)
following the initial 12-month period beginning at the commencement of trading
of the Fund, there are fewer than 50 beneficial owners of the Shares of the Fund
for 30 or more consecutive trading days; (ii) the value of the Underlying
Indices is no longer calculated or available; or (iii) such other event shall
occur or condition exist that, in the opinion of the AMEX, makes further
dealings on the AMEX inadvisable. The AMEX will remove the Shares of the Fund
from listing and trading upon termination of the Fund.
As in the case of other stocks traded on the AMEX, broker's
commissions on transactions will be based on negotiated commission rates at
customary levels.
The Trust reserves the right to adjust the price levels of the Shares in
the future to help maintain convenient trading ranges for investors. Any
adjustments would be accomplished through stock splits or reverse stock splits,
which would have no effect on the net assets of the Fund.
INVESTMENT RESTRICTIONS AND POLICIES
INVESTMENT OBJECTIVES
The investment objective of the Claymore/Zacks Dividend Rotation ETF is to
provide investment results that correspond generally to the performance (before
the Fund's fees and expenses) of an equity index called the "Zacks Dividend
Rotation Index" (the "Zacks Dividend Rotation Index" or the "Underlying Index").
INVESTMENT RESTRICTIONS
The Board of Trustees of the Trust (the "Board" or the "Trustees") has
adopted as fundamental policies the Fund's investment restrictions, numbered (1)
through (7) below. The Fund, as a fundamental policy, may not:
(1) Invest 25% or more of the value of its total assets in securities of
issuers in any one industry or group of industries, except to the extent that
the Underlying Index that the Fund replicates concentrates in an industry or
group of industries. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
(2) Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (but not for leverage or the purchase of
investments) up to 10% of its total assets and (ii) make other investments or
engage in other transactions permissible under the 1940 Act that may involve a
borrowing, provided that the combination of (i) and (ii) shall not exceed 33
1/3% of the value of the Fund's total assets (including the amount borrowed),
less the Fund's liabilities (other than borrowings).
2
(3) Act as an underwriter of another issuer's securities, except to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase and sale of portfolio
securities.
(4) Make loans to other persons, except through (i) the purchase of debt
securities permissible under the Fund's investment policies, (ii) repurchase
agreements or (iii) the lending of portfolio securities, provided that no such
loan of portfolio securities may be made by the Fund if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the Fund's total
assets.
(5) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund (i) from purchasing or selling options, futures contracts or other
derivative instruments, or (ii) from investing in securities or other
instruments backed by physical commodities).
(6) Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prohibit the Fund from
purchasing or selling securities or other instruments backed by real estate or
of issuers engaged in real estate activities).
(7) Issue senior securities, except as permitted under the 1940 Act.
Except for restriction (2), if a percentage restriction is adhered to at
the time of investment, a later increase in percentage resulting from a change
in market value of the investment or the total assets, or the sale of a security
out of the portfolio, will not constitute a violation of that restriction.
The foregoing fundamental investment policies cannot be changed as to the
Fund without approval by holders of a "majority of the Fund's outstanding voting
shares." As defined in the 1940 Act, this means the vote of (i) 67% or more of
the Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
In addition to the foregoing fundamental investment policies, the Fund is
also subject to the following non-fundamental restrictions and policies, which
may be changed by the Board of Trustees. The Fund may not:
(1) Sell securities short, unless the Fund owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short at
no added cost, and provided that transactions in options, futures contracts,
options on futures contracts or other derivative instruments are not deemed to
constitute selling securities short.
(2) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts, options on
futures contracts or other derivative instruments shall not constitute
purchasing securities on margin.
(3) Purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act.
(4) Invest in direct interests in oil, gas or other mineral exploration
programs or leases; however, the Fund may invest in the securities of issuers
that engage in these activities.
3
(5) Invest in illiquid securities if, as a result of such investment, more
than 15% of the Fund's net assets would be invested in illiquid securities.
The investment objective of the Fund is a non-fundamental policy that can
be changed by the Board of Trustees without approval by shareholders.
INVESTMENT POLICIES AND RISKS
Loans of Portfolio Securities. The Fund may lend its investment securities
to approved borrowers. Any gain or loss on the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. These loans cannot exceed 33 1/3% of the Fund's total assets.
Approved borrowers are brokers, dealers, domestic and foreign banks, or
other financial institutions that meet credit or other requirements as
established by, and subject to the review of, the Trust's Board, so long as the
terms, the structure and the aggregate amount of such loans are not inconsistent
with the 1940 Act and the rules and regulations thereunder or interpretations of
the SEC, which require that (a) the borrowers pledge and maintain with the Fund
collateral consisting of cash, an irrevocable letter of credit issued by a bank,
or securities issued or guaranteed by the U.S. Government having a value at all
times of not less than 102% of the value of the securities loaned (on a
"mark-to-market" basis); (b) the loan be made subject to termination by the Fund
at any time; and (c) the Fund receives reasonable interest on the loan. From
time to time, a Fund may return a part of the interest earned from the
investment of collateral received from securities loaned to the borrower and/or
a third party that is unaffiliated with the Fund and that is acting as a finder.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which are agreements pursuant to which securities are acquired by the Fund from
a third party with the understanding that they will be repurchased by the seller
at a fixed price on an agreed date. These agreements may be made with respect to
any of the portfolio securities in which the Fund is authorized to invest.
Repurchase agreements may be characterized as loans secured by the underlying
securities. The Fund may enter into repurchase agreements with (i) member banks
of the Federal Reserve System having total assets in excess of $500 million and
(ii) securities dealers ("Qualified Institutions"). The Investment Adviser will
monitor the continued creditworthiness of Qualified Institutions.
The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its obligation
to repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued interest.
If the seller fails to repurchase the securities, the Fund may suffer a loss to
the extent proceeds from the sale of the underlying securities are less than the
repurchase price.
The resale price reflects the purchase price plus an agreed upon market
rate of interest. The collateral is marked to market daily.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements, which involve the sale of securities with an agreement to repurchase
the securities at an agreed-upon
4
price, date and interest payment and have the characteristics of borrowing. The
securities purchased with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later than the
repayment date. Generally the effect of such transactions is that the Fund can
recover all or most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while in many cases the
Fund is able to keep some of the interest income associated with those
securities. Such transactions are only advantageous if the Fund has an
opportunity to earn a greater rate of return on the cash derived from these
transactions than the interest cost of obtaining the same amount of cash.
Opportunities to realize earnings from the use of the proceeds equal to or
greater than the interest required to be paid may not always be available and
the Fund intends to use the reverse repurchase technique only when the
Investment Adviser believes it will be advantageous to the Fund. The use of
reverse repurchase agreements may exaggerate any interim increase or decrease in
the value of the Fund's assets. The custodian bank will maintain a separate
account for the Fund with securities having a value equal to or greater than
such commitments. Under the 1940 Act, reverse repurchase agreements are
considered loans.
Money Market Instruments. The Fund may invest a portion of its assets in
high-quality money market instruments on an ongoing basis to provide liquidity.
The instruments in which the Fund may invest include: (i) short-term
obligations issued by the U.S. Government; (ii) negotiable certificates of
deposit ("CDs"), fixed time deposits and bankers' acceptances of U.S. and
foreign banks and similar institutions; (iii) commercial paper rated at the date
of purchase "Prime-1" by Moody's Investors Service, Inc. or "A-1+" or "A-1" by
Standard & Poor's or, if unrated, of comparable quality as determined by the
Investment Adviser; (iv) repurchase agreements; and (v) money market mutual
funds. CDs are short-term negotiable obligations of commercial banks. Time
deposits are non-negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates. Banker's acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international transactions.
Investment Companies. The Fund may invest in the securities of other
investment companies (including money market funds). Under the 1940 Act, the
Fund's investment in investment companies is limited to, subject to certain
exceptions, (i) 3% of the total outstanding voting stock of any one investment
company, (ii) 5% of the Fund's total assets with respect to any one investment
company and (iii) 10% of the Fund's total assets of investment companies in the
aggregate.
Real Estate Investment Trusts ("REITs"). The Fund may invest in the
securities of real estate investment trusts to the extent allowed by law, which
pool investors' funds for investments primarily in commercial real estate
properties. Investment in REITs may be the most practical available means for
the Fund to invest in the real estate industry. As a shareholder in a REIT, the
Fund would bear its ratable share of the REIT's expenses, including its advisory
and administration fees. At the same time, the Fund would continue to pay its
own investment advisory fees and other expenses, as a result of which the Fund
and its shareholders in effect will be absorbing duplicate levels of fees with
respect to investments in REITs.
Illiquid Securities. The Fund may invest up to an aggregate amount of 15%
of its net assets in illiquid securities. Illiquid securities include securities
subject to contractual or other restrictions on resale and other instruments
that lack readily available markets.
Futures and Options. The Fund may utilize exchange-traded futures and
options contracts and swap agreements.
Futures contracts generally provide for the future sale by one party and
purchase by another party of a specified commodity at a specified future time
and at a specified price. Stock index futures contracts are settled daily with a
payment by one party to the other of a cash amount based on the difference
5
between the level of the stock index specified in the contract from one day to
the next. Futures contracts are standardized as to maturity date and underlying
instrument and are traded on futures exchanges.
Futures traders are required to make a good faith margin deposit in
cash or U.S. government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
commodity or payment of the cash settlement amount) if it is not terminated
prior to the specified delivery date. Brokers may establish deposit requirements
which are higher than the exchange minimums. Futures contracts are customarily
purchased and sold on margin deposits which may range upward from less than 5%
of the value of the contract being traded.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. In such case,
the Fund would expect to earn interest income on its margin deposits. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract position is opened or closed.
The Fund may use exchange-traded futures and options, together with
positions in cash and money market instruments, to simulate full investment in
its Underlying Index. Under such circumstances, the Investment Adviser may seek
to utilize other instruments that it believes to be correlated to the underlying
index components or a subset of the components.
An option on a futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a
specified exercise price at any time prior to the expiration date of the option.
Upon exercise of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account that represents the
amount by which the market price of the futures contract exceeds (in the case of
a call) or is less than (in the case of a put) the exercise price of the option
on the futures contract. The potential for loss related to the purchase of an
option on a futures contract is limited to the premium paid for the option plus
transaction costs. Because the value of the option is fixed at the point of
purchase, there are no daily cash payments by the purchaser to reflect changes
in the value of the underlying contract; however, the value of the option
changes daily and that change would be reflected in the NAV of the Fund. The
potential for loss related to writing call options on equity securities or
indices is unlimited. The potential for loss related to writing put options is
limited only by the aggregate strike price of the put option less the premium
received.
The Fund may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange as a hedge against changes in value
of its portfolio securities, or in anticipation of the purchase of securities,
and may enter into closing transactions with respect to such options to
terminate existing positions. There is no guarantee that such closing
transactions can be effected.
Restrictions on the Use of Futures Contracts and Options on Futures
Contracts. The Commodity Futures Trading Commission has eliminated limitations
on futures trading by certain regulated entities, including registered
investment companies, and consequently registered investment companies may
engage in unlimited futures transactions and options thereon provided that the
investment adviser to the
6
company claims an exclusion from regulation as a commodity pool operator. In
connection with its management of the Trust, the Investment Adviser has claimed
such an exclusion from registration as a commodity pool operator under the
Commodity Exchange Act (the "CEA"). Therefore, it is not subject to the
registration and regulatory requirements of the CEA. Therefore, there are no
limitations on the extent to which each Fund may engage in non-hedging
transactions involving futures and options thereon, except as set forth in the
Fund's Prospectus and this Statement of Additional Information.
Swap Agreements. Swap agreements are contracts between parties in which
one party agrees to make periodic payments to the other party (the
"Counterparty") based on the change in market value or level of a specified
rate, index or asset. In return, the Counterparty agrees to make periodic
payments to the first party based on the return of a different specified rate,
index or asset. Swap agreements will usually be done on a net basis, each Fund
receiving or paying only the net amount of the two payments. The net amount of
the excess, if any, of the Fund's obligations over its entitlements with
respect to each swap is accrued on a daily basis and an amount of cash or highly
liquid securities having an aggregate value at least equal to the accrued excess
is maintained in an account at the Trust's custodian bank.
The use of interest-rate and index swaps is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. These transactions
generally do not involve the delivery of securities or other underlying assets
or principal.
The use of swap agreements involves certain risks. For example, if the
Counterparty under a swap agreement defaults on its obligation to make payments
due from it, as a result of its bankruptcy or otherwise, the Fund may lose such
payments altogether, or collect only a portion thereof, which collection could
involve costs or delays.
GENERAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in the Fund is
contained in the Prospectus in the "Principal Risks of Investing in the Fund"
and "Additional Risks" sections. The discussion below supplements, and should be
read in conjunction with, these sections of the Prospectus.
An investment in the Fund should be made with an understanding that the
value of the Fund's portfolio securities may fluctuate in accordance with
changes in the financial condition of the issuers of the portfolio securities,
the value of common stocks in general and other factors that affect the market.
An investment in the Fund should also be made with an understanding of
the risks inherent in an investment in equity securities, including the risk
that the financial condition of issuers may become impaired or that the general
condition of the stock market may deteriorate (either of which may cause a
decrease in the value of the portfolio securities and thus in the value of Fund
Shares). Common stocks are susceptible to general stock market fluctuations and
to volatile increases and decreases in value as market confidence and
perceptions of their issuers' change. These investor perceptions are based on
various and unpredictable factors, including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, and global or regional political, economic or banking
crises.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of the
issuer, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors, or holders of debt obligations or
preferred stocks. Further, unlike debt securities which typically have a stated
principal amount payable at maturity (whose value, however, is subject to market
fluctuations prior thereto), or preferred stocks, which
7
typically have a liquidation preference and which may have stated optional or
mandatory redemption provisions, common stocks have neither a fixed principal
amount nor a maturity.
The existence of a liquid trading market for certain securities may
depend on whether dealers will make a market in such securities. There can be no
assurance that a market will be made or maintained or that any such market will
be or remain liquid. The price at which securities may be sold and the value of
the Fund's Shares will be adversely affected if trading markets for the Fund's
portfolio securities are limited or absent, or if bid/ask spreads are wide.
Risks of Futures and Options Transactions. There are several risks
accompanying the utilization of futures contracts and options on futures
contracts. First, while the Fund plans to utilize futures contracts only if an
active market exists for such contracts, there is no guarantee that a liquid
market will exist for the contract at a specified time.
Furthermore, because, by definition, futures contracts project price
levels in the future and not current levels of valuation, market circumstances
may result in a discrepancy between the price of the stock index future and the
movement in the Underlying Index. In the event of adverse price movements, the
Fund would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if the Fund has insufficient cash, it may
have to sell portfolio securities to meet daily margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to deliver the instruments underlying futures contracts it has sold.
The risk of loss in trading futures contracts or uncovered call options
in some strategies (e.g., selling uncovered stock index futures contracts) is
potentially unlimited. The Fund does not plan to use futures and options
contracts in this way. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor relative to the size of a required
margin deposit. The Fund, however, intends to utilize futures and options
contracts in a manner designed to limit their risk exposure to levels comparable
to direct investment in stocks.
Utilization of futures and options on futures by the Fund involves the
risk of imperfect or even negative correlation to the Underlying Index if the
index underlying the futures contract differs from the Underlying Index. There
is also the risk of loss by the Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in the futures
contract or option; however, this risk is substantially minimized because (a) of
the regulatory requirement that the broker has to "segregate" customer funds
from its corporate funds, and (b) in the case of regulated exchanges in the
United States, the clearing corporation stands behind the broker to make good
losses in such a situation. The purchase of put or call options could be based
upon predictions by the Investment Adviser as to anticipated trends, which
predictions could prove to be incorrect and a part or all of the premium paid
therefore could be lost.
Because the futures market imposes less burdensome margin requirements
than the securities market, an increased amount of participation by speculators
in the futures market could result in price fluctuations. Certain financial
futures exchanges limit the amount of fluctuation permitted in futures contract
prices during a single trading day. The daily limit establishes the maximum
amount by which the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading session. Once the
daily limit has been reached in a particular type of contract, no trades may be
made on that day at a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting the Fund to substantial losses. In the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin.
8
Although the Fund intends to enter into futures contracts only if
there is an active market for such contracts, there is no assurance that an
active market will exist for the contracts at any particular time.
Risks of Swap Agreements. The risk of loss with respect to swaps
generally is limited to the net amount of payments that the Fund is
contractually obligated to make. Swap agreements are also subject to the risk
that the swap counterparty will default on its obligations. If such a default
were to occur, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. However, such remedies may be subject to
bankruptcy and insolvency laws which could affect the Fund's rights as a
creditor -- (e.g., the Fund may not receive the net amount of payments that it
contractually is entitled to receive). The Fund, however, intends to utilize
swaps in a manner designed to limit its risk exposure to levels comparable to
direct investments in stocks.
MANAGEMENT
Trustees and Officers
The general supervision of the duties performed by the Investment
Adviser for the Fund under the Investment Advisory Agreement is the
responsibility of the Board of Trustees. The Trust currently has four Trustees.
Three Trustees have no affiliation or business connection with the Investment
Adviser or any of its affiliated persons and do not own any stock or other
securities issued by the Investment Adviser. These are the "non-interested" or
"independent" Trustees ("Independent Trustees"). The other Trustee (the
"Management Trustee") is affiliated with the Investment Adviser.
The Independent Trustees of the Trust, their term of office and length
of time served, their principal business occupations during the past five years,
the number of portfolios in the Fund Complex (defined below) overseen by each
Independent Trustee, and other directorships, if any, held by the Trustee are
shown below. The Fund Complex includes all open and closed-end funds (including
all of their portfolios) advised by the Investment Adviser and any funds that
have an investment adviser that is an affiliated person of the Investment
Adviser. As of the date of this SAI, the Fund Complex consists of the Trust's 25
portfolios, nine separate portfolios of the Claymore Exchange-Traded Fund Trust
2, one separate portfolio of one open-end management investment company and 16
closed-end management investment companies.
9
NAME, ADDRESS AND TERM OF OFFICE NUMBER OF PORTFOLIOS
AGE OF MANAGEMENT POSITION(S) HELD AND LENGTH PRINCIPAL OCCUPATION(S) IN FUND COMPLEX OTHER DIRECTORSHIPS
TRUSTEES* WITH TRUST OF TIME SERVED** DURING PAST 5 YEARS OVERSEEN BY TRUSTEES HELD BY TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Randall C. Barnes Trustee Since 2006 Formerly, Senior Vice President, 42 None.
Year of Birth: 1951 Treasurer (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).
Ronald E. Toupin, Jr. Trustee Since 2006 Formerly, Vice President, Manager 42 None.
Year of Birth: 1958 and Portfolio Manager of Nuveen
Asset Management (1993-1999), Vice
President of Nuveen Investment
Advisory Corporation (1993-1999),
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).
Ronald A. Nyberg Trustee Since 2006 Principal of Nyberg & Cassioppi, 45 None.
Year of Birth: 1953 LLC, a law firm specializing in
Corporate Law, Estate Planning
and Business Transactions (2000-
present). Formerly, Executive
Vice President, General Counsel,
and Corporate Secretary of Van
Kampen Investments (1982-1999).
|
* The business address of each Trustee is c/o Claymore Advisors, LLC, 2455
Corporate West Drive, Lisle, Illinois 60532.
** This is the period for which the Trustee began serving the Trust. Each
Trustee serves an indefinite term, until his successor is elected.
The Trustee who is affiliated with the Investment Adviser or affiliates
of the Investment Adviser and executive officers of the Trust, their term of
office and length of time served, their principal business occupations during
the past five years, the number of portfolios in the Fund Complex overseen by
each Management Trustee and the other directorships, if any, held by the
Trustee, are shown below.
10
NUMBER OF
PORTFOLIOS IN
NAME, ADDRESS TERM OF OFFICE FUND COMPLEX
AND AGE OF MANAGEMENT POSITION(S) HELD AND LENGTH PRINCIPAL OVERSEEN OTHER DIRECTORSHIPS
TRUSTEES* WITH TRUST OF TIME SERVED** OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEES HELD BY TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso*** Trustee; and Trustee since Senior Managing Director 45 None.
Year of birth: 1965 Chief Legal and 2006 of Claymore Advisors, LLC and
Executive Officer Claymore Securities, Inc. from
2001-present. Chief Legal and
Executive Officer of certain Funds
in the Fund Complex. Formerly,
Assistant General Counsel,
John Nuveen and Company Inc.
(1999-2001); Vice President and
Associate General Counsel of Van Kampen
Investments (1992-1999).
|
* The business address of each Trustee is c/o Claymore Advisors, LLC, 2455
Corporate West Drive, Lisle, Illinois 60532.
** This is the period for which the Trustee began serving the Trust. Each
Trustee serves an indefinite term, until his successor is elected.
*** Mr. Dalmaso is an interested person of the Trust because of his position as
an officer of the Investment Adviser and certain of its affiliates.
NAME, ADDRESS AND AGE OF POSITION(S) HELD LENGTH OF
EXECUTIVE OFFICERS WITH TRUST TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Steven M. Hill Chief Financial Since 2006 Senior Managing Director (2005-present), Managing
Year of birth: 1964 Officer, Chief Director (2003-2005) of Claymore Advisors, LLC
Accounting Officer and Claymore Securities, Inc. Chief Financial Officer,
and Treasurer Chief Accounting Officer and Treasurer of certain
funds in the Fund Complex. Formerly, 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); Chief Financial Officer, Skyline
Asset Management LP, (1999); Vice President, Van Kampen
Investments and Assistant Treasurer, Van Kampen mutual
funds (1989-1999).
Bruce Saxon Chief Compliance Since 2006 Vice President - Fund Compliance Officer of Claymore
Year of birth: 1957 Officer Securities, Inc. (2006-present). Chief Compliance Officer of
certain funds in the Fund Complex. Formerly, Chief Compliance
Officer/Assistant Secretary of Harris Investment Management,
Inc. (2003-2006). Director-Compliance of Harrisdirect LLC
(1999-2003).
Melissa J. Nguyen Secretary Since 2006 Vice President and Assistant General Counsel of Claymore
Year of birth: 1978 Securities, Inc. (2005-present). Secretary of certain funds
in the Fund Complex. Formerly, Associate, Vedder, Price,
Kaufman & Kammholz, P.C. (2003-2005).
William H. Belden III Vice President Since 2006 Managing Director of Claymore Securities, Inc.
Year of birth: 1965 (2005-present). Formerly, Vice President of Product
Management at Northern Trust Global Investments (1999-2005);
Vice President of Product Development at Stein Roe & Farnham
(1995-1999).
James Howley Assistant Treasurer Since 2006 Vice President, Fund Administration of Claymore Securities,
Year of birth: 1972 Inc. (2004-present). Assistant Treasurer of certain funds in
the Fund Complex. Formerly, Manager, Mutual Fund
Administration of Van Kampen Investments.
11
|
Chuck Craig Vice President Since 2006 Managing Director (2006-present), Vice President (2003-2006)
Year of birth: 1967 of Claymore Securities, Inc. Formerly, Assistant Vice
President, First Trust Portfolios, L.P. (1999-2003); Analyst,
PMA Securities, Inc. (1996-1999).
Matt Patterson Assistant Secretary Since 2006 Vice President and Assistant General Counsel of Claymore
Year of birth: 1971 Securities, Inc. (2006-present). Secretary of certain funds
in the Fund Complex. Previously, Securities Counsel, Caterpillar
Inc. (2004-2006); Associate, Skadden, Arps, Slate, Meagher &
Flom LLP (2002-2004).
|
* The business address of each Trustee is c/o Claymore Advisors, LLC, 2455
Corporate West Drive, Lisle, Illinois 60532.
** This is the period for which the Trustee/Officer began serving the Trust.
Each Officer serves an indefinite term, until his successor is elected.
For each Trustee, the dollar range of equity securities beneficially
owned by the Trustee in the Trust and in all registered investment companies
overseen by the Trustee is shown below.
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
DOLLAR RANGE OF EQUITY REGISTERED INVESTMENT
SECURITIES IN COMPANIES OVERSEEN BY TRUSTEE
THE CLAYMORE/ZACKS IN FAMILY OF INVESTMENT
DIVIDEND ROTATION ETF COMPANIES
NAME OF TRUSTEE (AS OF DECEMBER 31, 2006) (AS OF DECEMBER 31, 2006)
-------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Randall C. Barnes None over $100,000
Ronald A. Nyberg None over $100,000
Ronald E. Toupin, Jr. None None
|
INTERESTED TRUSTEE
Nicholas Dalmaso None None
As to each Independent Trustee and his immediate family members, no
person owned beneficially or of record securities in an investment adviser or
principal underwriter of the Fund, or a person (other than a registered
investment company) directly or indirectly controlling, controlled by or under
common control with an investment adviser or principal underwriter of the Fund.
Messrs. Barnes, Nyberg and Toupin, who are not "interested persons" of
the Trust, as defined in the 1940 Act, serve on the Trust's Nominating and
Governance Committee. The Nominating and Governance Committee is responsible for
recommending qualified candidates to the Board in the event that a position is
vacated or created. The Nominating and Governance Committee would consider
recommendations by shareholders if a vacancy were to exist. Such recommendations
should be forwarded to the Secretary of the Trust. The Trust does not have a
standing compensation committee.
Messrs. Barnes, Nyberg and Toupin who are not "interested persons" of
the Trust, as defined in the 1940 Act, serve on the Trust's Audit Committee. The
Audit Committee is generally responsible for reviewing and evaluating issues
related to the accounting and financial reporting policies and internal controls
of the Trust and, as appropriate, the internal controls of certain service
providers, overseeing the quality and objectivity of the Trust's financial
statements and the audit thereof and acting as a liaison between the Board of
Trustees and the Trust's independent registered public accounting firm.
12
Remuneration of Trustees and Officers
The Trust, together with Claymore Exchange-Traded Fund Trust 2, pays
each Independent Trustee an annual fee of $25,000 per year and a fee of $1,000
per Board or Committee meeting participated in together with each Trustee's
actual out-of-pocket expenses relating to attendance at such meetings. Officers
who are employed by the Investment Adviser receive no compensation or expense
reimbursements from the Trust.
The table below shows the estimated compensation that is contemplated
to be paid to Trustees for the Fund's fiscal year ended May 31, 2008, assuming a
full fiscal year of operations for the fiscal year ended May 31, 2008:
AGGREGATE COMPENSATION FROM PENSION OR RETIREMENT BENEFITS ACCRUED TOTAL COMPENSATION PAID FROM FUND
NAME OF TRUSTEE TRUST AS PART OF FUND EXPENSES COMPLEX
INDEPENDENT TRUSTEES
Randall C. Barnes $108,000 N/A $330,500
Ronald A. Nyberg $108,000 N/A $421,000
Ronald E. Toupin, Jr. $108,000 N/A $369,000
INTERESTED TRUSTEE
Nicholas Dalmaso N/A N/A N/A
|
The officers and Trustees of the Trust, in the aggregate, own less than
1% of the shares of the Fund.
As of the date hereof, no person owned 5% or more of the outstanding
shares of the Fund.
Investment Adviser. The Investment Adviser manages the investment and
reinvestment of the Fund's assets and administers the affairs of the Fund to
the extent requested by the Board of Trustees.
Portfolio Manager. Chuck Craig, Managing Director, Research and
Development, of Claymore, serves as portfolio manager for the Fund and is
responsible for the day-to-day management of the Fund's portfolio.
Other Accounts Managed by the Portfolio Manager. As of December 31,
2006, Mr. Craig managed three registered investment companies with a total of
approximately $580.4 million in assets; no pooled investment vehicles other than
registered investment companies; and no other accounts.
Although the Funds in the Trust that are managed by Mr. Craig may have
different investment strategies, each has a portfolio objective of replicating
its underlying index. The Investment Adviser does not believe that management of
the different Funds of the Trust presents a material conflict of interest for
the portfolio manager or the Investment Adviser.
Portfolio Manager Compensation. The portfolio manager's compensation
consists of the following elements:
Base salary: The portfolio manager is paid a fixed base salary by the
Investment Adviser which is set at a level determined to be appropriate based
upon the individual's experience and responsibilities.
The portfolio manager is eligible for a discretionary annual bonus.
There is no policy regarding, or agreement with, the portfolio manager to
receive bonuses or any other compensation in connection with the performance of
any of the accounts managed by the portfolio manager. The portfolio manager
13
also participates in benefit plans and programs generally available to all
employees of the Investment Adviser.
Securities Ownership of the Portfolio Manager. Because the Trust is
newly organized, the portfolio manager does not own shares of the Fund.
Investment Advisory Agreement. Pursuant to an Investment Advisory
Agreement between the Investment Adviser and the Trust, the Fund has agreed to
pay an annual management fee equal to a percentage of its average daily net
assets set forth in the chart below.
-------------------------------------------------------------------------------- ---------------------------------------------------
FUND FEE
-------------------------------------------------------------------------------- ---------------------------------------------------
-------------------------------------------------------------------------------- ---------------------------------------------------
Claymore/Zacks Dividend Rotation ETF 0.50% of average daily net assets
-------------------------------------------------------------------------------- ---------------------------------------------------
|
The Fund is responsible for all its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, brokerage commissions and other
expenses connected with executions of portfolio transactions, any distribution
fees or expenses and extraordinary expenses. The Fund's Investment Adviser has
contractually agreed to waive fees and/or pay Fund expenses to the extent
necessary to prevent the operating expenses of the Fund (excluding interest
expenses, all or a portion of the Fund's licensing fees, offering costs,
brokerage commissions, taxes and extraordinary expenses such as litigation and
other expenses not incurred in the ordinary course of the Fund's business) from
exceeding the percentage of its average net assets set forth in the chart below.
The offering costs excluded from the 0.60% expense cap are: (a) legal fees
pertaining to the Fund's Shares offered for sale; (b) SEC and state registration
fees; and (c) initial fees paid to be listed on an exchange. The Trust and the
Investment Adviser have entered into the Expense Reimbursement Agreement in
which the Investment Adviser has agreed to waive its management fees and/or pay
certain other operating expenses of each Fund in order to maintain the expense
ratio of the Fund at or below the expense cap listed below (the "Expense Cap").
For a period of five years subsequent to the Fund's commencement of operations,
the Investment Adviser may recover from the Fund fees and expenses waived or
reimbursed during the prior three years if the Fund's expense ratio, including
the recovered expenses, falls below the expense cap.
------------------------------------------------------------------------------ ------------------------------------
FUND EXPENSE CAP
------------------------------------------------------------------------------ ------------------------------------
------------------------------------------------------------------------------ ------------------------------------
Claymore/Zacks Dividend Rotation ETF 0.60% of average daily net assets
------------------------------------------------------------------------------ ------------------------------------
|
14
Under the Investment Advisory Agreement, the Investment Adviser will
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of the Investment
Advisory Agreement, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Investment Adviser in the performance of
its duties or from reckless disregard of its duties and obligations thereunder.
The Investment Advisory Agreement continues until June 19, 2009, and thereafter
only if approved annually by the Board, including a majority of the Independent
Trustees. The Agreement terminates automatically upon assignment and is
terminable at any time without penalty as to the Fund by the Board, including a
majority of the Independent Trustees, or by vote of the holders of a majority of
that Fund's outstanding voting securities on 60 day written notice to the
Investment Adviser, or by the Investment Adviser on 60 day written notice to the
Fund.
Claymore Advisors is located at 2455 Corporate West Drive, Lisle,
Illinois 60532.
Administrator. Claymore Advisors also serves as the Trust's
administrator. Pursuant to an administration agreement, Claymore Advisors
provides certain administrative, bookkeeping and accounting services to the
Trust. For the services, the Trust pays Claymore Advisors a fee, accrued daily
and paid monthly, at the annualized rate of the Trust's average daily net assets
as follows:
First $200,000,000 0.0275%
Next $300,000,000 0.0200%
Next $500,000,000 0.0150%
Over $1 billion 0.0100%
|
Custodian and Transfer Agent. The Bank of New York, Inc. ("BNY"),
located at 101 Barclay Street, New York, New York 10286, also serves as
custodian for the Funds pursuant to a Custodian Agreement. As custodian, BNY
holds the Fund's assets, calculates the net asset value of Shares and calculates
net income and realized capital gains or losses. BNY also serves as transfer
agent of the Fund pursuant to a Transfer Agency Agreement. BNY may be
reimbursed by the Fund for its out-of-pocket expenses.
Pursuant to the Custodian Agreement and the Transfer Agency Agreement,
each between BNY and the Trust, the Trust has agreed to pay an annual fee for
custodial and transfer agency services at the annualized rate of the Trust's
average daily net assets as follows:
First $2 billion 0.0375%
Over $2 billion 0.0275%
Distributor. Claymore Securities, Inc. ("Claymore") is the distributor
of the Fund's Shares (in such capacity, the "Distributor"). Its principal
address is 2455 Corporate West Drive, Lisle, Illinois 60532. The Distributor has
entered into a Distribution Agreement with the Trust pursuant to which it
distributes Fund Shares. Shares are continuously offered for sale by the Fund
through the Distributor only in Creation Unit Aggregations, as described in the
Prospectus and below under the heading "Creation and Redemption of Creation
Units."
12b-1 Plan. The Trust has adopted a Distribution and Service Plan
pursuant to Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which the
Fund may reimburse the Distributor up to a maximum annual rate of the percentage
of its average daily net assets as set forth in the chart below.
15
---------------------------------------------------------------------------------- -----------------------------------------------
FUND FEE
---------------------------------------------------------------------------------- -----------------------------------------------
---------------------------------------------------------------------------------- -----------------------------------------------
Claymore/Zacks Dividend Rotation ETF 0.25% of average daily net assets
---------------------------------------------------------------------------------- -----------------------------------------------
|
Under the Plan and as required by Rule 12b-1, the Trustees will receive
and review after the end of each calendar quarter a written report provided by
the Distributor of the amounts expended under the Plan and the purpose for which
such expenditures were made.
The Plan was adopted in order to permit the implementation of the
Fund's method of distribution. However, no such fee is currently charged to the
Fund, and there are no plans in place to impose such a fee.
Aggregations. Fund Shares in less than Creation Unit Aggregations are
not distributed by the Distributor. The Distributor will deliver the Prospectus
and, upon request, this SAI to persons purchasing Creation Unit Aggregations and
will maintain records of both orders placed with it and confirmations of
acceptance furnished by it. The Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the
National Association of Securities Dealers, Inc. ("NASD").
The Distribution Agreement for the Fund provides that it may be
terminated as to the Fund at any time, without the payment of any penalty, on at
least 60 days written notice by the Trust to the Distributor (i) by vote of a
majority of the Independent Trustees or (ii) by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund. The
Distribution Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations
of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as
defined in "Procedures for Creation of Creation Unit Aggregations" below) and
Morningstar DTC Participants (as defined in "DTC Acts as Securities Depository"
below).
Index Provider. Set forth below is the Fund and the Underlying Index
upon which it is based. The Zacks Dividend Rotation Index is compiled by Zacks
Investment Research, Inc. ("Zacks.")
16
--------------------------------------------------------------- -----------------------------------------------
FUND UNDERLYING INDEX
--------------------------------------------------------------- -----------------------------------------------
--------------------------------------------------------------- -----------------------------------------------
Claymore/Zacks Dividend Rotation ETF Zacks Dividend Rotation Index
--------------------------------------------------------------- -----------------------------------------------
|
Zacks is not affiliated with the Fund or with the Investment Adviser.
The Fund is entitled to use its Underlying Index pursuant to a sub-licensing
arrangement with the Investment Adviser, which in turn has a licensing agreement
with the applicable Index Provider. The Fund reimburses the Investment Adviser
for the licensing fee payable to the Index Provider.
The only relationship Zacks has with the Investment Adviser or
Distributor of the Fund in connection with the Fund is that Zacks has licensed
certain of its intellectual property, including the determination of the
component stocks of the Underlying Index and the names of the Underlying Index.
The Underlying Index is selected and calculated without regard to the Investment
Adviser, Distributor or owners of the Fund. Zacks has no obligation to take the
specific needs of the Investment Adviser, Distributor or owners of the Fund into
consideration in the determination and calculation of the Underlying Index.
Zacks is not responsible for and has not participated in the determination of
pricing or the timing of the issuance or sale of the Shares of the Fund or in
the determination or calculation of the net asset value of the Fund. Zacks has
no obligation or liability in connection with the administration, marketing or
trading of the Fund.
ZACKS SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS RELATED TO THE FUND OR UNDERLYING INDEX. ZACKS MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INVESTMENT ADVISER,
DISTRIBUTOR OR OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE
OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. ZACKS MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH RESPECT TO THE FUND OR THE
UNDERLYING INDEX OR TO ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL ZACKS HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) IN CONNECTION WITH
THE FUND, THE UNDERLYING INDEX, EVEN IF ZACKS IS NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
BROKERAGE TRANSACTIONS
The policy of the Trust regarding purchases and sales of securities is
that primary consideration will be given to obtaining the most favorable prices
and efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Trust's policy is
to pay commissions that are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
In seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Adviser relies upon its experience and knowledge
regarding commissions generally charged by various brokers. The sale of Fund
Shares by a broker-dealer is not a factor in the selection of broker-dealers.
17
In seeking to implement the Trust's policies, the Investment Adviser
effects transactions with those brokers and dealers that the Investment Adviser
believes provide the most favorable prices and are capable of providing
efficient executions. The Investment Adviser and its affiliates do not currently
participate in soft dollar transactions.
The Investment Adviser assumes general supervision over placing orders
on behalf of the Fund for the purchase or sale of portfolio securities. If
purchases or sales of portfolio securities by the Fund and one or more other
investment companies or clients supervised by the Investment Adviser are
considered at or about the same time, transactions in such securities are
allocated among the Fund, the several investment companies and clients in a
manner deemed equitable to all by the Investment Adviser. In some cases, this
procedure could have a detrimental effect on the price or volume of the security
as far as the Fund is concerned. However, in other cases, it is possible that
the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Fund. The primary consideration
is prompt execution of orders at the most favorable net price.
ADDITIONAL INFORMATION CONCERNING THE TRUST
The Trust is an open-end management investment company registered under
the 1940 Act. The Trust was organized as a Delaware statutory trust on May 24,
2006.
The Trust is authorized to issue an unlimited number of shares in one
or more series or "funds." The Trust currently is comprised of 25 funds. The
Board of Trustees of the Trust has the right to establish additional series in
the future, to determine the preferences, voting powers, rights and privileges
thereof and to modify such preferences, voting powers, rights and privileges
without shareholder approval.
Each Share issued by the Fund has a pro rata interest in the assets of
the Fund. Fund Shares have no preemptive, exchange, subscription or conversion
rights and are freely transferable. Each Share is entitled to participate
equally in dividends and distributions declared by the Board with respect to the
Fund, and in the net distributable assets of the Fund on liquidation.
Each Share has one vote with respect to matters upon which a
shareholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder. Shares of all funds, including the Fund,
of the Trust vote together as a single class except as otherwise required by the
1940 Act, or if the matter being voted on affects only a particular fund, and,
if a matter affects a particular fund differently from other funds, the shares
of that fund will vote separately on such matter.
The Declaration of Trust may, except in limited circumstances, be
amended or supplemented by the Trustees without shareholder vote. The holders of
Fund shares are required to disclose information on direct or indirect ownership
of Fund shares as may be required to comply with various laws applicable to the
Fund, and ownership of Fund shares may be disclosed by the Fund if so required
by law or regulation.
The Trust is not required and does not intend to hold annual meetings
of shareholders. Shareholders owning more than 51% of the outstanding shares of
the Trust have the right to call a special meeting to remove one or more
Trustees or for any other purpose.
The Trust does not have information concerning the beneficial ownership
of Shares held by DTC Participants (as defined below).
Shareholders may make inquiries by writing to the Trust, c/o the
Distributor, 2455 Corporate West Drive, Lisle, Illinois 60532.
18
Control Persons. No single person beneficially owns 25% or more of the
Fund's voting securities.
Book Entry Only System. The following information supplements and
should be read in conjunction with the section in the Prospectus entitled "Book
Entry."
DTC Acts as Securities Depository for Fund Shares. Shares of the Fund
are represented by securities registered in the name of DTC or its nominee and
deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of
its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the New York Stock Exchange ("NYSE"),
the AMEX and the NASD. Access to the DTC system is also available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
(the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase and sale of
Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement
between the Trust and DTC, DTC is required to make available to the Trust upon
request and for a fee to be charged to the Trust a listing of the Shares of the
Funds held by each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participant a fair and
reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Fund distributions shall be made to DTC or its nominee, Cede & Co., as
the registered holder of all Fund Shares. DTC or its nominee, upon receipt of
any such distributions, shall immediately credit DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
Shares of the Fund as shown on the records of DTC or its nominee. Payments by
DTC Participants to Indirect Participants and Beneficial Owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspect of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in such Shares, or for
19
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, or for any other aspect of the relationship between DTC and
the DTC Participants or the relationship between such DTC Participants and the
Indirect Participants and Beneficial Owners owning through such DTC
Participants.
DTC may decide to discontinue providing its service with respect to
Shares at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
Proxy Voting. The Board of Trustees of the Trust has delegated
responsibility for decisions regarding proxy voting for securities held by each
Fund to the Investment Adviser. The Investment Adviser engages a third-party
proxy service, such as Institutional Shareholder Services or a similar service,
to vote all proxies on behalf of the Funds. The Investment Adviser periodically
renews the proxy voting results to ensure that proxies are voted in accordance
with the service's guidelines and that proxies are voted in a timely fashion. To
avoid any conflicts of interest, the Investment Adviser does not have authority
to override the recommendations of the third party service provider, except upon
the written authorization of the client directing the Investment Adviser to vote
in a specific manner. All overrides shall be approved by the Chief Compliance
Officer.
To the extent that the third party service provider seeks the
Investment Adviser's direction on how to vote on any particular matter, the
Chief Compliance Officer and Chief Financial Officer shall determine whether any
potential conflict of interest is present. If a potential conflict of interest
is present, the Investment Adviser shall seek instructions from clients on how
to vote that particular item.
The Trust is required to disclose annually the Fund's complete proxy
voting record on Form N-PX covering the period July 1 through June 30 and file
it with the SEC no later than August 31. Form N-PX for the Fund also will be
available at no charge upon request by calling 1-800-345-7999 or by writing to
Claymore Exchange-Traded Fund Trust at 2455 Corporate West Drive, Lisle, IL
60532. The Fund's Form N-PX will also be available on the SEC's website at
www.sec.gov.
Quarterly Portfolio Schedule. The Trust is required to disclose, after
its first and third fiscal quarters, the complete schedule of the Fund's
portfolio holdings with the SEC on Form N-Q. The Trust will also disclose a
complete schedule of the Fund's portfolio holdings with the SEC on Form N-CSR
after its second and fourth quarters. Form N-Q and Form N-CSR for the Fund will
be available on the SEC's website at http://www.sec.gov. The Fund's Form N-Q and
Form N-CSR may also be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. and information on the operation of the Public Reference Room
may be obtained by calling 1-202-551-8090. The Fund's Form N-Q and Form N-CSR
will be available without charge, upon request, by calling 1-800-345-7999 or by
writing to Claymore Exchange-Traded Fund Trust at 2455 Corporate West Drive,
Lisle, IL 60532.
Portfolio Holdings Policy. The Trust has adopted a policy regarding the
disclosure of information about the Trust's portfolio holdings. The Fund and
its service providers may not receive compensation or any other consideration
(which includes any agreement to maintain assets in the Fund or in other
investment companies or accounts managed by the Investment Adviser or any
affiliated person of the Investment Adviser) in connection with the disclosure
of portfolio holdings information of the Fund. The Trust's Policy is
implemented and overseen by the Chief Compliance Officer of the Fund, subject
to the oversight of the Board of Trustees. Periodic reports regarding these
procedures will be provided to the Board of Trustees of the Trust. The Board of
Trustees of the Trust must approve all material amendments to this policy. The
Fund's complete portfolio holdings are publicly disseminated each day the Fund
is open for business through financial reporting and news services, including
20
publicly accessible Internet web sites. In addition, a basket composition file,
which includes the security names and share quantities to deliver in exchange
for Fund shares, together with estimates and actual cash components, is publicly
disseminated daily prior to the opening of the AMEX via the National Securities
Clearing Corporation (NSCC). The basket represents one Creation Unit of the
Fund. The Trust, the Investment Adviser and Claymore will not disseminate
non-public information concerning the Trust.
Codes of Ethics. Pursuant to Rule 17j-1 under the 1940 Act, the Board
of Trustees has adopted a Code of Ethics for the Trust and approved Codes of
Ethics adopted by the Investment Adviser and the Distributor (collectively the
"Codes"). The Codes are intended to ensure that the interests of shareholders
and other clients are placed ahead of any personal interest, that no undue
personal benefit is obtained from the person's employment activities and that
actual and potential conflicts of interest are avoided.
The Codes apply to the personal investing activities of Trustees and
officers of the Trust, the Investment Adviser and the Distributor ("Access
Persons"). Rule 17j-1 and the Codes are designed to prevent unlawful practices
in connection with the purchase or sale of securities by Access Persons. Under
the Codes, Access Persons are permitted to engage in personal securities
transactions, but are required to report their personal securities transactions
for monitoring purposes. The Codes permit personnel subject to the Codes to
invest in securities subject to certain limitations, including securities that
may be purchased or held by a Fund. In addition, Access Persons are required to
obtain approval before investing in initial public offerings or private
placements. The Codes are on file with the SEC, and are available to the public.
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS
Creation. The Trust issues and sells Shares of the Fund only in
Creation Unit Aggregations on a continuous basis through the Distributor,
without a sales load, at their NAVs next determined after receipt, on any
Business Day (as defined below), of an order in proper form.
A "Business Day" is any day on which the NYSE is open for business. As
of the date of this SAI, the NYSE observes the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and Deposit or Delivery of Cash. The
consideration for purchase of Creation Unit Aggregations of the Fund generally
consists of the in-kind deposit of a designated portfolio of equity securities
-- the "Deposit Securities" -- per each Creation Unit Aggregation constituting a
substantial replication of the stocks included in the Underlying Index ("Fund
Securities") and an amount of cash -- the "Cash Component" -- computed as
described below. Together, the Deposit Securities and the Cash Component
constitute the "Fund Deposit," which represents the minimum initial and
subsequent investment amount for a Creation Unit Aggregation of the Fund.
The Cash Component is sometimes also referred to as the Balancing
Amount. The Cash Component serves the function of compensating for any
differences between the NAV per Creation Unit Aggregation and the Deposit Amount
(as defined below). The Cash Component is an amount equal to the difference
between the NAV of the Fund Shares (per Creation Unit Aggregation) and the
"Deposit Amount" -- an amount equal to the market value of the Deposit
Securities. If the Cash Component is a positive number (i.e., the NAV per
Creation Unit Aggregation exceeds the Deposit Amount), the creator will deliver
the Cash Component. If the Cash Component is a negative number (i.e., the NAV
per
21
Creation Unit Aggregation is less than the Deposit Amount), the creator will
receive the Cash Component.
The Custodian, through the National Securities Clearing Corporation
("NSCC") (discussed below), makes available on each Business Day, prior to the
opening of business on the AMEX (currently 9:30 a.m., Eastern time), the
list of the names and the required number of shares of each Deposit Security to
be included in the current Fund Deposit (based on information at the end of the
previous Business Day) for the Fund.
Such Fund Deposit is applicable, subject to any adjustments as
described below, in order to effect creations of Creation Unit Aggregations of
the Fund until such time as the next-announced composition of the Deposit
Securities is made available.
The identity and number of shares of the Deposit Securities required
for a Fund Deposit for the Fund changes as rebalancing adjustments and corporate
action events are reflected within the Fund from time to time by the Investment
Adviser with a view to the investment objective of the Fund. The composition of
the Deposit Securities may also change in response to adjustments to the
weighting or composition of the Component Stocks of the Underlying Index. In
addition, the Trust reserves the right to permit or require the substitution of
an amount of cash -- i.e., a "cash in lieu" amount -- to be added to the Cash
Component to replace any Deposit Security that may not be available in
sufficient quantity for delivery or that may not be eligible for transfer
through the systems of DTC or the Clearing Process (discussed below), or which
might not be eligible for trading by an Authorized Participant (as defined
below) or the investor for which it is acting or other relevant reason.
Brokerage commissions incurred in connection with the acquisition of Deposit
Securities not eligible for transfer through the systems of DTC and hence not
eligible for transfer through the Clearing Process (discussed below) will be at
the expense of the Fund and will affect the value of all Shares; but the
Investment Adviser, subject to the approval of the Board of Trustees, may adjust
the transaction fee within the parameters described above to protect ongoing
shareholders. The adjustments described above will reflect changes known to the
Investment Adviser on the date of announcement to be in effect by the time of
delivery of the Fund Deposit, in the composition of the Underlying Index or
resulting from certain corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day, the estimated Cash Component,
effective through and including the previous Business Day, per outstanding
Creation Unit Aggregation of the Fund.
Procedures for Creation of Creation Unit Aggregations. To be eligible
to place orders with the Distributor and to create a Creation Unit Aggregation
of the Fund, an entity must be (i) a "Participating Party," i.e., a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the NSCC (the "Clearing Process"), a
clearing agency that is registered with the SEC; or (ii) a DTC Participant (see
the Book Entry Only System section), and, in each case, must have executed an
agreement with the Distributor, with respect to creations and redemptions of
Creation Unit Aggregations ("Participant Agreement") (discussed below). A
Participating Party and DTC Participant are collectively referred to as an
"Authorized Participant." Investors should contact the Distributor for the names
of Authorized Participants that have signed a Participant Agreement. All Fund
Shares, however created, will be entered on the records of DTC in the name of
Cede & Co. for the account of a DTC Participant.
All orders to create Creation Unit Aggregations, whether through the
Clearing Process (through a Participating Party) or outside the Clearing Process
(through a DTC Participant), must be received by the Distributor no later than
the closing time of the regular trading session on the AMEX ("Closing
22
Time") (ordinarily 4:00 p.m., Eastern time) in each case on the date such order
is placed in order for creation of Creation Unit Aggregations to be effected
based on the NAV of Shares of the Fund as next determined on such date after
receipt of the order in proper form. In the case of custom orders, the order
must be received by the Distributor no later than 3:00 p.m. Eastern time on the
trade date. A custom order may be placed by an Authorized Participant in the
event that the Trust permits or requires the substitution of an amount of cash
to be added to the Cash Component to replace any Deposit Security which may not
be available in sufficient quantity for delivery or which may not be eligible
for trading by such Authorized Participant or the investor for which it is
acting or other relevant reason. The date on which an order to create Creation
Unit Aggregations (or an order to redeem Creation Unit Aggregations, as
discussed below) is placed is referred to as the "Transmittal Date." Orders must
be transmitted by an Authorized Participant by telephone or other transmission
method acceptable to the Distributor pursuant to procedures set forth in the
Participant Agreement, as described below (see the "Placement of Creation Orders
Using Clearing Process" and the "Placement of Creation Orders Outside Clearing
Process" sections). Severe economic or market disruptions or changes, or
telephone or other communication failure may impede the ability to reach the
Distributor or an Authorized Participant.
All orders from investors who are not Authorized Participants to create
Creation Unit Aggregations shall be placed with an Authorized Participant, as
applicable, in the form required by such Authorized Participant. In addition,
the Authorized Participant may request the investor to make certain
representations or enter into agreements with respect to the order, e.g., to
provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and that,
therefore, orders to create Creation Unit Aggregations of a Fund have to be
placed by the investor's broker through an Authorized Participant that has
executed a Participant Agreement. In such cases there may be additional charges
to such investor. At any given time, there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing orders
for Creation Unit Aggregations through the Clearing Process should afford
sufficient time to permit proper submission of the order to the Distributor
prior to the Closing Time on the Transmittal Date. Orders for Creation Unit
Aggregations that are effected outside the Clearing Process are likely to
require transmittal by the DTC Participant earlier on the Transmittal Date than
orders effected using the Clearing Process. Those persons placing orders outside
the Clearing Process should ascertain the deadlines applicable to DTC and the
Federal Reserve Bank wire system by contacting the operations department of the
broker or depository institution effectuating such transfer of Deposit
Securities and Cash Component.
Placement of Creation Orders Using Clearing Process. The Clearing
Process is the process of creating or redeeming Creation Unit Aggregations
through the Continuous Net Settlement System of the NSCC. Fund Deposits made
through the Clearing Process must be delivered through a Participating Party
that has executed a Participant Agreement. The Participant Agreement authorizes
the Distributor to transmit through the Custodian to NSCC, on behalf of the
Participating Party, such trade instructions as are necessary to effect the
Participating Party's creation order. Pursuant to such trade instructions to
NSCC, the Participating Party agrees to deliver the requisite Deposit Securities
and the Cash Component to the Trust, together with such additional information
as may be required by the Distributor. An order to create Creation Unit
Aggregations through the Clearing Process is deemed received by the Distributor
on the Transmittal Date if (i) such order is received by the Distributor not
later than the Closing Time on such Transmittal Date and (ii) all other
procedures set forth in the Participant Agreement are properly followed.
Placement of Creation Orders Outside Clearing Process. Fund Deposits
made outside the Clearing Process must be delivered through a DTC Participant
that has executed a Participant Agreement pre-approved by the Investment Adviser
and the Distributor. A DTC Participant who wishes to place an order creating
Creation Unit Aggregations to be effected outside the Clearing Process does not
need to be a Participating Party, but such orders must state that the DTC
Participant is not using the Clearing Process
23
and that the creation of Creation Unit Aggregations will instead be effected
through a transfer of securities and cash directly through DTC. The Fund Deposit
transfer must be ordered by the DTC Participant on the Transmittal Date in a
timely fashion so as to ensure the delivery of the requisite number of Deposit
Securities through DTC to the account of a Fund by no later than 11:00 a.m.,
Eastern time, of the next Business Day immediately following the Transmittal
Date.
All questions as to the number of Deposit Securities to be delivered,
and the validity, form and eligibility (including time of receipt) for the
deposit of any tendered securities, will be determined by the Trust, whose
determination shall be final and binding. The amount of cash equal to the Cash
Component must be transferred directly to the Custodian through the Federal
Reserve Bank wire transfer system in a timely manner so as to be received by the
Custodian no later than 2:00 p.m., Eastern time, on the next Business Day
immediately following such Transmittal Date. An order to create Creation Unit
Aggregations outside the Clearing Process is deemed received by the Distributor
on the Transmittal Date if (i) such order is received by the Distributor not
later than the Closing Time on such Transmittal Date; and (ii) all other
procedures set forth in the Participant Agreement are properly followed.
However, if the Custodian does not receive both the required Deposit Securities
and the Cash Component by 11:00 a.m. and 2:00 p.m., respectively, on the next
Business Day immediately following the Transmittal Date, such order will be
canceled. Upon written notice to the Distributor, such canceled order may be
resubmitted the following Business Day using a Fund Deposit as newly constituted
to reflect the then current Deposit Securities and Cash Component. The delivery
of Creation Unit Aggregations so created will occur no later than the third
(3rd) Business Day following the day on which the purchase order is deemed
received by the Distributor.
Additional transaction fees may be imposed with respect to transactions
effected outside the Clearing Process (through a DTC participant) and in the
limited circumstances in which any cash can be used in lieu of Deposit
Securities to create Creation Units. (See Creation Transaction Fee section
below).
Creation Unit Aggregations may be created in advance of receipt by the
Trust of all or a portion of the applicable Deposit Securities as described
below. In these circumstances, the initial deposit will have a value greater
than the NAV of the Fund Shares on the date the order is placed in proper form
since, in addition to available Deposit Securities, cash must be deposited in an
amount equal to the sum of (i) the Cash Component, plus (ii) 115% of the market
value of the undelivered Deposit Securities (the "Additional Cash Deposit"). The
order shall be deemed to be received on the Business Day on which the order is
placed provided that the order is placed in proper form prior to 4:00 p.m.,
Eastern time, on such date, and federal funds in the appropriate amount are
deposited with the Custodian by 11:00 a.m., Eastern time, the following Business
Day. If the order is not placed in proper form by 4:00 p.m. or federal funds in
the appropriate amount are not received by 11:00 a.m. the next Business Day,
then the order may be deemed to be canceled and the Authorized Participant shall
be liable to the Fund for losses, if any, resulting therefrom. An additional
amount of cash shall be required to be deposited with the Trust, pending
delivery of the missing Deposit Securities to the extent necessary to maintain
the Additional Cash Deposit with the Trust in an amount at least equal to 115%
of the daily marked to market value of the missing Deposit Securities. To the
extent that missing Deposit Securities are not received by 1:00 p.m., Eastern
time, on the third Business Day following the day on which the purchase order is
deemed received by the Distributor or in the event a marked-to-market payment is
not made within one Business Day following notification by the Distributor that
such a payment is required, the Trust may use the cash on deposit to purchase
the missing Deposit Securities. Authorized Participants will be liable to the
Trust and the Fund for the costs incurred by the Trust in connection with any
such purchases. These costs will be deemed to include the amount by which the
actual purchase price of the Deposit Securities exceeds the market value of such
Deposit Securities on the day the purchase order was deemed received by the
Distributor plus the brokerage and related transaction costs associated with
such purchases. The Trust will return any unused portion of the Additional Cash
Deposit once all of the missing Deposit
24
Securities have been properly received by the Custodian or purchased by the
Trust and deposited into the Trust. In addition, a transaction fee, as listed
below, will be charged in all cases. The delivery of Creation Unit Aggregations
so created will occur no later than the third Business Day following the day on
which the purchase order is deemed received by the Distributor.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves
the absolute right to reject a creation order transmitted to it by the
Distributor in respect of a Fund if: (i) the order is not in proper form; (ii)
the investor(s), upon obtaining the Fund Shares ordered, would own 80% or more
of the currently outstanding shares of the Fund; (iii) the Deposit Securities
delivered are not as disseminated for that date by the Custodian, as described
above; (iv) acceptance of the Deposit Securities would have certain adverse tax
consequences to the Fund; (v) acceptance of the Fund Deposit would, in the
opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would
otherwise, in the discretion of the Trust or the Investment Adviser, have an
adverse effect on the Trust or the rights of beneficial owners; or (vii) in the
event that circumstances outside the control of the Trust, the Custodian, the
Distributor and the Investment Adviser make it for all practical purposes
impossible to process creation orders. Examples of such circumstances include
acts of God; public service or utility problems such as fires, floods, extreme
weather conditions and power outages resulting in telephone, telecopy and
computer failures; market conditions or activities causing trading halts;
systems failures involving computer or other information systems affecting the
Trust, the Investment Adviser, the Distributor, DTC, NSCC, the Custodian or
sub-custodian or any other participant in the creation process, and similar
extraordinary events. The Distributor shall notify a prospective creator of a
Creation Unit and/or the Authorized Participant acting on behalf of such
prospective creator of its rejection of the order of such person. The Trust, the
Custodian, any sub-custodian and the Distributor are under no duty, however, to
give notification of any defects or irregularities in the delivery of Fund
Deposits nor shall any of them incur any liability for the failure to give any
such notification.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility, and acceptance for
deposit of any securities to be delivered shall be determined by the Trust, and
the Trust's determination shall be final and binding.
Creation Transaction Fee. Investors will be required to pay a fixed
creation transaction fee, described below, payable to Claymore regardless of the
number of creations made each day. An additional charge of up to four times the
fixed transaction fee (expressed as a percentage of the value of the Deposit
Securities) may be imposed for (i) creations effected outside the Clearing
Process; and (ii) cash creations (to offset the Trust's brokerage and other
transaction costs associated with using cash to purchase the requisite Deposit
Securities). Investors are responsible for the costs of transferring the
securities constituting the Deposit Securities to the account of the Trust.
The Standard Creation/Redemption Transaction Fee for the Fund will be
$500 (assuming 100 stocks in each Creation Unit). The Maximum
Creation/Redemption Transaction Fee for the Fund will be $2,000.
Redemption of Fund Shares in Creation Units Aggregations. Fund Shares
may be redeemed only in Creation Unit Aggregations at their NAV next determined
after receipt of a redemption request in proper form by the Fund through the
Transfer Agent and only on a Business Day. The Fund will not redeem Shares in
amounts less than Creation Unit Aggregations. Beneficial owners must accumulate
enough Shares in the secondary market to constitute a Creation Unit Aggregation
in order to have such Shares redeemed by the Trust. There can be no assurance,
however, that there will be sufficient liquidity in the public trading market at
any time to permit assembly of a Creation Unit Aggregation. Investors should
25
expect to incur brokerage and other costs in connection with assembling a
sufficient number of Fund Shares to constitute a redeemable Creation Unit
Aggregation.
With respect to the Fund, the Custodian, through the NSCC, makes
available prior to the opening of business on the AMEX (currently 9:30 a.m.,
Eastern time) on each Business Day, the identity of the Fund Securities that
will be applicable (subject to possible amendment or correction) to redemption
requests received in proper form (as described below) on that day. Fund
Securities received on redemption may not be identical to Deposit Securities
that are applicable to creations of Creation Unit Aggregations.
Unless cash redemptions are available or specified for the Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist of Fund
Securities -- as announced on the Business Day of the request for redemption
received in proper form -- plus or minus cash in an amount equal to the
difference between the NAV of the Fund Shares being redeemed, as next determined
after a receipt of a request in proper form, and the value of the Fund
Securities (the "Cash Redemption Amount"), less a redemption transaction fee as
listed below. In the event that the Fund Securities have a value greater than
the NAV of the Fund Shares, a compensating cash payment equal to the difference
is required to be made by or through an Authorized Participant by the redeeming
shareholder.
The right of redemption may be suspended or the date of payment
postponed (i) for any period during which the NYSE is closed (other than
customary weekend and holiday closings); (ii) for any period during which
trading on the NYSE is suspended or restricted; (iii) for any period during
which an emergency exists as a result of which disposal of the Shares of the
Fund or determination of a Fund's NAV is not reasonably practicable; or (iv) in
such other circumstances as is permitted by the SEC.
Redemption Transaction Fee. A redemption transaction fee is imposed to
offset transfer and other transaction costs that may be incurred by the Fund. An
additional variable charge for cash redemptions (when cash redemptions are
available or specified) for the Fund may be imposed. Investors will also bear
the costs of transferring the Fund Securities from the Trust to their account or
on their order. Investors who use the services of a broker or other such
intermediary in addition to an Authorized Participant to effect a redemption of
a Creation Unit Aggregation may be charged an additional fee of up to four times
the fixed transaction fee for such services. The redemption transaction fees for
the Fund are the same as the creation fees set forth above.
Placement of Redemption Orders Using Clearing Process. Orders to redeem
Creation Unit Aggregations through the Clearing Process must be delivered
through a Participating Party that has executed the Participant Agreement. An
order to redeem Creation Unit Aggregations using the Clearing Process is deemed
received by the Trust on the Transmittal Date if (i) such order is received by
the Transfer Agent not later than 4:00 p.m., Eastern time, on such Transmittal
Date, and (ii) all other procedures set forth in the Participant Agreement are
properly followed; such order will be effected based on the NAV of the relevant
Fund as next determined. An order to redeem Creation Unit Aggregations using the
Clearing Process made in proper form but received by the Trust after 4:00 p.m.,
Eastern time, will be deemed received on the next Business Day immediately
following the Transmittal Date and will be effected at the NAV next determined
on such next Business Day. The requisite Fund Securities and the Cash Redemption
Amount will be transferred by the third NSCC Business Day following the date on
which such request for redemption is deemed received.
Placement of Redemption Orders Outside Clearing Process. Orders to
redeem Creation Unit Aggregations outside the Clearing Process must be delivered
through a DTC Participant that has executed the Participant Agreement. A DTC
Participant who wishes to place an order for redemption of Creation Unit
Aggregations to be effected outside the Clearing Process does not need to be a
Participating Party,
26
but such orders must state that the DTC Participant is not using the Clearing
Process and that redemption of Creation Unit Aggregations will instead be
effected through transfer of Fund Shares directly through DTC. An order to
redeem Creation Unit Aggregations outside the Clearing Process is deemed
received by the Trust on the Transmittal Date if (i) such order is received by
the Transfer Agent not later than 4:00 p.m., Eastern time on such Transmittal
Date; (ii) such order is accompanied or followed by the requisite number of
Shares of the Fund, which delivery must be made through DTC to the Custodian no
later than 11:00 a.m., Eastern time (for the Fund Shares), on the next Business
Day immediately following such Transmittal Date (the "DTC Cut-Off-Time") and
2:00 p.m., Eastern Time for any Cash Component, if any owed to the Fund; and
(iii) all other procedures set forth in the Participant Agreement are properly
followed. After the Trust has deemed an order for redemption outside the
Clearing Process received, the Trust will initiate procedures to transfer the
requisite Fund Securities which are expected to be delivered within three
Business Days and the Cash Redemption Amount, if any owed to the redeeming
Beneficial Owner to the Authorized Participant on behalf of the redeeming
Beneficial Owner by the third Business Day following the Transmittal Date on
which such redemption order is deemed received by the Trust.
The calculation of the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received upon redemption will be made by the
Custodian according to the procedures set forth under Determination of NAV
computed on the Business Day on which a redemption order is deemed received by
the Trust. Therefore, if a redemption order in proper form is submitted to the
Transfer Agent by a DTC Participant not later than Closing Time on the
Transmittal Date, and the requisite number of Shares of the Fund are delivered
to the Custodian prior to the DTC Cut-Off-Time, then the value of the Fund
Securities and the Cash Redemption Amount to be delivered/received will be
determined by the Custodian on such Transmittal Date. If, however, either (i)
the requisite number of Shares of the relevant Fund are not delivered by the DTC
Cut-Off-Time, as described above, or (ii) the redemption order is not submitted
in proper form, then the redemption order will not be deemed received as of the
Transmittal Date. In such case, the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received will be computed on the Business Day
following the Transmittal Date provided that the Fund Shares of the relevant
Fund are delivered through DTC to the Custodian by 11:00 a.m. Eastern time the
following Business Day pursuant to a properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such Fund Shares in
cash, and the redeeming Beneficial Owner will be required to receive its
redemption proceeds in cash. In addition, an investor may request a redemption
in cash that the Fund may, in its sole discretion, permit. In either case, the
investor will receive a cash payment equal to the NAV of its Fund Shares based
on the NAV of Shares of the Fund next determined after the redemption
request is received in proper form (minus a redemption transaction fee and
additional charge for requested cash redemptions specified above, to offset the
Fund's brokerage and other transaction costs associated with the disposition of
Fund Securities). The Fund may also, in its sole discretion, upon request of a
shareholder, provide such redeemer a portfolio of securities that differs from
the exact composition of the Fund Securities, or cash in lieu of some securities
added to the Cash Component, but in no event will the total value of the
securities delivered and the cash transmitted differ from the NAV. Redemptions
of Fund Shares for Fund Securities will be subject to compliance with applicable
federal and state securities laws and the Fund (whether or not it otherwise
permits cash redemptions) reserves the right to redeem Creation Unit
Aggregations for cash to the extent that the Trust could not lawfully deliver
specific Fund Securities upon redemptions or could not do so without first
registering the Fund Securities under such laws. An Authorized Participant or an
investor for which it is acting subject to a legal restriction with respect to a
particular stock included in the Fund Securities applicable to the redemption of
a Creation Unit Aggregation may be paid an equivalent amount of cash. The
Authorized Participant may request the redeeming Beneficial Owner of the Fund
Shares to complete
27
an order form or to enter into agreements with respect to such matters as
compensating cash payment, beneficial ownership of shares or delivery
instructions.
The chart below describes in further detail the placement of redemption
orders outside the clearing process.
28
TRANSMITTAL DATE NEXT BUSINESS DAY (T+1) SECOND BUSINESS THIRD BUSINESS DAY (T+3)
(T) DAY (T+2)
------------------------------------------------------------------------------------------------------------------------------------
CREATION THROUGH NSCC
------------------------------------------------------------------------------------------------------------------------------------
STANDARD ORDERS 4:00 p.m. (ET) No action. No action. Creation Unit Aggregations
will be delivered.
Order must be received
by the Distributor.
------------------------------------------------------------------------------------------------------------------------------------
CUSTOM ORDERS 3:00 p.m. (ET) No action. No action. Creation Unit Aggregations
will be delivered.
Order must be received
by the Distributor.
Orders received after
3:00 p.m. (ET) will be
treated as standard orders.
------------------------------------------------------------------------------------------------------------------------------------
CREATION OUTSIDE NSCC
------------------------------------------------------------------------------------------------------------------------------------
STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Creation Unit Aggregations
will be delivered.
Order in proper form must be Deposit Securities must be
received by the Distributor. received by the Fund's account
through DTC.
2:00 p.m. (ET)
Cash Component must be received
by the Custodian.
------------------------------------------------------------------------------------------------------------------------------------
STANDARD ORDERS CREATED 4:00 p.m. (ET) 11:00 a.m. (ET) No action. 1:00 p.m. (ET)
IN ADVANCE OF RECEIPT
BY THE TRUST OF ALL OR Order in proper form must be Available Deposit Securities. Missing Deposit Securities
A PORTION OF THE received by the Distributor. are due to the Trust or the
DEPOSIT SECURITIES Cash in an amount equal to the Trust may use cash on
sum of (i) the Cash Component, deposit to purchase missing
plus (ii) 115% of the market Deposit Securities.
value of the undelivered
Deposit Securities. Creation Unit Aggregations
will be delivered.
------------------------------------------------------------------------------------------------------------------------------------
CUSTOM ORDERS 3:00 p.m. (ET) 11:00 a.m. (ET) No action. Creation Unit Aggregations
will be delivered.
Order in proper form must be Deposit Securities must be
received by the Distributor. received by the Fund's account
through DTC.
Orders received after
3:00 p.m. (ET) will be 2:00 p.m. (ET)
treated as standard orders.
Cash Component must be
received by the Orders
Custodian.
------------------------------------------------------------------------------------------------------------------------------------
29
|
TRANSMITTAL DATE NEXT BUSINESS DAY (T+1) SECOND BUSINESS THIRD BUSINESS DAY (T+3)
(T) DAY (T+2)
------------------------------------------------------------------------------------------------------------------------------------
REDEMPTION THROUGH NSCC
------------------------------------------------------------------------------------------------------------------------------------
STANDARD ORDERS 4:00 p.m. (ET) No action. No action. Fund Securities and Cash
Redemption Amount will be
Order must be received by the transferred.
Transfer Agent.
Orders received after
4:00 p.m. (ET) will be deemed
received on the next business
day (T+1).
------------------------------------------------------------------------------------------------------------------------------------
CUSTOM ORDERS 3:00 p.m. (ET) No action. No action. Fund Securities and Cash
Redemption Amount will be
Order must be received by the transferred.
Transfer Agent.
Orders received after
3:00 p.m. (ET) will be
treated as standard orders.
------------------------------------------------------------------------------------------------------------------------------------
REDEMPTION OUTSIDE OF NSCC
------------------------------------------------------------------------------------------------------------------------------------
STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash
Redemption Amount is
Order must be received by Fund Shares must be delivered delivered to the redeeming
the Transfer Agent. through DTC to the Custodian. beneficial owner.
Orders received after 2:00 p.m. (ET)
4:00 p.m.(ET) will be deemed
received on the next business Cash Component, if any, is due.
day (T+1).
*If the order is not in
proper form or the Fund
Shares are not delivered,
then the order will not be
deemed received as of T.
------------------------------------------------------------------------------------------------------------------------------------
CUSTOM ORDERS 3:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash
Redemption Amount is
Order must be received by the Fund Shares must be delivered delivered to the redeeming
Transfer Agent. through DTC to the Custodian. beneficial owner.
Orders received after 2:00 p.m. (ET)
3:00 p.m. (ET) will be
treated as standard orders. Cash Component, if any, is due.
*If the order is not in
proper form or the Fund
Shares are not delivered,
then the order will not be
deemed received as of T.
------------------------------------------------------------------------------------------------------------------------------------
|
30
TAXES
The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company (a "RIC") under Subchapter M of the
Internal Revenue Code (the "Code"). To qualify for treatment as a RIC, a company
must annually distribute at least 90% of its net investment company taxable
income (which includes dividends, interest and net capital gains) and meet
several other requirements relating to the nature of its income and the
diversification of its assets.
The Fund is treated as a separate corporation for federal income tax
purposes. The Fund therefore is considered to be a separate entity in
determining its treatment under the rules for RICs described herein and in the
Prospectus. Losses in one fund do not offset gains in another fund and the
requirements (other than certain organizational requirements) for qualifying RIC
status are determined at the Fund level rather than at the Trust level.
The Fund will be subject to a 4% excise tax on certain undistributed
income if it does not distribute to its shareholders in each calendar year at
least 98% of its ordinary income for the calendar year plus 98% of its net
capital gains for twelve months ended October 31 of such year. The Fund intends
to declare and distribute dividends and distributions in the amounts and at the
times necessary to avoid the application of this 4% excise tax.
As a result of tax requirements, the Trust on behalf of the Fund has
the right to reject an order to purchase Shares if the purchaser (or group of
purchasers) would, upon obtaining the Shares so ordered, own 80% or more of the
outstanding Shares of the Fund and if, pursuant to section 351 of the Code, the
Fund would have a basis in the Deposit Securities different from the market
value of such securities on the date of deposit. The Trust also has the right to
require information necessary to determine beneficial Share ownership for
purposes of the 80% determination.
Long-term capital gains tax of non-corporate taxpayers are generally
taxed at a maximum rate of 15% for taxable years beginning before January 1,
2011. Thereafter, without further Congressional acton, that rate will return to
20%. In addition, some ordinary dividends declared and paid by the Fund to
non-corporate shareholders may qualify for taxation at the lower reduced tax
rates applicable to long-term capital gains, provided that the holding period
and other requirements are met by the Fund and the shareholder. The Fund will
report to shareholders annually the amounts of dividends received from ordinary
income, the amount of distributions received from capital gains and the portion
of dividends which may qualify for the dividends received deduction. In
addition, the Fund will report the amount of dividends to individual
shareholders eligible for taxation at the lower reduced tax rates applicable to
long-term capital gains.
The sale, exchange or redemption of Shares may give rise to a gain or
loss. In general, any gain or loss realized upon a taxable disposition of Shares
will be treated as long-term capital gain or loss if the Shares have been held
for more than one year. Otherwise, the gain or loss on the taxable disposition
of Shares will be treated as short-term capital gain or loss. A loss realized on
a sale or exchange of Shares of the Fund may be disallowed if other
substantially identical Shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a sixty-one (61) day period
beginning thirty (30) days before and ending thirty (30) days after the date on
which the Shares are disposed. In such a case, the basis of the Shares acquired
must be adjusted to reflect the disallowed loss. Any loss upon the sale or
exchange of Shares held for six (6) months or less is treated as long-term
capital loss to the extent of any capital gain dividends received by the
shareholders (including undistributed capital gain included in income).
Distribution of ordinary income and capital gains may also be subject to state
and local taxes.
31
Distributions reinvested in additional Shares of the Fund through the
means of the dividend reinvestment service (see below) will nevertheless be
taxable dividends to shareholders acquiring such additional Shares to the same
extent as if such dividends had been received in cash.
Distributions of ordinary income paid to shareholders who are
nonresident aliens or foreign entities that are not effectively connected to the
conduct of a trade or business within the U.S. will generally be subject to a
30% U.S. withholding tax unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. However, shareholders who are
nonresident aliens or foreign entities will generally not be subject to U.S.
withholding or income tax on gains realized on the sale of Shares or on
dividends from capital gains unless (i) such gain or capital gain dividend is
effectively connected with the conduct of a trade or business within the U.S.,
or (ii) in the case of an individual shareholder, the shareholder is present in
the U.S. for a period or periods aggregating 183 day or more during the year of
the sale or capital gain dividend and certain other conditions are met. Gains on
the sale of Shares and dividends that are effectively connected with the conduct
of a trade or business within the U.S. will generally be subject to U.S. federal
net income taxation at regular income tax rates. Dividends paid by the Fund to
shareholders who are nonresident aliens or foreign entities that are derived
from short-term capital gains and qualifying net interest income (including
income from original issue discount and market discount), and that are properly
designated by the Fund as "interest-related dividends" or "short-term capital
gain dividends," will generally not be subject to U.S. withholding tax, provided
that the income would not be subject to federal income tax if earned directly by
the foreign shareholder. The provisions discussed above relating to
distributions to shareholders who are nonresident aliens or foreign entities
generally would apply to distributions with respect to taxable years of the Fund
beginning before January 1, 2008. In addition, capital gains distributions
attributable to gains from U.S. real property interests (including certain U.S.
real property holding corporations and which may include certain REITs and
capital gains distributions from REITs will generally be subject to U.S.
withholding tax and will give rise to an obligation on the part of the foreign
shareholder to file a U.S. federal income tax return. Nonresident shareholders
are urged to consult their own tax advisors concerning the applicability of the
U.S. withholding tax.
Some shareholders may be subject to a withholding tax on distributions
of ordinary income, capital gains and any cash received on redemption of
Creation Units ("backup withholding"). Generally, shareholders subject to backup
withholding will be those for whom no certified taxpayer identification number
is on file with the Fund or who, to the Fund's knowledge, have furnished an
incorrect number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Purchasers of Shares should consult their
own tax advisors as to the tax consequences of investing in such Shares,
including under federal, state, local and other tax laws. Finally, the foregoing
discussion is based on applicable provisions of the Code, regulations, judicial
authority and administrative interpretations in effect on the date hereof.
Changes in applicable authority could materially affect the conclusions
discussed above, and such changes often occur.
32
FEDERAL TAX TREATMENT OF FUTURES AND OPTIONS CONTRACTS
The Fund is required for federal income tax purposes to mark to market
and recognize as income for each taxable year its net unrealized gains and
losses on certain futures contracts as of the end of the year as well as those
actually realized during the year. Gain or loss from futures and options
contracts on broad-based indices required to be marked to market will be 60%
long-term and 40% short-term capital gain or loss. Application of this rule may
alter the timing and character of distributions to shareholders. The Fund may
be required to defer the recognition of losses on futures contracts, options
contracts and swaps to the extent of any unrecognized gains on offsetting
positions held by the Fund.
In order for the Fund to continue to qualify for federal income tax
treatment as a RIC, at least 90% of its gross income for a taxable year must be
derived from qualifying income, i.e., dividends, interest, income derived from
loans or securities, gains from the sale of securities or of foreign currencies
or other income derived with respect to the Fund's business of investing in
securities (including net income derived from an interest in certain "qualified
publicly traded partnerships"). It is anticipated that any net gain realized
from the closing out of futures or options contracts will be considered gain
from the sale of securities or derived with respect to each Fund's business of
investing in securities and therefore will be qualifying income for purposes of
the 90% gross income requirement.
The Fund distributes to shareholders at least annually any net capital
gains which have been recognized for federal income tax purposes, including
unrealized gains at the end of the Fund's fiscal year on futures or options
transactions. Such distributions are combined with distributions of capital
gains realized on the Fund's other investments and shareholders are advised on
the nature of the distributions.
DETERMINATION OF NAV
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Net Asset Value."
The NAV per Share of the Fund is computed by dividing the value of the
net assets of the Fund (i.e., the value of its total assets less total
liabilities) by the total number of Shares of the Fund outstanding, rounded to
the nearest cent. Expenses and fees, including without limitation, the
management and administration fees, are accrued daily and taken into account for
purposes of determining NAV. The NAV per Share is calculated by the Custodian
and determined as of the close of the regular trading session on the NYSE
(ordinarily 4:00 p.m., Eastern time) on each day that such exchange is open.
In computing the Fund's NAV, the Fund's securities holdings traded on
a national securities exchange are valued based on their last sale price. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Securities regularly traded in an over-the-counter market
are valued at the latest quoted sale price in such market or in the case of the
NASDAQ, at the NASDAQ official closing price. Other portfolio securities and
assets for which market quotations are not readily available are valued based on
fair value as determined in good faith in accordance with procedures adopted by
the Board.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Dividends, Distributions and
Taxes."
33
General Policies. Dividends from net investment income, if any, are
declared and paid quarterly. Distributions of net realized securities gains, if
any, generally are declared and paid once a year, but the Trust may make
distributions on a more frequent basis. The Trust reserves the right to declare
special distributions if, in its reasonable discretion, such action is necessary
or advisable to preserve the status of the Fund as a RIC or to avoid imposition
of income or excise taxes on undistributed income.
Dividends and other distributions on Fund Shares are distributed, as
described below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Fund.
Dividend Reinvestment Service. No reinvestment service is provided by
the Trust. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of the Fund for reinvestment
of their dividend distributions. Beneficial Owners should contact their broker
to determine the availability and costs of the service and the details of
participation therein. Brokers may require Beneficial Owners to adhere to
specific procedures and timetables.
MISCELLANEOUS INFORMATION
Counsel. Clifford Chance US LLP, 31 West 52nd Street, New York, NY
10019, is counsel to the Trust.
Independent Registered Public Accounting Firm. Ernst & Young LLP, 233
South Wacker Drive, Chicago, Illinois 60606 serves as the Fund's independent
registered public accounting firm. They audit the Fund's financial statements
and perform other related audit services.
FINANCIAL STATEMENTS
You may request a copy of the Trust's Annual Report at no charge by
calling 1-800-345-7999 during normal business hours.
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholder
Claymore Exchange-Traded Fund Trust
We have audited the accompanying statements of assets and liabilities of
Claymore Exchange-Traded Fund Trust, comprised of the Claymore/BNY BRIC ETF,
Claymore/Sabrient Insider ETF, Claymore/Sabrient Stealth ETF, Claymore/Zacks
Sector Rotation ETF and Claymore/Zacks Yield Hog ETF (the "Funds") as of
September 6, 2006. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement 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 audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. We were not engaged to
perform an audit of the Funds' internal control over financial reporting. Our
audit 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 statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial positions of each of the portfolios of
Claymore Exchange-Traded Fund Trust, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
September 7, 2006
|
35
CLAYMORE/BNY BRIC ETF
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 6, 2006
-------------------------------------------------------------------------------
ASSETS:
Cash....................................................... $ 20,000
Deferred Offering Costs.................................... 49,000
-------------
Total Assets.......................................... 69,000
-------------
LIABILITIES:
Offering Costs Payable..................................... 49,000
-------------
Total Liabilities..................................... 49,000
-------------
NET ASSETS............................................ $ 20,000
=============
COMPOSITION OF NET ASSETS:
Paid in Capital............................................ $ 20,000
-------------
NET ASSETS............................................ $ 20,000
=============
NET ASSET VALUE:
Net asset value, offering price and redemption price
per share (Based on net assets of $20,000 and 800
shares of beneficial interest issued and outstanding)...... $ 25.00
-------------
|
SEE NOTES TO FINANCIAL STATEMENT
36
CLAYMORE/SABRIENT INSIDER ETF
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 6, 2006
-------------------------------------------------------------------------------
ASSETS:
Cash....................................................... $ 20,000
Deferred Offering Costs.................................... 49,000
-------------
Total Assets.......................................... 69,000
-------------
LIABILITIES:
Offering Costs Payable..................................... 49,000
-------------
Total Liabilities..................................... 49,000
-------------
NET ASSETS............................................ $ 20,000
=============
COMPOSITION OF NET ASSETS:
Paid in Capital............................................ $ 20,000
-------------
NET ASSETS............................................ $ 20,000
=============
NET ASSET VALUE:
Net asset value, offering price and redemption price
per share (Based on net assets of $20,000 and 800
shares of beneficial interest issued and outstanding)...... $ 25.00
-------------
|
SEE NOTES TO FINANCIAL STATEMENT
37
CLAYMORE/SABRIENT STEALTH ETF
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 6, 2006
-------------------------------------------------------------------------------
ASSETS:
Cash....................................................... $ 20,000
Deferred Offering Costs.................................... 49,000
-------------
Total Assets.......................................... 69,000
-------------
LIABILITIES:
Offering Costs Payable..................................... 49,000
-------------
Total Liabilities..................................... 49,000
-------------
NET ASSETS............................................ $ 20,000
=============
COMPOSITION OF NET ASSETS:
Paid in Capital............................................ $ 20,000
-------------
NET ASSETS............................................ $ 20,000
=============
NET ASSET VALUE:
Net asset value, offering price and redemption price per
share (Based on net assets of $20,000 and 800 shares of
beneficial interest issued and outstanding)................ $ 25.00
-------------
|
SEE NOTES TO FINANCIAL STATEMENT
38
CLAYMORE/ZACKS SECTOR ROTATION ETF
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 6, 2006
-------------------------------------------------------------------------------
ASSETS:
Cash....................................................... $ 20,000
Deferred Offering Costs.................................... 49,000
-------------
Total Assets.......................................... 69,000
-------------
LIABILITIES:
Offering Costs Payable..................................... 49,000
-------------
Total Liabilities..................................... 49,000
-------------
NET ASSETS............................................ $ 20,000
=============
COMPOSITION OF NET ASSETS:
Paid in Capital............................................ $ 20,000
-------------
NET ASSETS............................................ $ 20,000
=============
NET ASSET VALUE:
Net asset value, offering price and redemption price per
share (Based on net assets of $20,000 and 800 shares of
beneficial interest issued and outstanding)................ $ 25.00
-------------
|
SEE NOTES TO FINANCIAL STATEMENT
39
CLAYMORE/ZACKS YIELD HOG ETF
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 6, 2006
-------------------------------------------------------------------------------
ASSETS:
Cash....................................................... $ 20,000
Deferred Offering Costs.................................... 49,000
-------------
Total Assets.......................................... 69,000
-------------
LIABILITIES:
Offering Costs Payable..................................... 49,000
-------------
Total Liabilities..................................... 49,000
-------------
NET ASSETS............................................ $ 20,000
=============
COMPOSITION OF NET ASSETS:
Paid in Capital............................................ $ 20,000
-------------
NET ASSETS............................................ $ 20,000
=============
NET ASSET VALUE:
Net asset value, offering price and redemption price per
share (Based on net assets of $20,000 and 800 shares of
beneficial interest issued and outstanding)................ $ 25.00
-------------
|
SEE NOTES TO FINANCIAL STATEMENT
40
CLAYMORE EXCHANGE-TRADED FUND TRUST
NOTES TO FINANCIAL STATEMENTS
September 6, 2006
NOTE 1 -- ORGANIZATION:
Claymore Exchange-Traded Fund Trust (the "Trust") was organized as a Delaware
statutory trust on May 24, 2006. The Trust is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Trust currently consists of five investment
portfolios: Claymore/BNY BRIC ETF, Claymore/Sabrient Insider ETF,
Claymore/Sabrient Stealth ETF, Claymore/Zacks Sector Rotation ETF and
Claymore/Zacks Yield Hog ETF (each a "Fund" and, together, the "Funds"). Each
Fund has not had any operations to date other than the sale of 800 common shares
of beneficial interest of each Fund to Claymore Securities, Inc. for the
aggregate amount of $100,000.
NOTE 2 -- ACCOUNTING POLICIES:
The preparation of the financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
Costs incurred in connection with the offering and initial registration of the
Trust have been deferred and will be amortized on a straight-line basis over the
first twelve months after commencement of operations.
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER AGREEMENTS:
Pursuant to an Investment Advisory Agreement (the "Advisory Agreement") between
Claymore Advisors, LLC (the "Investment Adviser") and the Funds, the Investment
Adviser manages the investment and reinvestment of each Fund's assets and
administers the affairs of each Fund to the extent requested by the Board of
Trustees. The Investment Adviser pays the compensation of all officers and
Trustees of the Trust who are its affiliates. As compensation for its services,
each Fund pays the Investment Adviser a fee, payable monthly, in an annual
amount equal to 0.50% of the Fund's average daily net assets.
The Investment Adviser has agreed to pay all organizational expenses of the
Funds incurred prior to the commencement of operations. In addition, the Fund's
Investment Adviser has contractually agreed to waive fees and/or pay Fund
expenses to the extent necessary to prevent the operating expenses of each Fund
(excluding interest expense, brokerage commissions and other trading expenses,
all or a portion of the sub-licensing fees, offering costs, taxes and
extraordinary expenses) from exceeding the expense cap of 0.60%. The offering
costs excluded from the 0.60% expense cap are: (a) legal fees pertaining to the
Fund's Shares offered for sale; (b) SEC and state registration fees; and
41
CLAYMORE EXCHANGE-TRADED FUND TRUST
NOTES TO FINANCIAL STATEMENTS
September 6, 2006
(c) initial fees paid to be listed on an exchange. For a period of five years
subsequent to the Funds commencement of operations, the Investment Adviser may
recover from the Funds fees and expenses waived or reimbursed during the prior
three years, provided the Funds' expense ratios, including the recovered
expenses, fall below the expense limits.
Claymore Advisors, LLC serves as the Fund's administrator. Pursuant to an
administration agreement, Claymore Advisors provides certain administrative,
bookkeeping and accounting services to the Fund. For the services, the Fund pays
Claymore Advisors a fee, accrued daily and paid monthly, at the annualized rate
set forth below as a percentage of the average daily net assets of the Trust:
Rate Net Assets
------ ----------
0.0275% First $200,000,000
0.0200% Next $300,000,000
0.0150% Next $500,000,000
0.0100% Over $1,000,000,000
|
Sabrient Systems LLC, Zacks Investment Research and Bank of New York are Index
Providers and are not affiliated with the Funds or with the Investment Adviser.
Each Fund is entitled to use its respective underlying index pursuant to a
sub-licensing arrangement with the Investment Adviser, which in turn has a
licensing agreement with the applicable Index Provider. The Funds reimburse the
Investment Adviser for all or a portion of the licensing fee payable to the
applicable Index Provider.
Claymore Securities, Inc. (the "Distributor") is the distributor of the Funds'
shares. The Trust has adopted a Distribution and Service Plan pursuant to rule
12b-1 under the 1940 Act (the "Plan"). Under the Plan, each Fund may reimburse
the Distributor up to 0.25% of the average daily net assets of each Fund.
However, no such fee is currently charged to the Funds, and there are no plans
in place to impose such a fee.
NOTE 4 -- FEDERAL INCOME TAXES:
The Funds intend to comply with the requirements 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 Funds intend not to be subject to
U.S. federal excise tax.
NOTE 5 -- CAPITAL:
Upon commencement of operations, the Funds will offer and issue Shares at net
asset value only in aggregations of a specified number of Shares (each a
"Creation Unit" or a "Creation Unit Aggregation"). Shares are redeemable only in
Creation Unit
42
CLAYMORE EXCHANGE-TRADED FUND TRUST
NOTES TO FINANCIAL STATEMENTS
September 6, 2006
Aggregations and, generally, in exchange for portfolio securities
and a specified cash payment. Creation Units are aggregations of 50,000 Shares.
In the event of the liquidation of a Fund, the Trust may lower the number of
Shares in a Creation Unit.
43