As filed with the Securities and Exchange Commission on April 15, 2004
Securities Act Registration No. 333-112584
Investment Company Registration No. 811-21504
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
Registration Statement under the Securities Act of 1933 /X/
Pre-Effective Amendment No. 1
Post-Effective Amendment No./X/
and/or
Registration Statement Under
The Investment Company Act of 1940 /X/
Amendment No. 1 /X/
Advent Claymore
Global Total Return Fund
(Exact Name of Registrant as Specified in Declaration of Trust)
210 N. Hale Street
Wheaton, Illinois 60187
(Address of Principal Executive Offices)
(630) 784-6300
(Registrant's Telephone Number, Including Area Code)
Rodd Baxter
Advent Claymore Global Total Return Fund
1065 Avenue of the Americas, 31st Floor
New York, New York 10018
(Name and Address of Agent for Service)
Copy to:
Philip H. Harris
Michael K. Hoffman Leonard B. Mackey, Jr.
Skadden, Arps, Slate, Meagher & Flom LLP Clifford Chance US LLP
Four Times Square 200 Park Avenue
New York, New York 10036 New York, New York 10166
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================================== ================ ==================== ====================== ==================
Amount Being Proposed Proposed Maximum Amount of
Title of Securities Being Registered Registered(1) Price per Unit Offering Price(1) Registration Fee2
-------------------------------------- ---------------- -------------------- ---------------------- ------------------
Common Shares, $.001 par value....... 1,000,000 $20.00 $20,000,000 $2,534
shares
====================================== ================ ==================== ====================== ==================
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $253.40 previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
ADVENT CLAYMORE GLOBAL TOTAL RETURN FUND
CROSS REFERENCE SHEET
Part A -- Prospectus
Items in Part A of Form N-2 Location in Prospectus
--------------------------- ----------------------
Item 1. Outside Front Cover Cover page
Item 2. Inside Front and Outside Back Cover Page Cover page
Item 3. Fee Table and Synopsis Prospectus Summary; Summary of Fund Expenses
Item 4. Financial Highlights Not Applicable
Item 5. Plan of Distribution Cover Page; Prospectus Summary; Underwriting
Item 6. Selling Shareholders Not Applicable
Item 7. Use of Proceeds Use of Proceeds; The Fund's Investments
Item 8. General Description of the Registrant The Fund; The Fund's Investments; Borrowings and
Preferred Shares; Risks; Description of
Shares; Certain Provisions in the Agreement
and Declaration of Trust; Closed-End Fund
Structure
Item 9. Management Management of the Fund; Administrator, Custodian
and Transfer Agent; Summary of Fund Expenses
Item 10. Capital Stock, Long-Term Debt, and Other Description of Shares; Distributions; Dividend
Securities Reinvestment Plan; Certain Provisions in the
Agreement and Declaration of Trust; Tax Matters
Item 11. Defaults and Arrears on Senior Securities Not Applicable
Item 12. Legal Proceedings Legal Opinions
Item 13. Table of Contents of the Statement of Table of Contents for the Statement of Additional
Additional Information Information
Part B -- Statement of Additional Information
Item 14. Cover Page Cover Page
Item 15. Table of Contents Cover Page
Item 16. General Information and History Not Applicable
Item 17. Investment Objective and Policies Investment Objective and Policies;
Investment Policies and Techniques; Other
Investment Policies and Techniques;
Portfolio Transactions
Item 18. Management Management of the Fund; Portfolio
Transactions and Brokerage
Item 19. Control Persons and Principal Holders of Not Applicable
Securities
Item 20. Investment Advisory and Other Services Management of the Fund; Experts
Item 21. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
Item 22. Tax Status Tax Matters; Distributions
Item 23. Financial Statements Financial Statements; Report of
Independent Accountants
Part C -- Other Information
Items 24-33 have been answered in Part C of this Registration Statement
Subject to Completion
Preliminary Prospectus dated , 2004
PROSPECTUS
Shares
Advent Claymore Global Total Return Fund
Common Shares
$20.00 per share
_____________________
Advent Claymore Global Total Return Fund (the "Fund") is a
newly-organized, diversified, closed-end management investment company. The
Fund's investment objective is to provide total return through a combination
of capital appreciation and current income. There can be no assurance that the
Fund will achieve its investment objective.
Portfolio Contents. Under normal market conditions, the Fund will invest
at least 55% of its Managed Assets in a diversified portfolio of equity
securities and convertible securities of U.S. and non-U.S. issuers. It is
anticipated that up to 45% of the Fund's Managed Assets will be invested in
non-convertible high yield securities and that, initially, approximately 25%
of the Fund's Managed Assets will be invested in securities issued by non-U.S.
issuers. The portion of the Fund's Managed Assets invested in convertible
securities, equity securities and non-convertible high yield securities, as
well as the portion invested in securities issued by U.S. and non-U.S.
issuers, will vary from time to time consistent with the Fund's investment
objective, changes in equity prices and changes in interest rates and other
economic and market factors. All of the Fund's Managed Assets may from time to
time be invested in lower grade securities.
Investing in the common shares involves certain risks. See "Risks"
beginning on page of this prospectus.
_____________________
Per Share(3) Total
Public offering price........................................ $20.00 $
Sales load(1)................................................ $ .90 $
Estimated organizational and offering expenses(2)............ $ .04 $
Proceeds, after expenses, to the Fund........................ $19.06 $
(1) The Fund has also agreed to pay the underwriters $.0067 per common share
as a partial reimbursement of expenses incurred in connection with the
offering. Separately, Claymore Advisors, LLC has retained Merrill Lynch,
Pierce, Fenner & Smith Incorporated and A.G. Edwards & Sons, Inc. to
provide, as may reasonably be requested by Claymore Advisors, LLC from
time to time, certain consulting and after-market shareholder support
services. In connection with these services, Merrill Lynch, Pierce,
Fenner & Smith will receive from Claymore Advisors, LLC an annual fee
equal to % of the Fund's Managed Assets and A.G. Edwards & Sons, Inc.
will receive from Claymore Advisors, LLC an annual fee equal to % of
the Fund's Managed Assets; provided, however, that such fees, together with
the partial reimbursement of expenses to the underwriters discussed above
and the fee paid to Claymore Securities, Inc. discussed in footnote 2
below, shall not exceed 4.5% of the total price to the public of the
common shares sold in this offering. See "Underwriting."
(2) Aggregate organizational and offering expenses (exclusive of the sales
load) are expected to be $ , which will be borne by the Fund.
Claymore Advisors, LLC and Advent Capital Management, LLC have agreed to
reimburse organizational and offering expenses (other than sales load,
but including the $.0067 reimbursement of expenses to the underwriters
referred to in footnote 1) in excess of $.04 per common share. To the
extent that aggregate organizational and offering expenses are less than
$.04 per common share, up to .10% of the amount of the offering up to
such expense limit will be paid to Claymore Securities, Inc. as
compensation for the distribution services it provides to the Fund. See
"Underwriting."
(3) The underwriters may also purchase up to additional common shares
at the public offering price, less the sales load, within 45 days from
the date of this prospectus to cover overallotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The common shares will be ready for delivery on or about , 2004.
_____________________
Merrill Lynch & Co.
_____________________
The date of this prospectus is , 2004.
Advisor and Investment Manager. Claymore Advisors, LLC (the
"Advisor") is the Fund's investment advisor. Advent Capital Management, LLC
(the "Investment Manager") is the Fund's investment manager and is responsible
for the management of the Fund's portfolio of securities. Advent Capital
Management, LLC had approximately $4 billion in assets under management as of
March 31, 2004.
No Prior Trading History. Because the Fund is newly organized, its
shares have no history of public trading. Shares of closed-end investment
companies frequently trade at a discount from their net asset value. This risk
may be greater for investors expecting to sell their shares in a relatively
short period of time after completion of the public offering. The Fund
anticipates that its common shares will be listed on the New York Stock
Exchange under the symbol "LCM."
You should read this prospectus, which contains important information
about the Fund, before deciding whether to invest in the common shares, and
retain it for future reference. A Statement of Additional Information, dated
, 2004, containing additional information about the Fund, has been
filed with the Securities and Exchange Commission and is incorporated by
reference in its entirety into this prospectus. You may request a free copy of
the Statement of Additional Information, the table of contents of which is on
page of this prospectus, by calling (800) 345-7999 or by writing to the
Fund's Advisor at Claymore Advisors, LLC, c/o Nicholas Dalmaso, 210 N. Hale
Street, Wheaton, Illinois 60187, or obtain a copy (and other information
regarding the Fund) from the Securities and Exchange Commission's web site
(http://www.sec.gov).
The Fund's common shares do not represent a deposit or obligation of,
and are not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
TABLE OF CONTENTS
Page
Prospectus Summary................................................................................................5
Summary of Fund Expenses.........................................................................................15
The Fund.........................................................................................................17
Use of Proceeds..................................................................................................17
The Fund's Investments...........................................................................................17
Borrowings and Preferred Shares..................................................................................22
Risks............................................................................................................24
Management of the Fund...........................................................................................30
Net Asset Value..................................................................................................31
Distributions....................................................................................................32
Dividend Reinvestment Plan.......................................................................................32
Description of Shares............................................................................................34
Certain Provisions in the Agreement and Declaration of Trust.....................................................36
Closed-End Fund Structure........................................................................................37
Repurchase of Common Shares......................................................................................38
Tax Matters......................................................................................................38
Underwriting.....................................................................................................40
Administrator, Custodian and Transfer Agent......................................................................42
Legal Opinions...................................................................................................42
Privacy Principles of the Fund...................................................................................42
Table of Contents for the Statement of Additional Information....................................................43
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not, and the underwriters are not, making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information in this prospectus is accurate only as
of the date of this prospectus. Our business, financial condition and
prospects may have changed since that date. The Fund will notify investors
if there are any material changes to its operating condition.
PROSPECTUS SUMMARY
This following is only a summary. This summary may not contain all of
the information that you should consider before investing in the Fund's common
shares. You should review the more detailed information contained in this
prospectus and in the statement of additional information prior to making an
investment in the Fund.
The Fund........................Advent Claymore Global Total Return Fund is a
newly organized, diversified, closed-end
management investment company. See "The Fund."
Throughout the prospectus, we refer to Advent
Claymore Global Total Return Fund simply as
the "Fund" or as "we," "us" or "our."
The Offering....................The Fund is offering common shares of
beneficial interest at $20.00 per share
through a group of underwriters led by Merrill
Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"). The common shares of
beneficial interest are called "common shares"
in the rest of this prospectus. You must
purchase at least 100 common shares ($2,000)
in order to participate in this offering. The
Fund has given the underwriters an option to
purchase up to additional common shares to
cover orders in excess of common shares.
Claymore Advisors, LLC and Advent Capital
Management, LLC have agreed to pay
organizational and offering expenses (other
than the sales load, but including a $.0067
reimbursement of expenses to the underwriters)
that exceed $.04 per common share. See
"Underwriting."
Investment Objective
and Policies..................The Fund's investment objective is to provide
total return through a combination of capital
appreciation and current income. There can be
no assurance that the Fund will achieve its
investment objective. See "The Fund's
Investments."
Under normal market conditions, the Fund will
invest at least 55% of its Managed Assets in a
diversified portfolio of equity securities and
convertible securities of U.S. and non-U.S.
issuers. It is anticipated that up to 45% of
the Fund's Managed Assets will be invested in
non-convertible high yield securities and
that, initially, approximately 25% of the
Fund's Managed Assets will be invested in
securities issued by non-U.S. issuers. The
portion of the Fund's Managed Assets invested
in convertible securities, equity securities
and non-convertible high yield securities, as
well as the portion invested in securities
issued by U.S. and non-U.S. issuers, will vary
from time to time consistent with the Fund's
investment objective, changes in equity prices
and changes in interest rates and other
economic and market factors. All of the Fund's
Managed Assets may from time to time be
invested in lower grade securities. "Managed
Assets" means the total assets of the Fund
(including any assets attributable to any
Preferred Shares that may be outstanding or
otherwise attributable to the use of leverage)
minus the sum of accrued liabilities (other
than debt representing financial leverage).
For purposes of determining Managed Assets,
the liquidation preference of any outstanding
Preferred Shares is not treated as a
liability.
Convertible Securities. Under normal market
conditions, the Fund will invest at least 55%
of its Managed Assets in a combination of
convertible securities and equity securities.
However, the Fund is not limited in the
percentage of its assets that can be invested
in convertible securities. A convertible
security is a debt security or preferred stock
that is exchangeable for an equity security of
the issuer at a predetermined price (the
"conversion price"). Depending upon the
relationship of the conversion price to the
market value of the underlying security, a
convertible security may trade more like an
equity security than a debt instrument. The
convertible securities in which the Fund may
invest may be investment grade or lower grade
securities. See "The Fund's
Investments-Investment Philosophy and
Process-Convertible Securities."
Synthetic Convertible Securities. The Fund may
also create a "synthetic" convertible security
by combining separate securities that possess
the two principal characteristics of a true
convertible security, i.e., an income security
("income security component") and the right to
acquire an equity security ("convertible
component"). The income security component is
achieved by investing in non-convertible
income securities such as bonds, preferred
stocks and money market instruments. The
convertible component is achieved by investing
in warrants or options to buy common stock at
a certain exercise price, or options on a
stock index. The Fund may also purchase
synthetic securities created by other parties,
typically investment banks, including
convertible structured notes. Different
companies may issue the income security and
convertible components which may be purchased
separately, and at different times. The Fund's
holdings of synthetic convertible securities
are considered convertible securities for
purposes of the Fund's policy to invest at
least 55% of its Managed Assets in convertible
securities and equity securities. See "The
Fund's Investments-Investment Philosophy and
Process-Synthetic Convertible Securities."
Equity Securities. Under normal market
conditions, the Fund will invest at least 55%
of its Managed Assets in a combination of
convertible securities and equity securities.
However, the Fund is not limited in the
percentage of its assets that can be invested
in equity securities. Equity securities are
securities of a corporation or other entity
that, in the case of common stocks, entitle
the holder to a pro rata interest in the
profits of the corporation, if any, without
preference over any other class of securities,
including the company's debt securities,
preferred stock and other senior equity
securities or, in the case of preferred
stocks, has a preference over common stock in
liquidation (and generally as to dividends as
well), but is subordinated to the liabilities
of the issuer in all respects. In making
equity security selections, the Investment
Manager seeks to invest in equity securities
that have a history of paying dividends.
Non-Convertible High Yield Securities. The
Fund may invest up to 45% of its Managed
Assets in non-convertible high yield
securities, i.e., income securities that are
typically lower grade securities. The Fund's
investments in high yield securities may have
fixed or variable principal payments and all
types of interest rate and dividend payment
and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent,
deferred, payment in kind and auction rate
features as well as a broad range of
maturities. See "The Fund's
Investments-Investment Philosophy and
Process-Non-Convertible High Yield
Securities."
Lower Grade Securities. The Fund may invest a
all of its assets in lower grade securities,
which are commonly referred to as "junk
bonds." Both the convertible securities and
the non-convertible high yield securities in
which the Fund will invest may be lower grade
securities. Investments in lower grade
securities will expose the Fund to greater
risks than if the Fund owned only higher grade
securities. Lower grade securities or
equivalent securities often trade like equity
securities rather than debt and are typically
more volatile than highly rated securities.
See "The Fund's Investments-Investment
Philosophy and Process-Lower Grade
Securities."
Foreign Securities. The Fund will invest a
portion of its Managed Assets in securities of
foreign issuers, including debt and equity
securities of corporate issuers, and in debt
securities of government issuers in developed
and emerging markets. A foreign issuer is a
company organized under the laws of a foreign
country whose securities are principally
traded in the financial markets of a foreign
country. Initially, the Fund anticipates that
approximately 25% of its Managed Assets will
be invested in securities of foreign issuers.
See "The Fund's Investments-Investment
Philosophy and Process-Foreign Securities."
Rule 144A Securities. The Fund may invest
without limit in securities that have not been
registered for public sale, but that are
eligible for purchase and sale by certain
qualified institutional buyers under Rule 144A
under the Securities Act of 1933, as amended
("Rule 144A Securities"). See "The Fund's
Investments-Investment Philosophy and
Process-Rule 144A Securities."
Other Securities. Under normal market
conditions, the Fund will invest at least 55%
of its Managed Assets in a diversified
portfolio of equity securities and convertible
securities of U.S. and non-U.S. issuers. It is
anticipated that up to 45% of the Fund's
Managed Assets will be invested in
non-convertible high yield securities and
that, initially, approximately 25% of the
Fund's Managed Assets will be invested in
securities issued by non-U.S. issuers. The
portion of the Fund's Managed Assets invested
in convertible securities, equity securities
and high yield securities, as well as the
portion invested in securities issued by U.S.
and non-U.S. issuers, will vary from time to
time consistent with the Fund's investment
objective, changes in equity prices and
changes in interest rates and other economic
and market factors. The Fund may invest the
remainder of its assets, if any, in other
securities of various types. For temporary
defensive purposes, the Fund may depart from
its principal investment strategies and invest
part or all of its assets in securities with
remaining maturities of less than one year,
cash equivalents, or may hold cash. During
such periods, the Fund may not be able to
achieve its investment objective.
Borrowings and
Preferred Shares..............The Fund may seek to enhance the yield of the
Fund's current income through the use of
leverage. The Fund may leverage through the
issuance of preferred shares of beneficial
interest ("Preferred Shares"), commercial
paper or notes and/or borrowings in an
aggregate amount up to 33% of the Fund's
Managed Assets after such issuance and/or
borrowing. The Fund may borrow from banks and
other financial institutions. Leverage creates
a greater risk of loss, as well as a potential
for more gain, for the common shares than if
leverage is not used. The Fund's leveraging
strategy may not be successful. See
"Risks-Leverage Risk."
Approximately one to three months after
completion of this offering, the Fund
currently intends to offer Preferred Shares.
Preferred Shares will have seniority over the
common shares. The issuance of Preferred
Shares will leverage your investment in common
shares. If the Fund offers Preferred Shares,
costs of that offering will be borne
immediately by common shareholders and result
in a reduction of the net asset value of the
common shares. Any issuance of commercial
paper or notes or borrowings also will have
seniority over the common shares.
There is no guarantee that the Fund's leverage
strategy will be successful. See
"Risks-Leverage Risk." Preferred Shares will
pay dividends based on short-term rates, which
will be reset frequently. Borrowings may be at
a fixed or floating rate and generally will be
based on short-term rates. So long as the rate
of return, net of applicable Fund expenses, on
the Fund's portfolio investments purchased
with leverage exceeds the Preferred Share
dividend rate, as reset periodically, or the
interest rate on any borrowings, the Fund will
generate more return or income than will be
needed to pay such dividends or interest
payments. In this event, the excess will be
available to pay higher dividends to holders
of common shares. When leverage is employed,
the net asset value and market prices of the
common shares and the yield to holders of
common shares will be more volatile.
Investment Advisor..............The Fund has entered into an investment
advisory agreement with Claymore Advisors, LLC
(the "Advisor"), the Fund's investment
advisor. Pursuant to such investment advisory
agreement, the Advisor receives an annual fee
from the Fund, calculated and paid monthly, in
arrears, based on the average weekly value of
the Fund's Managed Assets. See "Management of
the Fund - Investment Advisor."
Investment Manager..............The Fund and the Advisor have entered into an
investment management agreement with Advent
Capital Management, LLC ("Advent" or the
"Investment Manager"), the Fund's investment
manager. Pursuant to such investment
management agreement, the Advisor has
delegated responsibility for the day-to-day
management of the Fund's portfolio of
securities to the Investment Manager, which
includes buying and selling securities for the
Fund and investment research. Under the
investment management agreement, the
Investment Manager will receive an annual fee
from the Fund, calculated and paid monthly, in
arrears, based on the average weekly value of
the Fund's Managed Assets.
Advent Capital Management, LLC is an asset
management firm with approximately $4 billion
in assets under management as of March 31,
2004. See "Management of the Fund-Investment
Manager."
Distributions...................The Fund intends to distribute monthly all or
a portion of its investment company taxable
income to holders of common shares. We expect
to declare the initial monthly dividend on the
Fund's common shares within approximately 45
days after completion of this offering and to
pay such initial monthly dividend
approximately 60 to 90 days after completion
of this offering. If the Fund realizes a
long-term capital gain, it will be required to
allocate such gain between the common shares
and the Preferred Shares, if any, issued by
the Fund in proportion to the total dividends
paid to each class for the year in which the
income is realized. See "Distributions" and
"Borrowings and Preferred Shares."
Unless an election is made to receive
dividends in cash, shareholders will
automatically have all dividends and
distributions reinvested in common shares
through the Fund's Automatic Dividend
Reinvestment Plan. See "Dividend Reinvestment
Plan."
Listing.........................The Fund anticipates that its common shares
will be listed on the New York Stock Exchange
under the symbol "LCM." See "Description of
Shares-Common Shares."
Market Price of Shares..........Common shares of closed-end investment
companies frequently trade at prices lower
than their net asset value. Common shares of
closed-end investment companies like the Fund
that invest primarily in convertible
securities, non-convertible income securities
and equity securities have during some periods
traded at prices higher than their net asset
value and during other periods traded at
prices lower than their net asset value. The
Fund cannot assure you that its common shares
will trade at a price higher than or equal to
net asset value. The Fund's net asset value
will be reduced immediately following this
offering by the sales load and the amount of
the offering expenses paid by the Fund. See
"Use of Proceeds." In addition to net asset
value, the market price of the Fund's common
shares may be affected by such factors as
dividend levels, which are in turn affected by
expenses, dividend stability, portfolio credit
quality, liquidity and market supply and
demand. See "Borrowings and Preferred Shares,"
"Risks," "Description of Shares" and the
section of the Statement of Additional
Information with the heading "Repurchase of
Common Shares." The common shares are designed
primarily for long-term investors and you
should not purchase common shares of the Fund
if you intend to sell them shortly after
purchase.
Special Risk Considerations.....Risk is inherent in all investing. Therefore,
before investing in the Fund's common shares,
you should consider the following risks
carefully.
No Operating History. The Fund is a newly
organized, diversified, closed-end management
investment company with no operating history.
Investment And Market Discount Risk. An
investment in the Fund's common shares is
subject to investment risk, including the
possible loss of the entire amount that you
invest. Your investment in common shares
represents an indirect investment in the
securities owned by the Fund, substantially
all of which are traded on securities
exchanges or in the over-the-counter markets.
The value of these securities, like other
market investments, may move up or down,
sometimes rapidly and unpredictably. Your
common shares at any point in time may be
worth less than what you invested, even after
taking into account the reinvestment of Fund
dividends and distributions. In addition,
shares of closed-end management investment
companies frequently trade at a discount from
their net asset value. This risk may be
greater for investors expecting to sell their
shares of the Fund soon after completion of
the public offering. The shares of the Fund
were designed primarily for long-term
investors, and investors in the common shares
should not view the Fund as a vehicle for
trading purposes.
Convertible Securities Risk. The Fund is not
limited in the percentage of its assets that
may be invested in convertible securities.
Convertible securities generally offer lower
interest or dividend yields than
non-convertible securities of similar quality.
The market values of convertible securities
tend to decline as interest rates increase
and, conversely, to increase as interest rates
decline. However, the convertible security's
market value tends to reflect the market price
of the common stock of the issuing company
when that stock price is greater than the
convertible's "conversion price." The
conversion price is defined as the
predetermined price at which the convertible
security could be exchanged for the associated
stock. As the market price of the underlying
common stock declines (other than in
distressed situations), the price of the
convertible security tends to be influenced
more by the yield of the convertible security.
Thus, it may not decline in price to the same
extent as the underlying common stock. In the
event of a liquidation of the issuing company,
holders of convertible securities would
generally be paid after the company's
creditors, but before the company's common
stockholders. Consequently, an issuer's
convertible securities generally entail more
risk than its debt securities, but less risk
than its common stock. See "Risks -
Convertible Securities Risk."
Synthetic Convertible Securities Risk. The
value of a synthetic convertible security will
respond differently to market fluctuations
than a convertible security because a
synthetic convertible security is composed of
two or more separate securities, each with its
own market value. In addition, if the value of
the underlying common stock or the level of
the index involved in the convertible
component falls below the exercise price of
the warrant or option, the warrant or option
may lose all value.
Equity Securities Risk. The Fund is not
limited in the percentage of its assets that
may be invested in common stocks and other
equity securities, and therefore a risk of
investing in the Fund is equity risk. Equity
risk is the risk that securities held by the
Fund will fall due to general market or
economic conditions, perceptions regarding the
industries in which the issuers of securities
held by the Fund participate, and the
particular circumstances and performance of
particular companies whose securities the Fund
holds. For example, an adverse event, such as
an unfavorable earnings report, may depress
the value of equity securities of an issuer
held by the Fund; the price of common stock of
an issuer may be particularly sensitive to
general movements in the stock market; or a
drop in the stock market may depress the price
of most or all of the common stocks and other
equity securities held by the Fund. In
addition, common stock of an issuer in the
Fund's portfolio may decline in price if the
issuer fails to make anticipated dividend
payments because, among other reasons, the
issuer of the security experiences a decline
in its financial condition. Common equity
securities in which the Fund will invest are
structurally subordinated to preferred stocks,
bonds and other debt instruments in a
company's capital structure, in terms of
priority to corporate income, and therefore
will be subject to greater dividend risk than
preferred stocks or debt instruments of such
issuers. In addition, while broad market
measures of commons stocks have historically
generated higher average returns than fixed
income securities, common stocks have also
experienced significantly more volatility in
those returns. See "Risks - Equity Securities
Risk."
Lower Grade Securities Risk. Investing in
lower grade securities involves additional
risks, including credit risk. Credit risk is
the risk that one or more securities in the
Fund's portfolio will decline in price, or
fail to pay interest or principal when due,
because the issuer of the security experiences
a decline in its financial status. The Fund
may invest an unlimited portion of its Managed
Assets in securities rated Ba/BB or lower at
the time of investment or that are unrated but
judged to be of comparable quality by the
Investment Manager. These securities may
become the subject of bankruptcy proceedings
or otherwise subsequently default as to the
repayment of principal and/or payment of
interest or be downgraded to ratings in the
lower rating categories (Ca or lower by
Moody's or CC or lower by Standard & Poor's).
Securities rated BB or Ba or lower are
commonly referred to as "junk bonds." The
value of these securities is affected by the
creditworthiness of the issuers of the
securities and by general economic and
specific industry conditions. Issuers of lower
grade securities are not perceived to be as
strong financially as those with higher credit
ratings, so the securities are usually
considered speculative investments. These
issuers are generally more vulnerable to
financial setbacks and recession than more
creditworthy issuers which may impair their
ability to make interest and principal
payments. Lower grade securities tend to be
less liquid than higher grade securities. See
"Risks-Lower Grade Securities Risk."
Leverage Risk. Although the use of leverage by
the Fund may create an opportunity for
increased return for the common shares, it
also results in additional risks and can
magnify the effect of any losses. If the
income and gains earned on securities
purchased with leverage proceeds are greater
than the cost of the leverage, the common
shares' return will be greater than if
leverage had not been used. Conversely, if the
income or gains from the securities purchased
with such proceeds does not cover the cost of
leverage, the return to the common shares will
be less than if leverage had not been used.
There is no assurance that a leveraging
strategy will be successful. Leverage involves
risks and special considerations for common
shareholders including:
o the likelihood of greater volatility
of net asset value and market price of
the common shares than a comparable
portfolio without leverage;
o the risk that fluctuations in interest
rates on borrowings and short-term
debt or in the dividend rates on any
Preferred Shares that the Fund may pay
will reduce the return to the common
shareholders or will result in
fluctuations in the dividends paid on
the common shares;
o the effect of leverage in a declining
market, which is likely to cause a
greater decline in the net asset value
of the common shares than if the Fund
were not leveraged, which may result
in a greater decline in the market
price of the common shares; and
o when the Fund uses financial leverage,
the investment advisory fee payable to
the Advisor and the management fee
payable to the Investment Manager will
be higher than if the Fund did not use
leverage.
The Investment Manager and the Advisor, in
their judgment, nevertheless may determine to
continue to use leverage if they expect that
the benefits to the Fund's shareholders of
maintaining the leveraged position will
outweigh the current reduced return.
Certain types of leverage may result in the
Fund being subject to covenants relating to
asset coverage and Fund composition
requirements. The Fund may be subject to
certain restrictions on investments imposed by
guidelines of one or more rating agencies,
which may issue ratings for the Preferred
Shares or other leverage securities issued by
the Fund. These guidelines may impose asset
coverage or Fund composition requirements that
are more stringent than those imposed by the
Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Investment
Manager does not believe that these covenants
or guidelines will impede it from managing the
Fund's portfolio in accordance with the Fund's
investment objective and policies.
Interest Rate Risk. In addition to the risks
discussed above, convertible securities and
non-convertible income securities, including
high yield and other lower grade securities,
are subject to certain risks, including:
o if interest rates go up, the value of
convertible securities and
non-convertible income securities in
the Fund's portfolio generally will
decline;
o during periods of declining interest
rates, the issuer of a security may
exercise its option to prepay
principal earlier than scheduled,
forcing the Fund to reinvest in lower
yielding securities. This is known as
call or prepayment risk. Lower grade
securities have call features that
allow the issuer to repurchase the
security prior to its stated maturity.
An issuer may redeem a lower grade
security if the issuer can refinance
the security at a lower cost due to
declining interest rates or an
improvement in the credit standing of
the issuer; and
o during periods of rising interest
rates, the average life of certain
types of securities may be extended
because of slower than expected
principal payments. This may lock in a
below market interest rate, increase
the security's duration (the estimated
period until the security is paid in
full) and reduce the value of the
security. This is known as extension
risk.
Credit Risk. Credit Risk is the risk that an
issuer of a security will become unable to
meet its obligation to make interest and
principal payments. In general, lower rated
securities carry a greater degree of risk that
the issuer will lose its ability to make
interest and principal payments, which could
have a negative impact on the Fund's net asset
value or dividends. The Fund may invest
without limit in lower rated securities. These
securities are subject to a greater risk of
default. The prices of these lower grade
securities are more sensitive to negative
developments, such as a decline in the
issuer's revenues or a general economic
downturn, than are the prices of higher grade
securities. Lower grade securities tend to be
less liquid than investment grade securities.
The market values of lower grade securities
tend to be more volatile than investment grade
securities.
Call Risk. If interest rates fall, it is
possible that issuers of callable bonds with
high interest coupons will "call" (or prepay)
their bonds before their maturity date. If a
call were exercised by the issuer during a
period of declining interest rates, the Fund
is likely to have to replace such called
security with a lower yielding security. If
that were to happen, it would decrease the
Fund's net investment income.
Illiquid Investments. The Fund may invest
without limit in illiquid securities. The Fund
may also invest without limit in Rule 144A
Securities. Although many of the Rule 144A
Securities in which the Fund invests may be,
in the view of the Investment Manager, liquid,
if qualified institutional buyers are
unwilling to purchase these Rule 144A
Securities, they may become illiquid. Illiquid
securities may be difficult to dispose of at a
fair price at the times when the Fund believes
it is desirable to do so. The market price of
illiquid securities generally is more volatile
than that of more liquid securities, which may
adversely affect the price that the Fund pays
for or recovers upon the sale of illiquid
securities. Illiquid securities are also more
difficult to value and the Investment
Manager's judgment may play a greater role in
the valuation process. Investment of the
Fund's assets in illiquid securities may
restrict the Fund's ability to take advantage
of market opportunities. The risks associated
with illiquid securities may be particularly
acute in situations in which the Fund's
operations require cash and could result in
the Fund borrowing to meet its short-term
needs or incurring losses on the sale of
illiquid securities.
Foreign Securities Risk. Investments in
non-U.S. issuers may involve unique risks
compared to investing in securities of U.S.
issuers. These risks are more pronounced to
the extent that the Fund invests a significant
portion of its non-U.S investments in one
region or in the securities of emerging market
issuers. These risks may include:
o less information about non-U.S.
issuers or markets may be available
due to less rigorous disclosure or
accounting standards or regulatory
practices;
o many non-U.S. markets are smaller,
less liquid and more volatile. In a
changing market, the Investment
Manager may not be able to sell the
Fund's portfolio securities at times,
in amounts and at prices it considers
desirable;
o an adverse effect of currency exchange
rates or controls on the value of the
Fund's investments;
o the economies of non-U.S. countries
may grow at slower rates than expected
or may experience a downturn or
recession; economic, political and
social developments may adversely
affect the securities markets; and
o withholding and other non-U.S. taxes
may decrease the Fund's return.
See "Risks-Foreign Securities Risk."
Emerging Markets Risk. Investing in securities
of issuers based in underdeveloped emerging
markets entails all of the risks of investing
in securities of foreign issuers to a
heightened degree. These heightened risks
include: (i) greater risks of expropriation,
confiscatory taxation, nationalization, and
less social, political and economic stability;
(ii) the smaller size of the market for such
securities and a lower volume of trading,
resulting in lack of liquidity and in price
volatility; and (iii) certain national
policies which may restrict the Trust's
investment opportunities including
restrictions on investing in issuers or
industries deemed sensitive to relevant
national interests.
Currency Risks. The value of the securities
denominated or quoted in foreign currencies
may be adversely affected by fluctuations in
the relative currency exchange rates and by
exchange control regulations. The Fund's
investment performance may be negatively
affected by a devaluation of a currency in
which the Fund's investments are denominated
or quoted. Further, the Fund's investment
performance may be significantly affected,
either positively or negatively, by currency
exchange rates because the U.S. dollar value
of securities denominated or quoted in another
currency will increase or decrease in response
to changes in the value of such currency in
relation to the U.S. dollar.
Management Risk. The Investment Manager's
judgment about the attractiveness, relative
value or potential appreciation of a
particular sector, security or investment
strategy may prove to be incorrect, and there
can be no assurance that the investment
decisions made by the Investment Manager will
prove beneficial to the Fund. Although certain
members of the investment team at the
Investment Manager have experience managing
dividend-paying equity securities, high yield
debt securities and other income securities,
the Investment Manager, as an entity, has
limited experience managing such securities.
The Advisor has a limited history advising
registered investment companies such as the
Fund, although the principals of the Advisor
have experience servicing regulated investment
companies and providing packaged products to
advisors and their clients.
Strategic Transactions. The Fund may use
various other investment management techniques
that also involve certain risks and special
considerations, including engaging in hedging
and risk management transactions, including
interest rate and foreign currency
transactions, options, futures, swaps, caps,
floors, and collars and other derivatives
transactions. These strategic transactions
will not be made for speculative purposes but
will be entered into to seek to manage the
risks of the Fund's portfolio of securities,
but may have the effect of limiting the gains
from favorable market movements.
Inflation Risk. Inflation risk is the risk
that the value of assets or income from
investments will be worth less in the future
as inflation decreases the value of money. As
inflation increases, the real value of the
Fund's common shares and distributions thereon
can decline. In addition, during any periods
of rising inflation, the interest or dividend
rates payable by the Fund on any leverage the
Fund may have issued would likely increase,
which would tend to further reduce returns to
holders of the Fund's common shares.
Anti-Takeover Provisions. The Fund's Agreement
and Declaration of Trust includes provisions
that could limit the ability of other entities
or persons to acquire control of the Fund or
convert the Fund to open-end status. These
provisions could deprive the holders of common
shares of opportunities to sell their common
shares at a premium over the then current
market price of the common shares or at net
asset value. In addition, if the Fund issues
Preferred Shares, the holders of the Preferred
Shares will have voting rights that could
deprive holders of common shares of such
opportunities.
Market Disruption Risk. The terrorist attacks
in the U.S. on September 11, 2001 had a
disruptive effect on the securities markets.
The war in Iraq also has resulted in recent
market volatility and may have long-term
effects on the U.S. and worldwide financial
markets and may cause further economic
uncertainties in the U.S. and worldwide. The
Fund cannot predict the effects of the war or
similar events in the future on the U.S.
economy and securities markets.
Certain Other Risks. An investment in the Fund
is subject to certain other risks described in
the "Risks" section of this prospectus
beginning on page .
Administrator, Custodian
and Transfer Agent............The Bank of New York will serve as the Fund's
Administrator, Custodian and Transfer Agent
(the "Administrator," "Custodian" and
"Transfer Agent," as the context requires)
pursuant to various agreements between the
Fund and The Bank of New York. See
"Administrator, Custodian and Transfer Agent."
SUMMARY OF FUND EXPENSES
The purpose of the table below is to help you understand all fees and
expenses that you, as a holder of the Fund's common shares, would bear
directly or indirectly. The following table assumes the issuance of Preferred
Shares in an amount equal to 33% of the Fund's Managed Assets (after their
issuance), and shows Fund expenses as a percentage of net assets attributable
to common shares.
Shareholder Transaction Expenses
----------------------------------------------------
Sales Load Paid by You (as a percentage of
offering price).................... %(1)
Organizational and Offering Expense
Borne by the Fund (as a percentage
of offering price)(2) %
Dividend Reinvestment Plan Fees.......... None(3)
Percentage of Net
Assets Attributable
to Common Shares
(Assumes Preferred Shares
Are Issued)(4)
-------------------------------
Annual Expenses
Management Fees(5)...................... %
Other Expenses.......................... %(6)
Total Annual Expenses................... %
_______________
(1) The Fund has also agreed to pay the underwriters $.0067 per common share
as a partial reimbursement of expenses incurred in connection with the
offering. Separately, Claymore Advisors, LLC has retained Merrill Lynch,
Pierce, Fenner & Smith Incorporated and A.G. Edwards & Sons, Inc. to
provide, as may reasonably be requested by Claymore Advisors, LLC from
time to time, certain consulting and after-market shareholder support
services. In connection with these services, Merrill Lynch, Pierce,
Fenner & Smith will receive from Claymore Advisors, LLC an annual fee
equal to % of the Fund's Managed Assets and A.G. Edwards & Sons, Inc.
will receive from Claymore Advisors, LLC an annual fee equal to % of the
Fund's Managed Assets; provided, however, that such fees, together with
the partial reimbursement of expenses to the underwriters discussed
above and the fee paid to Claymore Securities, Inc. discussed in
footnote 2 below, shall not exceed 4.5% of the total price to the public
of the common shares sold in this offering. See "Underwriting."
(2) Claymore Advisors, LLC and Advent Capital Management, LLC have agreed to
pay organizational and offering expenses of the Fund (other than the
sales load, but including the $.0067 per common share partial
reimbursement of expenses to the underwriters) that exceed $.04 per
common share ( % of the offering price). To the extent that aggregate
organizational and offering expenses are less than $.04 per common
share, up to .10% of the amount of the offering up to such expense limit
will be paid to Claymore Securities, Inc. as compensation for the
distribution services it provides to the Fund. See "Underwriting."
(3) You will pay brokerage charges if you direct the Plan Agent (as defined
below) to sell your common shares held in a dividend reinvestment account.
(4) The table presented below in this footnote estimates what the Fund's
annual expenses would be stated as percentages of the Fund's net assets
attributable to common shares. This table assumes the Fund is the same
size as in the table above, but unlike the table above, assumes that no
Preferred Shares are issued and no other leverage is used. This will be
the case, for instance, prior to the Fund's expected issuance of
Preferred Shares. In accordance with these assumptions, the Fund's
expenses would be estimated to be as follows:
Percentage of Net Assets
Attributable to Common
Shares (Assumes No
Preferred Shares Are Issued and No
Other Leverage Is Used)
--------------------------------------
Annual Expenses
Management Fees(4)............... 1.00%
Other Expenses................... %
Total Annual Expenses............ %
(5) Represents the aggregate fee payable to the Advisor and Investment
Manager.
(6) If the Fund offers Preferred Shares, costs of that offering, estimated
to be approximately 1.25% of the total dollar amount of the Preferred
Share offering, will be borne immediately by Common Shareholders and
result in a reduction of the net asset value of the Common Shares.
Assuming the issuance of Preferred Shares in an amount equal to 33% of
the Fund's capital (after their issuance), these offering costs are
estimated to be approximately $ or $ per common share ( % of the
offering price). These offering costs are not included among the
expenses shown in this table.
The purpose of the table above and the example below is to help you
understand all fees and expenses that you, as a holder of common shares, would
bear directly or indirectly. The expenses shown in the table under "Other
Expenses" and "Net Annual Expenses" are based on estimated amounts for the
Fund's first full year of operations and assume that the Fund issues
common shares. If the Fund issues fewer common shares, all other
things being equal, these expenses would increase. See "Management of the
Fund" and "Dividend Reinvestment Plan."
The following example illustrates the expenses (including the sales
load of $ , estimated offering expenses of this offering of $ and the
estimated offering costs of issuing Preferred Shares assuming the Fund issues
Preferred Shares representing 33% of the Fund's capital (after their issuance)
of $ ) that you would pay on a $1,000 investment in common shares, assuming
(1) total net annual expenses of % of net assets attributable to common shares
in years 1 through 5 and (2) a 5% annual return:(1)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Total Expenses Incurred....... $ $ $ $
_______________
(1) The example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those assumed. The
example assumes that the estimated "Other Expenses" set forth in the
Annual Expenses table are accurate, that fees and expenses increase as
described in note 2 below and that all dividends and distributions are
reinvested at net asset value. Moreover, the Fund's actual rate of
return may be greater or less than the hypothetical 5% return shown in
the example.
THE FUND
The Fund is a newly organized, diversified, closed-end management
investment company registered under the Investment Company Act. The Fund was
organized as a Delaware statutory trust on January 30, 2004, pursuant to an
Agreement and Declaration of Trust governed by the laws of the State of
Delaware. As a newly organized entity, the Fund has no operating history. The
Fund's principal office is located at 210 N. Hale Street, Wheaton, Illinois
60187, and its telephone number is (630) 784-6300.
USE OF PROCEEDS
The net proceeds of the offering of common shares will be
approximately $ ($ if the underwriters exercise the over allotment option in
full) after payment of the estimated organizational and offering costs. The
Fund will invest the net proceeds of the offering in accordance with the
Fund's investment objective and policies as stated below. We currently
anticipate that the Fund will be able to invest primarily in convertible
securities, equity securities and high yield securities of U.S. and non-U.S.
issuers that meet the Fund's investment objective and policies within
approximately three months after the completion of the offering. Pending
investment in convertible securities, equity securities and high yield
securities of U.S. and non-U.S. issuers that meet the Fund's investment
objective and policies, the net proceeds of the offering will be invested in
high quality, short-term fixed income securities and money market securities
to the extent such securities are available.
THE FUND'S INVESTMENTS
Investment Objective and Policies
The Fund's investment objective is to provide total return through a
combination of capital appreciation and current income. There can be no
assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund will invest at least 55% of
its Managed Assets in a diversified portfolio of equity securities and
convertible securities of U.S. and non-U.S. issuers. It is anticipated that up
to 45% of the Fund's Managed Assets will be invested in non-convertible high
yield securities and that, initially, approximately 25% of the Fund's Managed
Assets will be invested in securities issued by non-U.S. issuers. The portion
of the Fund's Managed Assets invested in convertible securities, equity
securities and non-convertible high yield securities, as well as the portion
invested in securities issued by U.S. and non-U.S. issuers, will vary from
time to time consistent with the Fund's investment objective, changes in
equity prices and changes in interest rates and other economic and market
factors. All of the Fund's Managed Assets may from time to time be invested in
lower grade securities. These are non-fundamental policies and may be changed
by the Board of Trustees of the Fund provided that shareholders are provided
with at least 60 days' prior written notice of any change as required by the
rules under the Investment Company Act. Percentage limitations described in
this prospectus are as of the time of investment by the Fund and could from
time to time not be complied with as a result of market value fluctuations of
the Fund's portfolio and other events.
Investment Philosophy and Process
General. The Fund's portfolio will be composed principally of the
following investments. A more detailed description of the Fund's investment
policies and restrictions and more detailed information about the Fund's
portfolio investments are contained in the Statement of Additional
Information.
Convertible Securities. Under normal market conditions, the Fund will
invest at least 55% of its Managed Assets in a diversified portfolio of equity
and convertible securities of U.S. and non-U.S. issuers. The Fund is not
limited in the percentage of its assets that can be invested in convertible
securities. A convertible security is a debt security or preferred stock that
is exchangeable for an equity security of the issuer at a predetermined price.
The common stock underlying convertible securities may be issued by a
different entity than the issuer of the convertible securities. Convertible
securities entitle the holder to receive interest payments paid on corporate
debt securities or the dividend preference on a preferred stock until such
time as the convertible security matures or is redeemed or until the holder
elects to exercise the conversion privilege. As a result of the conversion
feature, however, the interest rate or dividend preference on a convertible
security is generally less than would be the case if the securities were
issued in non-convertible form.
The value of convertible securities is influenced by both the yield
of non-convertible securities of comparable issuers and by the value of the
underlying common stock. The value of a convertible security viewed without
regard to its conversion feature (i.e., strictly on the basis of its yield) is
sometimes referred to as its "investment value." The investment value of the
convertible security typically will fluctuate inversely with changes in
prevailing interest rates. However, at the same time, the convertible security
will be influenced by its "conversion value," which is the market value of the
underlying common stock that would be obtained if the convertible security
were converted. Conversion value fluctuates directly with the price of the
underlying common stock.
If, because of a low price of the common stock, the conversion value
is substantially below the investment value of the convertible security, the
price of the convertible security is governed principally by its investment
value. If the conversion value of a convertible security increases to a point
that approximates or exceeds its investment value, the value of the security
will be principally influenced by its conversion value. A convertible security
will sell at a premium over its conversion value to the extent investors place
value on the right to acquire the underlying common stock while holding a
fixed income security. Holders of convertible securities have a claim on the
assets of the issuer prior to the common stockholders, but may be subordinated
to holders of similar non-convertible securities of the same issuer.
The Investment Manager typically applies a four-step approach when
buying and selling convertible securities for the Fund, which includes:
o screening the universe of convertible securities to identify
securities with attractive risk/ reward characteristics relative
to the underlying security;
o analyzing the creditworthiness of the issuer of the securities;
o analyzing the equity fundamentals of the convertible security's
underlying stock to determine its capital appreciation
potential; and
o monitoring the portfolio on a continual basis to determine
whether each security is maintaining its investment potential.
Synthetic Convertible Securities. The Fund may also invest in a
"synthetic" convertible security by combining separate securities that possess
the two principal characteristics of a true convertible security, i.e., an
income security ("income security component") and the right to acquire an
equity security ("convertible component"). The income security component is
achieved by investing in non-convertible income securities such as bonds,
preferred stocks and money market instruments. The convertible component is
achieved by investing in warrants or options to buy common stock at a certain
exercise price, or options on a stock index. The Fund may also purchase
synthetic securities created by other parties, typically investment banks,
including convertible structured notes. Different companies may issue the
income security and convertible components, which may be purchased separately
and at different times. The Fund's holdings of synthetic convertible
securities are considered convertible securities for purposes of the Fund's
policy to invest at least 55% of its Managed Assets in convertible securities
and equity securities.
Equity Securities. The Fund may invest without limit in equity
securities, including preferred equity securities, and anticipates having a
significant portion of its portfolio invested in dividend-paying equity
securities. Equity securities are securities of a corporation or other entity
that, in the case of common stocks, entitle the holder to a pro rata interest
in the profits of the corporation, if any, without preference over any other
class of securities, including the company's debt securities, preferred stock
and other senior equity securities or, in the case of preferred stocks, has a
preference over common stock in liquidation (and generally as to dividends as
well), but is subordinated to the liabilities of the issuer in all respects.
In making equity security selections, the Investment Manager seeks to invest
in equity securities that have a history of paying dividends. Although equity
securities have historically generated higher average total returns than fixed
income securities, equity securities have also experienced significantly more
volatility in those returns. An adverse event, such as an unfavorable earnings
report, may depress the value of a particular equity security held by the
Fund. Also, the price of equity securities, particularly common stocks, are
sensitive to general movements in the stock market. A drop in the stock market
may depress the price of equity securities held by the Fund.
Non-Convertible High Yield Securities. The Fund may invest up to 45%
of its Managed Assets in non-convertible high yield securities, i.e., income
securities that are typically lower grade securities. The Fund's investments
in non-convertible high yield securities may have fixed or variable principal
payments and all types of interest rate and dividend payment and reset terms,
including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment in kind and auction rate features as well as a broad range of
maturities.
The Investment Manager typically applies a research approach that is
similar to its approach for convertible securities when buying and selling
non-convertible high yield securities for the Fund, which includes:
o analyzing the creditworthiness of the security, with an emphasis
on the issuing company's cash flow, interest coverage, balance
sheet structure, and assets, and assessment of the subordination
of the security within the capital structure;
o analyzing the business fundamentals of the issuing company; and
o monitoring the portfolio on a continual basis to determine
whether each security is maintaining its investment potential.
Lower Grade Securities. The Fund may invest all of its assets in
securities rated below investment grade, such as those rated Ba or lower by
Moody's and BB or lower by S&P or securities comparably rated by other rating
agencies or in unrated securities determined by the Investment Manager to be
of comparable quality. Lower grade securities are commonly referred to as
"junk bonds." Securities rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate. Securities
rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability
to default than other speculative grade securities, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. Securities rated C by Moody's are regarded as having
extremely poor prospects of ever attaining any real investment standing.
Securities rated D by S&P are in default and the payment of interest and/or
repayment of principal is in arrears. Although the Fund will not invest in
securities that, at the time of purchase by the Fund, are rated below CCC by
S&P, rated below Caa by Moody's or unrated securities determined by the
Investment Manager to be of comparable quality, the Fund may hold securities
whose ratings are downgraded, subsequent to the time of purchase of such
securities by the Fund, to a rating in the lower ratings categories (CC or
lower by S&P or Ca or lower by Moody's). When the Investment Manager believes
it to be in the best interests of the Fund's shareholders, the Fund will
reduce its investment in lower grade securities and, in certain market
conditions, the Fund may invest none of its assets in lower grade securities.
Lower grade securities, though high yielding, are characterized by
high risk. They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated securities. The secondary market for lower grade securities may be less
liquid than that of higher rated securities. Adverse conditions could make it
difficult at times for the Fund to sell lower grade securities or could result
in lower prices than those used in calculating the Fund's net asset value. See
"Risks-Lower Grade Securities."
The prices of debt securities generally are inversely related to
interest rate changes; however, the price volatility caused by fluctuating
interest rates of securities also is inversely related to the coupon of such
securities. Accordingly, lower grade securities may be relatively less
sensitive to interest rate changes than higher quality securities of
comparable maturity, because of their higher coupons. The higher coupon is
what the investor receives in return for bearing greater credit risk. The
higher credit risk associated with lower grade securities potentially can have
a greater effect on the value of such securities than may be the case with
higher quality issues of comparable maturity, and will be a substantial factor
in the Fund's relative share price volatility. Lower grade securities may be
particularly susceptible to economic downturns. It is likely that an economic
recession could disrupt severely the market for such securities and may have
an adverse impact on the value of such securities. In addition, it is likely
that any such economic downturn could adversely affect the ability of the
issuers of such securities to repay principal and pay interest thereon and
increase the incidence of default for such securities.
The ratings of Moody's, S&P and the other rating agencies are their
opinions as to the quality of the obligations which they undertake to rate.
Ratings are relative and subjective and, although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, the Investment
Manager also will independently evaluate these securities and the ability of
the issuers of such securities to pay interest and principal. To the extent
that the Fund invests in lower grade securities that have not been rated by a
rating agency, the Fund's ability to achieve its investment objective will be
more dependent on the Investment Manager's credit analysis than would be the
case when the Fund invests in rated securities.
The Fund will not invest in securities which are in default as to
payment of principal and interest at the time of purchase. However, securities
held by the Fund may become the subject of bankruptcy proceedings or otherwise
default. The Fund may be required to bear certain extraordinary expenses in
order to protect and recover its investment.
Foreign Securities. The Fund will invest a portion of its Managed
Assets in securities of foreign issuers, including debt and equity securities
of corporate issuers, and in debt securities of government issuers in
developed and emerging markets. A foreign issuer is a company organized under
the laws of a foreign country that is principally traded in the financial
markets of a foreign country. The Fund anticipates that, initially,
approximately 25% of its Managed Assets will be invested in securities issued
by foreign issuers.
Rule 144A Securities. The Fund may invest without limit in securities
that have not been registered for public sale, but that are eligible for
purchase and sale by certain qualified institutional buyers.
Other Investment Companies. The Fund may invest in the securities of
other investment companies to the extent that such investments are consistent
with the Fund's investment objective and policies and permissible under the
Investment Company Act. Under the Investment Company Act, the Fund may not
acquire the securities of other investment companies if, as a result, (1) more
than 10% of the Fund's total assets would be invested in securities of other
investment companies, (2) such purchase would result in more than 3% of the
total outstanding voting securities of any one investment company being held
by the Fund or (3) more than 5% of the Fund's total assets would be invested
in any one investment company. These limitations do not apply to the purchase
of shares of any investment company in connection with a merger,
consolidation, reorganization or acquisition of substantially all the assets
of another investment company.
The Fund, as a holder of the securities of other investment
companies, will bear its pro rata portion of the other investment companies'
expenses, including advisory fees. These expenses are in addition to the
direct expenses of the Fund's own operations.
Strategic Transactions. The Fund may, but is not required to, use
various strategic transactions described below to generate total return,
facilitate portfolio management and mitigate risks. Such strategic
transactions are generally accepted as part of modern portfolio management and
are regularly used by many mutual funds and other institutional investors.
Although the Investment Manager seeks to use the practices to further the
Fund's investment objective, no assurance can be given that these practices
will achieve this result.
The Fund may purchase and sell derivative instruments such as
exchange-listed and over-the-counter put and call options on securities,
financial futures, equity, fixed-income and interest rate indices, and other
financial instruments, purchase and sell financial futures contracts and
options thereon, enter into various interest rate transactions such as swaps,
caps, floors or collars and enter into various currency transactions such as
currency forward contracts, currency futures contracts, currency swaps or
options on currency or currency futures or credit transactions and credit
default swaps. The Fund also may purchase derivative instruments that combine
features of these instruments and purchase securities for delayed settlement.
Collectively, all of the above are referred to as "Strategic Transactions."
The Fund generally seeks to use Strategic Transactions as a portfolio
management or hedging technique to seek to protect against possible adverse
changes in the market value of securities held in or to be purchased for the
Fund's portfolio, protect the value of the Fund's portfolio, facilitate the
sale of certain securities for investment purposes, manage the effective
interest rate exposure of the Fund, protect against changes in currency
exchange rates, manage the effective maturity or duration of the Fund's
portfolio, or establish positions in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. The Fund may use
Strategic Transactions to enhance potential gain, although the Fund will not
enter into a Strategic Transaction to the extent such Strategic Transaction
would cause the Fund to become subject to regulation by the Commodity Futures
Trading Commission as a commodity pool.
Strategic Transactions have risks, including the imperfect
correlation between the value of such instruments and the underlying assets,
the possible default of the other party to the transaction or illiquidity of
the derivative instruments. Furthermore, the ability to successfully use
Strategic Transactions depends on the Investment Manager's ability to predict
pertinent market movements, which cannot be assured. Thus, the use of
Strategic Transactions may result in losses greater than if they had not been
used, may require the Fund to sell or purchase portfolio securities at
inopportune times or for prices other than current market values, may limit
the amount of appreciation the Fund can realize on an investment, or may cause
the Fund to hold a security that it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of the
imposition of exchange controls, suspension of settlements or the inability of
the Fund to deliver or receive a specified currency. Additionally, amounts
paid by the Fund as premiums and cash or other assets held in margin accounts
with respect to Strategic Transactions are not otherwise available to the Fund
for investment purposes. The use of leverage by the Fund may limit the Fund's
ability to use Strategic Transactions. See "Risks-Leverage Risk."
A more complete discussion of Strategic Transactions and their risks
is contained in the Fund's Statement of Additional Information.
Defensive And Temporary Investments. Under unusual market or economic
conditions or for temporary defensive purposes, the Fund may invest up to 100%
of its total assets in securities issued or guaranteed by the U.S. government
or its instrumentalities or agencies, certificates of deposit, bankers'
acceptances and other bank obligations, commercial paper rated in the highest
category by a nationally recognized statistical rating organization or other
fixed income securities deemed by the Investment Manager to be consistent with
a defensive posture, or may hold cash, including money market funds. During
such periods, the Fund may not be able to achieve its investment objective.
The yield on such securities may be lower than that of other investments, but
the risk of loss of capital is reduced.
Repurchase Agreements. The Fund may enter into repurchase agreements
with broker-dealers, member banks of the Federal Reserve System and other
financial institutions. Repurchase agreements are arrangements under which the
Fund purchases securities and the seller agrees to repurchase the securities
within a specific time and at a specific price. The repurchase price is
generally higher than the Fund's purchase price, with the difference being
income to the Fund. The counterparty's obligations under the repurchase
agreement are collateralized with U.S. Treasury and/or agency obligations with
a market value of not less than 100% of the obligations, valued daily.
Collateral is held by the Fund's custodian in a segregated, safekeeping
account for the benefit of the Fund. Repurchase agreements afford the Fund an
opportunity to earn income on temporarily available cash at low risk. In the
event of commencement of bankruptcy or insolvency proceedings with respect to
the seller of the security before repurchase of the security under a
repurchase agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Such a delay may involve loss of interest or
a decline in price of the security. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the security,
the Fund may be required to return the security to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or all of the principal and interest
involved in the transaction.
Lending Of Portfolio Securities. The Fund may lend portfolio
securities to registered broker-dealers or other institutional investors
deemed by the Investment Manager to be of good standing under agreements which
require that the loans be secured continuously by collateral in cash, cash
equivalents or U.S. Treasury bills maintained on a current basis at an amount
at least equal to the market value of the securities loaned. The Fund
continues to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned as well as the benefit of an increase and the
detriment of any decrease in the market value of the securities loaned and
would also receive compensation based on investment of the collateral. The
Fund would not, however, have the right to vote any securities having voting
rights during the existence of the loan, but would call the loan in
anticipation of an important vote to be taken among holders of the securities
or of the giving or withholding of consent on a material matter affecting the
investment.
As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. At no time would the value of the securities
loaned exceed 35% of the value of the Fund's total assets.
Portfolio Turnover. It is the policy of the Fund not to engage in
trading for short-term profits although portfolio turnover rate is not
considered a limiting factor in the execution of investment decisions for the
Fund.
The Fund's portfolio will be composed principally of the foregoing
investments. A more detailed description of the Fund's investment policies and
restrictions and more detailed information about the Fund's portfolio
investments are contained in the Statement of Additional Information.
BORROWINGS AND PREFERRED SHARES
The Fund anticipates that under current market conditions it will
offer Preferred Shares representing no more than 33% of its Managed Assets
immediately after the issuance of the Preferred Shares. The Preferred Shares
would have complete priority upon distribution of assets over common shares.
The issuance of Preferred Shares would leverage the common shares. Although
the timing and other terms of the offering of Preferred Shares and the terms
of the Preferred Shares would be determined by the Fund's Board of Trustees,
the Fund expects to invest the proceeds of any Preferred Shares offering in
convertible securities and intermediate and long-term non-convertible income
securities. The Preferred Shares will pay adjustable rate dividends based on
shorter-term interest rates, which would be redetermined periodically by an
auction process. The adjustment period for Preferred Shares dividends could be
as short as one day or as long as a year or more. So long as the Fund's
portfolio is invested in securities that provide a higher rate of return than
the dividend rate of the Preferred Shares, after taking expenses into
consideration, the leverage will cause you to receive a higher rate of income
than if the Fund were not leveraged.
The concept of leveraging is based on the premise that the cost of
the assets to be obtained from leverage will be based on short term rates,
which normally will be lower than the return earned by the Fund on its longer
term portfolio investments. Because the total assets of the Fund (including
the assets obtained from leverage) will be invested in the higher yielding
portfolio investments or portfolio investments with the potential for total
return, the holders of common shares will normally be the beneficiaries of the
incremental return. Should the differential between the return on the
underlying assets and cost of leverage narrow, the incremental return
"pick-up" will be reduced. Furthermore, if long term rates rise, the net asset
value of the common shares will reflect the decline in the value of portfolio
holdings resulting therefrom.
Leverage creates risk for holders of the common shares, including the
likelihood of greater volatility of net asset value and market price of the
shares, and the risk that fluctuations in interest rates in borrowings and
debt or in the dividend rates on any preferred stock may affect the return to
the holders of the shares or will result in fluctuations in the dividends paid
on the common shares. To the extent total return exceeds the cost of leverage,
the Fund's return will be greater than if leverage had not been used.
Conversely, if the total return derived from securities purchased with funds
received from the use of leverage is less than the cost of leverage, the
Fund's return will be less than if leverage had not been used, and therefore
the amount available for distribution to common shareholders as dividends and
other distributions will be reduced. In the latter case, the Investment
Manager in its best judgment nevertheless may determine to maintain the Fund's
leveraged position if it expects that the benefits to the Fund's shareholders
of maintaining the leveraged position will outweigh the current reduced
return. The fees paid to the Advisor and the Investment Manager will be
calculated on the basis of the Managed Assets including proceeds from
borrowings for leverage and the issuance of Preferred Shares. During periods
in which the Fund is utilizing financial leverage, the investment advisory fee
payable to the Advisor and the management fee payable to the Investment
Manager will be higher than if the Fund did not utilize a leveraged capital
structure. The use of leverage creates risks and involves special
considerations. See "Risks-Leverage Risk."
Prior to issuing Preferred Shares, the Fund may utilize leverage by
borrowing funds from a bank or group of banks pursuant to a credit agreement.
Entering into a credit agreement (and utilizing certain other types of
leverage) may result in the Fund being subject to covenants in such credit
agreement relating to asset coverage and portfolio composition requirements.
The Fund may be subject to certain restrictions on investments imposed by
guidelines of one or more Rating Agencies, which may issue ratings for the
short term corporate debt securities or Preferred Shares issued by the Fund.
These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed by the Investment
Company Act. It is not anticipated that these covenants or guidelines will
impede the Investment Manager from managing the Fund's portfolio in accordance
with the Fund's investment objective and policies.
Under the Investment Company Act, the Fund is not permitted to issue
Preferred Shares unless immediately after such issuance the value of the
Fund's Managed Assets is at least 200% of the liquidation value of the
outstanding Preferred Shares (i.e., the liquidation value may not exceed 50%
of the Fund's Managed Assets). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on its common shares unless,
at the time of such declaration, the value of the Fund's Managed Assets is at
least 200% of such liquidation value. If Preferred Shares are issued, the Fund
intends, to the extent possible, to purchase or redeem Preferred Shares from
time to time to the extent necessary in order to maintain coverage of any
Preferred Shares of at least 200%. In addition, as a condition to obtaining
ratings on the Preferred Shares, the terms of any Preferred Shares issued are
expected to include asset coverage maintenance provisions which will require
the redemption of the Preferred Shares in the event of non-compliance by the
Fund and may also prohibit dividends and other distributions on the common
shares in such circumstances. In order to meet redemption requirements, the
Fund may have to liquidate portfolio securities. Such liquidations and
redemptions would cause the Fund to incur related transaction costs and could
result in capital losses to the Fund. Prohibitions on dividends and other
distributions on the common shares could impair the Fund's ability to qualify
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). If the Fund has Preferred Shares outstanding, two of the
Fund's trustees will be elected by the holders of such Preferred Shares,
voting separately as a single class. The remaining trustees of the Fund will
be elected by holders of common shares, Preferred Shares and any other senior
securities issued by the Fund, voting together as a single class. In the event
the Fund failed to pay dividends on Preferred Shares for two years, holders of
Preferred Shares would be entitled to elect a majority of the trustees of the
Fund, subject to the prior rights, if any, of the holders of any other class
of senior securities outstanding,. The Fund may also borrow money as a
temporary measure for extraordinary or emergency purposes, including the
payment of dividends and the settlement of securities transactions which
otherwise might require untimely dispositions of Fund securities.
Effects of Leverage
Assuming that the Preferred Shares will represent approximately 33%
of the Fund's capital and pay dividends at annual average rate of %, the
income generated by the Fund's portfolio (net of estimated expenses) must
exceed % in order to cover the dividend payments specifically related to the
Preferred Shares. Of course, these numbers are merely estimates used for
illustration. Actual dividend rates on the Preferred Shares will vary
frequently and may be significantly higher or lower than the rate estimated
above.
The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on common share total return, assuming investment portfolio total
returns (comprised of income and changes in the value of securities held in
the Fund's portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative
of the investment portfolio returns experienced or expected to be experienced
by the Fund. See "Risks." The table further reflects the issuance of Preferred
Shares representing 33% of the Fund's capital, net of expenses, and the Fund's
currently projected annual Preferred Share dividend or other leverage interest
rate of %.
Assumed Portfolio Total
Return (Net of Expense)............... (10)% (5)% 0% 5% 10%
Common Share Total Return............... ( )% ( )% ( )% % %
Common share total return is composed of two elements-the common
share dividends paid by the Fund (the amount of which is largely determined by
the net investment income of the Fund after paying dividends on its Preferred
Shares) and gains or losses on the value of the securities the Fund owns. The
table above assumes that the Fund is more likely to suffer capital losses than
to enjoy capital appreciation. For example, to assume a total return of 0% the
Fund must assume that the interest it receives on its debt security
investments is entirely offset by losses in the value of those bonds.
Unless and until Preferred Shares are issued, the common shares will
not be leveraged and this section will not apply.
RISKS
The Fund is a diversified, closed-end management investment company
designed primarily as a long-term investment and not as a trading vehicle. The
Fund is not intended to be a complete investment program and, due to the
uncertainty inherent in all investments, there can be no assurance that the
Fund will achieve its investment objective. Your common shares at any point in
time may be worth less than you invested, even after taking into account the
reinvestment of Fund dividends and distributions.
No Operating History. The Fund is a newly-organized, diversified
closed-end management investment company with no operating history.
Investment And Market Discount Risk. An investment in the Fund is
subject to investment risk, including the possible loss of the entire
principal amount that you invest. Your investment in common shares represents
an indirect investment in the securities owned by the Fund, substantially all
of which are traded on a national securities exchange or in the
over-the-counter markets. The value of these securities, like other market
investments, may move up or down, sometimes rapidly and unpredictably. Your
common shares at any point in time may be worth less than what you invested,
even after taking into account the reinvestment of Fund dividends and
distributions. In addition, shares of closed-end management investment
companies frequently trade at a discount from their net asset value.
This risk may be greater for investors expecting to sell their shares
of the Fund soon after completion of the public offering. The shares of the
Fund were designed primarily for long-term investors, and investors in the
common shares should not view the Fund as a vehicle for trading purposes. Net
asset value will be reduced following the offering by the underwriting
discount and the amount of offering expenses paid by the Fund.
Whether investors will realize a gain or loss upon the sale of the
Fund's common shares will depend upon whether the market value of the shares
at the time of sale is above or below the price the investor paid, taking into
account transaction costs, for the shares and is not directly dependent upon
the Fund's net asset value. Because the market value of the Fund's shares will
be determined by factors such as the relative demand for and supply of the
shares in the market, general market conditions and other factors beyond the
control of the Fund, the Fund cannot predict whether its common shares will
trade at, below or above net asset value, or below or above the initial
offering price for the shares.
Convertible Securities Risk. The Fund is not limited in the
percentage of its assets that may be invested in convertible securities.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. The market values of
convertible securities tend to decline as interest rates increase and,
conversely, to increase as interest rates decline. However, the convertible
security's market value tends to reflect the market price of the common stock
of the issuing company when that stock price is greater than the convertible's
"conversion price." The conversion price is defined as the predetermined price
at which the convertible security could be exchanged for the associated stock.
As the market price of the underlying common stock declines (other than in
distressed situations), the price of the convertible security tends to be
influenced more by the yield of the convertible security. Thus, it may not
decline in price to the same extent as the underlying common stock. In the
event of a liquidation of the issuing company, holders of convertible
securities would be paid after the company's creditors but before the
company's common stockholders. Consequently, the issuer's convertible
securities generally may be viewed as having more risk than its debt
securities, but less risk than its common stock.
Synthetic Convertible Securities Risk. The value of a synthetic
convertible security will respond differently to market fluctuations than a
convertible security because a synthetic convertible is composed of two or
more separate securities, each with its own market value. In addition, if the
value of the underlying common stock or the level of the index involved in the
convertible component falls below the exercise price of the warrant or option,
the warrant or option may lose all value.
Equity Securities Risk. The Fund is not limited in the percentage of
its assets that may be invested in common stocks and other equity securities,
and therefore a risk of investing in the Fund is equity risk. Equity risk is
the risk that the value of the securities held by the Fund will fall due to
general market and economic conditions, perceptions regarding the industries
in which the issuers of securities held by the Fund participate or factors
relating to specific companies in which the Fund invests. Stock of an issuer
in the Fund's portfolio may decline in price if the issuer fails to make
anticipated dividend payments because, among other reasons, the issuer of the
security experiences a decline in its financial condition. Common stock in
which the Fund will invest is structurally subordinated to preferred stock,
bonds and other debt instruments in a company's capital structure, in terms of
priority to corporate income, and therefore will be subject to greater
dividend risk than preferred stock or debt instruments of such issuers. In
addition, while common stock has historically generated higher average returns
than fixed income securities, common stock has also experienced significantly
more volatility in those returns. An adverse event, such as an unfavorable
earnings report, may depress the value of common stock of an issuer held by
the Fund. Also, the price of common stock of an issuer is sensitive to general
movements in the stock market. A drop in the stock market may depress the
price of most or all of the common stocks held by the Fund.
There are special risks associated with investing in preferred equity
securities, including:
Deferral. Preferred securities may include provisions that permit the
issuer, at its discretion, to defer distributions for a stated period without
any adverse consequences to the issuer. If the Fund owns a preferred security
that is deferring its distributions, the Fund may be required to report income
for tax purposes although it has not yet received such income.
Non-cumulative Dividends. Some preferred stocks are non-cumulative,
meaning that the dividends do not accumulate and need not ever be paid. A
portion of the portfolio may include investments in non-cumulative preferred
securities, whereby the issuer does not have an obligation to make up any
arrearages to its shareholders. Should an issuer of a non-cumulative preferred
stock held by the Fund determine not to pay dividends on such stock, the
amount of dividends the Fund pays may be adversely affected. There is no
assurance that dividends or distributions on non-cumulative preferred stocks
in which the Fund invests will be declared or otherwise made payable.
Subordination. Preferred securities are subordinated to bonds and
other debt instruments in a company's capital structure in terms of priority
to corporate income and liquidation payments, and therefore will be subject to
greater credit risk than more senior debt instruments.
Liquidity. Preferred securities may be substantially less liquid than
many other securities, such as common stocks or U.S. government securities.
Limited Voting Rights. Generally, preferred security holders (such as
the Fund) have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may have the right to elect a number
of directors to the issuer's board. Generally, once all the arrearages have
been paid, the preferred security holders no longer have voting rights.
Special Redemption Rights. In certain varying circumstances, an
issuer of preferred securities may redeem the securities prior to a specified
date. For instance, for certain types of preferred securities, a redemption
may be triggered by a change in federal income tax or securities laws. As with
call provisions, a redemption by the issuer may negatively impact the return
of the security held by the Fund.
Lower Grade Securities Risk. Investing in lower grade securities
involves additional risks, including credit risk. Credit risk is the risk that
one or more securities in the trust's portfolio will decline in price, or fail
to pay interest or principal when due, because the issuer of the security
experiences a decline in its financial status. The Fund may invest an
unlimited portion of its Managed Assets in securities rated Ba/BB or lower at
the time of investment or that are unrated but judged to be of comparable
quality by the Investment Manager. Lower grade securities are commonly
referred to as "junk bonds." The value of lower grade securities is affected
by the creditworthiness of the issuers of the securities and by general
economic and specific industry conditions. Issuers of lower grade securities
are not perceived to be as strong financially as those with higher credit
ratings, so the securities are usually considered speculative investments.
These issuers are generally more vulnerable to financial setbacks and
recession than more creditworthy issuers which may impair their ability to
make interest and principal payments. Lower grade securities tend to be less
liquid than if the Fund owned only higher grade securities.
Debt securities rated below investment grade are speculative with
respect to the capacity to pay interest and repay principal in accordance with
the terms of such securities. A rating of C from Moody's means that the issue
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing. Standard & Poor's assigns a rating of C to
issues that are currently highly vulnerable to nonpayment, and the C rating
may be used to cover a situation where a bankruptcy petition has been filed or
similar action taken, but payments on the obligation are being continued (a C
rating is also assigned to a preferred stock issue in arrears on dividends or
sinking fund payments, but that is currently paying). See the Statement of
Additional Information for a description of Moody's and Standard & Poor's
ratings.
The outstanding principal amount of lower grade securities has
proliferated in the past decade as an increasing number of issuers have used
lower grade securities for corporate financing. An economic downturn could
severely affect the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Similarly, down-turns
in profitability in specific industries could adversely affect the ability of
issuers of lower grade securities in those industries to meet their
obligations. The market values of lower grade debt securities tend to reflect
individual developments of the issuer to a greater extent that do higher
quality securities, which react primarily to fluctuations in the general level
of interest rates. Factors having an adverse impact on the market value of
lower grade securities may have an adverse effect on the Fund's net asset
value and the market value of its common shares. In addition, the Fund may
incur additional expenses to the extent it is required to seek recovery upon a
default in payment of principal or interest on its portfolio holdings. In
certain circumstances, the Fund may be required to foreclose on an issuer's
assets and take possession of its property or operations. In such
circumstances, the Fund would incur additional costs in disposing of such
assets and potential liabilities from operating any business acquired. If the
Fund holds a security the rating of which is downgraded to a rating of C or
below, the Fund will incur significant risk in addition to the risks
associated with investments in high yield securities and corporate loans.
Distressed securities frequently do not produce income while they are
outstanding.
The secondary market for lower grade securities may not be as liquid
as the secondary market for more highly rated securities, a factor which may
have an adverse effect on the Fund's ability to dispose of a particular
security when necessary to meet its liquidity needs. There are fewer dealers
in the market for lower grade securities than investment grade obligations.
The prices quoted by different dealers may vary significantly and the spread
between the bid and asked price is generally much larger than for higher
quality instruments. Under adverse market or economic conditions, the
secondary market for lower grade securities could contract further,
independent of any specific adverse changes in the condition of a particular
issuer, and these instruments may become illiquid. As a result, the Fund could
find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the
Fund's net asset value.
Since investors generally perceive that there are greater risks
associated with lower quality debt securities of the type in which the Fund
may invest a portion of its assets, the yields and prices of such securities
may tend to fluctuate more than those for higher rated securities. In the
lower quality segments of the debt securities market, changes in perceptions
of issuers' creditworthiness tend to occur more frequently and in a more
pronounced manner than do changes in higher quality segments of the debt
securities market, resulting in greater yield and price volatility.
Foreign Securities Risk. Investments in non-U.S. issuers may involve
unique risks compared to investing in securities of U.S. issuers. These risks
are more pronounced to the extent that the Fund invests a significant portion
of its non-U.S. investments in one region or in the securities of emerging
market issuers. These risks may include:
o less information about non-U.S. issuers or markets may be
available due to less rigorous disclosure or accounting
standards or regulatory practices;
o many non-U.S. markets are smaller, less liquid and more
volatile. In a changing market, the Investment Manager may not
be able to sell the Fund's portfolio securities at times, in
amounts and at prices it considers desirable;
o adverse effect of currency exchange rates or controls on the
value of the Fund's investments;
o the economies of non-U.S. countries may grow at slower rates
than expected or may experience a downturn or recession;
o economic, political and social developments may adversely affect
the securities markets; and
o withholding and other non-U.S. taxes may decrease the Fund's
return.
There may be less publicly available information about non-U.S.
markets and issuers than is available with respect to U.S. securities and
issuers. Non-U.S. companies generally are not subject to accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies. The trading markets for most non-U.S.
securities are generally less liquid and subject to greater price volatility
than the markets for comparable securities in the United States. The markets
for securities in certain emerging markets are in the earliest stages of their
development. Even the markets for relatively widely traded securities in
certain non-U.S. markets, including emerging market countries, may not be able
to absorb, without price disruptions, a significant increase in trading volume
or trades of a size customarily undertaken by institutional investors in the
United States. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity.
Economies and social and political climate in individual countries
may differ unfavorably from the United States. Non-U.S. economies may have
less favorable rates of growth of gross domestic product, rates of inflation,
currency valuation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Many countries have experienced substantial,
and in some cases extremely high, rates of inflation for many years. Inflation
and rapid fluctuations in inflation rates have had, and may continue to have,
very negative effects on the economies and securities markets of certain
emerging countries. Unanticipated political or social developments may also
affect the values of the Fund's investments and the availability to the Fund
of additional investments in such countries.
Emerging Markets Risk. Investing in securities of issuers based in
underdeveloped emerging markets entails all of the risks of investing in
securities of foreign issuers to a heightened degree. These heightened risks
include: (i) greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic stability; (ii) the
smaller size of the market for such securities and a lower volume of trading,
resulting in lack of liquidity and in price volatility; and (iii) certain
national policies which may restrict the Trust's investment opportunities
including restrictions on investing in issuers or industries deemed sensitive
to relevant national interests.
Currency Risks. The value of the securities denominated or quoted in
foreign currencies may be adversely affected by fluctuations in the relative
currency exchange rates and by exchange control regulations. The Fund's
investment performance may be negatively affected by a devaluation of a
currency in which the Fund's investments are denominated or quoted. Further,
the Fund's investment performance may be significantly affected, either
positively or negatively, by currency exchange rates because the U.S. dollar
value of securities denominated or quoted in another currency will increase or
decrease in response to changes in the value of such currency in relation to
the U.S. dollar.
Leverage Risk. Leverage risk is the risk associated with the
borrowing of funds and other investment techniques, including the issuance of
the Preferred Shares by the Fund, to leverage the common shares.
Leverage is a speculative technique which may expose the Fund to
greater risk and increase its costs. Increases and decreases in the value of
the Fund's portfolio will be magnified when the Fund uses leverage. For
example, leverage may cause greater swings in the Fund's net asset value or
cause the Fund to lose more than it invested. The Fund will also have to pay
interest or dividends on its leverage, reducing the Fund's return. This
expense may be greater than the Fund's return on the underlying investment.
There is no assurance that the Fund's leveraging strategy will be successful.
If leverage is employed, the net asset value and market value of the
common shares will be more volatile, and the yield to the holders of common
shares will tend to fluctuate with changes in the shorter-term interest rates
on the leverage. If the interest rate on the leverage approaches the net rate
of return on the Fund's investment portfolio, the benefit of leverage to the
holders of the common shares would be reduced. If the interest rate on the
leverage exceeds the net rate of return on the Fund's portfolio, the leverage
will result in a lower rate of return to the holders of common shares than if
the Fund were not leveraged. The Fund will pay (and the holders of common
shares will bear) any costs and expenses relating to any leverage.
Accordingly, the Fund can not assure you that the use of leverage would result
in a higher yield or return to the holders of the common shares.
Any decline in the net asset value of the Fund's investments will be
borne entirely by the holders of common shares which increases the risk of
loss to the common shares. Therefore, if the market value of the Fund's
portfolio declines, the leverage will result in a greater decrease in net
asset value to the holders of common shares than if the Fund were not
leveraged. This greater net asset value decrease will also tend to cause a
greater decline in the market price for the common shares. In extreme cases,
the Fund might be in danger of failing to maintain the required 200% asset
coverage, of losing its ratings on any Preferred Shares issued or the Fund's
current investment income might not be sufficient to meet the interest
payments on indebtedness or the dividend requirements on any Preferred Shares.
In order to counteract such events, the Fund might need to reduce its
indebtedness and to liquidate investments or to unwind Strategic Transactions
in order to fund a redemption of some or all of the Preferred Shares or to
comply with rating agency requirements.
Liquidation at times of low security prices may result in capital
losses and may reduce returns to the holders of common shares.
While the Investment Manager and the Advisor may from time to time
consider reducing the Fund's leverage in response to actual or anticipated
changes in interest rates in an effort to mitigate the increased volatility of
current income and net asset value associated with leverage, there can be no
assurance that the Investment Manager and the Advisor will actually reduce the
Fund's leverage in the future or that any reduction, if undertaken, will
benefit the holders of common shares. Changes in the future direction of
interest rates are very difficult to predict accurately. If the Investment
Manager were to reduce the Fund's leverage based on a prediction about future
changes to interest rates, and that prediction turned out to be incorrect, the
reduction in leverage would likely reduce the income and/or total returns to
holder of common shares relative to the circumstance where the Investment
Manager and the Advisor had not reduced the Fund's leverage. The Investment
Manager and the Advisor may decide that this risk outweighs the likelihood of
achieving the desired reduction to volatility in income and share price if the
prediction were to turn out to be correct, and determine not to reduce the
Fund's leverage as described above. When the Fund uses financial leverage, the
investment advisory fee payable to the Advisor and the management fee payable
to the Investment Manager will be higher than if the Fund did not use
leverage. Therefore, there may be a conflict of interest.
Certain types of borrowings by the Fund may result in the Fund being
subject to covenants in credit agreements relating to asset coverage and Fund
composition requirements. The Fund may be subject to certain restrictions on
investments imposed by guidelines of one or more rating agencies, which may
issue ratings for the Preferred Shares or other leverage securities issued by
the Fund. These guidelines may impose asset coverage or Fund composition
requirements that are more stringent than those imposed by the Investment
Company Act. The Investment Manager does not believe that these covenants or
guidelines will impede the Investment Manager from managing the Fund's
portfolio in accordance with the Fund's investment objective and policies.
Interest Rate Risk. Convertible securities and non-convertible income
securities, including high yield and other lower grade securities, are subject
to certain common risks, including:
o if interest rates go up, the value of convertible securities and
non-convertible securities in the Fund's portfolio generally
will decline;
o during periods of declining interest rates, the issuer of a
security may exercise its option to prepay principal earlier
than scheduled, forcing the Fund to reinvest in lower yielding
securities. This is known as call or prepayment risk. Lower
grade securities frequently have call features that allow the
issuer to repurchase the security prior to its stated maturity.
An issuer may redeem an obligation if the issuer can refinance
the security at a lower cost due to declining interest rates or
an improvement in the credit standing of the issuer; and
o during periods of rising interest rates, the average life of
certain types of securities may be extended because of slower
than expected principal payments. This may lock in a below
market interest rate, increase the security's duration (the
estimated period until the security is paid in full) and reduce
the value of the security. This is known as extension risk.
Credit Risk. Credit Risk is the risk that an issuer of a security
will become unable to meet its obligation to make interest and principal
payments. In general, lower rated securities carry a greater degree of risk
that the issuer will lose its ability to make interest and principal payments,
which could have a negative impact on the Fund's net asset value or dividends.
The Fund may invest without limit in lower rated securities. These securities
are subject to a greater risk of default. The prices of these lower grade
securities are more sensitive to negative developments, such as a decline in
the issuer's revenues or a general economic downturn, than are the prices of
higher grade securities. Lower grade securities tend to be less liquid than
investment grade securities. The market values of lower grade securities tend
to be more volatile than investment grade securities.
Call Risk. If interest rates fall, it is possible that issuers of
callable bonds with high interest coupons will "call" (or prepay) their bonds
before their maturity date. If a call were exercised by the issuer during a
period of declining interest rates, the Fund is likely to have to replace such
called security with a lower yielding security. If that were to happen, it
would decrease the Fund's net investment income.
Illiquid Investments. The Fund may invest without limit in illiquid
securities. The Fund may also invest without limitation in Rule 144A
Securities. Although many of the Rule 144A Securities in which the Fund
invests may be, in the view of the Investment Manager, liquid, if qualified
institutional buyers are unwilling to purchase these Rule 144A Securities,
they may become illiquid. Illiquid securities may be difficult to dispose of
at a fair price at the times when the Fund believes it is desirable to do so.
The market price of illiquid securities generally is more volatile than that
of more liquid securities, which may adversely affect the price that the Fund
pays for or recovers upon the sale of illiquid securities. Illiquid securities
are also more difficult to value and the Investment Manager's judgment may
play a greater role in the valuation process. Investment of the Fund's assets
in illiquid securities may restrict the Fund's ability to take advantage of
market opportunities. The risks associated with illiquid securities may be
particularly acute in situations in which the Fund's operations require cash
and could result in the Fund borrowing to meet its short-term needs or
incurring losses on the sale of illiquid securities.
Management Risk. The Investment Manager's judgment about the
attractiveness, relative value or potential appreciation of a particular
sector, security or investment strategy may prove to be incorrect, and there
can be no assurance that the investment decisions made by the Investment
Manager will prove beneficial to the Fund. Although certain members of the
investment team at the Investment Manager have experience managing
dividend-paying equity securities, high yield debt securities and other income
securities, the Investment Manager, as an entity, has limited experience
managing such securities. The Advisor has a limited history advising
registered investment companies such as the Fund, although the principals of
the Advisor have experience servicing regulated investment companies and
providing packaged products to advisors and their clients.
Strategic Transactions. Strategic Transactions in which the Fund may
engage also involve certain risks and special considerations, including
engaging in hedging and risk management transactions such as interest rate and
foreign currency transactions, options, futures, swaps and other derivatives
transactions. Strategic Transactions will be entered into to seek to manage
the risks of the Fund's portfolio of securities, but may have the effect of
limiting the gains from favorable market movements. Strategic Transaction
involve risks, including (i) that the loss on the Strategic Transaction
position may be larger than the gain in the portfolio position being hedged
and (ii) that the derivative instruments used in Strategic Transaction may not
be liquid and may require the Fund to pay additional amounts of money.
Successful use of Strategic Transactions depends on the Investment Manager's
ability to predict correctly market movements which, of course, cannot be
assured. Losses on Strategic Transactions may reduce the Fund's net asset
value and its ability to pay dividends if they are not offset by gains on the
portfolio positions being hedged. The Fund may also lend the securities it
owns to others, which allows the Fund the opportunity to earn additional
income. Although the Fund will require the borrower of the securities to post
collateral for the loan and the terms of the loan will require that the Fund
be able to reacquire the loaned securities if certain events occur, the Fund
is still subject to the risk that the borrower of the securities may default,
which could result in the Fund losing money, which would result in a decline
in the Fund's net asset value. The Fund may also purchase securities for
delayed settlement. This means that the Fund is generally obligated to
purchase the securities at a future date for a set purchase price, regardless
of whether the value of the securities is more or less than the purchase price
at the time of settlement.
Inflation Risk. Inflation risk is the risk that the value of assets
or income from investments will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real value of the
Fund's common shares and distributions thereon can decline. In addition,
during any periods of rising inflation, the interest or dividend rates payable
by the Fund on any leverage the Fund may have issued would likely increase,
which would tend to further reduce returns to holders of the Fund's common
shares.
Market Disruption Risk. The terrorist attacks in the U.S. on
September 11, 2001 had a disruptive effect on the securities markets. The war
in Iraq also has resulted in recent market volatility and may have long-term
effects on the U.S. and worldwide financial markets and may cause further
economic uncertainties in the U.S. and worldwide. The Fund cannot predict the
effects of the war or similar events in the future on the U.S. economy and
securities markets.
Anti-Takeover Provisions. The Fund's Agreement and Declaration of
Trust includes provisions that could limit the ability of other entities or
persons to acquire control of the Fund or convert the Fund to open-end status.
These provisions could deprive the holders of common shares of opportunities
to sell their common shares at a premium over the then current market price of
the common shares or at net asset value. In addition, if the Fund issues
Preferred Shares, the holders of the Preferred Shares will have voting rights
that could deprive holders of common shares of such opportunities.
MANAGEMENT OF THE FUND
Trustees and Officers
The Fund's Board of Trustees is responsible for the overall
management of the Fund, including supervision of the duties performed by the
Advisor and the Investment Manager. There are seven trustees of the Fund.
Three of the trustees are "interested persons" (as defined in the Investment
Company Act). The name and business address of the trustees and officers of
the Fund and their principal occupations and other affiliations during the
past five years are set forth under "Management of the Fund" in the Statement
of Additional Information.
Investment Advisor
Claymore Advisors, LLC, a wholly-owned subsidiary of Claymore Group,
LLC, serves as the investment advisor to the Fund. The Advisor is located at
210 N. Hale Street, Wheaton, Illinois 60187. Pursuant to the investment
advisory agreement between the Advisor and the Fund, the Advisor furnishes
offices, necessary facilities and equipment, provides administrative services
to the Fund, oversees the activities of the Fund's Investment Manager,
provides personnel and pays the compensation of all trustees of the Fund who
are its affiliates. Claymore Advisors, LLC has a limited history in advising
registered closed-end investment companies such as the Fund. Claymore
Securities, Inc., an affiliate of the Advisor, is an underwriter in the
offering being made pursuant to this prospectus and acts as servicing agent to
various investment companies. Claymore Securities, Inc. specializes in the
creation, development and distribution of investment solutions for investment
advisors and their valued clients. Pursuant to the investment advisory
agreement between the Advisor and the Fund, as compensation for the services
the Advisor provides to the Fund, the Fund pays the Advisor an annual fee,
payable monthly in arrears, at annual rate equal to 0.49% of the average
weekly value of the Fund's Managed Assets during such month (the "Advisory
Fee").
Investment Manager
Advent Capital Management, LLC, located at 1065 Avenue of the
Americas, 31st Floor, New York, New York 10018, acts as the Fund's investment
manager. The Investment Manager operates as a limited liability company and
had approximately $4 billion in assets under management as of March 31, 2004.
The Investment Manager is majority owned and controlled by Tracy V. Maitland.
Advent specializes in managing convertible securities for institutional and
individual investors, and members of the investment team at Advent have
experience managing high yield securities, other income securities and equity
securities. The members of the investment team of Advent Capital Management,
LLC are: Tracy Maitland, Chief Investment Officer; F. Barry Nelson and Les
Levi, Portfolio Managers; Paul Latronica, Alfredo Viegas and Robert Farmer,
Traders; and Peter St. Denis, Graham Morris, David Hulme, Doug Melancon, MD,
Lisa Gaffney and David Phipps, Analysts. Mr. Maitland and Mr. Nelson each have
over 15 years of experience in the convertible securities market. Advent will
be responsible for the day-to-day management of the Fund, which includes the
buying and selling of securities for the Fund. Advent has limited experience
serving as investment manager to registered investment companies.
Pursuant to an investment management agreement among the Advisor, the
Investment Manager and the Fund, the Fund has agreed to pay the Investment
Manager an annual fee, payable monthly in arrears, at an annual rate equal to
0.51% of the average weekly value of the Fund's Managed Assets during such
month (the "Management Fee") for the services and facilities provided by the
Investment Manager to the Fund. These services include the day-to-day
management of the Fund's portfolio of securities, which includes buying and
selling securities for the Fund and investment research. The Investment
Manager also provides personnel to the Fund and pays the compensation of all
trustees of the Fund who are its affiliates.
In addition to the Advisory Fee and the Management Fee, the Fund pays
all other costs and expenses of its operations, including the compensation of
its trustees (other than those affiliated with the Advisor and the Investment
Manager), custodian, transfer and dividend disbursing agent expenses, legal
fees, leverage expenses, rating agency fees, listing fees and expenses,
expenses of independent auditors, expenses of repurchasing shares, expenses of
preparing, printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies, and taxes, if any.
NET ASSET VALUE
The net asset value of the common shares of the Fund will be computed
based upon the value of the Fund's portfolio securities and other assets. Net
asset value per common share will be determined as of the close of regular
trading on the New York Stock Exchange on each day on which there is a regular
trading session on the New York Stock Exchange. The Fund calculates net asset
value per common share by subtracting the Fund's liabilities (including
accrued expenses, dividends payable and any borrowings of the Fund) and the
liquidation value of any outstanding Preferred Shares of the Fund from the
Fund's Managed Assets (the value of the securities the Fund holds plus cash or
other assets, including interest accrued but not yet received) and dividing
the result by the total number of common shares of the Fund outstanding. The
Fund's Administrator will be responsible for calculating the net asset value
per common share, and the Fund's Advisor will be responsible for posting such
calculation on the Fund's website (www. .com). Valuations of many
securities expected to be in the Fund's portfolio may be made by a third party
pricing service.
For purposes of determining the net asset value of the Fund, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the most recent bid price on such day.
If no bid price is quoted on such day, then the security is valued by such
method as the Board of Trustees shall determine in good faith to reflect its
fair market value. Readily marketable securities not listed on the New York
Stock Exchange but listed on other domestic or foreign securities exchanges or
admitted to trading on the National Association of Securities Dealers
Automated Quotations, Inc. ("NASDAQ") National List are valued in a like
manner. Portfolio securities traded on more than one securities exchange are
valued at the last sale price on the business day as of which such value is
being determined as reflected on the consolidated tape at the close of the
exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Investment
Manager to be over-the-counter, but excluding securities admitted to trading
on the NASDAQ National List, are valued on the basis of prices provided by a
pricing service and reviewed by the Investment Manager when such prices are
believed by the Board of Trustees to reflect the fair market value of such
securities. The prices provided by a pricing service take into account
institutional size trading in similar groups of securities and any
developments related to specific securities. Where securities are traded on
more than one exchange and also over-the-counter, the securities will
generally be valued using the quotations the Board of Trustees believes
reflect most closely the value of such securities. Synthetic convertibles may
be less liquid than other securities held by the Fund and thus more likely to
be fair valued by the Board of Trustees.
DISTRIBUTIONS
The Fund intends to distribute to holders of its common shares
monthly dividends of all or a portion of its net income after payment of
dividends and interest in connection with leverage used by the Fund. It is
expected that the initial monthly dividend on shares of the Fund's common
shares will be declared within approximately 45 days and paid approximately 60
to 90 days after completion of this offering. The Fund expects that all or a
portion of any capital gain will be distributed at least annually.
Various factors will affect the level of the Fund's income, including
the asset mix, the average maturity of the Fund's portfolio, the amount of
leverage utilized by the Fund and the Fund's use of hedging. To permit the
Fund to maintain a more stable monthly distribution, the Fund may from time to
time distribute less than the entire amount of income earned in a particular
period. The undistributed income would be available to supplement future
distributions. As a result, the distributions paid by the Fund for any
particular monthly period may be more or less than the amount of income
actually earned by the Fund during that period. Undistributed income will add
to the Fund's net asset value and, correspondingly, distributions from
undistributed income will deduct from the Fund's net asset value. Shareholders
will automatically have all dividends and distributions reinvested in common
shares of the Fund issued by the Fund or purchased in the open market in
accordance with the Fund's dividend reinvestment plan unless an election is
made to receive cash. See "Dividend Reinvestment Plan."
DIVIDEND REINVESTMENT PLAN
Unless the registered owner of common shares elects to receive cash
by contacting the Plan Administrator, all dividends declared on common shares
of the Fund will be automatically reinvested by (the "Plan Administrator"),
Administrator for shareholders in the Fund's Automatic Dividend Reinvestment
Plan (the "Plan"), in additional common shares of the Fund. Shareholders who
elect not to participate in the Plan will receive all dividends and other
distributions in cash paid by check mailed directly to the shareholder of
record (or, if the common shares are held in street or other nominee name,
then to such nominee) by , as dividend disbursing agent. You may elect
not to participate in the Plan and to receive all dividends in cash by
contacting , as dividend disbursing agent, at the address set forth
below. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by notice if received and processed by
the Plan Administrator prior to the dividend record date; otherwise such
termination or resumption will be effective with respect to any subsequently
declared dividend or other distribution. Some brokers may automatically elect
to receive cash on your behalf and may re-invest that cash in additional common
shares of the Fund for you. If you wish for all dividends declared on your
common shares of the Fund to be automatically reinvested pursuant to the Plan,
please contact your broker.
The Plan Administrator will open an account for each common
shareholder under the Plan in the same name in which such common shareholder's
common shares are registered. Whenever the Fund declares a dividend or other
distribution (together, a "Dividend") payable in cash, non-participants in the
Plan will receive cash and participants in the Plan will receive the
equivalent in common shares. The common shares will be acquired by the Plan
Administrator for the participants' accounts, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized common shares from the Fund ("Newly Issued Common Shares") or (ii)
by purchase of outstanding common shares on the open market ("Open-Market
Purchases") on the New York Stock Exchange or elsewhere. If, on the payment
date for any Dividend, the closing market price plus estimated brokerage
commissions per common share is equal to or greater than the net asset value
per common share, the Plan Administrator will invest the Dividend amount in
Newly Issued Common Shares on behalf of the participants. The number of Newly
Issued Common Shares to be credited to each participant's account will be
determined by dividing the dollar amount of the Dividend by the net asset
value per common share on the payment date; provided that, if the net asset
value is less than or equal to 95% of the closing market value on the payment
date, the dollar amount of the Dividend will be divided by 95% of the closing
market price per common share on the payment date. If, on the payment date for
any Dividend, the net asset value per common share is greater than the closing
market value plus estimated brokerage commissions, the Plan Administrator will
invest the Dividend amount in common shares acquired on behalf of the
participants in Open-Market Purchases. In the event of a market discount on
the payment date for any Dividend, the Plan Administrator will have until the
last business day before the next date on which the common shares trade on an
"ex-dividend" basis or 30 days after the payment date for such Dividend,
whichever is sooner (the "Last Purchase Date"), to invest the Dividend amount
in common shares acquired in Open-Market Purchases. It is contemplated that
the Fund will pay monthly income Dividends. Therefore, the period during which
Open-Market Purchases can be made will exist only from the payment date of
each Dividend through the date before the next "ex-dividend" date which
typically will be approximately ten days. If, before the Plan Administrator
has completed its Open-Market Purchases, the market price per common share
exceeds the net asset value per common share, the average per common share
purchase price paid by the Plan Administrator may exceed the net asset value
of the common shares, resulting in the acquisition of fewer common shares than
if the Dividend had been paid in Newly Issued Common Shares on the Dividend
payment date. Because of the foregoing difficulty with respect to Open-Market
Purchases, the Plan provides that if the Plan Administrator is unable to
invest the full Dividend amount in Open-Market Purchases during the purchase
period or if the market discount shifts to a market premium during the
purchase period, the Plan Administrator may cease making Open-Market Purchases
and may invest the uninvested portion of the Dividend amount in Newly Issued
Common Shares at the net asset value per common share at the close of business
on the Last Purchase Date provided that, if the net asset value is less than
or equal to 95% of the then current market price per common share; the dollar
amount of the Dividend will be divided by 95% of the market price on the
payment date.
The Plan Administrator maintains all shareholders' accounts in the
Plan and furnishes written confirmation of all transactions in the accounts,
including information needed by shareholders for tax records. Common shares in
the account of each Plan participant will be held by the Plan Administrator on
behalf of the Plan participant, and each shareholder proxy will include those
shares purchased or received pursuant to the Plan. The Plan Administrator will
forward all proxy solicitation materials to participants and vote proxies for
shares held under the Plan in accordance with the instructions of the
participants. In the case of shareholders such as banks, brokers or nominees
which hold shares for others who are the beneficial owners, the Plan
Administrator will administer the Plan on the basis of the number of common
shares certified from time to time by the record shareholder's name and held
for the account of beneficial owners who participate in the Plan.
There will be no brokerage charges with respect to common shares
issued directly by the Fund. However, each participant will pay a pro rata
share of brokerage commissions incurred in connection with Open-Market
Purchases. The automatic reinvestment of Dividends will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such Dividends. See "Tax Matters." Participants
that request a sale of shares through the Plan Administrator are subject to
brokerage commissions.
The Fund reserves the right to amend or terminate the Plan. There is
no direct service charge to participants with regard to purchases in the Plan;
however, the Fund reserves the right to amend the Plan to include a service
charge payable by the participants.
All correspondence or questions concerning the Plan should be directed
to the Plan Administrator at .
DESCRIPTION OF SHARES
Common Shares
The Fund is an unincorporated statutory trust organized under the
laws of Delaware pursuant to an Agreement and Declaration of Trust dated as of
January 30, 2004, as subsequently amended and restated to date. The Fund is
authorized to issue an unlimited number of common shares of beneficial
interest, par value $.001 per share. Each common share has one vote and, when
issued and paid for in accordance with the terms of this offering, will be
fully paid and non-assessable, except that the trustees shall have the power
to cause shareholders to pay expenses of the Fund by setting off charges due
from shareholders from declared but unpaid dividends or distributions owed the
shareholders and/or by reducing the number of common shares owned by each
respective shareholder. Whenever Preferred Shares are outstanding, the holders
of common shares will not be entitled to receive any distributions from the
Fund unless all accrued dividends on Preferred Shares have been paid, unless
asset coverage (as defined in the Investment Company Act) with respect to
Preferred Shares would be at least 200% after giving effect to the
distributions and unless certain other requirements imposed by any rating
agencies rating the Preferred Shares have been met. See "-Preferred Shares"
below. All common shares are equal as to dividends, assets and voting
privileges and have no conversion, preemptive or other subscription rights.
The Fund will send annual and semi-annual reports, including financial
statements, to all holders of its shares.
The Fund has no present intention of offering any additional shares
other than the Preferred Shares and common shares issued under the Fund's
Dividend Reinvestment Plan. Any additional offerings of shares will require
approval by the Fund's Board of Trustees. Any additional offering of common
shares will be subject to the requirements of the Investment Company Act,
which provides that shares may not be issued at a price below the then current
net asset value, exclusive of sales load, except in connection with an
offering to existing holders of common shares or with the consent of a
majority of the Fund's outstanding voting securities.
The Fund anticipates that its common shares will be listed on the New
York Stock Exchange under the symbol "LCM."
The Fund's net asset value per share generally increases and
decreases based on the market value of the Fund's securities, and these
changes are likely to be greater because the Fund intends to have a leveraged
capital structure. Net asset value will be reduced immediately following the
offering of common shares by the amount of the sales load and organization and
offering expenses paid by the Fund. See "Use of Proceeds."
Unlike open-end funds, closed-end funds like the Fund do not
continuously offer shares and do not provide daily redemptions. Rather, if a
shareholder determines to buy additional common shares or sell shares already
held, the shareholder may do so by trading through a broker on the New York
Stock Exchange or otherwise. Shares of closed-end investment companies
frequently trade on an exchange at prices lower than net asset value. Shares
of closed-end investment companies like the Fund that invest predominantly in
real estate securities have during some periods traded at prices higher than
net asset value and during other periods have traded at prices lower than net
asset value. Because the market value of the common shares may be influenced
by such factors as dividend levels (which are in turn affected by expenses),
call protection on its portfolio securities, dividend stability, portfolio
credit quality, net asset value, relative demand for and supply of such shares
in the market, general market and economic conditions and other factors beyond
the control of the Fund, the Fund cannot assure you that common shares will
trade at a price equal to or higher than net asset value in the future. The
common shares are designed primarily for long-term investors and you should
not purchase the common shares if you intend to sell them soon after purchase.
See "Borrowings and Preferred Shares" and the Statement of Additional
Information under "Repurchase of Common Shares."
Preferred Shares
The Agreement and Declaration of Trust provides that the Fund's Board
of Trustees may authorize and issue Preferred Shares with rights as determined
by the Board of Trustees, by action of the Board of Trustees without the
approval of the holders of the common shares. Holders of Common shares have no
preemptive right to purchase any Preferred Shares that might be issued.
The Fund may elect to issue Preferred Shares as part of its leverage
strategy. If Preferred Shares are issued, the Fund currently intends to issue
Preferred Shares representing no more than 33% of the Fund's Managed Assets
immediately after the Preferred Shares are issued. The Board of Trustees also
reserves the right to change the foregoing percentage limitation and may issue
Preferred Shares to the extent permitted by the Investment Company Act, which
currently limits the aggregate liquidation preference of all outstanding
Preferred Shares to 50% of the value of the Fund's Managed Assets less
liabilities and indebtedness of the Fund. We cannot assure you, however, that
any Preferred Shares will be issued. Although the terms of any Preferred
Shares, including dividend rate, liquidation preference and redemption
provisions, will be determined by the Board of Trustees, subject to applicable
law and the Agreement and Declaration of Trust, it is likely that the
Preferred Shares will be structured to carry a relatively short-term dividend
rate reflecting interest rates on short-term bonds, by providing for the
periodic redetermination of the dividend rate at relatively short intervals
through an auction, remarketing or other procedure. The Fund also believes
that it is likely that the liquidation preference, voting rights and
redemption provisions of the Preferred Shares will be similar to those stated
below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of Preferred
Shares will be entitled to receive a preferential liquidating distribution,
which is expected to equal the original purchase price per Preferred Share
plus accrued and unpaid dividends, whether or not declared, before any
distribution of assets is made to holders of common shares. After payment of
the full amount of the liquidating distribution to which they are entitled,
the holders of Preferred Shares will not be entitled to any further
participation in any distribution of assets by the Fund.
Voting Rights. The Investment Company Act requires that the holders
of any Preferred Shares, voting separately as a single class, have the right
to elect at least two trustees at all times. The remaining trustees will be
elected by holders of common shares and Preferred Shares, voting together as a
single class. In addition, subject to the prior rights, if any, of the holders
of any other class of senior securities outstanding, the holders of any
Preferred Shares have the right to elect a majority of the trustees of the
Fund at any time two years' dividends on any Preferred Shares are unpaid. The
Investment Company Act also requires that, in addition to any approval by
shareholders that might otherwise be required, the approval of the holders of
a majority of any outstanding Preferred Shares, voting separately as a class,
would be required to (1) adopt any plan of reorganization that would adversely
affect the Preferred Shares, and (2) take any action requiring a vote of
security holders under Section 13(a) of the Investment Company Act, including,
among other things, changes in the Fund's subclassification as a closed-end
investment company or changes in its fundamental investment restrictions. See
"Certain Provisions in the Agreement and Declaration of Trust." As a result of
these voting rights, the Fund's ability to take any such actions may be
impeded to the extent that there are any Preferred Shares outstanding. The
Board of Trustees presently intends that, except as otherwise indicated in
this prospectus and except as otherwise required by applicable law, holders of
Preferred Shares will have equal voting rights with holders of common shares
(one vote per share, unless otherwise required by the Investment Company Act)
and will vote together with holders of common shares as a single class.
The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of Preferred
Shares so as to affect materially and adversely such preferences, rights or
powers, or to increase or decrease the authorized number of Preferred Shares.
The class vote of holders of Preferred Shares described above will in each
case be in addition to any other vote required to authorize the action in
question.
Redemption, Purchase And Sale Of Preferred Shares By The Fund. The
terms of the Preferred Shares are expected to provide that (1) they are
redeemable by the Fund in whole or in part at the original purchase price per
share plus accrued dividends per share, (2) the Fund may tender for or
purchase Preferred Shares and (3) the Fund may subsequently resell any shares
so tendered for or purchased. Any redemption or purchase of Preferred Shares
by the Fund will reduce the leverage applicable to the common shares, while
any resale of shares by the Fund will increase that leverage.
The discussion above describes the possible offering of Preferred
Shares by the Fund. If the Board of Trustees determines to proceed with such
an offering, the terms of the Preferred Shares may be the same as, or
different from, the terms described above, subject to applicable law and the
Fund's Agreement and Declaration of Trust. The Board of Trustees, without the
approval of the holders of common shares, may authorize an offering of
Preferred Shares or may determine not to authorize such an offering, and may
fix the terms of the Preferred Shares to be offered.
CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST
The Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other entities or persons to
acquire control of the Fund or to change the composition of its Board of
Trustees. This could have the effect of depriving shareholders of an
opportunity to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control over the Fund. Such
attempts could have the effect of increasing the expenses of the Fund and
disrupting the normal operation of the Fund. The Board of Trustees is divided
into three classes, with the terms of one class expiring at each annual
meeting of shareholders. At each annual meeting, one class of trustees is
elected to a three-year term. This provision could delay for up to two years
the replacement of a majority of the Board of Trustees. A trustee may be
removed from office by the action of a majority of the remaining trustees
followed by a vote of the holders of at least 75% of the shares then entitled
to vote for the election of the respective trustee.
In addition, the Fund's Agreement and Declaration of Trust requires
the favorable vote of a majority of the Fund's Board of Trustees followed by
the favorable vote of the holders of at least 75% of the outstanding shares of
each affected class or series of the Fund, voting separately as a class or
series, to approve, adopt or authorize certain transactions with 5% or greater
holders of a class or series of shares and their associates, unless the
transaction has been approved by at least 80% of the trustees, in which case
"a majority of the outstanding voting securities" (as defined in the
Investment Company Act) of the Fund shall be required. For purposes of these
provisions, a 5% or greater holder of a class or series of shares (a
"Principal Shareholder") refers to any person who, whether directly or
indirectly and whether alone or together with its affiliates and associates,
beneficially owns 5% or more of the outstanding shares of any class or series
of shares of beneficial interest of the Fund.
The 5% holder transactions subject to these special approval
requirements are:
o the merger or consolidation of the Fund or any subsidiary of the
Fund with or into any Principal Shareholder;
o the issuance of any securities of the Fund to any Principal
Shareholder for cash (other than pursuant of any automatic
dividend reinvestment plan);
o the sale, lease or exchange of all or any substantial part of
the assets of the Fund to any Principal Shareholder, except
assets having an aggregate fair market value of less than 2% of
the total assets of the Fund, aggregating for the purpose of
such computation all assets sold, leased or exchanged in any
series of similar transactions within a twelve-month period; or
o the sale, lease or exchange to the Fund or any subsidiary of the
Fund, in exchange for securities of the Fund, of any assets of
any Principal Shareholder, except assets having an aggregate
fair market value of less than 2% of the total assets of the
Fund, aggregating for purposes of such computation all assets
sold, leased or exchanged in any series of similar transactions
within a twelve-month period.
To convert the Fund to an open-end investment company, the Fund's
Agreement and Declaration of Trust requires the favorable vote of a majority
of the board of the trustees followed by the favorable vote of the holders of
at least 75% of the outstanding shares of each affected class or series of
shares of the Fund, voting separately as a class or series, unless such
amendment has been approved by at least 80% of the trustees, in which case "a
majority of the outstanding voting securities" (as defined in the Investment
Company Act) of the Fund shall be required. The foregoing vote would satisfy a
separate requirement in the Investment Company Act that any conversion of the
Fund to an open-end investment company be approved by the shareholders. If
approved in the foregoing manner, conversion of the Fund to an open-end
investment company could not occur until 90 days after the shareholders'
meeting at which such conversion was approved and would also require at least
30 days' prior notice to all shareholders. Conversion of the Fund to an
open-end investment company would require the redemption of any outstanding
Preferred Shares, which could eliminate or alter the leveraged capital
structure of the Fund with respect to the common shares. Following any such
conversion, it is also possible that certain of the Fund's investment policies
and strategies would have to be modified to assure sufficient portfolio
liquidity. In the event of conversion, the common shares would cease to be
listed on the New York Stock Exchange or other national securities exchanges
or market systems. Shareholders of an open-end investment company may require
the company to redeem their shares at any time, except in certain
circumstances as authorized by or under the Investment Company Act, at their
net asset value, less such redemption charge, if any, as might be in effect at
the time of a redemption. The Fund expects to pay all such redemption requests
in cash, but reserves the right to pay redemption requests in a combination of
cash or securities. If such partial payment in securities were made, investors
may incur brokerage costs in converting such securities to cash. If the Fund
were converted to an open-end fund, it is likely that new shares would be sold
at net asset value plus a sales load. The Board of Trustees believes, however,
that the closed-end structure is desirable in light of the Fund's investment
objective and policies. Therefore, you should assume that it is not likely
that the Board of Trustees would vote to convert the Fund to an open-end fund.
To liquidate the Fund, the Fund's Agreement and Declaration of Trust
requires the favorable vote of a majority of the Board of Trustees followed by
the favorable vote of the holders of at least 75% of the outstanding shares of
each affected class or series of the Fund, voting separately as a class or
series, unless such liquidation has been approved by at least 80% of trustees,
in which case "a majority of the outstanding voting securities" (as defined in
the Investment Company Act) of the Fund shall be required. For the purposes of
calculating "a majority of the outstanding voting securities" under the Fund's
Agreement and Declaration of Trust, each class and series of the Fund shall
vote together as a single class, except to the extent required by the
Investment Company Act or the Fund's Agreement and Declaration of Trust with
respect to any class or series of shares. If a separate vote is required, the
applicable proportion of shares of the class or series, voting as a separate
class or series, also will be required.
The Board of Trustees has determined that provisions with respect to
the Board of Trustees and the shareholder voting requirements described above,
which voting requirements are greater than the minimum requirements under
Delaware law or the Investment Company Act, are in the best interest of
shareholders generally. Reference should be made to the Agreement and
Declaration of Trust on file with the Securities and Exchange Commission for
the full text of these provisions.
CLOSED-END FUND STRUCTURE
The Fund is a newly organized, diversified, closed-end management
investment company (commonly referred to as a closed-end fund). Closed-end
funds differ from open-end funds (which are generally referred to as mutual
funds) in that closed-end funds generally list their shares for trading on a
stock exchange and do not redeem their shares at the request of the
shareholder. This means that if you wish to sell your shares of a closed-end
fund you must trade them on the market like any other stock at the prevailing
market price at that time. In a mutual fund, if the shareholder wishes to sell
shares of the fund, the mutual fund will redeem or buy back the shares at "net
asset value." Also, mutual funds generally offer new shares on a continuous
basis to new investors, and closed-end funds generally do not. The continuous
inflows and outflows of assets in a mutual fund can make it difficult to
manage the fund's investments. By comparison, closed-end funds are generally
able to stay more fully invested in securities that are consistent with their
investment objective, and also have greater flexibility to make certain types
of investments, and to use certain investment strategies, such as financial
leverage and investments in illiquid securities.
Shares of closed-end funds frequently trade at a discount to their
net asset value. Because of this possibility and the recognition that any such
discount may not be in the interest of shareholders, the Fund's Board of
Trustees might consider from time to time engaging in open-market repurchases,
tender offers for shares or other programs intended to reduce the discount. We
cannot guarantee or assure, however, that the Fund's Board of Trustees will
decide to engage in any of these actions. Nor is there any guarantee or
assurance that such actions, if undertaken, would result in the shares trading
at a price equal or close to net asset value per share. The Board of Trustees
might also consider converting the Fund to an open-end mutual fund, which
would also require a vote of the shareholders of the Fund.
REPURCHASE OF COMMON SHARES
Shares of closed-end investment companies often trade at a discount
to their net asset values, and the Fund's common shares may also trade at a
discount to their net asset value, although it is possible that they may trade
at a premium above net asset value. The market price of the Fund's common
shares will be determined by such factors as relative demand for and supply of
such common shares in the market, the Fund's net asset value, general market
and economic conditions and other factors beyond the control of the Fund. See
"Net Asset Value." Although the Fund's common shareholders will not have the
right to redeem their common shares, the Fund may take action to repurchase
common shares in the open market or make tender offers for its common shares.
This may have the effect of reducing any market discount from net asset value.
There is no assurance that, if action is undertaken to repurchase or tender
for common shares, such action will result in the common shares trading at a
price which approximates their net asset value. Although share repurchases and
tenders could have a favorable effect on the market price of the Fund's common
shares, you should be aware that the acquisition of common shares by the Fund
will decrease the capital of the Fund and, therefore, may have the effect of
increasing the Fund's expense ratio and decreasing the asset coverage with
respect to any Preferred Shares outstanding. Any share repurchases or tender
offers will be made in accordance with requirements of the Securities Exchange
Act of 1934, as amended, the Investment Company Act and the principal stock
exchange on which the common shares are traded.
TAX MATTERS
Federal Income Tax Matters
The discussion below and in the Statement of Additional Information
provides general Federal income tax information related to an investment in
the Fund's common shares. The discussion reflects applicable tax laws of the
United States as of the date of this prospectus, which tax laws may be changed
or subject to new interpretations by the courts or the Internal Revenue
Service (the "IRS") retroactively or prospectively. No attempt is made to
present a detailed explanation of all Federal, state, local and foreign tax
concerns affecting the Fund and its shareholders (including shareholders
owning a large position in the Fund), and the discussions set forth here and
in the Statement of Additional Information do not constitute tax advice.
Because tax laws are complex and often change, you should consult your tax
advisor about the tax consequences of an investment in the Fund.
In order to avoid corporate federal income taxation of its taxable
income, the Fund must elect to be treated as a regulated investment company
under Subchapter M of the Code and meet certain requirements that govern the
Fund's sources of income, diversification of assets and distribution of
earnings to shareholders. The Fund intends to make such an election and
intends to meet these requirements each year. If the Fund failed to do so, the
Fund would be required to pay corporate taxes on its taxable income and all
the distributions would be taxable as ordinary income to the extent of the
Fund's earnings and profits.
The Fund intends to distribute at least annually substantially all of
its taxable income or realized capital gain. Distributions of investment
company taxable income including net short-term gain are taxable as ordinary
income (to the extent of the current and accumulated earnings and profits of
the Fund). Such income (if designated by the Fund) may qualify (provided
holding periods and other requirements are met) (i) for the dividends received
deduction in the case of corporate shareholders to the extent the Fund's
income consists of dividends received from U.S. corporations and (ii) under
the Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective for
taxable years after December 31, 2002 through December 31, 2008) ("2003 Tax
Act"), as qualified dividend income eligible for the reduced maximum rate
applicable to individuals of generally 15% (5% for individuals in lower tax
brackets) to the extent that the Fund receives qualified dividend income.
Qualified dividend income is, in general, dividend income from taxable
domestic corporations and certain qualified foreign corporations (e.g.,
generally, foreign corporations incorporated in a possession of the United
States or in certain countries with a qualified comprehensive tax treaty with
the United States, or the stock of which and with respect to which such
dividend is paid is readily tradable on an established securities market in
the United States). Distributions of net long-term capital gain that are
designated by the Fund as capital gain dividends are taxable to you as
long-term capital gain regardless of how long you have owned your shares, and
will not qualify for a dividends received deduction available to corporate
shareholders. Under the 2003 Tax Act, the tax rate on net long-term capital
gain of individuals is reduced generally from 20% to 15% (5% for individuals
in lower brackets) for such gain realized on or after May 6, 2003 and before
January 1, 2009. Distributions by the Fund in excess of its current and
accumulated earnings and profits will be treated as a return of capital to the
extent of (and in reduction of) the tax basis in your shares. Any excess will
be treated as gain from the sale of your shares.
Gain or loss resulting from the sale or exchange of shares will be
measured by the difference between the proceeds of the sale and the holders'
adjusted tax basis in the shares being sold or exchanged and will generally be
taxable as capital gain or loss, and will be a long-term capital gain or loss
if you have held your shares for more than one year. For corporate
shareholders, both long-term and short-term capital gain is taxed at the 35%
rate. For non-corporate shareholders, under the 2003 Tax Act, long-term
capital gain is generally taxed at a maximum rate of 15% and short-term
capital gain is taxed at the maximum rate of 35% applicable to ordinary
income.
Each year, you will receive a year-end statement designating the
amounts of capital gain, ordinary income, qualified dividend income and
dividends which qualify for the dividends received deduction paid to you
during the preceding year. You will receive this statement from the firm where
you purchased your shares if you hold your investment in street name; the Fund
will send you this statement if you hold your shares in registered form. The
tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
The Fund may be required to withhold taxes on certain of your
dividends if you have not provided the Fund with your correct taxpayer
identification number (if you are an individual, normally your Social Security
number), or if you are otherwise subject to back-up withholding.
Please refer to the Statement of Additional Information for more
detailed information. Fund distributions may also be subject to state and
local taxes. You are urged to consult your tax advisor.
UNDERWRITING
Subject to the terms and conditions of a purchase agreement dated ,
2004, each underwriter named below, for which Merrill Lynch, Pierce, Fenner &
Smith Incorporated is acting as representative, has severally agreed to
purchase, and the Fund has agreed to sell to such underwriter, the number of
common shares set forth opposite the name of such underwriter.
Number of
Underwriter Common Shares
----------- -------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
=====================
Total
=====================
The purchase agreement provides that the obligations of the
underwriters to purchase the common shares included in this offering are
subject to the approval of certain legal matters by counsel and certain other
conditions. The underwriters are obligated to purchase all the common shares
sold under the purchase agreement if any of the common shares are purchased.
In the purchase agreement, the Fund, the Advisor and the Investment Manager
have agreed to indemnify the underwriters against certain liabilities,
including liabilities arising under the Securities Act of 1933, as amended, or
to contribute payments the underwriters may be required to make for any of
those liabilities.
Commissions and Discounts
The underwriters propose to initially offer some of the common shares
directly to the public at the public offering price set forth on the cover
page of this prospectus and some of the common shares to certain dealers at
the public offering price less a concession not in excess of $ per share. The
sales load the Fund will pay of $.90 per share is equal to 4.5% of the initial
offering price. The underwriters may allow, and the dealers may reallow, a
discount in excess of $ per share on sales to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed. Investors must pay for any common shares purchased on or before
, 2004.
The following table shows the public offering price, sales load,
estimated organizational and offering expenses and proceeds, after expenses,
to the Fund. The information assumes either no exercise or full exercise by
the underwriters of their overallotment option.
Per Share Without Option With Option
Public offering price..................... $20.00 $ $
Sales load................................ $.90 $ $
Estimated organizational and offering expenses $.04 $ $
Proceeds, after expenses, to the Fund..... $19.06 $ $
The expenses of the offering are estimated at $ and are payable by
the Fund. The Fund has agreed to pay the underwriters $.0067 per common share
as a partial reimbursement of expenses incurred in connection with the
offering. The amount paid by the Fund as the partial reimbursement to the
underwriters will not exceed .03335% of the total price to the public of the
common shares sold in this offering. The Advisor and the Investment Manager
have agreed to pay organizational and offering expenses of the Fund (other
than sales load, but including the reimbursement of expenses described above)
that exceed $.04 per common share (the "Reimbursement Cap").
Overallotment Option
The Fund has granted the underwriters an option to purchase up to
additional common shares at the public offering price, less the sales load,
within 45 days from the date of this prospectus solely to cover any over
allotments. If the underwriters exercise this option, each will be obligated,
subject to conditions contained in the purchase agreement, to purchase a
number of additional shares proportionate to that underwriter's initial amount
reflected in the above table.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the common shares is complete, Securities
and Exchange Commission rules may limit underwriters and selling group members
from bidding for and purchasing our common shares. However, the
representatives may engage in transactions that stabilize the price of our
common shares, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in our common shares in
connection with the offering, i.e., if they sell more common shares than are
listed on the cover of this prospectus, the representatives may reduce that
short position by purchasing common shares in the open market. The
representatives may also elect to reduce any short position by exercising all
or part of the over allotment option described above. The underwriters may
also impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the common shares sold in this
offering for their account may be reclaimed by the syndicate if such common
shares are repurchased by the syndicate in stabilizing or covering
transactions. Purchases of our common shares to stabilize its price or to
reduce a short position may cause the price of our common shares to be higher
than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transaction
described above may have on the price of our common shares. In addition,
neither we nor any of the underwriters make any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
The Fund has agreed not to offer or sell any additional common
shares for a period of 180 days after the date of the purchase agreement
without the prior written consent of the underwriters, except for the sale of
the common shares to the underwriters pursuant to the purchase agreement and
certain transactions related to the Fund's dividend reinvestment plan.
The Fund anticipates that the underwriters may from time to time act
as brokers or, after they have ceased to be underwriters, dealers in executing
the Fund's portfolio transactions. The underwriters are active underwriters
of, and dealers in, securities and act as market makers in a number of such
securities, and therefore can be expected to engage in portfolio transactions
with the Fund. One or more of the underwriters of common shares may also act
as an underwriter of the preferred shares.
Additional Compensation to Underwriters and Other Relationships
The Advisor (and not the Fund) has agreed to pay a fee to Merrill
Lynch, payable quarterly, at the annual rate of .15% of the Fund's Managed
Assets during the continuance of the Investment Advisory Agreement between the
Advisor and the Fund. Merrill Lynch has agreed to, among other things, provide
certain after-market shareholder support services designed to maintain the
visibility of the Fund on an ongoing basis and to provide relevant
information, studies or reports regarding the Fund and the closed-end
investment company industry. The total amount of these additional compensation
payments to Merrill Lynch will not exceed % of the total price to the public
of the common shares sold in this offering.
The Advisor (and not the Fund) has entered into a Corporate Finance
Services and Consulting Agreement with A.G. Edwards & Sons, Inc. pursuant to
which it will pay from its own assets a fee to A.G. Edwards & Sons, Inc.
payable quarterly at the annual rate of .15% of the Fund's managed assets
attributable to the common shares sold by A.G. Edwards & Sons, Inc. in this
offering during the continuance of the Investment Advisory Agreement or other
advisory agreements between the Advisor and the Fund. Pursuant to the
Corporate Finance Services and Consulting Agreement, A.G. Edwards & Sons, Inc.
will: (i) provide the Advisor with relevant information, studies or reports
regarding general trends in the closed-end management investment company and
asset management industries, and consult with representatives of the Advisor
in connection therewith; (ii) provide economic research and statistical
information and reports to and consult with the Advisor's or the Fund's
representatives and/or the Fund's Fundees with respect to such information and
reports, which information and reports shall include: (a) statistical and
financial market information with respect to the Fund's market performance;
and (b) comparative information regarding the Fund and other closed-end
management investment companies with respect to (x) the net asset value of
their respective shares (as made publicly available by the Fund and such
investment companies), (y) the respective market performance of the Fund and
such other companies, and (z) other relevant performance indicators; and (iii)
provide the Advisor with certain other services relating to the trading price
and market price thereof in connection with the common shares, including
aftermarket services such as services designed to maintain the visibility of
the Fund in the market. The total amount of payments to A.G. Edwards & Sons,
Inc. pursuant to the Corporate Finance Services and Consulting Agreement will
not exceed % of the total price to the public of the common shares sold
in this offering.
Claymore Securities, Inc. will provide distribution assistance in
connection with the sale of the common shares of the Fund. Claymore
Securities, Inc. will be a party to the underwriting agreement among the Fund,
the Advisor, the Investment Manager and the other underwriters named therein.
Generally, Claymore Securities, Inc. pays a fee of .10% of the offering amount
to employees who assist in marketing securities. To the extent that the Fund
has not otherwise paid organizational and offering expenses equal to the
Reimbursement Cap, the Fund will pay up to .10% of the amount of the offering
up to the Reimbursement Cap to Claymore Securities, Inc. as payment for its
distribution assistance. Claymore Securities, Inc. is a registered
broker-dealer and a member of the National Association of Securities Dealers.
The amount of this payment to Claymore Securities, Inc. will not exceed % of
the total price to the public of the common shares sold in this offering.
The sum of the fees payable to Merrill Lynch, A.G. Edwards & Sons,
Inc. and Claymore Securities, Inc. (excluding the sales load), plus the amount
paid by the Fund as the $.0067 per common share reimbursement to the
underwriters, will not exceed 4.5% of the aggregate initial offering price of
the common shares offered hereby. The sum total of all compensation to
underwriters in connection with this public offering of common shares,
including sales load and additional compensation to and reimbursement of
underwriters, will be limited to 9.0% of the total price to the public of the
common shares sold in this offering.
In connection with the offering, the underwriters or selected dealers
may distribute prospectuses electronically.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is
4 World Financial Center, New York, New York 10080. The address of Claymore
Securities, Inc. is 210 N. Hale Street, Wheaton, Illinois 60187.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
The Custodian, Administrator, Transfer Agent, fund accountant and
dividend-paying agent of the Fund is . As Custodian, performs
custodial, fund accounting and portfolio accounting services, and as
Administrator, calculates the net asset value of the common shares
and generally assists in all aspects of the administration and operation of
the Fund.
offices are located at .
LEGAL OPINIONS
Certain legal matters in connection with the common shares will be
passed upon for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York and for the underwriters by Clifford Chance US LLP. Clifford
Chance US LLP may rely as to certain matters of Delaware law on the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP. Skadden, Arps, Slate, Meagher & Flom
LLP serves as counsel to the Investment Manager and other funds advised by the
Investment Manager.
PRIVACY PRINCIPLES OF THE FUND
The Fund is committed to maintaining the privacy of its shareholders
and to safeguarding their non-public personal information. The following
information is provided to help you understand what personal information the
Fund collects, how the Fund protects that information and why, in certain
cases, the Fund may share information with select other parties.
Generally, the Fund does not receive any non-public personal
information relating to its shareholders, although certain non-public personal
information of its shareholders may become available to the Fund. The Fund
does not disclose any non-public personal information about its shareholders
or former shareholders to anyone, except as permitted by law or as is
necessary in order to service shareholder accounts (for example, to a transfer
agent or third party administrator).
The Fund restricts access to non-public personal information about
its shareholders to employees of the Fund's Advisor, Investment Manager and
their respective affiliates with a legitimate business need for the
information. The Fund maintains physical, electronic and procedural safeguards
designed to protect the non-public personal information of its shareholders.
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
Page
Use of Proceeds............................................................2
Investment Objective and Policies..........................................2
Investment Policies and Techniques.........................................4
Other Investment Policies and Techniques...................................6
Management of the Fund....................................................11
Portfolio Transactions and Brokerage......................................19
Description of Shares.....................................................19
Repurchase of Common Shares...............................................20
Tax Matters...............................................................21
Experts...................................................................25
Additional Information....................................................25
Report of Independent Accountants........................................F-1
Financial Statements.....................................................F-2
Appendix A Ratings of Investments.......................................A-1
Appendix B Proxy Voting Policy and Procedures...........................B-1
==============================================================================
Until , 2004 (25 days after the date of this prospectus), all
dealers that buy, sell or trade the common shares, whether or not
participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments
or subscriptions.
Shares
Advent Claymore Global Total Return Fund
Common Shares
per share
____________
PROSPECTUS
____________
Merrill Lynch & Co.
, 2004
==============================================================================
ADVENT CLAYMORE GLOBAL TOTAL RETURN FUND
STATEMENT OF ADDITIONAL INFORMATION
Advent Claymore Global Total Return Fund (the "Fund") is a newly
organized, diversified, closed-end management investment company. This
Statement of Additional Information relating to common shares does not
constitute a prospectus, but should be read in conjunction with the prospectus
relating thereto that is anticipated to be dated , 2004. This Statement
of Additional Information, which is not a prospectus, does not include all
information that a prospective investor should consider before purchasing
common shares, and investors should obtain and read the prospectus prior to
purchasing such shares. A copy of the prospectus may be obtained without
charge by calling (800) 345-7999. You may also obtain a copy of the prospectus
on the Securities and Exchange Commission's web site (http://www.sec.gov).
Capitalized terms used but not defined in this Statement of Additional
Information have the meanings ascribed to them in the prospectus.
TABLE OF CONTENTS
Page
Use of Proceeds.............................................................2
Investment Objective and Policies...........................................2
Investment Policies and Techniques..........................................4
Other Investment Policies and Techniques....................................6
Management of the Fund.....................................................11
Portfolio Transactions and Brokerage.......................................19
Description of Shares......................................................19
Repurchase of Common Shares................................................20
Tax Matters................................................................21
Experts....................................................................25
Additional Information.....................................................25
Report of Independent Accountants.........................................F-1
Financial Statements......................................................F-2
Appendix A Ratings of Investments........................................A-1
Appendix B Proxy Voting Policy and Procedures............................B-1
This Statement of Additional Information is dated , 2004.
USE OF PROCEEDS
Pending investment in convertible securities and non-convertible
income securities that meet the Fund's investment objective and policies, the
net proceeds of the offering will be invested in high quality, short-term
fixed income securities and money market securities to the extent such
securities are available. See "Investment Policies and Techniques - Short-Term
Fixed Income Securities."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide total return through a
combination of capital appreciation and current income. There can be no
assurance that the Fund's investment objective will be achieved.
Investment Restrictions
Except as described below, the Fund, as a fundamental policy, may
not, without the approval of the holders of a majority of the outstanding
common shares and Preferred Shares voting together as a single class, and of
the holders of a majority of the outstanding Preferred Shares voting as a
separate class:
(1) invest 25% or more of the value of its Managed Assets in
any one industry, provided that this limitation does not apply to
government securities;
(2) with respect to 75% of its Managed Assets, invest more
than 5% of the value of its Managed Assets in the securities of any
single issuer or purchase more than 10% of the outstanding voting
securities of any one issuer;
(3) issue senior securities or borrow money other than as
permitted by the Investment Company Act of 1940, as amended (the
"Investment Company Act") (see "Borrowings and Preferred Shares" in
the prospectus), or pledge its assets other than to secure such
issuances or in connection with Strategic Transactions and other
investment strategies;
(4) make loans of money or property to any person, except
through loans of portfolio securities, the purchase of convertible
securities and non-convertible income securities consistent with the
Fund's investment objective and policies or the entry into repurchase
agreements;
(5) underwrite the securities of other issuers, except to
the extent that in connection with the disposition of portfolio
securities or the sale of its own securities the Fund may be deemed
to be an underwriter;
(6) purchase or sell real estate, except that the Fund may
invest in securities of companies that deal in real estate or are
engaged in the real estate business, including real estate investment
trusts, and securities secured by real estate or interests therein
and the Fund may hold and sell real estate or mortgages on real
estate acquired through default, liquidation or other distributions
of an interest in real estate as a result of the Fund's ownership of
such securities; or
(7) purchase or sell commodities or commodity contracts for
any purposes except as, and to the extent, permitted by applicable
law without the Fund becoming subject to registration with the
Commodity Futures Trading Commission (the "CFTC") as a commodity
pool.
When used with respect to particular shares of the Fund, "majority of
the outstanding" means (i) 67% or more of the shares present at a meeting, if
the holders of more than 50% of the shares are present or represented by
proxy, or (ii) more than 50% of the 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) make any short sale of securities except in conformity
with applicable laws, rules and regulations and unless after giving
effect to such sale, the market value of all securities sold short
does not exceed 25% of the value of the Fund's Managed Assets and the
Fund's aggregate short sales of a particular class of securities does
not exceed 25% of the then outstanding securities of that class. The
Fund may also make short sales "against the box" without respect to
such limitations. In this type of short sale, at the time of the
sale, the Fund owns or has the immediate and unconditional right to
acquire at no additional cost the identical security;
(2) purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company Act or any
exemptive relief obtained thereunder; or
(3) purchase securities of companies for the purpose of
exercising control.
Under the Investment Company Act, the Fund may invest up to 10% of
its total assets in the aggregate in shares of other investment companies and
up to 5% of its total assets in any one investment company, provided the
investment does not represent more than 3% of the voting stock of the acquired
investment company at the time such shares are purchased. As a shareholder in
any investment company, the Fund will bear its ratable share of that
investment company's expenses, and will remain subject to payment of the
Fund's advisory and management fees and other expenses with respect to assets
so invested. Holders of common shares will therefore be subject to duplicative
expenses to the extent the Fund invests in other investment companies. In
addition, the securities of other investment companies may also be leveraged
and will therefore be subject to the same leverage risks described herein and
in the prospectus. As described in the prospectus in the section entitled
"Risks," the net asset value and market value of leveraged shares will be more
volatile and the yield to shareholders will tend to fluctuate more than the
yield generated by unleveraged shares.
With respect to the Fund's non-fundamental policy of investing at
least 55% of its Managed Assets in a diversified portfolio of equity and
convertible securities of U.S. and non-U.S. issuers and up to 45% of the
Fund's Managed Assets in high yield securities, the Fund has adopted a policy
to provide shareholders of the Fund at least 60 days' prior notice of any
change in this non-fundamental investment policy, if the change is not first
approved by shareholders, which notice will comply with the Investment Company
Act and the rules and regulations thereunder. The restrictions and other
limitations set forth above will apply only at the time of purchase of
securities and will not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of the acquisition of
securities.
In addition, to comply with Federal tax requirements for
qualification as a "regulated investment company," the Fund's investments will
be limited in a manner such that at the close of each quarter of each taxable
year, (a) no more than 25% of the value of the Fund's total assets are
invested in the securities (other than United States government securities or
securities of other regulated investment companies) of a single issuer or two
or more issuers controlled by the Fund and engaged in the same, similar or
related trades or businesses and (b) with regard to at least 50% of the Fund's
total assets, no more than 5% of its total assets are invested in the
securities (other than United States government securities or securities of
other regulated investment companies) of a single issuer and such securities
do not represent more than 10 percent of the voting securities of such issuer.
These tax-related limitations may be changed by the trustees to the extent
appropriate in light of changes to applicable tax requirements.
The Fund anticipates that it will apply for ratings for any Preferred
Shares it issues from Moody's Investors Service, Inc. ("Moody's"), Fitch
Ratings ("Fitch") and/or Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies ("S&P"). In order to obtain and maintain the required
ratings, the Fund will be required to comply with investment quality,
diversification and other guidelines established by Moody's, Fitch and/or S&P.
Such guidelines will likely be more restrictive than the restrictions set
forth above. The Fund does not anticipate that such guidelines would have a
material adverse effect on the Fund's holders of common shares or its ability
to achieve its investment objective. The Fund presently anticipates that any
Preferred Shares that it issues would be initially given the highest ratings
by Moody's (Aaa), Fitch (AAA) and/or S&P (AAA), but no assurance can be given
that such ratings will be obtained. No minimum rating is required for the
issuance of Preferred Shares by the Fund. Moody's, Fitch and S&P receive fees
in connection with their ratings issuances.
INVESTMENT POLICIES AND TECHNIQUES
Under normal market conditions, the Fund will invest at least 55% of
its Managed Assets in a diversified portfolio of equity securities and
convertible securities of U.S. and non-U.S. issuers. It is anticipated that up
to 45% of the Fund's Managed Assets will be invested in non-convertible high
yield securities and that, initially, approximately 25% of the Fund's Managed
Assets will be invested in securities issued by non-U.S. issuers. The portion
of the Fund's Managed Assets invested in convertible securities, equity
securities and non-convertible high yield securities, as well as the portion
invested in securities issued by U.S. and non-U.S. issuers, will vary from
time to time consistent with the Fund's investment objective, changes in
equity prices and changes in interest rates and other economic and market
factors. All of the Fund's Managed Assets may from time to time be invested in
lower grade securities. Lower grade securities are rated Ba or lower by
Moody's Investors Service, Inc. ("Moody's") or BB or lower by Standard &
Poor's Ratings Group, a division of The McGraw Hill Companies ("S&P"), or are
unrated securities of comparable quality as determined by Advent Capital
Management, LLC, the Fund's Investment Manager. Lower grade securities are
commonly referred to as "junk bonds" and are considered speculative with
respect to the issuer's capacity to pay interest and repay principal. They
involve greater risk of loss, are subject to greater price volatility and are
less liquid, especially during periods of economic uncertainty or change, than
higher rated securities.
Investment Philosophy and Process
The prospectus presents the investment objective and the principal
investment strategies and risks of the Fund. This section supplements the
disclosure in the Fund's prospectus and provides additional information on the
Fund's investment policies or restrictions. Restrictions or policies stated as
a maximum percentage of the Fund's assets are only applied immediately after a
portfolio investment to which the policy or restriction is applicable (other
than the limitations on borrowing). Accordingly, any later increase or
decrease resulting from a change in values, net assets or other circumstances
will not be considered in determining whether the investment complies with the
Fund's restrictions and policies.
Distressed securities. The Fund may hold securities that become the
subject of bankruptcy proceedings or are otherwise in default as to the
repayment of principal and/or payment of interest. The Fund may also hold
securities whose ratings are in the lower rating categories (Ca or lower by
Moody's or CC or lower by Standard & Poor's) or which are unrated investments
considered by the Investment Manager to be of comparable quality. Investment
in distressed securities is speculative and involves significant risk.
Distressed securities frequently do not produce income while they are
outstanding and may require the Fund to bear certain extraordinary expenses in
order to protect and recover its investment. Therefore, to the extent the Fund
seeks capital appreciation through investment in distressed securities, the
Fund's ability to achieve current income for its shareholders may be
diminished. The Fund also will be subject to significant uncertainty as to
when and in what manner and for what value the obligations evidenced by the
distressed securities will eventually be satisfied (e.g., through a
liquidation of the obligor's assets, an exchange offer or plan of
reorganization involving the distressed securities or a payment of some amount
in satisfaction of the obligation). In addition, even if an exchange offer is
made or a plan of reorganization is adopted with respect to distressed
securities held by the Fund, there can be no assurance that the securities or
other assets received by the Fund in connection with such exchange offer or
plan of reorganization will not have a lower value or income potential than
may have been anticipated when the investment was made. Moreover, any
securities received by the Fund upon completion of an exchange offer or plan
of reorganization may be restricted as to resale. As a result of the Fund's
participation in negotiations with respect to any exchange offer or plan of
reorganization with respect to an issuer of distressed securities, the Fund
may be restricted from disposing of such securities.
Short-Term Fixed Income Securities
For temporary defensive purposes or to keep cash on hand fully
invested, the Fund may invest up to 100% of its Managed Assets in cash
equivalents and short-term fixed income securities. Short-term fixed income
investments are defined to include, without limitation, the following:
(1) U.S. government securities, including bills, notes and
bonds differing as to maturity and rates of interest that are either
issued or guaranteed by the U.S. Treasury or by U.S. government
agencies or instrumentalities. U.S. government securities include
securities issued by (a) the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small
Business Administration and Government National Mortgage Association,
whose securities are supported by the full faith and credit of the
United States; (b) the Federal Home Loan Banks, Federal Intermediate
Credit Banks and Tennessee Valley Authority, whose securities are
supported by the right of the agency to borrow from the U.S.
Treasury; (c) the Federal National Mortgage Association, whose
securities are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or
instrumentality; and (d) the Student Loan Marketing Association,
whose securities are supported only by its credit. While the U.S.
government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can
be given that it always will do so since it is not so obligated by
law. The U.S. government, its agencies and instrumentalities do not
guarantee the market value of their securities. Consequently, the
value of such securities may fluctuate.
(2) Certificates of deposit issued against funds deposited
in a bank or a savings and loan association. Such certificates are
for a definite period of time, earn a specified rate of return and
are normally negotiable. The issuer of a certificate of deposit
agrees to pay the amount deposited plus interest to the bearer of the
certificate on the date specified thereon. Certificates of deposit
purchased by the Fund may not be fully insured by the Federal Deposit
Insurance Corporation.
(3) Repurchase agreements, which involve purchases of debt
securities. At the time the Fund purchases securities pursuant to a
repurchase agreement, it simultaneously agrees to resell and
redeliver such securities to the seller, who also simultaneously
agrees to buy back the securities at a fixed price and time. This
assures a predetermined yield for the Fund during its holding period,
since the resale price is always greater than the purchase price and
reflects an agreed-upon market rate. Such actions afford an
opportunity for the Fund to invest temporarily available cash. The
Fund may enter into repurchase agreements only with respect to
obligations of the U.S. government, its agencies or
instrumentalities; certificates of deposit; or bankers' acceptances
in which the Fund may invest. Repurchase agreements may be considered
loans to the seller, collateralized by the underlying securities.
The risk to the Fund is limited to the ability of the seller
to pay the agreed-upon sum on the repurchase date; in the event of
default, the repurchase agreement provides that the Fund is entitled
to sell the underlying collateral. If the value of the collateral
declines after the agreement is entered into, and if the seller
defaults under a repurchase agreement when the value of the
underlying collateral is less than the repurchase price, the Fund
could incur a loss of both principal and interest. The Investment
Manager monitors the value of the collateral at the time the action
is entered into and at all times during the term of the repurchase
agreement. The Investment Manager does so in an effort to determine
that the value of the collateral always equals or exceeds the
agreed-upon repurchase price to be paid to the Fund. If the seller
were to be subject to a Federal bankruptcy proceeding, the ability of
the Fund to liquidate the collateral could be delayed or impaired
because of certain provisions of the bankruptcy laws.
(4) Commercial paper, which consists of short-term unsecured
promissory notes, including variable rate master demand notes issued
by corporations to finance their current operations. Master demand
notes are direct lending arrangements between the Fund and a
corporation. There is no secondary market for such notes. However,
they are redeemable by the Fund at any time. The Investment Manager
will consider the financial condition of the corporation (e.g.,
earning power, cash flow and other liquidity ratios) and will
continuously monitor the corporation's ability to meet all of its
financial obligations, because the Fund's liquidity might be impaired
if the corporation were unable to pay principal and interest on
demand. Investments in commercial paper will be limited to commercial
paper rated in the two highest categories by a major rating agency or
are unrated but determined to be of comparable quality by the
Investment Manager and which mature within one year of the date of
purchase or carry a variable or floating rate of interest.
Short Sales
The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund may make short
sales to hedge positions, for duration and risk management, in order to
maintain portfolio flexibility or to enhance income or gain.
When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of
the sale. The Fund may have to pay a fee to borrow particular securities and
is often obligated to pay over any payments received on such borrowed
securities.
The Fund's obligation to replace the borrowed security will be
secured by collateral deposited with the broker-dealer, usually cash, U.S.
government securities or other liquid securities. The Fund will also be
required to designate on its books and records similar collateral with its
custodian to the extent, if any, necessary so that the aggregate collateral
value is at all times at least equal to the current market value of the
security sold short. Depending on arrangements made with the broker-dealer
from which it borrowed the security regarding payment over of any payments
received by the Fund on such security, the Fund may not receive any payments
(including interest) on its collateral deposited with such broker-dealer.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at
which it sold the security short, its potential loss is theoretically
unlimited.
The Fund will not make a short sale if, after giving effect to such
sale, the market value of all securities sold short exceeds 25% of the value
of its Managed Assets or the Fund's aggregate short sales of a particular
class of securities exceeds 25% of the outstanding securities of that class.
The Fund may also make short sales "against the box" without respect to such
limitations. In this type of short sale, at the time of the sale, the Fund
owns or has the immediate and unconditional right to acquire at no additional
cost the identical security.
OTHER INVESTMENT POLICIES AND TECHNIQUES
Borrowing
Although the Fund is authorized by its fundamental investment
restrictions to issue Preferred Shares in an amount up to 50% of its Managed
Assets, the Fund anticipates that under current market conditions it will
offer Preferred Shares representing no more than 33% of its Managed Assets
immediately after the issuance of the Preferred Shares. The Fund reserves the
right to borrow funds to the extent permitted as described under the caption
"Investment Objective and Policies-Investment Restrictions." The proceeds of
borrowings may be used for any valid purpose including, without limitation,
liquidity, investments and repurchases of shares of the Fund. Borrowing is a
form of leverage and, in that respect, entails risks comparable to those
associated with the issuance of Preferred Shares.
Strategic Transactions
Consistent with its investment objective and policies as set forth
herein, the Fund may also enter into certain hedging and risk management
transactions. In particular, the Fund may purchase and sell futures contracts,
exchange-listed and over-the-counter put and call options on securities,
financial indices and futures contracts, forward foreign currency contracts
and may enter into various interest rate transactions (collectively,
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of the Fund's portfolio
resulting from fluctuations in the securities markets and changes in interest
rates, to protect the Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes
or to establish a position in the securities markets as a temporary substitute
for purchasing particular securities. Any or all of these techniques may be
used at any time. There is no particular strategy that requires use of one
technique rather than another. Use of any Strategic Transaction is a function
of market conditions. The Strategic Transactions that the Fund may use are
described below. The ability of the Fund to hedge successfully will depend on
the Investment Manager's ability to predict pertinent market movements, which
cannot be assured.
Interest rate transactions. Among the Strategic Transactions into
which the Fund may enter are interest rate swaps and the purchase or sale of
interest rate caps and floors. The Fund expects to enter into the transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio as a duration management techniques or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date or, as discussed in the prospectus, to hedge against increased Preferred
Share dividend rates or increases in the Fund's cost of borrowing.
Futures contracts and options on futures contracts. In connection
with its hedging and other risk management strategies, the Fund may also enter
into contracts for the purchase or sale for future delivery ("future
contracts") of securities, aggregates of securities, financial indices and
U.S. government debt securities or options on the foregoing securities to
hedge the value of its portfolio securities that might result from a change in
interest rates or market movements. The Fund will engage in such transactions
only for bona fide hedging, risk management and other appropriate portfolio
management purposes. In each case the Fund will engage in such transactions in
accordance with the rules and regulations of the CFTC.
Credit derivatives. The Fund may engage in credit derivative
transactions. There are two broad categories of credit derivatives: default
price risk derivatives and market spread derivatives. Default price risk
derivatives are linked to the price of reference securities or loans after a
default by the issuer or borrower, respectively. Market spread derivatives are
based on the risk that changes in market factors, such as credit spreads, can
cause a decline in the value of a security, loan or index. There are three
basic transactional forms or credit derivatives: swaps, options and structured
instruments. The use of credit derivatives is a highly specialized activity
which involves strategies and risks different from those associated with
ordinary portfolio security transactions. If incorrect in its forecasts of
default risks, market spreads or other applicable factors, the investment
performance of the Fund would diminish compared with what it would have been
if these techniques were not used. Moreover, even if it is correct in its
forecasts, there is a risk that a credit derivative position may correlate
imperfectly with the price of the asset or liability being hedged. There is no
limit on the amount of credit derivative transactions that may be entered into
by the Fund for hedging purposes. The Fund's risk of loss in a credit
derivative transaction varies with the form of the transaction. For example,
if the Fund purchases a default option on a security, and if no default occurs
with respect to the security, the Fund's loss is limited to the premium it
paid for the default option. In contrast, if there is a default by the grantor
of a default option, the Fund's loss will include both the premium that it
paid for the option and the decline in value of the underlying security that
the default option hedged.
Calls on securities, indices and futures contracts. In order to
enhance income or reduce fluctuations in net asset value, the Fund may sell or
purchase call options ("calls") on securities and indices based upon the
prices of securities that are traded on U.S. securities exchanges and to the
over-the-counter markets. A call option gives the purchaser of the option the
right to buy, and obligates the seller to sell, the underlying security,
futures contract or index at the exercise price at any time or at a specified
time during the option period. All such calls sold by the Fund must be
"covered" as long as the call is outstanding (i.e., the Fund must own the
instrument subject to the call or other securities or assets acceptable for
applicable segregation and coverage requirements). A call sold by the Fund
exposes the Fund during the term of the option to possible loss of opportunity
to realize appreciation in the market price of the underlying security, index
or futures contract and may require the Fund to hold an instrument which it
might otherwise have sold. The purchase of a call gives the Fund the right to
buy the underlying instrument or index at a fixed price. Calls on futures
contracts on securities written by the Fund must also be covered by assets or
instruments acceptable under applicable segregation and coverage requirement.
Puts on securities, indices and futures contracts. As with calls, the
Fund may purchase put options ("puts") on securities (whether or not it holds
such securities in its portfolio). For the same purposes, the Fund may also
sell puts on securities financial indices and puts on futures contracts on
securities if the Fund's contingent obligations on such puts are secured by
segregated assets consisting of cash or liquid high grade debt securities
having a value not less than the exercise price. The Fund will not sell puts
if, as a result, more than 50% of the Fund's assets would be required to cover
its potential obligation under its hedging and other investment transactions.
In selling puts, there is a risk that the Fund may be required to buy the
underlying instrument or index at higher than the current market price.
The principal risks relating to the use of futures and other
Strategic Transitions are: (i) less than perfect correlation between the
prices of the hedging instrument and the market value of the securities in the
Fund's portfolio; (ii) possible lack of a liquid secondary market for closing
out a position in such instruments; (iii) losses resulting from interest rate
or other market movements not anticipated by the Investment Manager; and (iv)
the obligation to meet additional variation margin or other payment
requirements.
Forward currency contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time the forward
currency contract is entered into. Forward currency contracts are traded
directly between currency traders (usually large commercial banks) and their
customers. The Fund may purchase a forward currency contract to lock in the
U.S. dollar price of a security denominated in a foreign currency that the
Fund intends to acquire. The Fund may sell a forward currency contract to lock
in the U.S. dollar equivalent of the proceeds from the anticipated sale of a
security or a dividend or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to shift the Fund's exposure
to foreign currency exchange rate changes from one currency to another. For
example, if the Fund owns securities denominated in a foreign currency and the
Investment Manager believes that currency will decline relative to another
currency, it might enter into a forward currency contract to sell the
appropriate amount of the first foreign currency with payment to be made in
the second currency. The Fund may also purchase forward currency contracts to
enhance income when the Investment Manager anticipates that the foreign
currency will appreciate in value but securities denominated in that currency
do not present attractive investment opportunities.
The Fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in a foreign
currency. Such a hedge would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused
by other factors. The Fund could also hedge the position by entering into a
forward currency contract to sell another currency expected to perform
similarly to the currency in which the Fund's existing investments are
denominated. This type of hedge could offer advantages in terms of cost, yield
or efficiency, but may not hedge currency exposure as effectively as a simple
hedge into U.S. dollars. This type of hedge may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
The Fund may also use forward currency contracts in one currency or a
basket of currencies to attempt to hedge against fluctuations in the value of
securities denominated in a different currency if the Investment Manager
anticipates that there will be a correlation between the two currencies.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of some or all of any expected benefit of the transaction.
Secondary markets generally do not exist for forward currency
contracts, with the result that closing transactions generally can be made for
forward currency contracts only by negotiating directly with the counterparty.
Thus, there can be no assurance that the Fund will in fact be able to close
out a forward currency contract at a favorable price prior to maturity. In
addition, in the event of insolvency of the counterparty, the Fund might be
unable to close out a forward currency contract. In either event, the Fund
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or liquid assets in a segregated
account.
The precise matching of forward currency contract amounts and the
value of the securities involved generally will not be possible because the
value of such securities, measured in the foreign currency, will change after
the forward currency contract has been established. Thus, the Fund might need
to purchase or sell foreign currencies in the spot cash market to the extent
such foreign currencies are not covered by forward currency contracts. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Certain provisions of the Code may restrict or affect the ability of the Fund
to engage in Strategic Transactions. See "Tax Matters."
Repurchase Agreements
As temporary investments, the Fund may invest in repurchase
agreements. A repurchase agreement is a contractual agreement whereby the
seller of securities agrees to repurchase the same security at a specified
price on a future date agreed upon by the parties. The agreed-upon repurchase
price determines the yield during the Fund's holding period. Repurchase
agreements are considered to be loans collateralized by the underlying
security that is the subject of the repurchase contract. The Fund will only
enter into repurchase agreements with registered securities dealers or
domestic banks that, in the opinion of the Investment Manager, present minimal
credit risk. The risk to the Fund is limited to the ability of the issuer to
pay the agreed-upon repurchase price on the delivery date; however, although
the value of the underlying collateral at the time the transaction is entered
into always equals or exceeds the agreed-upon repurchase price, if the value
of the collateral declines there is a risk of loss of both principal and
interest. In the event of default, the collateral may be sold but the Fund
might incur a loss if the value of the collateral declines, and might incur
disposition costs or experience delays in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, realization upon the collateral by the Fund may
be delayed or limited. The Investment Manager will monitor the value of the
collateral at the time the transaction is entered into and at all times
subsequent during the term of the repurchase agreement in an effort to
determine that such value always equals or exceeds the agreed-upon repurchase
price. In the event the value of the collateral declines below the repurchase
price, the Investment Manager will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price, including interest.
Lending Of Securities
The Fund may lend its portfolio securities to banks or dealers which
meet the creditworthiness standards established by the Board of Trustees of
the Fund ("Qualified Institutions"). By lending its portfolio securities, the
Fund attempts to increase its income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that may
occur during the term of the loan will be for the account of the Fund. The
Fund may lend its portfolio securities so long as the terms and the structure
of such loans are not inconsistent with requirements of the Investment Company
Act, which currently require that (i) the borrower pledge and maintain with
the Fund collateral consisting of cash, a letter of credit issued by a
domestic U.S. bank or securities issued or guaranteed by the U.S. government
having a value at all times not less than 100% of the value of the securities
loaned, (ii) the borrower add to such collateral whenever the price of the
securities loaned rises (i.e., the value of the loan is "marked to the market"
on a daily basis), (iii) the loan be made subject to termination by the Fund
at any time and (iv) the Fund receive reasonable interest on the loan (which
may include the Fund's investing any cash collateral in interest bearing short
term investments), any distributions on the loaned securities and any increase
in their market value. The Fund will not lend portfolio securities if, as a
result, the aggregate of such loans exceeds 33 1/3% of the value of the Fund's
total assets (including such loans). Loan arrangements made by the Fund will
comply with all other applicable regulatory requirements, including the rules
of the New York Stock Exchange, which rules presently require the borrower,
after notice, to redeliver the securities within the normal settlement time of
five business days. All relevant facts and circumstances, including the
creditworthiness of the Qualified Institution, will be monitored by the
Investment Manager, and will be considered in making decisions with respect to
lending securities, subject to review by the Fund's Board of Trustees.
The Fund may pay reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the Fund's Board of Trustees. In addition, voting rights may pass
with the loaned securities, but if a material event were to occur affecting
such a loan, the loan must be called and the securities voted.
When-Issued and Forward Commitment Securities
The Fund may purchase bonds on a "when-issued" basis and may purchase
or sell bonds on a "forward commitment" basis. When such transactions are
negotiated, the price, which is generally expressed in yield terms, is fixed
at the time the commitment is made, but delivery and payment for the
securities take place at a later date. When-issued and forward commitment
securities may be sold prior to the settlement date, but the Fund will enter
into when-issued and forward commitment securities only with the intention of
actually receiving or delivering the securities, as the case may be. If the
Fund disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss. At the time the Fund entered into a
transaction on a when-issued or forward commitment basis, it may segregate
with its custodian cash or other liquid securities with a value not less than
the value of the when-issued or forward commitment securities. The value of
these assets will be monitored daily to ensure that their marked to market
value will at all times equal or exceed the corresponding obligations of the
Fund. There is always a risk that the securities may not be delivered and that
the Fund may incur a loss. Settlements in the ordinary course are not treated
by the Fund as when-issued or forward commitment transactions and accordingly
are not subject to the foregoing restrictions.
Pay-In-Kind Securities
The Fund may invest pay-in-kind, or "PIK," securities. PIK securities
are securities which pay interest through the issuance of additional debt or
equity securities. Similar to zero coupon obligations, PIK securities also
carry additional risk as holders of these types of securities realize no cash
until the cash payment date unless a portion of such securities is sold and,
if the issuer defaults, the Fund may obtain no return at all on its
investment. The market price of PIK securities is affected by interest rate
changes to a greater extent, and therefore tends to be more volatile, than
that of securities which pay interest in cash. Additionally, current Federal
tax law requires the holder of certain PIK securities to accrue income with
respect to these securities prior to the receipt of cash payments. To maintain
its qualification as a regulated investment company and avoid liability for
Federal income and excise taxes, the Fund may be required to distribute income
accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.
Brady Bonds
The Fund's emerging market debt securities may include emerging
market governmental debt obligations commonly referred to as Brady Bonds.
Brady Bonds are debt securities, generally denominated in U.S. dollars, issued
under the framework of the Brady Plan, an initiative announced by U.S.
Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations
(primarily emerging market countries) to restructure their outstanding
external indebtedness (generally, commercial bank debt). Brady Bonds are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring. A
significant amount of the Brady Bonds that the Fund may purchase have no or
limited collateralization, and the Fund will be relying for payment of
interest and (except in the case of principal collateralized Brady Bonds)
principal primarily on the willingness and ability of the foreign government
to make payment in accordance with the terms of the Brady Bonds. A substantial
portion of the Brady Bonds and other sovereign debt securities in which the
Fund may invest are likely to be acquired at a discount.
Zero Coupon Bonds
The Fund may invest in zero-coupon bonds, which are normally issued
at a significant discount from face value and do not provide for periodic
interest payments. Zero-coupon bonds may experience greater volatility in
market value than similar maturity debt obligations which provide for regular
interest payments. Additionally, current Federal tax law requires the holder
of certain zero-coupon bonds to accrue income with respect to these securities
prior to the receipt of cash payments. To maintain its qualification as a
regulated investment company and to potentially avoid liability for Federal
income and excise taxes, the Fund may be required to distribute income accrued
with respect to these securities and may have to dispose of Fund securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements. See "Tax Matters."
Structured Investments
The Fund may invest a portion of its assets in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of securities. This type of restructuring involves the deposit
with or purchase by an entity, such as a corporation or a trust, of specified
instruments and the issuance by that entity of one or more classes of
securities ("Structured Investments") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Investments is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Investments of the type
in which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
The Fund is permitted to invest in a class of Structured Investments
that is either subordinated or not subordinated to the right of payment of
another class. Subordinated Structured Investments typically have higher
yields and present greater risks than unsubordinated Structured Investments.
Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the Investment Company Act. As a result,
the Fund's investment in these Structured Investments may be limited by the
restrictions contained in the Investment Company Act. Structured Investments
are typically sold in private placement transactions, and there currently is
no active trading market for Structured Investments.
Warrants
The Fund may acquire warrants for equity securities and debt
securities that are acquired as units with debt securities. Warrants are
securities permitting, but not obligating, their holder to subscribe to other
securities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As
a result, warrants may be considered more speculative than certain other types
of investments. In addition, the value of a warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to its expiration date. The Fund does
not intend to retain in its portfolio any common stock received upon the
exercise of a warrant and will sell the common stock as promptly as
practicable and in the manner that it believes will reduce its risk of a loss
in connection with the sale.
MANAGEMENT OF THE FUND
Investment Advisory Agreement
Although the Advisor intends to devote such time and effort to the
business of the Fund as is reasonably necessary to perform its duties to the
Fund, the services of the Advisor are not exclusive, and the Advisor provides
similar services to other clients and may engage in other activities.
The investment advisory agreement was approved by the Fund's Board of
Trustees at an in-person meeting of the Board of Trustees held on March 30,
2004, including a majority of the trustees who are not parties to the
agreement or interested persons of any such party (as such term is defined in
the Investment Company Act). This agreement provides for the Fund to pay an
advisory fee to the Advisor, such advisory fee being payable monthly in
arrears at an annual rate equal to 0.49% of the average weekly value of the
Fund's Managed Assets.
The investment advisory agreement was approved by the sole common
shareholder of the Fund on , 2004. The investment advisory agreement will
continue in effect for a period of two years from its effective date, and if
not sooner terminated, will continue in effect for successive periods of 12
months thereafter, provided that each continuance is specifically approved at
least annually by both (1) the vote of a majority of the Fund's Board of
Trustees or the vote of a majority of the outstanding voting securities of the
Fund at the time outstanding and entitled to vote (as such term is defined in
the Investment Company Act) and (2) by the vote of a majority of the trustees
who are not parties to the investment management agreement or interested
persons (as such term is defined in the Investment Company Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The investment advisory agreement may be terminated as a whole at
any time by the Fund, without the payment of any penalty, upon the vote of a
majority of the Fund's Board of Trustees or a majority of the outstanding
voting securities of the Fund or by the Advisor, on 60 days' written notice by
either party to the other which can be waived by the non-terminating party.
The investment advisory agreement will terminate automatically in the event of
its assignment (as such term is defined in the Investment Company Act and the
rules thereunder).
The investment advisory agreement also provides that in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, the Advisor is not liable to the Fund or any of
the Fund's shareholders for any act or omission by the Advisor in the
supervision or management of its respective investment activities or for any
loss sustained by the Fund or the Fund's shareholders and provides for
indemnification by the Fund of the Advisor, its directors, officers,
employees, agents and control persons for liabilities incurred by them in
connection with their services to the Fund, subject to certain limitations and
conditions.
The business address of the Advisor is 210 N. Hale Street, Wheaton,
Illinois 60187.
Investment Management Agreement
Although Advent intends to devote such time and effort to the
business of the Fund as is reasonably necessary to perform its duties to the
Fund, the services of Advent are not exclusive, and Advent provides similar
services to other clients and may engage in other activities.
The investment management agreement was approved by the Fund's Board
of Trustees at an in-person meeting of the Board of Trustees held on March 30,
2004, including a majority of the trustees who are not parties to the
agreement or interested persons of any such party (as such term is defined in
the Investment Company Act). This agreement provides for the Fund to pay a
management fee to the Investment Manager, such management fee being payable
monthly in arrears at an annual rate equal to 0.51% of the average weekly
value of the Fund's Managed Assets.
The investment management agreement was approved by the sole common
shareholder of the Fund on , 2004. The investment management agreement
will continue in effect for a period of two years from its effective date, and
if not sooner terminated, will continue in effect for successive periods of 12
months thereafter, provided that each continuance is specifically approved at
least annually by both (1) the vote of a majority of the Fund's Board of
Trustees or the vote of a majority of the outstanding voting securities of the
Fund at the time outstanding and entitled to vote (as such term is defined in
the Investment Company Act) and (2) by the vote of a majority of the trustees
who are not parties to the investment management agreement or interested
persons (as such term is defined in the Investment Company Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The investment management agreement may be terminated as a whole at
any time by the Fund, without the payment of any penalty, upon the vote of a
majority of the Fund's Board of Trustees or a majority of the outstanding
voting securities of the Fund or by the Investment Manager, on 60 days'
written notice by either party to the other which can be waived by the
non-terminating party. The investment management agreement will terminate
automatically in the event of its assignment (as such term is defined in the
Investment Company Act and the rules thereunder).
The investment management agreement also provides that in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, the Investment Manager is not liable to the Fund
or any of the Fund's shareholders for any act or omission by the Investment
Manager in the supervision or management of its respective investment
activities or for any loss sustained by the Fund or the Fund's shareholders
and provides for indemnification by the Fund of the Investment Manager, its
directors, officers, employees, agents and control persons for liabilities
incurred by them in connection with their services to the Fund, subject to
certain limitations and conditions.
Board Consideration of Investment Advisory Agreement and Investment Management
Agreement
In approving the investment advisory agreement and the investment
management agreement, the Board of Trustees considered, among other things,
(i) the investment objective and policies of the Fund, (ii) the team of
investment advisory personnel assigned to the Fund, some of whom were present
at the meeting at which the agreements were approved, (iii) the nature and
quality of the services to be provided to the Fund by the Advisor and the
Investment Manager, (iv) the Fund's fee and expense data as compared to a peer
group of closed-end funds with similar investment strategies as the Fund and
(v) the direct and indirect benefits to the Advisor and the Investment Manager
from their relationship with the Fund.
During its deliberations, the Board of Trustees focused on the
experience, resources and strengths of (i) the Investment Manager in managing
investment companies that invest in, among other types of investments,
convertible securities and (ii) the Advisor in supervising the investment
activities of certain non-affiliate closed-end fund managers, strategizing
with such fund managers as to the investment programs of the funds they manage
and providing various administrative and shareholder support services to
closed-end funds. The Board of Trustees discussed with the portfolio managers
the investment policies of the Fund and the means by which they intend to
pursue those policies and how those means may differ from the means employed
with respect to other funds managed by the Investment Manager and/or the
Advisor with different investment objectives and policies. The Board of
Trustees, based on their experience as directors or trustees of other
investment companies managed by the Investment Manager, also focused on the
quality of the compliance and administrative staff at the Advisor and the
Investment Manager and assured themselves that the services provided by such
staff would be made available to the Fund. The Board of Trustees also focused
on the Fund's advisory fee rate, investment management fee rate, aggregate
advisory fee rate and anticipated expense ratios as compared to those of
comparable closed-end funds with comparable investment objectives and
strategies (such information was provided by the Advisor and was based on
publicly available information).
Based on the information reviewed or discussions held with respect to
each of the foregoing items, the Board of Trustees, including a majority of
the non-interested trustees, concluded that it was satisfied with the nature
and quality of the services to be provided by each of the Advisor and the
Investment Manager to the Fund and that each of the advisory fee rate and
investment management fee rate was reasonable in relation to such services.
The non-interested trustees were represented by independent counsel who
assisted them in their deliberations. The Board of Trustees were informed by
the independent counsel to the non-interested trustees that they were not to
consider any fees being paid by the Advisor and/or the Investment Manager
to third parties when considering the reasonableness of the fees being paid
to the Advisor and/or the Investment Manager by the Fund.
Trustees and Officers
The officers of the Fund manage its day-to-day operations. The
officers are directly responsible to the Fund's Board of Trustees which sets
broad policies for the Fund and chooses its officers. Following is a list of
his present positions and principal occupations during the last five years.
The business address of the Fund, the Investment Manager and the Fund's board
members and officers is 1065 Avenue of the Americas, 31st Floor, New York, New
York 10018, unless specified otherwise below.
INDEPENDENT TRUSTEES
Name, Address, Age Term of Office Principal Occupation
and Position(s) Held and Length of During the Past Five Years Other Directorships
with Registrant Time Served and Other Affiliations Held by Trustee
-------------------------------------------------------------------------------------------------------------------
Derek Medina Three years(1)(2) Executive Director, Office of Director of Young Scholar's
ABC News the President at ABC News from Institute. Former Director of
47 West 66th Street 2000-present. Formerly Director Episcopal Social Services.
New York, NY 10023 of Business Affairs at ABC News Trustee of Advent Claymore
Age: 37 (1998-2000). Former Associate Convertible Securities and Income
Trustee at Cleary Gottlieb Steen & Fund.
Hamilton (1995-1998). Former
Associate in Corporate Finance
at J.P. Morgan/ Morgan Guaranty
1988-1990).
Ronald A. Nyberg Three years(1)(2) Founding Partner of Nyberg & Director, Juvenile Diabetes
200 East 5th Avenue Gustafson, a law firm Research Foundation, Chicago
Suite 116 specializing in Corporate Law, Chapter, and Edward Hospital
Naperville, IL 60563 Estate Planning and Business Foundation, Naperville, IL;
Age: 50 Transactions from 2000-present. Trustee, North Park University,
Trustee Formerly, Executive Vice Chicago; Trustee, MBIA
President, General Counsel and Capital/Claymore Managed Duration
Corporate Secretary of Van Investment Grade Municipal Fund,
Kampen Investments (1982-1999). Western Asset/Claymore U.S.
Former Associate of Querrey & Treasury Inflation Protected
Harrow, a law firm (1978-1982). Securities Fund; Dreman/Claymore
Dividend and Income Fund; Advent
Claymore Convertible Securities
and Income Fund.
Gerald L. Seizert, CFP Three years(1)(2) Chief Executive Officer of Former Director of Loomis, Sayles
Seizert Capital Partners, LLC Seizert Capital Partners, LLC and Co., L.P. Trustee of Advent
1668 S. Telegraph where he directs the equity dis- Claymore Convertible Securities
Suite 120 ciplines of the firm and serves and Income Fund.
Bloomfield Hills, MI 48302 as a co-manager of the firm's
Age: 51 hedge fund, Proper Associates,
Trustee LLC from 2000-present. Formerly
Co-Chief Executive (1998-1999)
and a Managing Partner and Chief
Investment Officer-Equities of
Munder Capital Management, LLC
(1995-1999). Former Vice
President and Portfolio Manager
of Loomis, Sayles & Co., L.P.
(1984-1995). Former Vice
President and Portfolio Manager
at First of America Bank
(1978-1984).
Ronald E. Toupin, Jr. Three years(1)(2) Formerly Vice President, Manager Trustee, MBIA Capital/Claymore
117 Ashland Avenue and Portfolio Manager of Nuveen Managed Duration Investment Grade
River Forest, IL 60305 Asset Management (1998-1999), Municipal Fund, Western
Age: 45 Vice President of Nuveen Asset/Claymore U.S. Treasury
Trustee Investment Advisory Corporation Inflation Protected Securities
(1992-1999), Vice President and Fund; Dreman/Claymore Dividend
Manager of Nuveen Unit and Income Fund, Advent Claymore
Investment Trusts (1991-1999), Convertible Securities and Income
and Assistant Vice President and Fund.
Portfolio Manager of Nuveen Unit
Trusts (1988-1999), each of John
Nuveen & Company, Inc.
(1982-1999).
Tracy V. Maitland Three years(1)(2) President of Advent Capital Trustee of Advent Claymore
1065 Avenue of the Americas Management, LLC, which he Convertible Securities and Income
31st Floor founded in June, 2001. Prior to Fund.
New York, NY 10018 June, 2001, President of Advent
Age: 43 Capital Management, a division
Trustee, President and Chief of Utendahl Capital.
Executive Officer
Nicholas Dalmaso Three years(1)(2) Senior Managing Director and Trustee, MBIA Capital/Claymore
210 N. Hale Street General Counsel of Claymore Managed Duration Investment Grade
Wheaton, IL 60187 Advisors, LLC and Claymore Municipal Fund, Western
Age: 39 Securities, Inc. from Asset/Claymore U.S. Treasury
Trustee 2001-present. Manager, Claymore Inflation Protection Securities
Fund Management Company, LLC, Fund, F&C Claymore Preferred
Vice President, Boyar Value Securities & Income Fund,
Fund. Formerly, Assistant Flaherty & Crumrine/Claymore
General Counsel, John Nuveen and Total Return Fund, Western Asset/
Company Inc. (1999-2000). Claymore U.S. Treasury Inflation
Former Vice President and Protected Securities Fund; Dreman/
Associate General Counsel of Van Claymore Dividend & Income Fund, Advent
Kampen Investments, Inc. laymore Convertible Securities and
(1992-1999). Income Fund.
Michael A. Smart Three years(1)(2) Managing Partner, Williams Director, Country Pure Foods.
Williams Capital Partners, L.P. (3) Capital Partners, L.P., Advisor Trustee of Advent Claymore
650 Fifth Avenue to First Atlantic Capital Ltd., Convertible Securities and Income
New York, NY 10019 a private equity firm, from Fund.
Age: 43 2001-present. Formerly a
Trustee Managing Director in Investment
Banking-The Private Equity Group
(1995-2001) and a Vice President
in Investment Banking-Corporate
Finance (1992-1995) at Merrill
Lynch & Co. Founding Partner of
The Carpediem Group, a private
placement firm (1991-1992).
Former Associate at Dillon, Read
and Co. (1988-1990).
(1) After a trustee's initial term, each trustee is expected to serve a
three-year term concurrent with the class of trustees for which he
serves:
---Messrs. Smart and Nyberg, as Class I trustees, are expected to stand
for re-election at the Trust's 2005 annual meeting of shareholders.
---Messrs. Maitland and Dalmaso, as Class II trustees, are expected to
stand for re-election at the Fund's 2006 annual meeting of shareholders.
---Messrs. Seizert, Toupin and Medina, as Class III trustees, are
expected to stand for re-election at the Fund's 2007 annual meeting of
shareholders.
(2) Each trustee has served in such capacity since the Fund's inception.
(3) Mr. Smart will cease to be an Interested Trustee once Merrill Lynch is
no longer a principal underwriter of the Fund.
OFFICERS
Principal Occupation During the Past
-----------------------------------------------------
Name and Age Title Five Years and Other Affiliations
------------------------------------------------------------------------------------------------------------------
Heidemarie Gregoriev Assistant Secretary Vice President and Assistant General Counsel,
Age: 32 Claymore Advisors, LLC and Claymore Securities,
Inc. (since 2004). Previously, Legal Counsel
for Henderson Global Investors (North America)
Inc. (2001-2004) and Assistant Secretary
(2001-2004) and Chief Legal Officer
(2003-2004) for Henderson Global Funds;
Associate, Gardner, Carton & Douglas
(1997-2001).
F. Barry Nelson Vice President Co-Portfolio Manager and Research Director at Advent
Age: 60 Capital Management, LLC from June, 2000 to
present. Prior to June, 2000, Mr. Nelson held
the same position at Advent Capital Management,
a division of Utendahl Capital.
Paul Latronica Treasurer and Chief Advent Capital Management, LLC: Vice President and
Age: 31 Financial Officer Senior Trader, June, 2000-present. Prior to
June, 2000, Mr. Latronica held the same
position at Advent Capital Management, a
division of Utendahl Capital.
Rodd Baxter Secretary Advent Capital Management, LLC: General
Age: 52 Counsel-Legal, 2002 to present; SG Cowen
Securities Corporation: Director and Senior
Counsel, 1998-2002; Cowen & Co: General Counsel
of Cowen Asset Management, 1992-1998
Steven M. Hill Assistant Treasurer Managing Director of Claymore Advisors, LLC and
Age: 39 Claymore Securities, Inc., 2003 to present;
Treasurer of Henderson Global Funds and
Operations Manager of 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).
Prior to the initial public offering of the Fund's common shares,
all of the outstanding shares of the Fund were owned by
Advent Capital Management, LLC.
Aggregate Dollar Range of
Equity Securities in all
Registered Investment
Dollar Range of Equity Companies Overseen by
Name of Board Member Securities in the Fund(1) Trustees in the Family Companies(1)
--------------------------------------------------------------------------------------------------------
Michael A. Smart $0 $0
Ronald E. Toupin, Jr. $0 $0
Gerald L. Seizert $0 Over $100,000
Ronald Nyberg $0 $0
Derek Medina $0 $0
Tracy V. Maitland $0 Over $100,000
Nicholas Dalmaso $0 $0
(1) As of December 31, 2003.
Each Independent Trustee receives an annual fee of $5,000, plus
$1,000 for each meeting of the Board of Trustees attended by such Independent
Trustee. Each trustee is entitled to reimbursement for all travel and
out-of-pocket expenses of such trustee incurred in connection with attending
each meeting of the Board of Trustees and any committee thereof, and the fees
and expenses of the Independent Trustees of the Fund are paid by the Fund.
Messrs. Medina, Toupin, Jr. and Seizert receive an additional $1,000 per annum
from the Fund for their service on the Audit Committee. It is estimated that
the Independent Trustees will receive from the Fund the amounts set forth
below for the Fund's calendar year ending December 31, 2004, assuming the Fund
was in existence for the full calendar year.
Total Compensation
From the Fund and Fund
Aggregate Compensation Complex Paid to Board
Name of Board Member From Fund Member(1)
--------------------------------------------------------------------------------------------------------
Michael A. Smart $9,000 $19,000(2)
Ronald E. Toupin, Jr. $10,000(2) $20,000(2)
Gerald L. Seizert $10,000(2) $20,000(2)
Ronald Nyberg $9,000 $18,000
Derek Medina $10,000(2) $19,000(2)
(1) States the total compensation anticipated to be earned by such person
during the Fund's first fiscal year ending October 31, 2004 from the
Fund and Advent Claymore Convertible Securities and Income Fund. As of
March 31, 2004, there were no other funds in the Fund Complex.
(2) Includes compensation for service on the Audit Committee.
The Board of Trustees of the Fund currently has two committees: an
Executive Committee and an Audit Committee.
The Executive Committee consists of Tracy V. Maitland and acts in
accordance with the powers permitted to such a committee under the Agreement
and Declaration of Trust and By-Laws of the Fund. The Executive Committee,
subject to the Fund's Agreement and Declaration of Trust, By-Laws and
applicable law, acts on behalf of the full Board of Trustees in the intervals
between meetings of the Board. As of March 31, 2004, the Executive Committee
has not taken any actions on behalf of the Fund.
The Audit Committee consists of Derek Medina, Ronald E. Toupin, Jr.
and Gerald L. Seizert. The Audit Committee acts according to the Audit
Committee charter. The Audit Committee is responsible for reviewing and
evaluating issues related to the accounting and financial reporting policies
of the Fund, overseeing the quality and objectivity of the Fund's financial
statements and the audit thereof and to act as a liaison between the Board of
Trustees and the Fund's independent accountants. The Audit Committee took
certain actions on March 30, 2004, including, among other things, recommending
to the Independent Trustees that the independent auditors of the Fund be
approved as such. The Board of Trustees of the Fund has determined that the
Fund has two audit committee financial experts serving on its Audit Committee,
Mr. Toupin, Jr. and Mr. Seizert, both of whom are independent for the purpose
of the definition of audit committee financial expert as applicable to the
Fund.
No trustee who is not an interested person of the Fund owns
beneficially or of record any security of the Advisor or any person (other
than a registered investment company) directly or indirectly controlling,
controlled by or under common control with the Advisor.
Proxy Voting Policies
The Board of Trustees of the Fund has delegated the voting of proxies
for Fund securities to the Investment Manager pursuant to the Investment
Manager's proxy voting guidelines. Under these guidelines, the Investment
Manager will vote proxies related to Fund securities in the best interests of
the Fund and its shareholders. A copy of the Investment Manager's proxy voting
procedures are attached as Appendix B to this Statement of Additional
Information.
Codes of Ethics
The Fund and the Investment Manager have adopted a consolidated code
of ethics under Rule 17j-1 of the Investment Company Act. The Advisor has
adopted a code of ethics under Rule 17j-1 of the Investment Company Act, as
has its affiliate, Claymore Securities, Inc. These codes permit personnel
subject to the codes to invest in securities, including securities that may be
purchased or held by the Fund. These codes can be reviewed and copied at the
Security and Exchange Commission's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the Security and Exchange Commission at 1-202-942-8090. The
consolidated code of ethics is available on the EDGAR Database on the Security
and Exchange Commission's web site (http://www.sec.gov), and copies of these
codes may be obtained, after paying a duplicating fee, by electronic request
at the following e-mail address: publicinfo@sec.gov, or by writing the
Security and Exchange Commission's Public Reference Section, Washington, D.C.
20549-0102.
Investment Advisor
Claymore Advisors, LLC, a wholly-owned subsidiary of Claymore Group,
LLC, serves as the investment advisor to the Fund. The Advisor is located at
210 N. Hale Street, Wheaton, Illinois 60187. Pursuant to the investment
advisory agreement between the Advisor and the Fund, the Advisor furnishes
offices, necessary facilities and equipment, provides administrative services
to the Fund, oversees the activities of the Fund's Investment Manager,
provides personnel and pays the compensation of all trustees of the Fund who
are its affiliates. Claymore Advisors, LLC has a limited history in advising
registered closed-end investment companies such as the Fund. Claymore
Securities, Inc., an affiliate of the Advisor, is an underwriter in the
offering being made pursuant to this prospectus and acts as servicing agent to
various investment companies. Claymore Securities, Inc. specializes in the
creation, development and distribution of investment solutions for investment
advisors and their valued clients.
Investment Manager
Advent Capital Management, LLC, located at 1065 Avenue of the
Americas, 31st Floor, New York, New York 10018, acts as the Fund's Investment
Manager. Advent operates as a limited liability company and had approximately
$4 billion in assets under management as of March 31, 2004. The Investment
Manager is majority owned and controlled by Tracy V. Maitland. Advent
specializes in managing convertible and high yield securities for
institutional and individual investors. Members of the investment team at
Advent have experience managing equity securities. Advent will be responsible
for the day-to-day management of the Fund, which includes the buying and
selling of securities for the Fund. Advent has limited experience serving as
Investment Manager to registered investment companies.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Board of Trustees and the Advisor,
decisions to buy and sell securities for the Fund and brokerage commission
rates are made by the Investment Manager. Transactions on stock exchanges
involve the payment by the Fund of brokerage commissions. There is generally
no stated commission in the case of securities traded in the over-the counter
market but the price paid by the Fund usually includes an undisclosed dealer
commission or mark-up. In certain instances the Fund may make purchases of
underwritten issues at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, the
Investment Manager will take the following into consideration: the best net
price available; the reliability, integrity and financial condition of the
broker; the size and difficulty in executing the order; and the value of the
expected contribution of the broker to the investment performance of the Fund
on a continuing basis. Accordingly, the cost of the brokerage commissions to
the Fund in any transaction may be greater than that available from other
brokers if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies and procedures
as the trustees may determine, the Investment Manager shall not be deemed to
have acted unlawfully or to have breached any duty solely by reason of it
having caused the Fund to pay a broker that provides research services an
amount of commission for effecting a portfolio investment transaction in
excess of the amount of commission another broker would have charged from
effecting that transaction if the Investment Manager determines in good faith
that such amount of commission was reasonable in relation to the value of the
research service provided by such broker viewed in terms of either that
particular transaction or a series of transactions between such broker and the
Fund or the Investment Manager. Research and investment information may be
provided by these and other brokers at no cost to the Investment Manager and
is available for the benefit of other accounts advised by the Investment
Manager and its affiliates, and not all of the information will be used in
connection with the Fund. While this information may be useful in varying
degrees and may tend to reduce the Investment Manager's expenses, it is not
possible to estimate its value and in the opinion of the Investment Manager it
does not reduce the Investment Manager's expenses in a determinable amount.
The extent to which the Investment Manager makes use of statistical, research
and other services furnished by brokers is considered by the Investment
Manager in the allocation of brokerage business but there is not a formula by
which such business is allocated. The Investment Manager does so in accordance
with its judgment of the best interests of the Fund and its shareholders. The
Investment Manager may also take into account payments made by brokers
effecting transactions for the Fund to other persons on behalf of the Fund for
services provided to it for which it would be obligated to pay (such as
custodial and professional fees). In addition, consistent with the Conduct
Rules of the National Association of Securities Dealers, Inc., and subject to
seeking best price and execution, the Investment Manager may consider sales of
shares of the Fund as a fact in the selection of brokers and dealers to enter
into portfolio transactions with the Fund.
One or more of the other funds which the Investment Manager manages
may own from time to time some of the same investments as the Fund. Investment
decisions for the Fund are made independently from those of such other
investment companies or accounts; however, from time to time, the same
investment decision may be made for more than one company or account. When two
or more companies or accounts seek to purchase or sell the same securities,
the securities actually purchased or sold will be allocated among the
companies and accounts on a good faith equitable basis by the Investment
Manager in its discretion in accordance with the accounts' various investment
objectives. In some cases, this system may adversely affect the price or size
of the position obtainable for the Fund. In other cases, however, the ability
of the Fund to participate in volume transactions may produce better execution
for the Fund. It is the opinion of the Fund's Board of Trustees that this
advantage, when combined with the other benefits available due to the
Investment Manager's organization, outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
DESCRIPTION OF SHARES
Common Shares
The Fund's common shares are described in the prospectus. The Fund
intends to hold annual meetings of shareholders so long as the common shares
are listed on a national securities exchange and such meetings are required as
a condition to such listing.
Preferred Shares
Although the terms of any Preferred Share issued by the Fund,
including their dividend rate, voting rights, liquidation preference and
redemption provisions, will be determined by the Board of Trustees (subject to
applicable law and the Fund's Agreement and Declaration of Trust) when it
authorizes a Preferred Shares offering, the Fund currently expects that the
preference on distributions, liquidation preference, voting rights and
redemption provisions of any such Preferred Shares will likely be as stated in
the prospectus.
If the Board of Trustees determines to proceed with an offering of
Preferred Shares, the terms of the Preferred Shares may be the same as, or
different from, the terms described in the prospectus, subject to applicable
law and the Fund's Agreement and Declaration of Trust. The Board of Trustees,
without the approval of the holders of common shares, may authorize an
offering of Preferred Shares or may determine not to authorize such an
offering, and may fix the terms of the Preferred Shares to be offered.
Other Shares
The Board of Trustees (subject to applicable law and the Fund's
Agreement and Declaration of Trust) may authorize an offering, without the
approval of the holders of either common shares or Preferred Shares, of other
classes of shares, or other classes or series of shares, as they determine to
be necessary, desirable or appropriate, having such terms, rights,
preferences, privileges, limitations and restrictions as the Board of Trustees
sees fit. The Fund currently does not expect to issue any other classes of
shares, or series of shares, except for the common shares and the Preferred
Shares.
REPURCHASE OF COMMON SHARES
The Fund is a closed-end management investment company and as such
its shareholders will not have the right to cause the Fund to redeem their
shares. Instead, the Fund's common shares will trade in the open market at a
price that will be a function of several factors, including dividend levels
(which are in turn affected by expenses), net asset value, call protection,
dividend stability, relative demand for and supply of such shares in the
market, general market and economic conditions and other factors. Because
shares of a closed-end investment company may frequently trade at prices lower
than net asset value, the Fund's Board of Trustees may consider action that
might be taken to reduce or eliminate any material discount from net asset
value in respect of common shares, which may include the repurchase of such
shares in the open market or in private transactions, the making of a tender
offer for such shares or the conversion of the Fund to an open-end investment
company. The Board of Trustees may decide not to take any of these actions. In
addition, there can be no assurance that share repurchases or tender offers,
if undertaken, will reduce market discount.
Notwithstanding the foregoing, at any time when the Fund's Preferred
Shares are outstanding, the Fund may not purchase, redeem or otherwise acquire
any of its common shares unless (1) all accrued Preferred Shares dividends
have been paid and (2) at the time of such purchase, redemption or
acquisition, the net asset value of the Fund's portfolio (determined after
deducting the acquisition price of the common shares) is at least 200% of the
liquidation value of the outstanding Preferred Shares (expected to equal the
original purchase price per share plus any accrued and unpaid dividends
thereon). Any service fees incurred in connection with any tender offer made
by the Fund will be borne by the Fund and will not reduce the stated
consideration to be paid to tendering shareholders.
Subject to its investment restrictions, the Fund may borrow to
finance the repurchase of shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of
cash by the Fund in anticipation of share repurchases or tenders will reduce
the Fund's net income. Any share repurchase, tender offer or borrowing that
might be approved by the Fund's Board of Trustees would have to comply with
the Securities Exchange Act of 1934, as amended, the Investment Company Act
and the rules and regulations thereunder.
Although the decision to take action in response to a discount from
net asset value will be made by the Board of Trustees at the time it considers
such issue, it is the board's present policy, which may be changed by the
Board of Trustees, not to authorize repurchases of common shares or a tender
offer for such shares if: (1) such transactions, if consummated, would (a)
result in the delisting of the common shares from the New York Stock Exchange,
or (b) impair the Fund's status as a regulated investment company under the
Code, (which would make the Fund a taxable entity, causing the Fund's income
to be taxed at the corporate level in addition to the taxation of shareholders
who receive dividends from the Fund) or as a registered closed-end investment
company under the Investment Company Act; (2) the Fund would not be able to
liquidate portfolio securities in an orderly manner and consistent with the
Fund's investment objective and policies in order to repurchase shares; or (3)
there is, in the board's judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) general suspension of or limitation on
prices for trading securities on the New York Stock Exchange, (c) declaration
of a banking moratorium by Federal or state authorities or any suspension of
payment by United States or New York banks, (d) material limitation affecting
the Fund or the issuers of its portfolio securities by Federal or state
authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or (f) other event or condition which would have a material
adverse effect (including any adverse tax effect) on the Fund or its
shareholders if shares were repurchased. The Board of Trustees may in the
future modify these conditions in light of experience.
The repurchase by the Fund of its shares at prices below net asset
value will result in an increase in the net asset value of those shares that
remain outstanding. However, there can be no assurance that share repurchases
or tender offers at or below net asset value will result in the Fund's shares
trading at a price equal to their net asset value. Nevertheless, the fact that
the Fund's shares may be the subject of repurchase or tender offers from time
to time, or that the Fund may be converted to an open-end investment company,
may reduce any spread between market price and net asset value that might
otherwise exist.
In addition, a purchase by the Fund of its common shares will
decrease the Fund's Managed Assets which would likely have the effect of
increasing the Fund's expense ratio. Any purchase by the Fund of its common
shares at a time when Preferred Shares are outstanding will increase the
leverage applicable to the outstanding common shares then remaining.
Before deciding whether to take any action if the common shares trade
below net asset value, the Fund's Board of Trustees would likely consider all
relevant factors, including the extent and duration of the discount, the
liquidity of the Fund's portfolio, the impact of any action that might be
taken on the Fund or its shareholders and market considerations. Based on
these considerations, even if the Fund's shares should trade at a discount,
the Board of Trustees may determine that, in the interest of the Fund and its
shareholders, no action should be taken.
TAX MATTERS
The following is a discussion of certain Federal income tax
consequences to a shareholder of acquiring, holding and disposing of common
shares of the Fund. The discussion reflects applicable tax laws of the United
States as of the date of this prospectus, which tax laws may be changed or
subject to new interpretations by the courts or the Internal Revenue Service
(the "IRS") retroactively or prospectively. No attempt is made to present a
detailed explanation of all Federal, state, local and foreign tax concerns
affecting the Fund and its shareholders (including shareholders owning a large
position in the Fund), and the discussion set forth herein does not constitute
tax advice. Investors are urged to consult their own tax advisers to determine
the tax consequences to them of investing in the Fund.
Taxation of the Fund
The Fund intends to elect to be treated and intends to qualify each
year to be taxed as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). In order to qualify as
a regulated investment company, the Fund must satisfy certain requirements
relating to the source of its income, diversification of its assets and
distributions of its income to its shareholders. First, the Fund must derive
at least 90% of its annual gross income from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock or securities or foreign currencies or other income (including but not
limited to gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies.
Second, the Fund must diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
is comprised of cash, cash items, United States government securities,
securities of other regulated investment companies and other securities,
limited in respect of any one issuer to an amount not greater in value than 5%
of the value of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the total assets is invested in the securities of any one issuer
(other than United States government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses.
As a regulated investment company, the Fund will not be subject to
Federal income tax on income and gains that it distributes each taxable year
to its shareholders, provided that in such taxable year it distributes at
least 90% of the sum of (i) its "investment company taxable income" (which
includes, among other items, dividends, taxable interest, taxable original
issue discount and market discount income, income from securities lending, net
short-term capital gain in excess of net long-term capital loss, and any other
taxable income other than "net capital gain" (as defined below) and is reduced
by deductible expenses) determined without regard to the deduction for
dividends paid and (ii) its net tax-exempt interest (the excess of its gross
tax-exempt interest income over certain disallowed deductions). The Fund may
retain for investment its net capital gain (which consists of the excess of
its net long-term capital gain over its net short-term capital loss). However,
if the Fund retains any net capital gain or any investment company taxable
income, it will be subject to tax at regular corporate rates on the amount
retained. If the Fund retains any net capital gain, it may designate the
retained amount as undistributed capital gain in a notice to its shareholders
who, if subject to Federal income tax on long-term capital gain, (i) will be
required to include in income for Federal income tax purposes, as long-term
capital gain, their share of such undistributed amount and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Fund
against their Federal income tax liabilities, if any, and to claim refunds to
the extent the credit exceeds such liabilities. For Federal income tax
purposes, the tax basis of shares owned by a shareholder of the Fund will be
increased by the amount of undistributed capital gain included in the gross
income of the shareholder less the tax deemed paid by the shareholder under
clause (ii) of the preceding sentence. The Fund intends to distribute at least
annually to its shareholders all or substantially all of its investment
company taxable income and net capital gain.
Although dividends generally will be treated as distributed when
paid, dividends declared in October, November or December, payable to
shareholders of record on a specified date in one of those months and paid
during the following January, will be treated as having been distributed by
the Fund (and received by the shareholder) on December 31.
The IRS has taken the position that if a regulated investment company
has two classes of stock, it may designate distributions made to each class in
any year as consisting of no more than such class's proportionate share of
particular types of income, such as long-term capital gain. A class's
proportionate share of a particular type of income is determined according to
the percentage of total dividends paid by the regulated investment company
during such year that was paid to such class. Consequently, the Fund will
designate distributions made to the common shareholders and preferred
shareholders as consisting of particular types of income in accordance with
the classes' proportionate shares of such income. Because of this rule, the
Fund is required to allocate a portion of its net capital gain, qualified
dividend income and dividends qualifying for the dividends received deduction,
if any, to common shareholders and preferred shareholders. The amount of net
capital gain and qualified dividend income and dividends qualifying for the
dividends received deduction allocable among common shareholders and the
preferred shareholders will depend upon the amount of such net capital gain
and qualified dividend income and dividends qualifying for the dividends
received deduction realized by the Fund and the total dividends paid by the
Fund on shares of common stock and the preferred shares during a taxable year.
In order to avoid a 4% Federal excise tax, the Fund must distribute
or be deemed to have distributed by December 31 of each calendar year the sum
of at least 98% of its taxable ordinary income for such year, at least 98% of
its capital gain net income (the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year
period ending on October 31 of such year) and 100% of any taxable ordinary
income and capital gain net income for the prior year that was not distributed
during such year and on which the Fund paid no Federal income tax. For
purposes of the excise tax, a regulated investment company may reduce its
capital gain net income (but not below its net capital gain) by the amount of
any net ordinary loss for the calendar year. The Fund intends to make timely
distributions in compliance with these requirements and consequently it is
anticipated that it generally will not be required to pay the excise tax.
If in any tax year the Fund should fail to qualify under Subchapter M
for tax treatment as a regulated investment company, the Fund would incur a
regular corporate Federal income tax upon its taxable income for that year,
and distributions to its shareholders would be taxable to shareholders as
ordinary dividend income for Federal income tax purposes to the extent of the
Fund's earnings and profits. In addition, the Fund may not immediately
re-qualify as a regulated investment company afforded special tax treatment.
Fund Investments
Certain of the Fund's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of certain
deductions or losses of the Fund and affect the holding period of securities
held by the Fund and the character of the gains or losses realized by the
Fund. These provisions may also require the Fund to recognize income or gain
without receiving cash with which to make distributions in the amounts
necessary to satisfy the requirements for maintaining regulated investment
company status and for avoiding income and excise taxes. The Fund will monitor
its transactions and may make certain tax elections in order to mitigate the
effect of these rules and prevent disqualification of the Fund as a regulated
investment company.
The Fund's investment in zero coupon and certain other securities
will cause it to realize income prior to the receipt of cash payments with
respect to these securities. Such income will be accrued daily by the Fund. In
order to avoid a tax payable by the Fund, the Fund may be required to
liquidate securities that it might otherwise have continued to hold in order
to generate cash with which to make required distributions to its
shareholders.
Investments by the Fund in certain "passive foreign investment
companies" could subject the Fund to Federal income tax (including interest
charges) on certain distributions or dispositions with respect to those
investments that cannot be eliminated by making distributions to shareholders.
Elections may be available to the Fund to mitigate the effect of this
provision, but an election generally accelerates the recognition of income
without the receipt of cash. In addition, dividends from passive foreign
investment companies do not qualify for the reduced rate applicable to
qualified dividend income.
The Fund may be subject to withholding and other foreign taxes with
respect to its foreign securities. The Fund does not expect to satisfy the
requirements to pass through to the shareholders their share of the foreign
taxes paid by the Fund. Similarly, although the Fund may invest in tax exempt
securities, the Fund does not expect to pass through tax exempt income to its
shareholders.
Taxation of Shareholders
Distributions by the Fund of investment company taxable income,
whether received in cash or additional shares, will be taxable to shareholders
as ordinary income (to the extent of the current or accumulated earning and
profits of the Fund). Such income if designated by the Fund, may qualify
(provided holding periods and other requirements are met) (i) for the
dividends received deduction in the case of corporate shareholders to the
extent the Fund's income consists of dividends received from U.S. corporations
and (ii) under the Jobs and Growth Tax Relief Reconciliation Act of 2003
(effective for taxable years after December 31, 2002 through December 31,
2008) ("2003 Tax Act"), as qualified dividend income eligible for the reduced
maximum rate applicable to individuals of generally 15% (5% for individuals in
lower tax brackets) to the extent that the Fund receives qualified dividend
income. Qualified dividend income is, in general, dividend income from taxable
domestic corporations and certain foreign corporations (e.g., generally,
foreign corporations incorporated in a possession of the United States or in
certain countries with a qualified comprehensive tax treaty with the United
States, or the stock of which and with respect to which such dividend is paid
is readily tradable on an established securities market in the United States).
A qualified foreign corporation does not include a foreign corporation which
for the taxable year of the corporation in which the dividend was paid, or the
preceding taxable year, is a "foreign personal holding company," a "foreign
investment company," or a "passive foreign investment company," as defined in
the Code. If the Fund lends portfolio securities, amounts received by the Fund
that is the equivalent of the dividends paid by the issuer on the securities
loaned will not be eligible for qualified dividend income treatment. Net
long-term capital gain realized by the Fund which is properly designated as
capital gain dividends and distributed to shareholders in cash or additional
shares will be taxable to shareholders as long-term capital gain regardless of
the length of time investors have owned shares of the Fund. Under the 2003 Tax
Act, the maximum tax rate on net long-term capital gain of individuals is
reduced generally from 20% to 15% (5% for individuals in lower brackets) for
such gain realized on or after May 6, 2003 and before January 1, 2009.
Distributions by the Fund in excess of the Fund's current and accumulated
earnings and profits will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his or her shares. Any
excess will be treated as gain from the sale of his or her shares, as
discussed below.
The sale, redemption or other disposition of common shares generally
will result in capital gain or loss to shareholders who hold their shares as
capital assets. A redemption may result in ordinary income rather than capital
gain if the redemption does not result in a meaningful reduction in the
shareholder's proportionate interest in the Fund. Generally, a shareholder's
gain or loss will be long-term capital gain or loss if the shares have been
held for more than one year. Present law taxes both long-term and short-term
capital gain of corporations at the 35% rate. For non-corporate taxpayers,
under the 2003 Tax Act, long-term capital gain will generally be taxed at a
maximum rate of 15%, while short-term capital gain will be taxed at the
maximum rate of 35% applicable to ordinary income. Because of the limitations
on itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective tax rate may be higher in certain
circumstances.
No loss will be allowed on sale or other disposition of common shares
if the shareholder acquires or enters into a contract or option to acquire
shares that are substantially identical to common shares of the Fund within a
period of 61 days beginning 30 days before and ending 30 days after such sale
or exchange. If disallowed, the loss will be reflected in an adjustment to the
basis of the shares acquired. Further, any losses realized on the sale or
other disposition of shares held for six months or less will be treated as
long-term capital losses to the extent of any capital gain dividends received
(or amounts credited as undistributed capital gain) with respect to such
shares.
Prior to purchasing shares in the Fund, an investor should carefully
consider the impact of dividends which are expected to be or have been
declared, but not paid. Any dividend declared shortly after a purchase of such
shares prior to the record date will have the effect of reducing the per share
net asset value by the per share amount of the dividend.
A shareholder that is a nonresident alien individual or a foreign
corporation (a "foreign investor") generally may be subject to U.S.
withholding tax at a rate of 30% (or possibly a lower rate provided by an
applicable tax treaty) on ordinary income dividends consisting of investment
company taxable income and short-term capital gain. Different tax consequences
may result if the foreign investor is engaged in a trade or business in the
United States or, in the case of an individual, is present in the United
States for at least 31 days during the taxable year and a significant number
of days in the prior two years.
Distributions of net capital gain and any net capital gain retained
by the Fund which are designated as undistributed capital gains will not be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate)
unless the foreign investor is a nonresident alien individual and is
physically present in the United States for more than 182 days during the
taxable year and meets other requirements. In the case of a foreign investor
who is a nonresident alien individual, the Fund may be required to withhold
Federal income tax on distributions of net capital gain unless the foreign
shareholder certifies his or her non-U.S. status under penalties of perjury or
otherwise establishes an exemption. Any gain that a foreign investor realizes
upon the sale, exchange or other disposition of shares will ordinarily be
exempt from Federal income tax unless (i) the income from the Fund is
"effectively connected" with a trade or business within the United States
carried on by the foreign investor, or (ii) in the case of a foreign investor
that is a nonresident alien individual, the gain is U.S. source income and
such shareholder is physically present in the United States for more than 182
days during the taxable year and meets certain other requirements.
The Fund is required to withhold tax on taxable dividends and certain
other payments paid to non-corporate shareholders who have not furnished to
the Fund their correct taxpayer identification number (in the case of
individuals, generally their Social Security number) and certain
certifications, or who are otherwise subject to backup withholding. Backup
withholding is not an additional tax and any amount withheld may be refunded
or credited against the shareholder's Federal income tax liability, provided
the required information is furnished to the IRS.
The foregoing is a general and abbreviated summary of the provisions
of the Code and the Treasury Regulations presently in effect as they directly
govern the taxation of the Fund and its shareholders. For complete provisions,
reference should be made to the pertinent Code sections and Treasury
Regulations. The Code and the Treasury Regulations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions. Holders of common shares are advised to
consult their own tax advisors for more detailed information concerning the
Federal income taxation of the Fund and the income tax consequences to its
holders of common shares. Holders of common shares are also advised to consult
their own tax advisors with regard to the tax consequences under the laws of
state, local, foreign or other taxing jurisdictions.
EXPERTS
The Statement of Net Assets of the Fund as of , 2004 included
in this Statement of Additional Information has been so included in reliance
on the report of , independent accountants, given the
authority of said firm as experts in auditing and accounting. ,
located at , provides accounting and auditing services to the
Fund.
ADDITIONAL INFORMATION
A registration statement on Form N-2, including amendments thereto,
relating to the shares offered hereby, has been filed by the Fund with the
Securities and Exchange Commission, Washington, D.C. The prospectus and this
Statement of Additional Information do not contain all of the information set
forth in the registration statement, including any exhibits and schedules
thereto. For further information with respect to the Fund and the shares
offered hereby, reference is made to the registration statement. Statements
contained in the prospectus and this Statement of Additional Information as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. A copy of the
registration statement may be inspected without charge at the Securities and
Exchange Commission's principal office in Washington, D.C., and copies of all
or any part thereof may be obtained from the Securities and Exchange
Commission upon the payment of certain fees prescribed by the Commission.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of Advent Claymore Global Total Return
Fund:
In our opinion, the accompanying statement of net assets presents
fairly, in all material respects, the financial position of Advent Claymore
Global Total Return Fund (the "Fund") at , 2004, in conformity with
accounting principles generally accepted in the United States of America. This
financial statement is the responsibility of the Fund's management; our
responsibility is to express an opinion on this financial statement based on
our audit. We conducted our audit of this financial statement in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit 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 audit provides a reasonable basis for our opinion.
New York, New York
, 2004
FINANCIAL STATEMENTS
ADVENT CLAYMORE GLOBAL TOTAL RETURN FUND
STATEMENT OF NET ASSETS
, 2004
ADVENT CLAYMORE GLOBAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
, 2004
APPENDIX A
RATINGS OF INVESTMENTS
STANDARD & POOR'S CORPORATION - A brief description of the applicable
Standard & Poor's Corporation ("S&P") rating symbols and their meanings (as
published by S&P) follows:
Long-Term Debt
An S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
Investment Grade
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade Rating
Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics these are outweighed by major uncertainties or
major exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also
used for debt subordinated to senior debt that is assigned an actual
or implied "BBB" rating.
B Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal.
The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal.
The "CCC" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "B" or "B" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" debt rating.
C The rating "C" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC" debt rating. The
"C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise judgment with respect to such likelihood and
risk.
R The letter "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-credit
risks. Examples of such obligations are: securities who's principal
or interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit
no volatility or variability in total return.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is Federally insured by the Federal Savings & Loan
Insurance Corporation or the Federal Deposit Insurance Corporation*
and interest is adequately collateralized. In the case of
certificates of deposit the letter "L" indicates that the deposit,
combined with other deposits being held in the same right and
capacity will be honored for principal and accrued pre-default
interest up to the Federal insurance limits within 30 days after
closing of the insured institution or, in the event that the deposit
is assumed by a successor insured institution, upon maturity.
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement or closing documentation
confirming investments and cash flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Commercial Paper
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days.
Ratings are graded into several categories, ranging from "A-1" for
the highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign
(+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is as signed to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal Payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability
for a particular investor. The ratings are based on current information
furnished to S&P by the issuer or obtained by S&P from other sources it
considers reliable. S&P does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC.-A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows:
Long-Term Debt
The following summarizes the ratings used by Moody's for corporate
and municipal long-term debt:
Aaa Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issuer.
Aa Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds considered medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba, B, Caa, Ca, and C
Bonds that possess one of these ratings provide questionable
protection of interest and principal ("Ba" indicates some speculative
elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and
"C" represents the lowest rated class of bonds). "Caa," "Ca" and "C"
bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P) - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Ba1 and B1.
Short-Term Loans
MIG1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and
cash flow protection may be narrow and market access for
refinancing is likely to be less well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is
present and although not distinctly or predominantly
speculative, there is specific risk.
S.G. This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
Commercial Paper
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
FITCH IBCA, INC.-A brief description of the applicable Fitch IBCA,
Inc. ("Fitch") ratings symbols and meanings (as published by Fitch) follows:
Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. "AAA" ratings denote the lowest expectation
of credit risk. They are assigned only in case of exception ally
strong capacity for timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected by foreseeable
events.
AA Very high credit quality. "AA" ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions than
is the case for higher ratings.
BBB Good credit quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. "BB" ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. "B" ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
CCC,
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A "CC" rating indicates
that default of some kind appears probable. "C" ratings signal
imminent default.
DDD,
DD,
and D Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected recovery
values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD"
obligations have the highest potential for recovery, around 90%-100%
of outstanding amounts and accrued interest. "DD" indicates potential
recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of
their obligations. Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or without a
formal reorganization process. Entities rated "DD" and "D" are
generally undergoing a formal reorganization or liquidation process;
those rated "DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D" have a poor
prospect for repaying all obligations.
Short-Term Credit Ratings
A short-term rating has a time horizon of less than 12 months for
most obligations, or up to three years for U.S. public finance securities, and
thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
Notes:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the "AAA" long-term
rating category, to categories below "CCC," or to short-term ratings
other than "F1."
`NR' indicates that Fitch does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation
matures, is called, or refinanced.
Rating alert: Ratings are placed on Rating alert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating
a potential upgrade, "Negative," for a potential downgrade, or
"Evolving," if ratings may be raised, lowered or maintained. Rating alert
is typically resolved over a relatively short period.
APPENDIX B
PROXY VOTING POLICY AND PROCEDURES
[To be filed by amendment.]
PART C
Other Information
Item 24. Financial Statements And Exhibits
(1) Financial Statements
Part A--None.
Part B--Statement of Net Assets.
(2) Exhibits
(a)......Agreement and Declaration of Trust.1
(b)......By-Laws.1
(c)......Inapplicable.
(d) .....Form of Specimen Certificate.3
(e)......Automatic Dividend Reinvestment Plan.2
(f)......Inapplicable.
(g)(1)...Investment Advisory Agreement.2
(g)(2)...Investment Management Agreement.2
(h)......Form of Purchase Agreement.3
(i)......Inapplicable.
(j)(1)...Form of Custodian Agreement.2
(j)(2)...Form of Foreign Custody Manager Agreement.2
(k)(1)...Form of Stock Transfer Agency Agreement.2
(k)(2)...Form of Administration Agreement.2
(k)(3)...Form of Fund Accounting Agreement.2
(m)......Inapplicable.
(n)......Consent of Independent Public Accountants.3
(o)......Inapplicable.
(p)......Initial Subscription Agreement.3
(q)......Inapplicable.
(r)(1)...Consolidated Code of Ethics of the Fund and the Investment
Manager.2
(r)(2)...Code of Ethics of the Advisor and Claymore Securities, Inc.2
(s)......Power of Attorney.2
___________________________
1 Previously filed as an exhibit to the Fund's initial Registration
Statement on Form N-2 filed with the Securities and Exchange
Commission on February 6, 2004.
2 Filed herewith.
3 To be filed by amendment.
Item 25. Marketing Arrangements
Reference is made to the Form of Purchase Agreement for the
Registrant's shares of beneficial interest to be filed by amendment to this
registration statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this registration statement:
Registration fee...................................................$
NYSE listing fee...................................................$
Printing (other than certificates).................................$
Engraving and printing certificates................................$
Accounting fees and expenses.......................................$
Legal fees and expenses............................................$
NASD fee...........................................................$
Miscellaneous......................................................$
Total.........................................................$
Item 27. Persons Controlled By Or Under Common Control With The Registrant
None.
Item 28. Number of Holders of Shares
As of , 2004
Number of
Title Of Class Record Holders
Common Shares of Beneficial Interest 0
Item 29. Indemnification
Article V of the Registrant's Agreement and Declaration of Trust
provides as follows:
5.1 No Personal Liability of Shareholders, Trustees, etc. No
Shareholder of the Fund shall be subject in such capacity to any personal
liability whatsoever to any Person in connection with Fund Property or the
acts, obligations or affairs of the Fund. Shareholders shall have the same
limitation of personal liability as is extended to stockholders of a private
corporation for profit incorporated under the Delaware General Corporation
Law. No trustee or officer of the Fund shall be subject in such capacity to
any personal liability whatsoever to any Person, save only liability to the
Fund or its Shareholders arising from bad faith, willful misfeasance, gross
negligence or reckless disregard for his duty to such Person; and, subject to
the foregoing exception, all such Persons shall look solely to the Fund
Property for satisfaction of claims of any nature arising in connection with
the affairs of the Fund. If any Shareholder, trustee or officer, as such, of
the Fund, is made a party to any suit or proceeding to enforce any such
liability, subject to the foregoing exception, he shall not, on account
thereof, be held to any personal liability. Any repeal or modification of this
Section 5.1 shall not adversely affect any right or protection of a trustee or
officer of the Fund existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or modification.
5.2 Mandatory Indemnification. (a) The Fund hereby agrees to
indemnify each person who at any time serves as a trustee or officer of the
Fund (each such person being an "indemnitee") against any liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and reasonable counsel fees reasonably incurred by
such indemnitee in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or investigative body in which he may be or may have been
involved as a party or otherwise or with which he may be or may have been
threatened, while acting in any capacity set forth in this Article V by reason
of his having acted in any such capacity, except with respect to any matter as
to which he shall not have acted in good faith in the reasonable belief that
his action was in the best interest of the Fund or, in the case of any
criminal proceeding, as to which he shall have had reasonable cause to believe
that the conduct was unlawful, provided, however, that no indemnitee shall be
indemnified hereunder against any liability to any person or any expense of
such indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith,
(iii) gross negligence, or (iv) reckless disregard of the duties involved in
the conduct of his position (the conduct referred to in such clauses (i)
through (iv) being sometimes referred to herein as "disabling conduct").
Notwithstanding the foregoing, with respect to any action, suit or other
proceeding voluntarily prosecuted by any indemnitee as plaintiff,
indemnification shall be mandatory only if the prosecution of such action,
suit or other proceeding by such indemnitee (1) was authorized by a majority
of the trustees or (2) was instituted by the indemnitee to enforce his or her
rights to indemnification hereunder in a case in which the indemnitee is found
to be entitled to such indemnification. The rights to indemnification set
forth in this Declaration shall continue as to a person who has ceased to be a
trustee or officer of the Fund and shall inure to the benefit of his or her
heirs, executors and personal and legal representatives. No amendment or
restatement of this Declaration or repeal of any of its provisions shall limit
or eliminate any of the benefits provided to any person who at any time is or
was a trustee or officer of the Fund or otherwise entitled to indemnification
hereunder in respect of any act or omission that occurred prior to such
amendment, restatement or repeal.
(b) Notwithstanding the foregoing, no indemnification shall be made
hereunder unless there has been a determination (i) by a final decision on the
merits by a court or other body of competent jurisdiction before whom the
issue of entitlement to indemnification hereunder was brought that such
indemnitee is entitled to indemnification hereunder or, (ii) in the absence of
such a decision, by (1) a majority vote of a quorum of those trustees who are
neither "interested persons" of the Fund (as defined in Section 2(a)(19) of
the Investment Company Act) nor parties to the proceeding ("Disinterested
Non-Party Trustees"), that the indemnitee is entitled to indemnification
hereunder, or (2) if such quorum is not obtainable or even if obtainable, if
such majority so directs, independent legal counsel in a written opinion
concludes that the indemnitee should be entitled to indemnification hereunder.
All determinations to make advance payments in connection with the expense of
defending any proceeding shall be authorized and made in accordance with the
immediately succeeding paragraph (c) below.
(c) The Fund shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might
be sought hereunder if the Fund receives a written affirmation by the
indemnitee of the indemnitee's good faith belief that the standards of conduct
necessary for indemnification have been met and a written undertaking to
reimburse the Fund unless it is subsequently determined that the indemnitee is
entitled to such indemnification and if a majority of the trustees determine
that the applicable standards of conduct necessary for indemnification appear
to have been met. In addition, at least one of the following conditions must
be met: (i) the indemnitee shall provide adequate security for his
undertaking, (ii) the Fund shall be insured against losses arising by reason
of any lawful advances, or (iii) a majority of a quorum of the Disinterested
Non-Party Trustees, or if a majority vote of such quorum so direct,
independent legal counsel in a written opinion, shall conclude, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is substantial reason to believe that the indemnitee ultimately
will be found entitled to indemnification.
(d) The rights accruing to any indemnitee under these provisions
shall not exclude any other right which any person may have or hereafter
acquire under this Declaration, the By-Laws of the Fund, any statute,
agreement, vote of stockholders or trustees who are "disinterested persons"
(as defined in Section 2(a)(19) of the Investment Company Act) or any other
right to which he or she may be lawfully entitled.
(e) Subject to any limitations provided by the Investment Company Act
and this Declaration, the Fund shall have the power and authority to indemnify
and provide for the advance payment of expenses to employees, agents and other
Persons providing services to the Fund or serving in any capacity at the
request of the Fund to the full extent corporations organized under the
Delaware General Corporation Law may indemnify or provide for the advance
payment of expenses for such Persons, provided that such indemnification has
been approved by a majority of the trustees.
5.3 No Bond Required of Trustees. No trustee shall, as such, be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
5.4 No Duty of Investigation; Notice in Fund Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the trustees or
with any officer, employee or agent of the Fund shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by
the trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the trustees or of said officer, employee or agent. Every obligation,
contract, undertaking, instrument, certificate, Share, other security of the
Fund, and every other act or thing whatsoever executed in connection with the
Fund shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as trustees under this Declaration or
in their capacity as officers, employees or agents of the Fund. The trustees
may maintain insurance for the protection of the Fund Property, its
Shareholders, trustees, officers, employees and agents in such amount as the
trustees shall deem adequate to cover possible tort liability, and such other
insurance as the trustees in their sole judgment shall deem advisable or is
required by the Investment Company Act.
5.5 Reliance on Experts, etc. Each trustee and officer or employee of
the Fund shall, in the performance of its duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Fund, upon an opinion of counsel, or upon reports made to the Fund by any of
the Fund's officers or employees or by any Investment Manager, administrator,
manager, distributor, selected dealer, accountant, appraiser or other expert
or consultant selected with reasonable care by the trustees, officers or
employees of the Fund, regardless of whether such counsel or expert may also
be a trustee.
Insofar as indemnification for liabilities arising under the Act, may
be terminated to trustees, officers and controlling persons of the Fund,
pursuant to the foregoing provisions or otherwise, the Fund has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Reference is made to Article of the underwriting agreement attached as Exhibit
(h), which is incorporated herein by reference.
Item 30. Business and Other Connections of Advisor and Investment Manager
Not Applicable
Item 31. Location of Accounts and Records
The Registrant's accounts, books and other documents are currently
located at the offices of (i) the Registrant, c/o Advent Capital Management,
LLC, the Registrant's Investment Manager, located at 1065 Avenue of the
Americas, 31st Floor, New York, New York 10018, (ii) , the Registrant's
Administrator, Custodian and Transfer Agent, located at and
(iii) Claymore Advisors, LLC, the Registrant's Advisor, located at 210 N. Hale
Street, Wheaton, Illinois 60187.
Item 32. Management Services
Not Applicable
Item 33. Undertakings
(1) The Registrant hereby undertakes to suspend the offering of its
units until it amends its prospectus if (a) subsequent to the effective date
of its registration statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the Registration
Statement or (b) the net asset value increases to an amount greater than its
net proceeds as stated in the prospectus.
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) (a) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant under Rule 497 (h)
under the Securities Act of 1933 shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery within two business days of
receipt of a written or oral request, any Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 15th day of April, 2004.
ADVENT CLAYMORE GLOBAL TOTAL RETURN FUND
By: /s/ Tracy V. Maitland
-------------------------------------
Tracy V. Maitland
Trustee, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities set forth below on the 15th day of April, 2004.
SIGNATURE TITLE
------------------------------------------------- ----------------------------------------------
/s/ Tracy V. Maitland Trustee, President and Chief Executive Officer
------------------------------------------------
Tracy V. Maitland
/s/ Paul Latronica Treasurer and Chief Financial Officer
------------------------------------------------
Paul Latronica
* Trustee
------------------------------------------------
Derek Medina
* Trustee
------------------------------------------------
Ronald A. Nyberg
* Trustee
------------------------------------------------
Gerald L. Seizert
* Trustee
------------------------------------------------
Michael A. Smart
* Trustee
------------------------------------------------
Nicholas Dalmaso
* Trustee
------------------------------------------------
Ronald E. Toupin, Jr.
* By: /s/Rodd Baxter Attorney-in-fact
-----------------------------
Rodd Baxter
INDEX TO EXHIBITS
(e) Automatic Dividend Reinvestment Plan.
(g)(1) Investment Advisory Agreement.
(g)(2) Investment Management Agreement.
(j)(1) Form of Custodian Agreement.
(j)(2) Form of Foreign Custody Manager Agreement.
(k)(1) Form of Stock Transfer Agency Agreement.
(k)(2) Form of Administration Agreement.
(k)(3) Form of Fund Accounting Agreement.
(r)(1) Consolidated Code of Ethics of the Fund and the Investment
Manager.
(r)(2) Code of Ethics of the Advisor and Claymore Securities, Inc.
(s) Power of Attorney.