FMO
Fiduciary/Claymore
MLP Opportunity Fund
|
|
|
|
COMMON SHARES
|
DAILY DATA as of
3/19/10
|
|
Closing Share Price
|
$19.00
|
|
Closing NAV
|
$16.81
|
|
Premium/(Discount)
|
13.03%
|
|
Current Distribution Rate7
|
7.05%
|
|
Daily Volume
|
70,159
|
|
Quarterly Distribution Per Share1
|
$0.33500
|
|
Ex-Dividend Date
|
1/13/10
|
|
Payable Date
|
1/29/10
|
|
52 Week High/Low Share Price2
|
$19.66/$12.95
|
|
52 Week High/Low NAV2
|
$17.13/$11.64
|
|
Intraday Trading Information
|
NYSE
|
Data subject to change on a daily basis.
|
WEEKLY DATA as of
3/12/10
|
|
Closing Share Price
|
$19.66
|
|
Closing NAV
|
$17.11
|
|
Closing Volume
|
63,999
|
|
Premium/(Discount)
|
14.90%
|
|
52-Week Average Premium/Discount
|
12.95%
|
|
Distribution Rate
|
6.82%
|
|
Total Managed Assets
|
$450,285,341
|
|
Shares Outstanding
|
19,872,743
|
Data subject to change on a daily basis.
|
SEMI-ANNUAL DATA as of
11/30/09
|
|
Fiscal Year-End
|
11/30
|
|
Expense Ratio (Common Shares)5
|
1.76%
|
|
Portfolio Turnover Rate6
|
30%
|
|
Portfolio Manager
|
Fiduciary Asset Management Co.
|
|
Investment Adviser
|
Claymore Advisors
|
|
|
|
Data subject to change on a daily basis.
|
INCEPTION INFORMATION
|
Common Shares 3
|
|
Inception Date
|
December 22, 2004
|
|
NYSE Symbol
|
FMO
|
|
NAV Symbol
|
XFMOX
|
|
The Wall Street Journal Listing
|
FidcryClymrOppFd
|
|
CUSIP
|
31647Q106
|
|
Inception Share Price
|
$20.00
|
|
Inception NAV
|
$19.10
|
|
FINANCIAL LEVERAGE as of
3/12/10
|
|
Leverage Outstanding4
|
$110,262,708
|
|
Percent Leveraged
|
24.49%
|
|
1940 Act Asset Coverage Ratio
|
408%
|
|
|
-
|
QUARTERLY TOTAL RETURNS
as of 12/31/09
|
MARKET PRICE
|
NAV
|
|
2009 YTD
|
60.51 %
|
55.67 %
|
|
1 Year
|
60.51 %
|
55.67 %
|
|
3 Year
|
0.08 %
|
-3.50 %
|
|
5 Year
|
4.90 %
|
3.46 %
|
|
Since Inception
|
4.90 %
|
3.42 %
|
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. Since Inception returns assume a purchase of common shares at the initial offering price of $20.00 per share for market price returns or initial net asset value (NAV) of $19.10 per share for NAV returns. Returns for periods of less than one year are not annualized. All distributions are assumed to be reinvested either in accordance with the dividend reinvestment plan (DRIP) for market price returns or NAV for NAV returns. Until the DRIP price is available from the Plan Agent, the market price returns reflect the reinvestment at the closing market price on the last business day of the month. Once the DRIP is available around mid-month, the market price returns are updated to reflect reinvestment at the DRIP price.
1
Distribution per share is subject to change on the ex-dividend date. The distribution amount may include net investment income, capital gains and/or return of capital. The distribution amount alone is not indicative of Fund performance.
2
Figures are based on market close.
3
Based on the prospectus information.
4
Maximum Available via a Credit Facility is $155 million
5
Annualized; excluding interest expense and contingent deferred tax expense.
6
Not annualized
7
Latest declared quarterly distribution per share annualized and divided by the current share price. To the extent any portion of the current distribution is estimated to be sourced from something other than income, such as return of capital, the source would be disclosed on a Section 19a-1 letter located under the “Fund News” section of the “News & Literature” section of the Fund’s website. The distribution rate may include net investment income, capital gains and/or return of capital. The distribution rate alone is not indicative of Fund performance.
|
|
|
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide a high level of after-tax total return
with an emphasis on current distributions paid to shareholders.
Under normal market conditions, the Fund invests at least 80% of its managed
assets in MLP entities and invests at least 65% of its managed assets in
equity securities of MLP entities. It is anticipated that a substantial portion
of the MLP entities in which the Fund will invest will be engaged primarily in
the energy, natural resources and real estate sectors. The Fund may also invest
in the common stock of large-capitalization companies, including companies
engaged primarily in the aforementioned sectors.
To seek to generate current
income and gains, the Fund may employ an option strategy of writing (selling)
covered call options on common stocks held in the Fund’s portfolio. The Fund may
pursue this option strategy to a greater extent during the invest-up period of
the Fund. The Fund may invest up to 40% of its managed assets in unregistered or
otherwise restricted securities issued by public and non-public companies,
including up to 20% of its managed assets in security issued by non-public
companies. The Fund may also invest up to 25% of its managed assets in debt
securities of MLP entities and non-MLP entity issuers, including securities
rated below investment-grade.
The Fund
anticipates that a substantial portion of the MLP entities in which the Fund
invests will be engaged in the energy sector. As a result, the Fund will be more
susceptible to adverse global and domestic economic or regulatory occurrences
affecting the energy sector and additional risks including: commodity price
volatility; the risk of supply and demand variances; interest-rate risk;
catastrophic event risk; and the possibility of resource depletion. An
additional risk to consider is that energy sector MLP entities owned by the Fund
may depend on their ability to make acquisitions that increase adjusted
operating surplus per unit in order to enhance distributions to unit holders.
The Fund’s
concentration in the natural resources sector makes the Fund more susceptible to
risks inherent in that sector including commodity price volatility, exchange
rates, import controls, competition, environmental regulation and liability,
resource depletion and the impact of inflation. The Fund’s concentration in the
real estate sector makes the Fund more susceptible to risks inherent in that
sector such as the impact of economic, legal, cultural, environmental or
technological developments on real estate valuations and vacancies.
Investing in unregistered or restricted securities entails various risks. Such securities are
often more difficult to evaluate and the sale of such securities often requires
more time and results in higher selling expenses than does the sale of more
liquid exchange-listed securities. Restrictions on the resale of such securities
may result in an event where a considerable period of time may elapse between a
decision to liquidate a security and the time when the Fund would be permitted
to sell, during which time the Fund would bear additional market risks. The
Fund’s potential investment in securities of below investment-grade quality
involves special risks in addition to the risks associated with an investment in
investment-grade securities. Lower-grade securities typically entail greater
price volatility and may be less liquid than higher-rated securities.
Lower-grade securities are commonly referred to as “junk bonds” because of their
predominantly speculative characteristics with respect to the issuer’s capacity
to pay interest and repay principal. These securities may also be more
susceptible to adverse economic and competitive industry conditions than
higher-rated securities.
For periodic shareholder reports and recent fund-specific filings, please visit the U.S. Securities and Exchange Commission (“SEC”) website via the following link, click here.
|
|
FREQUENTLY ASKED QUESTIONS
What are MLPs?
-
MLPs are a form of a publicly
traded partnership. Although some units are traded on public exchanges some
are nonpublic securities.
-
MLPs generally must distribute to
unit holders a majority of their distributable cash flow on an annual basis.
-
MLPs must receive 90% of their
income from qualified sources. Most MLPs are in the energy, timber or real
estate business.
What is the difference between a limited partnership and an MLP?
A master limited partnership is a limited partnership that is publicly traded.
Does the Fund eliminate any of the complicated tax reporting generally associated with MLPs?
The Fund's tax information is provided on one 1099-DIV with single state tax reporting(versus individual MLPs which may require multiple K-1s and multiple state tax reporting.)
If K-1s generally aren’t sent out to holders of individual MLPs until March, how is the Fund able to disseminate that information to be reported on a Form 1099-DIV in a timely manner?
The Fund chose a fiscal year end of November 30. Taking this into consideration, a November 30 year end gives us the ability to distribute the Form 1099-Div in a timely manner.
How much of the portfolio can be invested in foreign securities?
The Fund may invest up to 25% of its assets in U.S. dollar-denominated foreign securities.
What is the frequency of the distributions?
The Fund will declare and pay its distributions on a quarterly basis.
Describe the differences between closed-end and open-end funds?
An open-end fund may be purchased or sold at NAV. An open-end fund will issue new shares when an investor wants to purchases shares in the fund and will sell assets to redeem shares when an investor wants to sell shares. When selling an open-end fund the price the seller receives is established at the close of the market when the NAV is calculated. Unlike the open-end fund, a closed-end fund has a limited number of shares outstanding and trades on an exchange at the market price based on supply and demand. An investor may purchase or sell shares at market price while the exchange is open. The common shares may trade at a discount or premium to the NAV.
What does the "Ex-Div" or the "Ex-Dividend" date refer to?
Every quarter the Fund pays dividends and those investors who purchase the Fund before the ex-dividend date will receive the next dividend distribution. Investors who purchase on or after the ex-dividend date will not receive the next dividend distribution. The value of the dividend is subtracted from the Fund's NAV on the ex-dividend date each quarter. So when the NAV is reported with an "ex-div" behind it, this means that the amount of the dividend has already been taken out of the NAV.
What is the DRIP and how does it work?
DRIP is the Dividend Reinvestment Plan. The number of shares of Common Stock distributed to participants in the Plan in lieu of a cash dividend is determined in the following manner. Whenever the market price per share of the Fund’s Common Stock is equal to or exceeds the net asset value per share on the valuation date, participants in the Plan will be issued new shares valued at the higher of net asset value or 95% of the then-current market value. Otherwise, the Administrator will buy shares of the Common Stock in the open market, on the NYSE or elsewhere.
Who is the auditor?
The auditor is Ernst & Young.
|
|
FMO FUND MANAGER
Fiduciary Asset Management, LLC (FAMCO) manages a wide range of equity, hedged equity (covered call portfolios), Master Limited Partnerships (MLPs) and fixed-income portfolios. Our clients include public and corporate pension plans, endowments and foundations, Taft-Hartley plans, closed-end funds and private wealth individuals.
FAMCO is 100% owned by Piper Jaffray Investment Management, Inc. (PJIM), a wholly owned subsidiary of Piper Jaffray Companies. From 1974 through 1994, the founders of FAMCO were the internal asset management arm of General Dynamics Corporation. In 1994, during a broad corporate restructuring, the group elected to outsource its services from General Dynamics and became a federally registered investment advisor. FAMCO continues to function as chief investment officer of the retirement and savings plan assets of General Dynamics.
|
|
|
|
INVESTMENT TEAM
FAMCO Investment Team
Charles D. Walbrandt, CFA | Chief Executive Officer & Chief Investment Officer
Founding Principal
Member of Strategy Committee and Investment Committee
From 1974 through 1994, when he began the business of Fiduciary Asset Management (FAMCO), Mr. Walbrandt served in various capacities with General Dynamics Corporation, including Corporate Vice President, Trust Investment and Treasurer. He created the internal investment department at General Dynamics in 1983, designed the investment management processes, and managed both equity and fixed income portfolios. He continues to function as Chief Investment Officer for the over $10 billion of General Dynamics’ employee benefit trust assets. Mr. Walbrandt holds a B.S. in economics from the University of Wisconsin, an M.B.A. in finance from St. Louis University and attended John Marshall Law School. A Chartered Financial Analyst (CFA), he is a member of the St. Louis Society of Financial Analysts and a former member of its Board of Governors. Mr. Walbrandt is also a former trustee of the American Red Cross Retirement System.
Wiley D. Angell | Executive Managing Director, Senior Portfolio Manager
Director of Separately Managed Accounts (SMA)
Founding Principal
Member of Strategy Committee and Investment Committee
Mr. Angell serves on FAMCO's Strategy Committee and conducts macroeconomic research. He has managed fixed income portfolios for over 20 years and serves as Senior Portfolio Manager of all fixed income portfolios. He also oversees the firm’s marketing and Separately Managed Accounts business line. Mr. Angell managed fixed income assets for General Dynamics from 1991 to 1994. From 1985 to 1991 he was Treasurer of Franklin Savings Association where he managed a multi billion dollar mortgage portfolio and was responsible for the firm’s balance sheet risk control. He served on the board and chaired the investment committee for both First State Bank in Pleasanton, KS and Hume Bank in Hume, MO. He holds a B.A. in business and economics from Ottawa University.
Joseph E. Gallagher Jr., CFA | Executive Managing Director, Senior Portfolio Manager, Chief Operating Officer
Founding Principal
Member of Strategy Committee and Investment Committee
Mr. Gallagher is a member of the portfolio management team and performs securities research and portfolio management functions for FAMCO’s small-mid cap strategies. Mr. Gallagher joined Fiduciary Asset Management at its inception after fourteen years with General Dynamics where he was involved in pension fund administration and project finance. He holds a B.S. in biology from Pennsylvania State University and an M.B.A. from the University of San Diego. Mr. Gallagher is a Chartered Financial Analyst (CFA) and currently oversees various key administrative functions for the General Dynamics pension trusts including performance reporting, trust and manager oversight and benchmarking, liability analysis and bank liaison. Mr. Gallagher is on the Board of Directors for the Delta Gamma Center for Children with Visual Impairments and for Rossman School. He is also a member of the St. Louis Chapter of the National Association for Business Economics.
James J. Cunnane Jr., CFA | Managing Director, Senior Portfolio Manager
Member of Strategy Committee and Investment Committee
Mr. Cunnane joined Fiduciary Asset Management in 1996 after having garnered significant equity research experience as a research analyst with A.G. Edwards. Mr. Cunnane has managed institutional and private client equity portfolios and has an industry leading role as portfolio manager of FAMCO’s Master Limited Partnership (MLP) assets. He is a senior member of the equity portfolio management team and performs equity securities research. Mr. Cunnane also worked as an analyst for Maguire Investment Advisors, where he gained extensive experience in the development of master limited partnership and small- and mid-cap stock portfolios. He graduated from the St. Louis Priory and holds a B.S. in finance from Indiana University. Mr. Cunnane is a Chartered Financial Analyst (CFA) and serves on the investment committee of the Archdiocese of St. Louis and the board of the St. Louis Internship Program.
Mohammed Riad | Managing Director, Senior Portfolio Manager, Chief Derivatives Strategist
Member of Strategy Committee and Investment Committee
Mr. Riad joined Fiduciary Asset Management in 1999 and has 13 years of investment industry experience. He is a member of the portfolio management team and serves as senior portfolio manager for FAMCO’s institutional and hedged large-cap equity strategies, as well as closed-end and open-end funds. Additionally, Mr. Riad has been instrumental in the development of industry leading large scale derivatives strategies. He is actively involved with the Strategy Committee’s macroeconomic assessment and top-down approach to portfolio management. Prior to joining FAMCO, Mr. Riad worked in management for six years at Legg Mason Wood Walker in the Washington D.C. and New York offices. Mr. Riad holds a B.S. in business from Wake Forest University and an M.B.A. from Washington University in St. Louis.
William N. Adams, CFA | Vice President, Research Analyst
Member of Investment Committee
Mr. Adams focuses his research on equity and fixed-income securities in the energy sector and is actively involved in FAMCO’s industry leading efforts in the management of separate account and commingled Master Limited Partnership (MLP) portfolios. Prior to joining Fiduciary Asset Management, Mr. Adams was a vice president in the Research Department at Banc of America Capital Management, specializing in the integrated oils, oil field services, oil and natural gas exploration, and refining and marketing industries. His previous coverage includes utilities, leisure, transportation, paper and forest products, and building industries. Mr. Adams graduated cum laude from St. Louis Country Day High School and received his B.S.B.A. and M.B.A. with a focus in finance from Washington University in St. Louis. Mr. Adams is a Chartered Financial Analyst (CFA) and member of the St. Louis Society of Financial Analysts.
Gregory P. Westrich | Research Analyst
Mr. Westrich is responsible for performing quantitative and qualitative research and analysis for Master Limited Partnerships (MLPs). He joined FAMCO in September of 2008. Mr. Westrich has served as an investment banking analyst in the Energy & Power group at A.G. Edwards & Sons, Inc. and Wachovia Capital Markets, LLC focused on equity capital markets transactions for master limited partnerships and exploration & production companies. In May 2006, he earned his B.S.B.A. with concentrations in Economics, Finance and Real Estate from the Robert J. Trulaske, Sr. College of Business at the University of Missouri. Currently, he is pursuing his CFA as a Level II Candidate.
Farah Alam | Research Analyst
Ms. Alam is responsible for performing quantitative and qualitative research and analysis for Master Limited Partnership (MLP) portfolios. Ms. Alam was employed as an Associate with Chescor Capital FZ LLC – an international investment banking firm - in Dubai, UAE where she audited and developed financial models, conducted valuation for equity and debt raising projects in the infrastructure and IT industries in the Middle East. She also previously worked for three years as Manager – Research & Accounts with Chescor Capital Consultancy Services in Delhi, India with responsibilities in performing financial research, writing analytical reports and analyzing industry trends in diverse sectors such as Oil and Gas, Insurance, Offsets. In May 2007, she earned her M.B.A with a concentration in Finance from the Olin School of Business at Washington University in St. Louis. Ms. Alam holds a B.S. in Chemistry and M.S. in Chemistry from J.M.I. University.
Quinn T. Kiley | Senior Vice President, Portfolio Manager
Member of Investment Committee
Mr. Kiley is responsible for private placement and private equity transactions and portfolio management as they relate to FAMCO’s various energy infrastructure assets. Prior to joining FAMCO in 2005, Mr. Kiley was Vice President of Corporate & Investment Banking at Banc of America Securities in New York. He was responsible for executing strategic advisory and financing transactions for clients in the Energy & Power sectors. Mr. Kiley holds a B.S. with Honors in Geology from Washington & Lee University, a M.S. in Geology from the University of Montana, a Juris Doctorate from Indiana University School of Law, and a M.B.A. from the Kelley School of Business at Indiana University. Mr. Kiley has been admitted to the New York State Bar.
FMO Investment Manager
Fiduciary Asset Management, LLC
8235 Forsyth Boulevard
Suite 700
St. Louis MO, 63105
If you would like to view the Investment Manager's website, you may click on the link below.
It is important to note that by clicking on the link, you will be leaving this website
and any information viewed there is not the property of Claymore Securities, Inc.
www.famco.com
|
|
|
|
RISKS AND OTHER CONSIDERATIONS
There can be no assurance that the Fund will achieve its investment objectives. The value of the Fund will fluctuate with the value of the underlying securities. Historically, closed-end funds often trade at a discount to their net asset value. Risk is inherent in all investing, including the loss of your entire principal. Therefore, before investing you should consider the following risks carefully.
Investment and Market Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire principal amount that you invest. An investment in the Common Shares of the Fund represents an indirect investment in the securities owned by the Fund. The value of those securities may fluctuate, sometimes rapidly and unpredictably. The value of the securities owned by the Fund will affect the value of the Common Shares. At any point in time, your Common Shares may be worth less than your original investment, including the reinvestment of Fund dividends and distributions.
Risks of Investing in MLP Units. An investment in MLP units involves risks that differ from a similar investment in equity securities, such as common stock, of a corporation. Holders of MLP units have the rights typically afforded to limited partners in a limited partnership. As compared to common shareholders of a corporation, holders of MLP units have more limited control and limited rights to vote on matters affecting the partnership. There are certain tax risks associated with an investment in MLP units. Additionally, conflicts of interest may exist between common unit holders, subordinated unit holders and the general partner of an MLP; for example a conflict may arise as a result of incentive distribution payments.
Tax Risks of Investing in Equity Securities of MLPs. Much of the benefit the Fund derives from its investment in equity securities of MLPs is a result of MLPs generally being treated as partnerships for U.S. federal income tax purposes. Partnerships do not pay U.S. federal income tax at the partnership level. Rather, each partner of a partnership, in computing its U.S. federal income tax liability, will include its allocable share of the partnership’s income, gains, losses, deductions and expenses. A change in current tax law, or a change in the business of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result in such MLP being required to pay U.S. federal income tax on its taxable income. The classification of an MLP as a corporation for U.S. federal income tax purposes would have the effect of reducing the amount of cash available for distribution by the MLP and causing any such distributions received by the Fund to be taxed as dividend income. Thus, if any of the MLPs owned by the Fund were treated as corporations for U.S. federal income tax purposes, the after-tax return to the Fund with respect to its investment in such MLPs would be materially reduced, which could cause a substantial decline in the value of the Common Shares. To the extent that the Fund invests in the equity securities of an MLP, the Fund will be a partner in such MLP. Accordingly, the Fund will be required to include in its taxable income the Fund’s allocable share of the income, gains, losses, deductions and expenses recognized by each such MLP, regardless of whether the MLP distributes cash to the Fund. Historically, MLPs have been able to offset a significant portion of their income with tax deductions. The portion, if any, of a distribution received by the Fund from an MLP that is offset by the MLP’s tax deductions is essentially treated as tax-deferred return of capital. However, any such deferred tax will be reflected in the Fund’s adjusted basis in the equity securities of the MLP, which will result in an increase in the amount of gain (or decrease in the amount of loss) that will be recognized by the Fund for tax purposes on the sale of any such equity securities. In addition, the Fund will incur a current income tax liability on the portion of a distribution from the MLP that is not offset by the MLP’s tax deductions. The percentage of an MLP’s distributions that is offset by the MLP’s tax deductions will fluctuate over time. For example, new acquisitions by MLPs generate accelerated depreciation and other tax deductions, and therefore a decline in acquisition activity by the MLPs owned by the Fund could increase the Fund’s current tax liability. If the percentage of the distributions received by the Fund that is offset by tax deductions declines, or the Fund’s portfolio turnover increases, the portion of the distributions paid by the Fund that is treated as tax-deferred return of capital and/or capital gain, as the case may be, would be reduced and the portion treated as taxable dividend income would be increased. This generally would result in lower after-tax distributions to shareholders. Changes in tax laws or regulations, or future interpretations of such laws or regulations, could adversely affect the Fund or the MLP entities in which the Fund invests.
Because of the Fund's concentration in MLPs, the Fund is not eligible to be treated as a "regulated investment company" under the Internal Revenue Code of 1986, as amended. Instead, the Fund will be treated as a regular corporation for US federal income tax purposes and as a result, unlike most investment companies, will be subject to corporate income tax to the extent the Fund recognizes taxable income. The Fund believes that as a result of the tax characterization of cash distributions made by MLPs, a significant portion of the Fund's income will be tax-deferred, which will allow distributions by the Fund to its shareholders to include high levels of tax-deferred income. However, there can be no assurance in this regard. If this expectation is not realized, the Fund will have a larger corporate income tax expense than expected, which will result in less cash available to distribute to shareholders.
Affiliated Party Risk. Certain MLPs in which the Fund may invest depend upon their parent or sponsor entities for the majority of their revenues. Were their parent or sponsor entities to fail to make such payments or satisfy their obligations, the revenues and cash flows of such MLPs and ability of such MLPs to make distributions to unit holders, such as the Fund, would be adversely affected.
Equity Securities Risk. A substantial percentage of the Fund’s assets will be invested in equity securities, including MLP common units, MLP subordinated units, MLP preferred units, equity securities of MLP Affiliates, including I-Shares, and common stocks of other issuers. Equity risk is the risk that MLP units or other equity 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, changes in interest rates, and the particular circumstances and performance of particular companies whose securities the Fund holds. The price of an equity security 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 equity securities held by the Fund. In addition, MLP units or other equity securities held by the Fund may decline in price if the issuer fails to make anticipated distributions or dividend payments because, among other reasons, the issuer experiences a decline in its financial condition. MLP subordinated units typically are convertible to MLP common units at a one-to-one ratio. The price of MLP subordinated units is typically tied to the price of the corresponding MLP common unit, less a discount. The size of the discount depends upon a variety of factors, including the likelihood of conversion, the length of time remaining until conversion and the size of the block of subordinated units being purchased or sold. I-Shares represent an indirect investment in MLP I-units. Prices and volatilities of I-Shares tend to correlate to the price of common units. Holders of I-Shares are subject to the same risks as holders of MLP common units.
Concentration Risk. Because the Fund will invest in MLP entities, a substantial portion of which are expected to be engaged primarily in the energy, natural resources and real estate sectors of the economy, such concentration may present more risks than if the Fund were broadly diversified over numerous industries and sectors of the economy. A downturn in the energy, natural resources or real estate sectors of the economy could have a larger impact on the Fund than on an investment company that does not concentrate in such sectors. At times, the performance of securities of companies in the energy, natural resources and real estate sectors of the economy may lag the performance of other sectors or the broader market as a whole.
Energy Sector Risks. Many MLP entities operate within the energy sector. Therefore, the Fund anticipates that a substantial portion of the MLP entities in which the Fund invests will be engaged in the energy sector of the economy. As a result, the Fund will be more susceptible to adverse economic or regulatory occurrences affecting the energy sector. There are several risks associated with investments in MLP entities and companies operating in the energy sector, including the following: Commodity Price Volatility Risk. MLP entities and other companies operating in the energy sector may be affected by fluctuations in the prices of energy commodities, including, for example, natural gas, natural gas liquids, crude oil and coal, in the short- and long-term. Fluctuations in energy commodity prices would impact directly companies that own such energy commodities and could impact indirectly companies that engage in transportation, storage, processing, distribution or marketing of such energy commodities. Fluctuations in energy commodity prices can result from changes in general economic conditions or political circumstances (especially of key energy producing and consuming countries); market conditions; weather patterns; domestic production levels; volume of imports; energy conservation; domestic and foreign governmental regulation; international politics; policies of the Organization of Petroleum Exporting Countries (“OPEC”); taxation; tariffs; and the availability and costs of local, intrastate and interstate transportation methods. The energy sector as a whole may also be impacted by the perception that the performance of energy sector companies is directly linked to commodity prices. - Supply and Demand Risk. MLP entities and other companies operating in the energy sector may be impacted by the levels of supply and demand for energy commodities. MLP entities and other companies operating in the energy sector could be adversely affected by reductions in the supply of or demand for energy commodities. The volume of production of energy commodities and the volume of energy commodities available for transportation, storage, processing or distribution could be affected by a variety of factors, including depletion of resources; depressed commodity prices; catastrophic events; labor relations; increased environmental or other governmental regulation; equipment malfunctions and maintenance difficulties; import volumes; international politics, policies of OPEC; and increased competition from alternative energy sources. Alternatively, a decline in demand for energy commodities could result from factors such as adverse economic conditions (especially in key energy-consuming countries); increased taxation; increased environmental or other governmental regulation; increased fuel economy; increased energy conservation or use of alternative energy sources; or increased commodity prices.
- Depletion Risk. MLP entities and other energy companies engaged in the exploration, development, management or production of energy commodities face the risk that commodity reserves are depleted over time. Such companies seek to increase their reserves through expansion of their current businesses, acquisitions, further development of their existing sources of energy commodities, exploration of new sources of energy commodities or by entering into long-term contracts for additional reserves; however, there are risks associated with each of these potential strategies. If such companies fail to acquire additional reserves in a cost-effective manner and at a rate at least equal to the rate at which their existing reserves decline, their financial performance may suffer. Additionally, failure to replenish reserves could reduce the amount and affect the tax characterization of the distributions paid by such companies.
- Regulatory Risk. The energy sector is highly regulated. MLP entities and other companies operating in the energy sector are subject to significant regulation of nearly every aspect of their operations by federal, state and local governmental agencies. Examples of governmental regulations which impact MLP entities and other companies operating in the energy sector include regulation of the construction, maintenance and operation of facilities, environmental regulation, safety regulation, labor regulation, trade regulation and the regulation of the prices charged for products and services. Compliance with these regulations is enforced by numerous governmental agencies and authorities through administrative, civil and criminal penalties. Stricter laws or regulations or stricter enforcement policies with respect to existing regulations would likely increase the costs of regulatory compliance and could have an adverse effect on the financial performance of MLP entities and other companies operating in the energy sector.
- Acquisition Risk. Energy sector MLP entities owned by the Fund may depend on their ability to make acquisitions that increase adjusted operating surplus per unit in order to increase distributions to unit holders. The ability of such MLP entities to make future acquisitions is dependent on their ability to identify suitable targets, negotiate favorable purchase contracts, obtain acceptable financing and outbid competing potential acquirers. To the extent that such MLP entities are unable to make future acquisitions, or such future acquisitions fail to increase the adjusted operating surplus per unit, their growth and ability to make distributions to unit holders will be limited. There are risks inherent in any acquisition, including erroneous assumptions regarding revenues, acquisition expenses, operating expenses, cost savings and synergies; assumption of liabilities; indemnification; customer losses; key employee defections; distraction from other business operations; and unanticipated difficulties in operating or integrating new product areas and geographic regions.
- Interest Rate Risk. Rising interest rates could increase the costs of capital thereby increasing operating costs and reducing the ability of MLP entities and other companies operating in the energy sector to carry out acquisitions or expansions in a cost-effective manner. As a result, rising interest rates could negatively affect the financial performance of MLP entities and other companies operating in the energy sector in which the Fund invests. Rising interest rates may also impact the price of the securities of MLP entities and other companies operating in the energy sector as the yields on alternative investments increase.
- Catastrophic Event Risk. MLP entities and other companies operating in the energy sector are subject to many dangers inherent in the production, exploration, management, transportation, processing and distribution of natural gas, natural gas liquids, crude oil, refined petroleum and petroleum products and other hydrocarbons. These dangers include leaks, fires, explosions, damage to facilities and equipment resulting from natural disasters, inadvertent damage to facilities and equipment and terrorist acts. Since the September 11th terrorist attacks, the U.S. government has issued warnings that energy assets, specifically U.S. pipeline infrastructure, may be targeted in future terrorist attacks. These dangers give rise to risks of substantial losses as a result of loss or destruction of commodity reserves; damage to or destruction of property, facilities and equipment; pollution and environmental damage; and personal injury or loss of life. Any occurrence of such catastrophic events could bring about a limitation, suspension or discontinuation of the operations of MLP entities and other companies operating in the energy sector. MLP entities and other companies operating in the energy sector may not be fully insured against all risks inherent in their business operations and therefore accidents and catastrophic events could adversely affect such companies’ financial conditions and ability to pay distributions to shareholders.
Other Sector Risks. The Fund also may invest in securities of MLP entities in the natural resources sector and the real estate sector, among other sectors, which may subject the Fund to additional risks associated with investments in those sectors.- Natural Resources Sector Risks. The natural resources sector includes companies principally engaged in owning or developing non-energy natural resources (including timber and minerals) and industrial materials, or supplying goods or services to such companies. The Fund’s investments in MLP entities and other companies operating in the natural resources sector will be subject to the risk that prices of these securities may fluctuate widely in response to the level and volatility of commodity prices; exchange rates; import controls; domestic and global competition; environmental regulation and liability for environmental damage; mandated expenditures for safety or pollution control; the success of exploration projects; depletion of resources; tax policies; and other governmental regulation. Investments in the natural resources sector can be significantly affected by changes in the supply of or demand for various natural resources. The value of investments in the natural resources sector may be adversely affected by a change in inflation.
- Real Estate Sector Risks. The Fund may invest in MLP entities or other companies operating in the real estate sector, which may develop land; own or manage residential, commercial and undeveloped properties; own mortgage securities; and provide financing to owners and developers of multi-family housing or other real estate or building ventures. To the extent that the Fund invests in securities of MLP entities and other companies operating in the real estate sector, the Fund’s performance may be linked to the performance of the real estate markets. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural or technological developments. Changes in interest rates or inflation may adversely affect the value of investments in the real estate sector. Other factors such as catastrophic events; lack of adequate insurance; and environmental issues may contribute to the risks in a real estate investment.
Small Capitalization Risk. The Fund may invest in securities of MLP entities and other issuers that have comparatively smaller capitalizations relative to issuers whose securities are included in major benchmark indices, which present unique investment risks. These companies often have limited product lines, markets, distribution channels or financial resources; and the management of such companies may be dependent upon one or a few key people. The market movements of equity securities issued by MLP entities with smaller capitalizations may be more abrupt or erratic than the market movements of equity securities of larger, more established companies or the stock market in general. Historically, smaller capitalization companies have sometimes gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of smaller capitalization companies generally are less liquid than those of larger companies. This means that the Fund could have greater difficulty selling such securities at the time and price that the Fund would like.
Restricted Securities Risks. The Fund may invest in unregistered or otherwise restricted securities. The term “restricted securities” refers to securities that are unregistered, held by control persons of the issuer or are subject to contractual restrictions on their resale. Restricted securities are often purchased at a discount from the market price of unrestricted securities of the same issuer reflecting the fact that such securities may not be readily marketable without some time delay. Such securities are often more difficult to value and the sale of such securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of liquid securities trading on national securities exchanges or in the over-the-counter markets. Contractual restrictions on the resale of securities result from negotiations between the issuer and purchaser of such securities and therefore vary substantially in length and scope. To dispose of a restricted security that the Fund has a contractual right to sell, the Fund may first be required to cause the security to be registered. A considerable period may elapse between a decision to sell the securities and the time when the Fund would be permitted to sell, during which time the Fund would bear market risks.
Cash Flow Risk. The Fund expects that a substantial portion of the cash flow it receives will be derived from its investments in equity securities of MLP entities. The amount and tax characterization of cash available for distribution by an MLP entity depends upon the amount of cash generated by such entity’s operations. Cash available for distribution by MLP entities will vary widely from quarter to quarter and is affected by various factors affecting the entity’s operations. In addition to the risks described herein, operating costs, capital expenditures, acquisition costs, construction costs, exploration costs and borrowing costs may reduce the amount of cash that an MLP entity has available for distribution in a given period.
Risks Associated with Options on Securities. There are several risks associated with transactions in options on securities. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. As the writer of a covered call option, the Fund forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. If trading were suspended in an option purchased by the Fund, the Fund would not be able to close out the option. If the Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security unless the option expired without exercise.
Liquidity Risk. MLP common units and equity securities of MLP Affiliates, including I-Shares, and other issuers often trade on national securities exchanges, including the NYSE and the AMEX, and on the NASDAQ National Market. However, certain securities, including those of issuers with smaller capitalizations, may trade less frequently. The market movements of such securities with limited trading volumes may be more abrupt or erratic. As a result of the limited liquidity of such securities, the Fund could have greater difficulty selling such securities at the time and price that the Fund would like and may be limited in its ability to make alternative investments.
Valuation Risk. Market prices generally will be unavailable for some of the Fund’s investments, including MLP subordinated units, direct ownership of general partner interests and restricted or unregistered securities of certain MLP entities and private companies. The value of such securities will be determined by fair valuations determined by the Board of Trustees or its designee in accordance with procedures governing the valuation of portfolio securities adopted by the Board of Trustees. Proper valuation of such securities may require more reliance on the judgment of the Sub- Adviser than for valuation of securities for which an active trading market exists. In order to calculate taxable income allocable to MLP units and the associated deferred tax liability for the purposes of financial statement reporting and determining the Fund’s net asset value, the Fund will rely on information provided by the MLPs issuing such units, which may not be timely. As more information becomes available, the Fund will refine its estimates and assumptions regarding its deferred tax liability, which would likely cause the net asset value of the Fund to fluctuate.
Interest Rate Risk. Interest rate risk is the risk that fixed income securities, such as preferred and debt securities, and certain equity securities will decline in value because of a rise in market interest rates. When market interest rates rise, the market value of such securities generally will fall. The net asset value and market price of the Common Shares will tend to decline as a result of the Fund’s investment in such securities if market interest rates rise. During periods of declining interest rates, the issuer of a fixed-income 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. Preferred and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem such a security if the issuer can refinance it at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. During periods of rising interest rates, the average life of certain types of securities may be extended because of a lower likelihood of prepayments. This may lock in a below market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. In typical interest rate environments, prices of fixed income securities with longer maturities generally fluctuate more in response to changes in interest rates than do the prices of fixed income securities with shorter term maturities. Because the Fund may invest a portion of its assets in fixed-income securities without regard to their maturities, to the extent the Fund invests in fixed income securities with longer maturities, the net asset value and market price of the Common Shares would fluctuate more in response to changes in interest rates than if the Fund were to invest such portion of its assets in shorter-term fixed income securities. Market interest rates for investment grade fixed income securities in which the Fund may invest are significantly below historical average rates for such securities. Interest rates below historical average rates may result in increased risk that these rates will rise in the future (which would cause the value of the Fund’s net assets to decline) and may increase the degree to which asset values may decline in such events.
Lower Grade Securities Risk. The Fund may invest in fixed-income securities rated below investment grade (that is, rated Ba or lower by Moody’s; BB or lower by S&P; comparably rated by another statistical rating organization; or, if unrated, as determined by the Sub-Adviser to be of comparable credit quality), which are commonly referred to as “junk bonds.” Investment in securities of below-investment grade quality involves substantial risk of loss. Securities of below investment grade quality are predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default or decline in market value due to adverse economic and issuer-specific developments. Securities of below investment grade quality display increased price sensitivity to changing interest rates and to a deteriorating economic environment. The market values for debt securities of below-investment grade quality tend to be more volatile and such securities tend to be less liquid than investment grade debt securities.
Portfolio Turnover Risk. The Fund’s portfolio turnover rate may vary greatly from year to year. The Fund cannot predict its annual portfolio turnover rate with accuracy; however, under normal market conditions it is not expected to exceed 30%. Portfolio turnover rate will not be considered as a limiting factor in the execution of the Fund’s investment decisions. High portfolio turnover may result in the Fund’s recognition of gains that will be taxable as ordinary income and may increase the Fund’s current and accumulated earnings and profits, which will result in a greater portion of distributions to Common Shareholders being treated as dividends. Additionally, high portfolio turnover results in correspondingly higher brokerage commissions and transaction costs borne by the Fund.
Foreign Securities. Investing in securities of foreign companies (or foreign governments) may involve certain risks not typically associated with investing in domestic companies. The prices of foreign securities may be affected by factors not present with securities traded in the U.S. markets, including, political and economic conditions, less stringent regulation and higher volatility. As a result, many foreign securities may be less liquid and more volatile than U.S. securities. The Fund’s investments in securities of foreign issuers may consist of investments in ADRs. ADRs are certificates evidencing ownership of shares of a foreign issuer that are issued by depositary banks and generally trade on an established market, in the United States or elsewhere. Although ADRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies, they continue to be subject to many of the risks associated with investing directly in foreign securities.
Derivatives Risk. In addition to the risks associated with the option strategies described above, the Fund may participate in certain derivative transactions. Such transactions entail certain execution, market, liquidity, hedging and tax risks. Participation in the options or futures markets involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies (other than its covered call option writing strategy and put option writing strategy). If the Sub- Adviser’s prediction of movements in the direction of the securities and interest rate markets is inaccurate, the consequences to the Fund may leave the Fund in a worse position than if it had not used such strategies.
Market Discount Risk. Whether investors will realize gains or losses upon the sale of shares of the Fund will depend upon the market price of the shares at the time of sale, which may be less or more than the Fund’s net asset value per share. Since the market price of the shares will be affected by such factors as the relative demand for and supply of the shares in the market, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether the shares will trade at, below or above net asset value or at, below or above the public offering price. Shares of closed-end funds often trade at a discount to their net asset values and the Fund’s shares may trade at such a discount. 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 shares should not view the Fund as a vehicle for trading purposes.
Other Investment Companies Risk. The Fund may invest in securities of other open- or closed-end investment companies, including exchange-traded funds. As a stockholder in an investment company, the Fund would bear its ratable share of that investment company’s expenses, and would remain subject to payment of the Fund’s investment management fees with respect to the assets so invested. Common Shareholders would 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.
Royalty Trust Risk. Royalty trusts are, in some respects, similar to certain MLPs and include risks similar to those MLPs, including commodity price volatility risk, cash flow risk and depletion risk.
Financial Leverage. Although the use of Financial Leverage by the Fund may create an opportunity for increased after-tax total 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 Financial Leverage proceeds are greater than the cost of Financial Leverage, the Fund’s return will be greater than if Financial Leverage had not been used. Conversely, if the income or gains from the securities purchased with such proceeds does not cover the cost of Financial Leverage, the return to the Fund will be less than if Financial Leverage had not been used. Financial Leverage involves risks and special considerations for shareholders, including the likelihood of greater volatility of net asset value, market price and dividends on the Common Shares than a comparable portfolio without leverage; the risk that fluctuations in interest rates on borrowings and short-term debt or in the dividend rates on any Financial Leverage that the Fund must pay will reduce the return to the Common Shareholders; and the effect of Financial 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. It is also possible that the Fund will be required to sell assets, possibly at a loss (or at a gain which could give rise to corporate level tax), in order to redeem or meet payment obligations on any leverage. Such a sale would reduce the Fund’s net asset value and also make it difficult for the net asset value to recover. The Fund in its best judgment nevertheless may determine to continue to use Financial Leverage if it expects that the benefits to the Fund’s shareholders of maintaining the leveraged position will outweigh the current reduced return. Because the fees received by the Adviser and Sub-Adviser are based on the Managed Assets of the Fund (including the proceeds of any Financial Leverage), the Adviser and Sub-Adviser have a financial incentive for the Fund to utilize Financial Leverage, which may create a conflict of interest between the Adviser and the Sub-Adviser and the Common Shareholders. There can be no assurance that a leveraging strategy will be implemented or that it will be successful during any period during which it is employed. The Fund generally will not use Financial Leverage if the Adviser and Sub-Adviser anticipate that such use would result in a lower return to Common Shareholders for any significant amount of time.
Non-Diversified Status. The Fund will be a non-diversified investment company under the Investment Company Act of 1940, as amended (the “1940 Act”) and will not elect to be treated as a regulated investment company under the Code. As a result, there are no regulatory requirements under the 1940 Act or the Code that limit the proportion of the Fund’s assets that may be invested in securities of a single issue. Accordingly, the Fund may invest a greater portion of its assets in a more limited number of issuers than a diversified fund. There are currently approximately 55 publicly traded MLPs. The Fund will select its investments in MLPs from this small pool of issuers together with securities issued by any newly public MLPs, and will invest in securities of other MLP entities and securities of issuers other than MLP entities, consistent with its investment objective and policies. An investment in the Fund may present greater risk to an investor than an investment in a diversified portfolio because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the value of the Fund’s Common Shares.
Management Risk. The Fund is subject to management risk because it is an actively managed portfolio. In acting as the Fund’s sub-adviser, responsible for management of the Fund’s portfolio securities, the Sub- Adviser will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.
Current Developments. As a result of the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, some of the U.S. securities markets were closed for a four-day period. These terrorist attacks, the war in Iraq and its aftermath and other geopolitical events have led to, and may in the future lead to, increased short-term market volatility and may have long-term effects on U.S. and world economies and markets. Similar events in the future or other disruptions of financial markets could affect interest rates, securities exchanges, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the Common Shares.
Anti-Takeover Provisions. The Fund’s Governing Documents include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund.
|
|
|
|
Investors should carefully consider the investment objectives and policies, risk considerations, charges and ongoing expenses of any investment
product before investing. For more information, please contact a securities representative or Claymore Securities, Inc., 2455 Corporate West Drive,
Lisle, Illinois 60532, 800-345-7999.
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
|
|