AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2006
1933 ACT FILE NO. 333-______
1940 ACT FILE NO. 811 - 03763
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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REGISTRATION STATEMENT ON
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST: CLAYMORE SECURITIES DEFINED PORTFOLIOS,
SERIES 277
B. NAME OF DEPOSITOR: CLAYMORE SECURITIES, INC.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
Claymore Securities, Inc.
2455 Corporate West Drive
Lisle, Illinois 60532
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
Copies to:
NICHOLAS DALMASO, ESQ. ERIC F. FESS
Senior Managing Director and
General Counsel
Claymore Securities, Inc. Chapman and Cutler LLP
2455 Corporate West Drive 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(630) 505-3736 (312) 845-3000
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of rule 485 or 486
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
E. TITLE OF SECURITIES BEING REGISTERED: Units of fractional undivided
beneficial interest.
F. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable
after the effective date of the Registration Statement.
/ / Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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The registration 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 this 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.
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277
MULTIPLE ASSET PORTFOLIO PLUS (2-YEAR), SERIES 6
[Claymore Logo]
PROSPECTUS PART A DATED _______ , 2006
A diversified portfolio containing securities, including
common stocks of closed-end investment companies,
selected by Claymore Securities, Inc.
The Securities and Exchange Commission has not
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. A
ny representation to the contrary is a criminal offense.
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INVESTMENT SUMMARY
Use this Investment Summary to help you decide whether an investment in
this trust is right for you. More detailed information can be found later in
this prospectus.
OVERVIEW
Claymore Securities Defined Portfolios, Series 277 is a unit investment
trust that consists of the Multiple Asset Portfolio Plus (2-year), Series 6 (the
"trust"). Claymore Securities, Inc. ("Claymore" or the "sponsor") serves as the
sponsor of the trust.
The trust is scheduled to terminate in approximately 2 years.
INVESTMENT OBJECTIVE
The trust seeks to provide current income and the potential for capital
appreciation by investing in a diversified portfolio equally divided among five
asset classes: equity securities, real estate investment trusts ("REITs"),
investment-grade fixed-income securities, high-yield securities and
international fixed-income securities issued by Investment Funds (as hereinafter
defined).
PRINCIPAL INVESTMENT STRATEGY
The trust will invest in a diversified portfolio equally divided among five
asset classes: equity securities, REITs, investment-grade fixed-income
securities, high-yield securities and international fixed-income securities.
Claymore, through proprietary research and strategic alliances, will strive to
select securities featuring the potential to meet the trust's investment
objectives. The sponsor believes that individually these asset classes are quite
attractive based on their historical performance and current prospects. However,
the sponsor has decided to combine these classes to create a trust that has the
potential to benefit from the performance of these asset classes and the reduced
volatility that can result from an increase in diversification.
SECURITY SELECTION
The trust invests in a diversified portfolio of equity securities, REITs
(or closed-end funds and exchange-traded funds ("ETFs") that invest primarily in
REITs) and closed-end funds and ETFs that invest primarily in U.S.
investment-grade fixed-income securities, high-yield or junk securities and
international fixed-income securities ("Investment Funds"). As of the Initial
Date of Deposit, the trust's assets will be approximately equally divided among
the five asset classes.
Equity Securities. As of the Initial Date of Deposit, ____% of the trust's
portfolio consists of dividend paying equity securities listed on national
securities exchanges. The equity securities included in the trust represent an
ownership interest in publicly-held companies that the sponsor believes have the
potential for capital appreciation.
EQUITY SECURITY SELECTION
The sponsor selects domestic companies that it believes are core holdings
of a well diversified domestic large-cap portfolio. To select the portfolio the
sponsor follows a very disciplined process which includes both quantitative and
qualitative analysis. The sponsor begins with the companies that currently
comprise the Russell 3000 Index and separates these companies into three
capitalization groups (large, mid and small-cap). The companies comprising the
first (or largest) 72.5% of capitalization are classified as large-cap, the
stocks comprising the next 15% of capitalization are classified as mid-cap and
the remaining 12.5% are classified as small-cap. The sponsor then takes the
dividend paying members of the large-cap group and separates these companies
into twenty groups based on style and Global Industry Classification Standard
("GICS") sector. The sponsor then reduces the universe to approximately 150 by
performing quantitative screening which is based primarily on factors such as,
but not limited to:
o Valuation. The sponsor may screen for reasonably valued companies based
on measures such as price to earnings, price to book, and price to cash
flow.
o Growth. The sponsor may screen for companies with a history of better
than average growth of revenues, earnings, and dividends.
o Profitability. The sponsor may screen for companies with a history of
consistent and high profitability as measured by return on assets,
return on equity, gross margin and net margin.
The sponsor then reduces the 150 companies to 29 by performing qualitative
analysis based on factors such as, but not limited to:
o Balance Sheet. The sponsor favors companies who possess overall
financial strength and exhibit balance sheet improvements relative to
their peers and the marketplace.
o Industry Leadership. The sponsor favors companies who possess a strong
competitive position among their domestic and global peers.
o Valuation. The sponsor favors companies whose valuations appear to be
attractive based on measures such as price to earnings, price to book,
and price to cash flow.
o Growth. The sponsor favors companies with a history of (and prospects
for) better than average growth of revenues, earnings, and dividends.
o Profitability. The sponsor favors companies with a history of (and
prospects for) consistent and high profitability as measured by return
on assets, return on equity, gross margin and net margin.
REITs. As of the Initial Date of Deposit, ____% of the trust's portfolio
consists of REITs or Investment Funds that invest primarily in REITs. A REIT is
a company that buys, develops, finances and/or manages income-producing real
estate such as apartments, shopping centers, offices and warehouses. In short, a
REIT is a corporation that pools the capital of many investors to purchase one
or more forms of real estate.
REITs are currently required to distribute 90% of taxable income annually
as dividends to shareholders. Compared to traditional direct investments in real
estate, which may be difficult to sell and value, REITs are traded on major
stock exchanges making them highly liquid. REIT investors also gain the
advantage of skilled management since REIT management teams tend to be experts
within their specific property or geographic niches. The trust may also invest
in Investment Funds that invest primarily in REITs in lieu of investing in REITs
themselves.
Common Stocks of Investment-Grade Fixed-Income, High-Yield and
International Investment Funds. As of the Initial Date of Deposit ____%, ____%
and ____% of the trust's portfolio consists of common stocks of Investment Funds
that generally invest a majority of their assets in investment-grade
fixed-income securities, high-yield securities and international fixed-income
securities, respectively. Investment-grade securities are securities rated in
the category of "BBB" or better by Standard & Poor's or the category of "Baa" or
better by Moody's. High yield or "junk" securities, the general names for
securities rated below the category of "BBB" by Standard & Poor's or the
category of "Baa" by Moody's, are frequently issued by corporations in the
growth state of their development or by established companies who are highly
leveraged or whose operations or industries are depressed. Obligations rated
below investment-grade should be considered speculative. See "Description of
Ratings" in Part B of the prospectus for additional information regarding the
ratings criteria.
International fixed-income securities are issued by governmental or
corporate issuers domiciled in countries other than the United States. Foreign
securities typically expose investors to additional risks. See "Risk Factors" in
Part B of the prospectus for additional information regarding the additional
risks of investing in foreign securities.
Investment Funds are typically traded on national securities exchanges.
Such securities are generally managed in accordance with the funds' investment
objectives by an investment adviser that charges a fee for such services.
INVESTMENT FUND SELECTION
When selecting Investment Funds for inclusion in this portfolio the sponsor
looks at numerous factors. These factors include but are not limited to:
1) Investment Objective. The sponsor favors funds that have a clear
investment objective in line with the trust's objective and, based
upon a review of publicly available information, appear to be
maintaining it.
2) Premium/Discount. The sponsor favors funds that are trading at a
discount relative to their peers and relative to their long-term
average.
3) Consistent Dividend. The sponsor favors funds that have a history of
paying a consistent and competitive dividend which, in the opinion of
the sponsor, can be maintained.
4) Performance. The sponsor favors funds that have a history of strong
relative performance (based on market price and net asset value) when
compared to their peers and an applicable benchmark.
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ESSENTIAL INFORMATION
(AS OF THE INCEPTION DATE)
INCEPTION DATE _______ , 2006
UNIT PRICE $10.00
TERMINATION DATE ______
DISTRIBUTION DATE 25th day of each month
commencing ______
RECORD DATE 15th day of each month
commencing ______
CUSIP NUMBERS
CASH DISTRIBUTIONS
Standard Accounts
Fee Accounts Cash
REINVESTED DISTRIBUTIONS
Standard Accounts
Fee Accounts Reinvest
TICKER
PORTFOLIO DIVERSIFICATION
APPROXIMATE
SECTOR PORTFOLIO PERCENTAGE
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------
Total 100.00%
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MINIMUM INVESTMENT
All accounts $250
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FUTURE TRUSTS
The sponsor intends to create future trusts that follow the same investment
strategy. One such trust is expected to be available approximately three months
after the trust's Inception Date and upon the trust's termination. The sponsor
believes that investing in subsequent trusts will give investors an opportunity
to continue to pursue the trust's investment objective by investing in
professionally-selected portfolios that will be assembled through the
reapplication of the trust's investment strategy. If these future trusts are
available, you may be able to reinvest into one of the trusts at a reduced sales
charge. Each trust is designed to be part of a longer term strategy.
PRINCIPAL RISKS
You can lose money by investing in the trust. The trust also might not
perform as well as you expect. This can happen for reasons such as these:
o SECURITIES PRICES CAN BE VOLATILE. The value of your investment may fall
over time.
o THE VALUE OF THE SECURITIES IN THE INVESTMENT FUNDS WILL GENERALLY
FALL IF INTEREST RATES, IN GENERAL, RISE. Typically, fixed-income
securities with longer periods before maturity are more sensitive to
interest rate changes.
o AN ISSUER MAY BE UNWILLING OR UNABLE TO MAKE PRINCIPAL PAYMENTS AND/OR
TO DECLARE DIVIDENDS IN THE FUTURE, MAY CALL A SECURITY BEFORE ITS
STATED MATURITY, OR MAY REDUCE THE LEVEL OF DIVIDENDS DECLARED. This
may result in a reduction in the value of your units.
o THE FINANCIAL CONDITION OF AN ISSUER MAY WORSEN OR ITS CREDIT RATINGS
MAY DROP, RESULTING IN A REDUCTION IN THE VALUE OF YOUR UNITS. This
may occur at any point in time, including during the primary offering
period.
o THE TRUST IS CONCENTRATED IN SECURITIES OF INVESTMENT FUNDS.
Investment Funds are actively managed investment companies that invest
in various types of securities. Investment Funds issue shares of
common stock that are traded on a securities exchange. Investment
Funds are subject to various risks, including management's ability to
meet the Investment Fund's investment objective, and to manage the
Investment Fund portfolio when the underlying securities are redeemed
or sold, during periods of market turmoil and as investors'
perceptions regarding Investment Funds or their underlying investments
change. Investment Funds are not redeemable at the option of the
shareholder and they may trade in the market at a discount to their
net asset value. Investment Funds may also employ the use of leverage
which increases risk and volatility.
o THE TRUST OR AN INVESTMENT FUND HELD BY THE TRUST MAY INVEST IN REITS
AND OTHER REAL ESTATE SECURITIES. REITs may concentrate their
investments in specific geographic areas or in specific property
types, such as hotels, shopping malls, residential complexes and
office buildings. The value of the REIT and the ability of the REIT to
distribute income may be adversely affected by several factors,
including rising interest rates; changes in the national, state and
local economic climate and real estate conditions; perceptions of
prospective tenants of the safety, convenience and attractiveness of
the properties; the ability of the owner to provide adequate
management, maintenance and insurance; the cost of complying with the
Americans with Disabilities Act; increased competition from new
properties; the impact of present or future environmental legislation
and compliance with environmental laws; changes in real estate taxes
and other operating expenses; adverse changes in governmental rules
and fiscal policies; adverse changes in zoning laws; and other factors
beyond the control of the issuer of the REIT.
o CERTAIN INVESTMENT FUNDS HELD BY THE TRUST INVEST IN BONDS THAT ARE
RATED BELOW INVESTMENT-GRADE AND ARE CONSIDERED TO BE "JUNK"
SECURITIES. Below investment-grade obligations are considered to be
speculative and are subject to greater market and credit risks, and
accordingly, the risk of non-payment or default is higher than
investment-grade securities. In addition, such securities may be more
sensitive to interest rate changes and more likely to receive early
returns of principal.
o SOME OF THE INVESTMENT FUNDS HELD BY THE TRUST MAY INVEST IN BONDS
THAT ARE RATED AS INVESTMENT-GRADE BY ONLY ONE RATING AGENCY. As a
result, such split-rated securities may have more speculative
characteristics and are more subject to a greater risk of default than
securities rated as investment-grade by both Moody's and Standard &
Poor's.
o CERTAIN INVESTMENT FUNDS HELD BY THE TRUST MAY INVEST IN CONVERTIBLE
SECURITIES. Convertible securities generally offer lower interest or
dividend yields than non-convertible fixed-income securities of
similar credit quality because of the potential for capital
appreciation. The market values of convertible securities tend to
decline as interest rates increase and, conversely, to increase as
interest rates decline. However, a convertible security's market value
also tends to reflect the market price of the common stock of the
issuing company, particularly when that stock price is greater than
the convertible security's "conversion price." Convertible securities
fall below debt obligations of the same issuer in order of preference
or priority in the event of a liquidation and are typically unrated or
rated lower than such debt obligations.
o CERTAIN INVESTMENT FUNDS HELD BY THE TRUST MAY INVEST IN PREFERRED
SECURITIES. Preferred securities are typically subordinated to 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 credit risk then those debt instruments.
o CERTAIN INVESTMENT FUNDS HELD BY THE TRUST MAY INVEST IN FOREIGN
SECURITIES. The potential investment in foreign securities also
presents additional risk. Foreign risk is the risk that foreign
securities will be more volatile than U.S. securities due to such
factors as adverse economic, currency, political, social or regulatory
developments in a country, including government seizure of assets,
excessive taxation, limitations on the use or transfer of assets, the
lack of liquidity or regulatory controls or differing legal and/or
accounting standards. An Investment Fund may invest in companies
located in countries with emerging markets. These markets are
generally more volatile than countries with more mature economies.
o THE TRUST IS CONSIDERED TO BE A "TRUST OF FUNDS." As such, it is
subject to certain termination restrictions that may result in a
reduction in the value of your units.
o INFLATION MAY DECREASE THE VALUE OF MONEY. Inflation may lead to a
decrease in the value of assets or income from investments.
o THE SPONSOR DOES NOT ACTIVELY MANAGE THE PORTFOLIO. The trust will
generally hold, and may continue to buy, the same securities even
though the security's outlook or rating or its market value or yield
may have changed.
See "Investment Risks" in Part A of the prospects and "Risk Factors" in
Part B of the prospectus for additional information.
WHO SHOULD INVEST
You should consider this investment if:
o You are seeking to own many asset classes in a convenient package;
o You want current income and asset class diversification;
o The trust represents only a portion of your overall investment
portfolio; and
o The trust is part of a longer term investment strategy.
You should not consider this investment if:
o You are unwilling to take the risks involved with owning a multiple
asset class portfolio;
o You are seeking capital preservation as a primary investment
objective; or
o You are seeking a short-term investment or an investment to be used as
a trading vehicle.
FEES AND EXPENSES
This table shows the fees and expenses you may pay, directly or indirectly,
when you invest in the portfolio.
PERCENTAGE
OF PUBLIC AMOUNT PER
OFFERING $1,000
INVESTOR FEES PRICE (1) INVESTED
- ------------ --------- ---------
INITIAL SALES FEE
PAID ON PURCHASE 0.00% $ 0.00
DEFERRED SALES FEE (2) 3.95 39.50
CREATION AND
DEVELOPMENT FEE (3) 0.50 5.00
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MAXIMUM SALES FEES
(including creation
and development fee) 4.45% $44.50
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ESTIMATED ORGANIZATION COSTS
(amount per 100 units paid
by trust at end of initial
offering period or after six
months, at the discretion of
the sponsor) $
=====
APPROXIMATE
ANNUAL FUND % OF PUBLIC
OPERATING OFFERING AMOUNT PER
EXPENSES PRICE (4) 100 UNITS
- ------------ --------- ---------
Trustee's fee 0.0950% $ 0.950
Sponsor's supervisory fee 0.0300 0.300
Evaluator's fee 0.0350 0.350
Bookkeeping and
administrative fee 0.0350 0.350
Estimated other trust
operating expenses (5)
Estimated Investment
Fund expenses (6)
------ -------
Total % $
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(1) The maximum sales fee equals the sum of the deferred sales fee and the
creation and development fee ("C&D Fee") (as described below). Together the
deferred sales charge and the creation and development fee is a fixed
dollar amount equalling $0.395 per unit. Because of this, the maximum sales
charge, as a percentage of the Public Offering Price, will vary with
changes in the Public Offering Price. Assuming a Public Offering Price of
$10 per unit, the maximum sales charge will be 3.95% of the Public Offering
Price per unit. If the price you pay for your units exceeds $10 per unit,
the maximum sales charge will be less than 3.95%. If the price you pay for
your units is less than $10 per unit, the maximum sales charge will exceed
3.95%, but in no event will the maximum sales charge exceed 4.45% of the
Public Offering Price.
(2) The deferred sales charge is a fixed dollar amount equal to $0.345 per unit
which, as a percentage of the Public Offering Price, will vary over time.
At a Public Offering Price of $10 per unit, the deferred sales charge will
be 3.45% of the Public Offering Price per unit. If the price you pay for
your units exceeds $10 per unit, the deferred sales charge will be less
than 3.45%. If the price you pay for your units is less than $10 per unit,
the deferred sales charge will exceed 3.45%; however, in no event will the
deferred sales charge exceed 3.95% of the Public Offering Price per unit.
The deferred sales charge will be deducted in six monthly installments
commencing _____ 2006 and ending _____ 2006 ($0.0575 per unit per month).
If units are redeemed prior to the deferred sales charge period, the entire
deferred sales charge will be collected. If you purchase units after the
first deferred sales charge payment has been assessed, your maximum sales
charge will consist of an initial sales charge and the amount of any
remaining deferred sales charge payments. If you purchase units after the
last deferred sales charge payment has been assessed, your maximum sales
charge will consist of a one-time sales charge of $0.345 per unit.
(3) The C&D Fee compensates the sponsor for creating and developing your trust.
The actual C&D Fee is $0.05 per unit and is paid to the sponsor at the
close of the initial offering period, which is expected to be approximately
3 to 6 months from the Inception Date. The percentages provided are based
on a $10 unit as of the Inception Date and the percentage amount will vary
over time. If the unit price exceeds $10.00 per unit, the C&D Fee will be
less than 0.50% of the Public Offering Price; if the unit price is less
than $10.00 per unit, the C&D Fee will exceed 0.50% of the Public Offering
Price.
(4) Based on 100 units with a $10.00 per unit Public Offering Price as of the
Inception Date.
(5) Other operating expenses do not include brokerage cost and other
transactional fees.
(6) Although not an actual trust operating expense, the trust, and therefore
the unitholders, will indirectly bear similar operating expenses of the
Investment Funds held by the trust in the estimated amount provided above.
Estimated Investment Fund expenses are based upon the net asset value of
the number of Investment Fund shares held by the trust per Unit multiplied
by the Annual Operating Expenses of the Investment Funds for the most
recent fiscal year.
EXAMPLE
This example helps you compare the costs of this trust with other unit
trusts and mutual funds. In the example we assume that the expenses do not
change and the trust's annual return is 5%. Your actual returns and expenses
will vary. Based on these assumptions, you would pay these expenses for every
$10,000 you invest:
1 year $
3 years
5 years
10 years
These amounts are the same regardless of whether you sell your investment
at the end of a period or continue to hold your investment. The example does not
consider any brokerage fees the trust pays or any transaction fees that
broker-dealers may charge for processing redemption requests.
ESTIMATED ANNUAL INCOME DISTRIBUTIONS
The portfolio's estimated annual income distributions are $_____ per unit
for the first year. The amount of distributions may increase or decrease as
securities in the portfolio mature, are called or are sold, as the dividends
received change or as fees and expenses increase or decrease. Estimated
distributions assume that all of the securities and expected dividends are
delivered to the portfolio. These figures are estimates as of the business day
prior to the Inception Date; actual payments may vary.
See "Expenses of the Trust" in Part B of the prospectus for additional
information.
TRUST PORTFOLIO
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277
MULTIPLE ASSET PORTFOLIO PLUS (2-YEAR), SERIES 6
THE TRUST PORTFOLIO AS OF THE INCEPTION DATE, _______ , 2006
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INITIAL PERCENTAGE PER SHARE COST TO
TICKER COMPANY NAME (1) SHARES OF PORTFOLIO PRICE PORTFOLIO (2)(3)
- -------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO (CONTINUED)
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277
MULTIPLE ASSET PORTFOLIO PLUS (2-YEAR), SERIES 6
THE TRUST PORTFOLIO AS OF THE INCEPTION DATE, _______ , 2006
- -------------------------------------------------------------------------------------------------------------------
INITIAL PERCENTAGE PER SHARE COST TO
TICKER COMPANY NAME (1) SHARES OF PORTFOLIO PRICE PORTFOLIO (2)(3)
- -------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO (CONTINUED)
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277
MULTIPLE ASSET PORTFOLIO PLUS (2-YEAR), SERIES 6
THE TRUST PORTFOLIO AS OF THE INCEPTION DATE, _______ , 2006
- -------------------------------------------------------------------------------------------------------------------
INITIAL PERCENTAGE PER SHARE COST TO
TICKER COMPANY NAME (1) SHARES OF PORTFOLIO PRICE PORTFOLIO (2)(3)
- -------------------------------------------------------------------------------------------------------------------
---------
$
=========
(1) All securities are represented entirely by contracts to purchase
securities, which were entered into by the sponsor on _____ , 2006. All
contracts for domestic securities are expected to be settled by the initial
settlement date for the purchase of units.
(2) Valuation of securities by the trustee was made using the market value per
share as of the Evaluation Time on _____ , 2006. Subsequent to inception,
securities are valued, for securities quoted on a national securities
exchange or Nasdaq National Market System, or a foreign securities
exchange, at the closing sales price.
(3) There was a $___ loss to the sponsor on the Inception Date.
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UNDERSTANDING YOUR INVESTMENT
HOW TO BUY UNITS
You can buy units of your trust on any business day by contacting your
financial professional. Public offering prices of units are available daily on
the Internet at WWW.CLAYMORESECURITIES.COM. The unit price includes:
o the value of the stocks,
o the initial sales fee, and
o cash and other net assets in the portfolio.
We often refer to the purchase price of units as the "offer price" or the
"public offering price." We must receive your order to buy units prior to the
close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) to give
you the price for that day. If we receive your order after this time, you will
receive the price computed on the next business day.
VALUE OF THE STOCKS. The sponsor serves as the evaluator of your trust (the
"Evaluator"). We determine the value of the stocks as of the close of the New
York Stock Exchange on each day that the exchange is open (the "Evaluation
Time").
PRICING THE STOCKS. We generally determine the value of stocks using the
last sale price for stocks traded on a national or foreign securities exchange
or the Nasdaq Stock Market. In some cases we will price a stock based on the
last asked or bid price in the over-the-counter market or by using other
recognized pricing methods. We will only do this if a stock is not principally
traded on a national or foreign securities exchange or the Nasdaq Stock Market,
or if the market quotes are unavailable or inappropriate.
The sponsor determined the initial prices of the stocks shown in "Trust
Portfolio" for your trust in this prospectus. The sponsor determined these
initial prices as described above at the close of the New York Stock Exchange on
the business day before the date of this prospectus. On the first day we sell
units we will compute the unit price as of the close of the New York Stock
Exchange or the time the registration statement filed with the Securities and
Exchange Commission becomes effective, if later.
ORGANIZATION COSTS. During the initial offering period, part of your
purchase price includes a per unit amount sufficient to reimburse us for some or
all of the costs of creating your trust. These costs include the costs of
preparing the registration statement and legal documents, legal fees, federal
and state registration fees and the initial fees and expenses of the trustee.
Your trust will sell stocks to reimburse us for these costs at the end of the
initial offering period or after six months, at the discretion of the sponsor.
If units of the trust are redeemed prior to the deferred sales charge
period, the entire deferred sales charge will be collected. If you purchase
units after the first deferred sales charge payment has been assessed, your
maximum sales charge will consist of an initial sales charge and the amount of
any remaining deferred sales charge payments. The initial sales charge, which
you will pay at the time of purchase, is equal to the difference between $0.345
per unit and the remaining deferred sales charge. If you purchase units after
the last deferred sales charge payment has been assessed, your maximum sales
charge will consist of a one-time sales charge of $0.345 per unit.
TRANSACTIONAL SALES FEE. You pay a fee when you buy units. We refer to this
fee as the "transactional sales fee." The transactional sales fee of the trust
has only a deferred component and is a fixed-dollar amount of $0.345 per unit
which, as a percentage of the Public Offering Price, will vary over time. At a
Public Offering Price of $10 per unit, the deferred sales charge will be 3.45%
of the Public Offering Price per unit. If the price you pay for your units
exceeds $10 per unit, the deferred sales charge will be less than 3.45%. If the
price you pay for your units is less than $10 per unit, the deferred sales
charge will exceed 3.45%; however, in no event will the deferred sales charge
exceed 3.95% of the Public Offering Price per unit.
The transactional sales fee does not include the C&D Fee which is described
under "Expenses of the Trust" in Part B of the prospectus and in "Fees and
Expenses" in Part A of the prospectus.
DEFERRED SALES FEE. To keep your money working longer, we defer payment of
the transactional sales fee through the deferred sales fee ($0.345 per unit).
REDUCING YOUR SALES FEE. We offer a variety of ways for you to reduce the
maximum sales fee you pay. It is your financial professional's responsibility to
alert us of any discount when you order units. Since the deferred sales fee and
the C&D Fee are a fixed dollar amount per unit, your trust must charge the
deferred sales fee and the C&D Fee per unit regardless of any discounts.
However, when you purchase units of the trust, if you are eligible to receive a
discount such that your total maximum sales fee is less than the fixed dollar
amount of the deferred sales fee and the C&D Fee, we will credit you the
difference between your maximum sales fee and the sum of the deferred sales fee
and the C&D Fee at the time you buy units by providing you with additional
units.
LARGE PURCHASES. You can reduce your maximum sales fee by increasing the
size of your investment.
Investors who make large purchases are entitled to the following sales
charge reductions:
Sales Charge
Reductions
Purchase Amount (1) (amount per unit)
----------------- --------------
Less than $50,000 $0.000
$50,000 - $99,999 0.025
$100,000 - $249,999 0.050
$250,000 - $499,999 0.075
$500,000 - $999,999 0.150
$1,000,000 or more 0.220
Rollover Purchases 0.100
(1) Sales charge reductions are computed both on a dollar basis and on the
basis of the number of units purchased, at any point of purchase, using the
equivalent of 10,000 units to $100,000, 50,000 units to $500,000 etc., and
will be applied on that basis which is more favorable to you.
You may AGGREGATE unit purchases by the same person on any single day from
any one broker-dealer to qualify for a purchase level. You can include these
purchases as your own for purposes of this aggregation:
o purchases by your spouse or minor
children, and
o purchases by your trust estate or
fiduciary accounts.
The discounts described above apply only during the initial offering
period.
There can be no assurance that the sponsor will create future trusts with
investment strategies similar to your trust or that may fit within your
investment parameters.
ADVISORY AND FEE ACCOUNTS. We eliminate your transactional sales fee for
purchases made through registered investment advisers, certified financial
planners or registered broker-dealers who charge periodic fees in lieu of
commissions or who charge for financial planning or for investment advisory or
asset management services or provide these services as part of an investment
account where a comprehensive "wrap fee" is imposed (a "Fee Account").
This discount applies during the initial offering period and in the
secondary market. Your financial professional may purchase units with the Fee
Account CUSIP numbers to facilitate purchases under this discount, however, we
do not require that you buy units with these CUSIP number to qualify for the
discount. If you purchase units with these special CUSIP numbers, you may have
the distributions automatically reinvest into additional units of your trust or
receive cash distributions. We reserve the right to limit or deny purchases of
units not subject to the transactional sales charge by investors whose frequent
trading activity we determine to be detrimental to your trust. We, as sponsor,
will receive and you will pay the C&D Fee. See "Expenses of the Trust" in Part B
of the prospectus.
EXCHANGE OR ROLLOVER OPTION. If you are buying units of the trust in the
primary market with redemption or termination proceeds from any other Claymore
unit trust, you may purchase units at a $0.10 per unit reduction. You may also
buy units with this reduced sales fee if you are purchasing units in the primary
market with (1) the termination proceeds from a non-Claymore unit trust with a
similar investment strategy, or (2) the redemption proceeds from a non-Claymore
trust if such trust has a similar investment strategy and that trust is
scheduled to terminate within 30 days of redemption. To qualify for this sales
charge reduction, the termination or redemption proceeds being used to purchase
units of the trust must be no more than 30 days old. Such purchases entitled to
this sales charge reduction may be classified as "Rollover Purchases."
Rollover Purchases are also subject to the C&D Fee. See "Expenses of the
Trust" in Part B of the prospectus.
EMPLOYEES. We do not charge the portion of the transactional sales fee that
we would normally pay to your financial professional for purchases made by
officers, directors and employees and their family members (spouses, children
and parents) of Claymore and its affiliates, or by registered representatives of
selling firms and their family members (spouses, children and parents). You pay
only the portion of the fee that the sponsor retains. Such purchases are also
subject to the C&D Fee. This discount applies during the initial offering period
and in the secondary market.
DIVIDEND REINVESTMENT PLAN. We do not charge any transactional sales fee
when you reinvest distributions from your trust into additional units of the
trust. Since the deferred sales fee is a fixed dollar amount per unit, your
trust must charge the deferred sales fee per unit regardless of this discount.
If you elect the distribution reinvestment plan, we will credit you with
additional units with a dollar value sufficient to cover the amount of any
remaining deferred sales fee that will be collected on such units at the time of
reinvestment. The dollar value of these units will fluctuate over time. This
discount applies during the initial offering period and in the secondary market.
See "Purchase, Redemption and Pricing of Units" in Part B of the prospectus
for more information regarding buying units.
HOW WE DISTRIBUTE UNITS. We sell units to the public through broker-dealers
and other firms. We pay part of the sales fee you pay to these distribution
firms when they sell units. The distribution fee paid for a given transaction is
as follows:
Purchase Amount/ Concession
Form of Purchase per Unit
---------------- -----------
Less than $50,000 $0.300
$50,000 - $99,999 0.275
$100,000 - $249,999 0.250
$250,000 - $499,999 0.235
$500,000 - $999,999 0.160
$1,000,000 or more 0.090
Rollover Purchases 0.200
Fee Account and
Employee Purchases 0.00
We apply these amounts at the time of
the transaction. We also apply the different distribution levels on a unit basis
using a $10 unit equivalent. For example, if a firm executes a transaction
between 10,000 and 24,999 units, it earns $0.250 per unit.
Broker-dealers and other firms that sell units of certain Claymore unit
trusts are eligible to receive additional compensation for volume sales. Such
payments will be in addition to the regular concessions paid to dealer firms as
set forth in the applicable trust's prospectus. The additional concession is
based on total sales of eligible Claymore unit trusts during a calendar quarter
as set forth in the following table:
Additional Volume
Concession
(as a percentage
Primary Offering of the value of
Period Sales During units sold over
Calendar Quarter $3 million)
--------------- --------------
$0 but less than $3 million 0.00%
$3 million
but less than $20 million 0.05
$20 million or more 0.10
Eligible unit trusts include all Claymore unit trusts, other than Claymore
municipal portfolios, sold in the primary market. Dealer firms will not receive
additional compensation for the first $3 million in units sold during a calendar
quarter. For example, if a dealer firm sells $4 million of eligible units in a
calendar quarter, the dealer firm will receive additional compensation of 0.05%
of $1 million. Also, if a dealer firm sells $26 million of eligible units in a
calendar quarter, the dealer firm will receive additional compensation of 0.10%
of $23 million. In addition, dealer firms will not receive volume concessions on
the sale of units which are not subject to a transactional sales charge.
However, such sales will be included in determining whether a firm has met the
sales level breakpoints for volume concessions.
Claymore reserves the right to modify or terminate the volume concession
program at any time. The sponsor may also pay to certain dealers an
administrative fee for information or service used in connection with the
distribution of trust units. Such amounts will be in addition to any concessions
received for the sale of units.
We generally register units for sale in various states in the U.S. We do
not register units for sale in any foreign country. It is your financial
professional's responsibility to make sure that units are registered or exempt
from registration if you are a foreign investor or if you want to buy units in
another country. This prospectus does not constitute an offer of units in any
state or country where units cannot be offered or sold lawfully. We may reject
any order for units in whole or in part.
We may gain or lose money when we hold units in the primary or secondary
market due to fluctuations in unit prices. The gain or loss is equal to the
difference between the price we pay for units and the price at which we sell or
redeem them. We may also gain or lose money when we deposit securities to create
units. For example, we lost the amount set forth in "Trust Portfolio" on the
initial deposit of securities in the trust.
See "Purchase, Redemption and Pricing of Units" in Part B of the prospectus
for additional information.
HOW TO SELL YOUR UNITS
You can sell your units on any business day by contacting your financial
professional or, in some cases, the trustee. Unit prices are available daily on
the Internet at WWW.CLAYMORESECURITIES.COM or through your financial
professional. We often refer to the sale price of units as the "bid price." You
pay any remaining deferred sales fee when you sell or redeem your units. Certain
broker-dealers may charge a transaction fee for processing unit redemptions or
sale requests.
Until the end of the initial offering period or six months after the
Inception Date, at the discretion of the sponsor, the price at which the trustee
will redeem units and the price at which the sponsor may repurchase units
include estimated organization costs. After such period, the amount paid will
not include such estimated organization costs.
SELLING UNITS. We intend to, but are not obligated to, maintain a secondary
market for units. This means that if you want to sell your units, we may buy
them at the current price which is based on their net asset value. We may then
resell the units to other investors at the public offering price or redeem them
for the redemption price. Our secondary market repurchase price is generally the
same as the redemption price. Certain broker-dealers might also maintain a
secondary market in units. You should contact your financial professional for
current unit prices to determine the best price available. We may discontinue
our secondary market at any time without notice. Even if we do not make a
market, you will be able to redeem your units with the trustee on any business
day for the current price.
REDEEMING UNITS. You may also be able to redeem your units directly with
the trustee, The Bank of New York, on any day the New York Stock Exchange is
open. The trustee must receive your completed redemption request prior to the
close of the New York Stock Exchange for you to receive the unit price for a
particular day. (For what constitutes a completed redemption request, see
"Purchase, Redemption and Pricing of Units-Redemption" in the Part B of the
prospectus.) If your request is received after that time or is incomplete in any
way, you will receive the next price computed after the trustee receives your
completed request. Rather than contacting the trustee directly, your financial
professional may also be able to redeem your units by using the Investors
Voluntary Redemptions and Sales (IVORS) automated redemption service offered
through Depository Trust Company.
If you redeem your units, the trustee will generally send you a payment for
your units no later than three business days after it receives all necessary
documentation.
You can generally request an in-kind distribution of the stocks underlying
your units if you own units worth at least $25,000 or you originally paid at
least that amount for your units. This option is generally available only for
stocks traded and held in the United States. If you hold units of the trust, you
may not request this option in the last five days of your trust's life. We may
modify or discontinue this option at any time without notice. If you request an
in-kind distribution of the securities underlying units of the trust, you will
incur any distribution or service fees (Rule 12b-1 fees) applicable to those
securities.
EXCHANGE OPTION. You may be able to exchange your units for units of other
Claymore unit trusts at a reduced sales fee. You can contact your financial
professional or Claymore for more information about trusts currently available
for exchanges. Before you exchange units, you should read the prospectus
carefully and understand the risks and fees. You should then discuss this option
with your financial professional to determine whether your investment goals have
changed, whether current trusts suit you and to discuss tax consequences. To
qualify for a reduced sales fee, you must purchase units in a subsequent trust
on the same day that you redeem units of your current trust. We may discontinue
this option at any time.
For more complete information regarding selling or redeeming your units,
see "Purchase, Redemption and Pricing of Units" in Part B of the prospectus.
DISTRIBUTIONS
DIVIDENDS. Your trust generally pays dividends from its net investment
income along with any excess capital on each distribution date to unitholders of
record on the preceding record date. You can elect to:
o reinvest distributions in additional units of your trust at no fee, or
o receive distributions in cash.
You may change your election by contacting your financial professional or
the trustee. Once you elect to participate in a reinvestment program, the
trustee will automatically reinvest your distributions into additional units at
their net asset value on the distribution date. We waive the sales fee for
reinvestments into units of your trust. We cannot guarantee that units will
always be available for reinvestment. If units are unavailable, you will receive
cash distributions. We may discontinue these options at any time without notice.
In some cases, your trust might pay a special distribution if it holds an
excessive amount of principal pending distribution. For example, this could
happen as a result of a merger or similar transaction involving a company whose
stock is in your portfolio. The amount of your distributions will vary from time
to time as companies change their dividends or trust expenses change.
REINVEST IN YOUR TRUST. You can keep your money working by electing to
reinvest your distributions in additional units of your trust. The easiest way
to do this is to have your financial professional purchase units with one of the
Reinvestment CUSIP numbers listed in the "Investment Summary" section of this
prospectus. You may also make or change your election by contacting your
financial professional or the trustee.
REPORTS. The trustee will send your financial professional a statement
showing income and other receipts of your trust for each distribution. Each year
the trustee will also provide an annual report on your trust's activity and
certain tax information. You can request copies of stock evaluations to enable
you to complete your tax forms and audited financial statements for your trust,
if available.
See "Administration of the Trust" in Part B of the prospectus for
additional information.
INVESTMENT RISKS
ALL INVESTMENTS INVOLVE RISK. This section describes the main risks that
can impact the value of the stocks in your trust. You should understand these
risks before you invest. Recently, equity markets have experienced significant
volatility. If the value of the stocks falls, the value of your units will also
fall. We cannot guarantee that your trust will achieve its objective or that
your investment return will be positive over any period.
MARKET RISK. Market risk is the risk that a particular security in a trust,
the trust itself or securities in general may fall in value. Market value may be
affected by a variety of factors including:
o General securities markets movements;
o Changes in the financial condition of an issuer or an industry;
o Changes in perceptions about an issuer or an industry;
o Interest rates and inflation;
o Governmental policies and litigation; and
o Purchases and sales of securities by the trust.
INTEREST RATE RISK. Interest rate risk is
the risk that the value of securities held by a Closed-End Fund or an Investment
Fund in your trust will decline in value because of a rise in interest rates.
Generally, securities that pay fixed rates of return will increase in value when
interest rates decline and decrease in value when interest rates rise.
Typically, securities that pay fixed rates of return with longer periods before
maturity are more sensitive to interest rate changes.
CREDIT AND DIVIDEND PAYMENT RISK. Credit risk is the risk that an issuer of
a security held by a Closed-End Fund or an Investment Fund in your trust is
unable or unwilling to make dividend and/or principal payments. High yield or
"junk" securities that are rated below investment grade are generally more
susceptible to this risk than investment grade securities.
CALL RISK. Call risk is the risk that securities held by a Closed-End Fund
or an Investment Fund in your trust can be prepaid or "called" by the issuer
before their stated maturity. If securities are called, your income will decline
and you may not be able to reinvest the money you receive at as high a yield.
Also, an early call at par of a security trading at a premium will reduce your
return. Securities held by a Closed-End Fund or Investment Funds in the trust
are more likely to be called when interest rates decline. This would result in
early returns of principal to the Closed-End Funds or Investment Funds in the
trust. The securities may also be subject to special or extraordinary call
provisions and "mandatory put" features that may cause the securities to be
removed from a fund prior to maturity or stated call dates. High yield or "junk"
securities that are rated below investment grade are generally more susceptible
to this risk than investment grade securities.
SECURITY QUALITY RISK. Security quality risk is the risk that a reduction
in a securities rating may decrease its value the value of a Closed-End Fund or
an Investment Fund and the value of your investment in your trust. Securities
ratings may be reduced at any time, including during the primary offering period
of your trust.
SPLIT RATINGS RISK. Split-rated securities are those securities that, at
the time of investment, are rated below investment grade by Moody's or Standard
& Poor's, so long as at least one rating agency rates such securities within the
four highest grades (i.e., investment-grade quality). This means that a
split-rated security may be regarded by one rating agency as having
predominately speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal, and accordingly subject to a greater risk
of default. The prices of split-rated securities, in the view of one but not all
rating agencies, may be more sensitive than securities without a split-rating to
negative developments, such as a decline in the issuer's revenues or a general
economic downturn.
LITIGATION AND LEGISLATION RISK. Your trust is also subject to litigation
and legislation risk. From time to time, various legislative initiatives are
proposed in the United States and abroad which may have a negative impact on
certain of the companies represented in the trust. In addition, litigation
regarding any of the issuers of the securities or of the industries represented
by these issuers, may raise potential bankruptcy concerns and may negatively
impact the share prices of these securities. We cannot predict what impact any
pending or threatened litigation or any bankruptcy concerns will have on the
share prices of the securities.
INVESTMENT FUND RISK. Investment Funds are subject to various risks,
including management's ability to meet the Investment Fund's investment
objective, and to manage the Investment Fund portfolio when the underlying
securities are redeemed or sold, during periods of market turmoil and as
investors' perceptions regarding Investment Funds or their underlying
investments change.
Shares of Investment Funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from the
risk that the net asset value of Investment Fund shares may decrease. The amount
of such discount from net asset value is subject to change from time to time in
response to various factors.
Certain of the Investment Funds included in your trust may employ the use
of leverage in their portfolios through the issuance of preferred stock. While
leverage often serves to increase the yield of an Investment Fund, this leverage
also subjects the Investment Fund to increased risks, including the likelihood
of increased volatility and the possibility that the Investment Fund's common
share income will fall if the dividend rate on the preferred shares or the
interest rate on any borrowings rises. In addition, Investment Funds are subject
to their own annual fees and expenses, including a management fee. Such fees
reduce the potential benefits associated with owning an Investment Fund and are
in addition to your trust's expenses.
TRUST OF FUNDS RISK. In order to hold securities of Closed-End Funds or
Investment Funds, your trust has agreed to the following condition. This
condition may negatively affect the value of the units.
o Your trust has agreed that it will not terminate within 30 days of the
termination of any other Claymore trust that holds shares of one or
more common Closed-End Funds or Investment Funds.
CONCENTRATION RISK. When securities in a particular industry make up 25% or
more of a trust, it is said to be "concentrated" in that industry. Concentration
makes the trust subject to more market risk. The trust is concentrated in the
securities of Investment Funds. See "Investment Fund risk," and "Trust of Funds
risk" for descriptions of the risks associated with concentrations in the
securities of Investment Funds.
HIGH-YIELD SECURITIES RISK. Certain Closed-End Funds or Investment Funds
held by your trust may invest in high-yield securities. High yield, high risk
securities are subject to greater market fluctuations and risk of loss than
securities with higher investment ratings. The value of these securities will
decline significantly with increases in interest rates, not only because an
increase in rates generally decreases values, but also because increased rates
may indicate an economic slowdown. An economic slowdown, or a reduction in an
issuer's creditworthiness, may affect an issuer's ability to make dividend
payments.
High yield or "junk" securities, the general names for securities rated
below the category of "BBB" by Standard & Poor's or the category of "Baa" by
Moody's, are frequently issued by corporations in the growth state of their
development or by established companies who are highly leveraged or whose
operations or industries are depressed. Obligations rated below investment-grade
should be considered speculative as these ratings indicate a quality of less
than investment-grade. Because high-yield securities are generally subordinated
obligations and are perceived by investors to be riskier than higher rated
securities, their prices tend to fluctuate more than higher rated securities and
are affected by short-term credit developments to a greater degree. Also, the
market for high-yield securities is generally smaller and less liquid than that
for investment-grade securities.
The market for high-yield bonds is smaller and less liquid than that for
investment-grade bonds. High-yield bonds are generally not listed on a national
securities exchange but trade in the over-the-counter markets. Due to the
smaller, less liquid market for high-yield bonds, the bid-offer spread on such
bonds is generally greater than it is for investment-grade bonds and the
purchase or sale of such bonds may take longer to complete.
CONVERTIBLE SECURITY RISK. Certain Closed-End Funds or Investment Funds
held by your trust may invest in convertible securities. Convertible securities
generally offer lower interest or dividend yields than non-convertible
fixed-income securities of similar credit quality because of the potential for
capital appreciation. The market values of convertible securities tend to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, a convertible security's market value also tends to
reflect the market price of the common stock of the issuing company,
particularly when that stock price is greater than the convertible security's
"conversion price." The conversion price is defined as the predetermined price
or exchange ratio at which the convertible security can be converted or
exchanged for the underlying common stock. As the market price of the underlying
common stock declines below the conversion price, the price of the convertible
security tends to be increasingly 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 before that company's
common stockholders. Consequently, an issuer's convertible securities generally
entail less risk than its common stock. However, convertible securities fall
below debt obligations of the same issuer in order of preference or priority in
the event of a liquidation and are typically un-rated or rated lower than such
debt obligations.
Mandatory convertible securities are distinguished as a subset of
convertible securities because the conversion is not optional and the conversion
price at maturity is based solely upon the market price of the underlying common
stock, which may be significantly less than par or the price (above or below
par) paid. For these reasons, the risks associated with investing in mandatory
convertible securities most closely resemble the risks inherent in common
stocks. Mandatory convertible securities customarily pay a higher coupon yield
to compensate for the potential risk of additional price volatility and loss
upon conversion. Because the market price of a mandatory convertible security
increasingly corresponds to the market price of its underlying common stock, as
the convertible security approaches its conversion date, there can be no
assurance that the higher coupon will compensate for a potential loss.
PREFERRED SECURITIES RISK. Certain Closed-End Funds or Investment Funds
held by your trust may invest in preferred securities, such as preferred stock
and trust preferred securities.
Similar to bonds, preferred stocks typically offer a fixed rate of return
paid in the form of a dividend. Like common stock, most preferred stocks are
equity securities representing ownership in a company. Preferred stocks are
generally considered "senior securities" and preferred stockholders enjoy
preference over common stockholders with regard to dividends and liquidations.
For the prospect of a higher yield, preferred stockholders may forfeit or at
least be limited in their voting rights. Preferred stocks are generally traded
on major stock exchanges. Preferred securities are typically subordinated to
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 credit
risk than those debt instruments.
Trust preferred securities are limited-life securities typically issued by
corporations, generally in the form of interest-bearing notes or preferred
securities, or by an affiliated business trust of a corporation, generally in
the form of beneficial interests in subordinated debentures issued by the
corporation, or similarly structured securities. Dividend payments of the trust
preferred securities generally coincide with interest payments on the underlying
obligations. Trust preferred securities and the underlying subordinated
debentures typically rank senior to the company's common and preferred stock and
junior to the company's senior debt, subordinated debt and other indebtedness.
In addition to the risks set forth above, these securities are also subject
to the following risks:
o Trust preferred securities are designed to create the same business
risk for an investor as if the investor had bought the securities
underlying the trust preferred securities. A corporation's ability to
pay distributions on the trust preferred securities is generally
dependent on whether the corporation issuing the securities is able to
pay interest on the underlying securities.
o Unitholders have no right to accelerate the trust preferred securities
or the underlying securities for non-payment.
o A corporation issuing the underlying securities may elect to defer
interest payments on those securities at any time during the life of
the trust preferred securities for up to 20 consecutive quarters. If
such an election is made, distributions on the trust preferred
securities will not be made during the deferral period. During any
deferral period investors may be taxed as if the trust had received
current income. In such a case, unitholders will have income taxes due,
but will not have received income distributions to pay the taxes.
o Tax or regulatory changes may change the tax characterization of the
preferred securities or the underlying securities, and, as a result,
may effect the value of your units.
o Preferred securities may be subject to redemption after a certain call
date or as a result of certain tax or regulatory events. This may occur
prior to maturity.
FOREIGN SECURITIES RISK. Certain Closed-End Funds or Investment Funds held
by your trust may invest in foreign securities. Securities of foreign issuers
present risks beyond those of domestic securities. The prices of foreign
securities can be more volatile than U.S. securities due to such factors as
political, social and economic developments abroad, the differences between the
regulations to which U.S. and foreign issuers and markets are subject, the
seizure by the government of company assets, excessive taxation, withholding
taxes on dividends and interest, limitations on the use or transfer of portfolio
assets, and political or social instability. Other risks include the following:
o Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.
o Foreign issuers may not be subject to accounting standards or
governmental supervision comparable to U.S. issuers, and there may be
less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S. markets.
o Foreign securities often trade in currencies other than the U.S.
dollar. Changes in currency exchange rates may affect an Investment
Fund's net asset value, the value of dividends and interest earned, and
gains and losses realized on the sale of securities. An increase in the
strength of the U.S. dollar relative to these other currencies may
cause the value of a trust to decline. Certain foreign currencies may
be particularly volatile, and foreign governments may intervene in the
currency markets, causing a decline in value or liquidity in a trust's
foreign currency holdings.
EMERGING MARKET RISK. Certain Closed-End Funds or Investment Funds held in
your trust may invest a portion of their assets in securities issued by entities
located in emerging markets. Emerging markets are generally defined as countries
in the initial states of their industrialization cycles with low per capita
income. The markets of emerging markets countries are generally more volatile
than the markets of developed countries with more mature economies. All of the
risks of investing in foreign securities described above are heightened by
investing in emerging markets countries.
REIT INDUSTRY RISK. The trust invests a portion of its assets in REITs or
Investment Funds that invest primarily in REITs. REITs may concentrate their
investments in specific geographic areas or in specific property types, such as
hotels, shopping malls, residential complexes and office buildings. The value of
the REIT and the ability of the REIT to distribute income may be adversely
affected by several factors, including rising interest rates; changes in the
national, state and local economic climate and real estate conditions;
perceptions of prospective tenants of the safety, convenience and attractiveness
of the properties; the ability of the owner to provide adequate management,
maintenance and insurance; the cost of complying with the Americans with
Disabilities Act; increased competition from new properties; the impact of
present or future environmental legislation and compliance with environmental
laws; changes in real estate taxes and other operating expenses; adverse changes
in governmental rules and fiscal policies; adverse changes in zoning laws; and
other factors beyond the control of the issuer of the REIT.
INFLATION RISK. Inflation risk is the risk that the value of assets or
income from investments will be less in the future as inflation decreases the
value of money.
See "Risk Factors" in Part B of the prospectus for additional information.
HOW THE TRUST WORKS
YOUR TRUST. Your trust is a unit investment trust registered under the
Investment Company Act of 1940 and the Securities Act of 1933. We created the
trust under a trust agreement between Claymore Securities, Inc. (as sponsor,
evaluator and supervisor) and The Bank of New York (as trustee). To create your
trust, we deposited contracts to purchase stocks with the trustee along with an
irrevocable letter of credit or other consideration to pay for the stocks. In
exchange, the trustee delivered units of your trust to us. Each unit represents
an undivided interest in the assets of your trust. These units remain
outstanding until redeemed or until your trust terminates.
CHANGING YOUR PORTFOLIO. Your trust is not a managed fund. Unlike a managed
fund, we designed your portfolio to remain relatively fixed after its inception.
Your trust will generally buy and sell stocks:
o to pay expenses,
o to issue additional units or redeem units,
o in limited circumstances to protect the trust,
o to make required distributions or avoid imposition of taxes on the
trust, or
o as permitted by the trust agreement.
Your trust will generally reject any offer for securities or property other
than cash in exchange for the stocks in its portfolio. However, if a public
tender offer has been made for a stock or a merger or acquisition has been
announced affecting a stock, your trust may either sell the stock or accept a
tender offer for cash if the supervisor determines that the sale or tender is in
the best interest of unitholders. The trustee will distribute any cash proceeds
to unitholders. If your trust receives securities or property other than cash,
it may either hold the securities or property in its portfolio or sell the
securities or property and distribute the proceeds. For example, this could
happen in a merger or similar transaction.
Only the trustee may vote the shares of the Closed-End Funds held in the
trust. The trustee will vote the shares in the same general proportion as the
shares held by other shareholders of each Closed-End Fund.
We will increase the size of your trust as we sell units. When we create
additional units, we will seek to replicate the existing portfolio. When your
trust buys stocks, it will pay brokerage or other acquisition fees. You could
experience a dilution of your investment because of these fees and fluctuations
in stock prices between the time we create units and the time your trust buys
the stocks. When your trust buys or sells stocks, we may direct that it place
orders with and pay brokerage commissions to brokers that sell units or are
affiliated with your trust. We may consider whether a firm sells units of our
trusts when we select firms to handle these transactions.
TERMINATION OF YOUR TRUST. Your trust will terminate no later than the
termination date listed in the "Investment Summary" section of this prospectus.
The trustee may terminate your trust early if the value of the trust is less
than 20% of the value of the stocks in the trust at the end of the initial
offering period. At this size, the expenses of your trust may create an undue
burden on your investment. Investors owning two-thirds of the units in your
trust may also vote to terminate the trust early. We may also terminate your
trust in other limited circumstances.
The trustee will notify you of any termination and sell any remaining
stocks. The trustee will send your final distribution to you within a reasonable
time following liquidation of all the stocks after deducting final expenses.
Your termination distribution may be less than the price you originally paid for
your units. You may be able to request an in-kind distribution of the stocks
underlying your units at termination. Please refer to the section entitled "How
to Sell Your Units-Redeeming Units" for information on in-kind distributions.
See "Administration of the Trust" in Part B of the prospectus for
additional information.
GENERAL INFORMATION
CLAYMORE. Claymore Securities, Inc. specializes in the creation,
development and distribution of investment solutions for advisors and their
valued clients. In November 2001, we changed our name from Ranson & Associates,
Inc. to Claymore Securities, Inc. During our history we have been active in
public and corporate finance and have distributed bonds, mutual funds and unit
trusts in the primary and secondary markets. We are a registered broker-dealer
and member of the National Association of Securities Dealers, Inc. If we fail to
or cannot perform our duties as sponsor or become bankrupt, the trustee may
replace us, continue to operate your trust without a sponsor, or terminate your
trust. You can contact us at our headquarters at 2455 Corporate West Drive,
Lisle, Illinois 60532 or by using the contacts listed on the back cover of this
prospectus. Claymore personnel may from time to time maintain a position in
certain stocks held by the trust.
Claymore and your trust have adopted a code of ethics requiring Claymore's
employees who have access to information on trust transactions to report
personal securities transactions. The purpose of the code is to avoid potential
conflicts of interest and to prevent fraud, deception or misconduct with respect
to your trust.
See "Administration of the Trust" in Part B of the prospectus for
additional information.
THE TRUSTEE. The Bank of New York is the trustee of your trust. It is a
trust company organized under New York law. You can contact the trustee by
calling the telephone number on the back cover of this prospectus or write to
Unit Investment Trust Division, 101 Barclay Street, 20th Fl., New York, New York
10286. We may remove and replace the trustee in some cases without your consent.
The trustee may also resign by notifying Claymore and investors.
See "Administration of the Trust" in Part B of the prospectus for
additional information.
EXPENSES
Your trust will pay various expenses to conduct its operations. The
"Investment Summary" section of this prospectus shows the estimated amount of
these expenses.
Your trust will pay a fee to the trustee for its services. The trustee also
benefits when it holds cash for your trust in non-interest bearing accounts.
Your trust will reimburse us as supervisor and evaluator for providing portfolio
supervisory services and for evaluating your portfolio. Our reimbursements may
exceed the costs of the services we provide to your trust but will not exceed
the costs of services provided to all Claymore unit investment trusts in any
calendar year. All of these fees may adjust for inflation without your approval.
Your trust will pay a fee to the sponsor for creating and developing the
trust, including determining the trust objective, policies, composition and
size, selecting service providers and information services, and for providing
other similar administrative and ministerial functions. Your trust pays this
"creation and development fee" of $0.05 per unit from the assets of the trust as
of the close of the initial public offering period. The sponsor does not use the
fee to pay distribution expenses or as compensation for sales efforts.
Your trust will also pay its general operating expenses, including any
licensing fees. Your trust may pay expenses such as trustee expenses (including
legal and auditing expenses), various governmental charges, fees for
extraordinary trustee services, costs of taking action to protect your trust,
costs of indemnifying the trustee and Claymore, legal fees and expenses,
expenses incurred in contacting you and costs incurred to reimburse the trustee
for advancing funds to meet distributions. Your trust may pay the costs of
updating its registration statement each year. The trustee may sell securities
to pay trust expenses.
Your trust, and therefore the unitholders of the trust, will also
indirectly bear the expenses of the underlying Investment Funds. While your
trust will not pay these expenses directly out of its assets, these expenses are
shown under "Annual Fund Operating Expenses of the Trust" in the "Fees and
Expenses" section of the trust to illustrate the impact of these expenses.
See "Expenses of the Trust" in Part B of the prospectus for additional
information.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UNITHOLDERS
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277
We have audited the accompanying statement of financial condition,
including the trust portfolio set forth on pages 10, 11 and 12 of this
prospectus, of Claymore Securities Defined Portfolios, Series 277, as of _____ ,
2006, the initial date of deposit. This statement of financial condition is
the responsibility of the trust's sponsor. Our responsibility is to express an
opinion on this statement of financial condition based on our audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
statements of financial condition is free of material misstatement. The trust is
not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of financial condition, assessing the accounting principles used
and significant estimates made by the sponsor, as well as evaluating the overall
statements of financial condition presentation. Our procedures included
confirmation with The Bank of New York, trustee, of cash or an irrevocable
letter of credit deposited for the purchase of securities as shown in the
statement of financial condition as of _______ , 2006. We believe that our
audits of the statement of financial condition provide a reasonable basis for
our opinion.
In our opinion, the statement of financial condition referred to above
presents fairly, in all material respects, the financial position of Claymore
Securities Defined Portfolios, Series 277 as of _______ , 2006, in conformity
with accounting principles generally accepted in the United States of America.
Grant Thornton LLP
Chicago, Illinois
_______ , 2006
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277
STATEMENT OF FINANCIAL CONDITION
AS OF THE INCEPTION DATE, _______ , 2006
INVESTMENT IN STOCKS
Sponsor's contracts to purchase underlying stocks
backed by cash deposited (1)(2) $
---------
$
=========
LIABILITIES AND INTEREST OF UNITHOLDERS
Liabilities:
Organization costs (3) $
Creation and development fee (6)
Deferred sales fee (4)
---------
Interest of unitholders:
Cost to investors (5)
Less: initial sales fee
Less: organization costs, C&D and deferred
sales fees (3)(4)(5)(6)
---------
Net interest of unitholders
---------
Total $
=========
Number of units
=========
Net Asset Value per Unit $
=========
- --------------------------------------------------------------------------------
(1) Aggregate cost of the securities is based on the closing sale price
evaluations as determined by the trustee.
(2) Cash and/or a letter of credit has been deposited with The Bank of New
York, trustee, covering the funds (aggregating $_______) necessary for the
purchase of the securities in the trust, represented by purchase contracts.
(3) A portion of the Public Offering Price represents an amount sufficient to
pay for all or a portion of the costs incurred in establishing the trust.
These costs have been estimated at $___ per 100 units of the trust. A
distribution will be made as of the close of the initial offering period or
six months after the initial date of deposit (at the discretion of the
sponsor) to an account maintained by the trustee from which this obligation
of the investors will be satisfied. To the extent that actual organization
costs are greater than the estimated amount, only the estimated
organization costs added to the public offering price will be deducted from
the assets of the trust.
(4) The total transactional sales fee consists of a deferred sales fee. On the
Inception Date, the total transactional sales fee is $0.345 per unit for
the trust (equivalent to 3.573% of the net amount invested). The deferred
sales fee is equal to $0.345 per unit of the trust.
(5) The aggregate cost to investors includes the applicable transactional sales
fee assuming no reduction of transactional sales fees for quantity
purchases.
(6) The trust is committed to pay a creation and development fee of $5.00 per
100 units at the close of the initial public offering period.
CLAYMORE SECURITIES DEFINED PORTFOLIOS
CLAYMORE PORTFOLIO
PROSPECTUS PART B DATED _______ , 2006
A of the prospectus relates exclusively to a particular trust or trusts and
provides specific information regarding each trust's portfolio, strategies,
investment objectives, expenses, financial highlights, income and capital
distributions, hypothetical performance information, risk factors and optional
features. Part B of the prospectus provides more general information regarding
the Claymore Securities Defined Portfolios. You should read both parts of the
prospectus and retain them for future reference. Except as provided in Part A of
the prospectus, the information contained in this Part B will apply to each
trust.
CONTENTS
General Information 2
Investment Policies 2
Risk Factors 3
Administration of the Trust 21
Expenses of the Trust 26
Portfolio Transactions and Brokerage Allocation 28
Purchase, Redemption and Pricing of Units 28
Taxes 33
Experts 36
Performance Information 37
Description of Ratings 37
GENERAL INFORMATION
Each trust is one of a series of separate unit investment trusts created
under the name Claymore Securities Defined Portfolios and registered under the
Investment Company Act of 1940 and the Securities Act of 1933. Each trust was
created as a common law trust on the inception date described in the prospectus
under the laws of the state of New York. Each trust was created under a trust
agreement among Claymore Securities, Inc. (as sponsor, evaluator and supervisor)
and The Bank of New York (as trustee).
When your trust was created, the sponsor delivered to the trustee
securities or contracts for the purchase thereof for deposit in the trust and
the trustee delivered to the sponsor documentation evidencing the ownership of
units of the trust. After your trust is created, the sponsor may deposit
additional securities in the trust, contracts to purchase additional securities
along with cash (or a bank letter of credit in lieu of cash) to pay for such
contracted securities or cash (including a letter of credit) with instructions
to purchase additional securities. Such additional deposits will be in amounts
which will seek to maintain, for the first 90 days, as closely as possible the
same original percentage relationship among the number of shares of each
security in the trust established by the initial deposit of securities and,
thereafter, the same percentage relationship that existed on such 90th day. If
the sponsor deposits cash, existing and new investors may experience a dilution
of their investments and a reduction in their anticipated income because of
fluctuations in the prices of the securities between the time of the cash
deposit and the purchase of the securities and because the trust will pay the
associated brokerage fees.
A trust consists of (a) the securities listed under "Trust Portfolio" in
the prospectus as may continue to be held from time to time in the trust, (b)
any additional securities acquired and held by the trust pursuant to the
provisions of the trust agreement and (c) any cash held in the accounts of the
trust. Neither the sponsor nor the trustee shall be liable in any way for any
failure in any of the securities. However, should any contract for the purchase
of any of the securities initially deposited in a trust fail, the sponsor will,
unless substantially all of the moneys held in the trust to cover such purchase
are reinvested in substitute securities in accordance with the trust agreement,
refund the cash and sales charge attributable to such failed contract to all
unitholders on the next distribution date.
INVESTMENT POLICIES
The trust is a unit investment trust and is not an "actively managed" fund.
Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analysis. The portfolio of a trust, however, will not be
actively managed and therefore the adverse financial condition of an issuer will
not necessarily require the sale of its securities from a portfolio.
The trust agreement provides that the sponsor may (but need not) direct the
trustee to dispose of a security in certain events such as the issuer having
defaulted on the payment on any of its outstanding obligations or the price of a
security has declined to such an extent or other such credit factors exist so
that in the opinion of the sponsor the retention of such securities would be
detrimental to the trust. If a public tender offer has been made for a security
or a merger or acquisition has been announced affecting a security, the trustee
may either sell the security or accept a tender offer for cash if the supervisor
determines that the sale or tender is in the best interest of unitholders. The
trustee will distribute any cash proceeds to unitholders. Pursuant to the trust
agreement and with limited exceptions, the trustee may sell any securities or
other properties acquired in exchange for securities such as those acquired in
connection with a merger or other transaction. If offered such new or exchanged
securities or property other than cash, the trustee shall reject the offer.
However, in the event such securities or property are nonetheless acquired by
the trust, they may be accepted for deposit in a trust and either sold by the
trustee or held in a trust pursuant to the direction of the sponsor. Proceeds
from the sale of securities (or any securities or other property received by the
trust in exchange for securities) are credited to the Capital Account for
distribution to unitholders or to meet redemptions.
Except as stated in the trust agreement, or in the prospectus, the
acquisition by the trust of any securities other than the portfolio securities
is prohibited. The trustee may sell securities, designated by the sponsor, from
the trust for the purpose of redeeming units of a trust tendered for redemption
and the payment of expenses and for such other purposes as permitted under the
trust agreement.
Notwithstanding the foregoing, the trustee is authorized to reinvest any
funds held in the Capital or Income Accounts, pending distribution, in U.S.
Treasury obligations which mature on or before the next applicable distribution
date. Any obligations so acquired must be held until they mature and proceeds
therefrom may not be reinvested.
Proceeds from the sale of securities (or any securities or other property
received by a trust in exchange for securities) are credited to the Capital
Account of a trust for distribution to unitholders or to meet redemptions.
Except for failed securities and as provided in the prospectus or in the trust
agreement, the acquisition by a trust of any securities other than the portfolio
securities is prohibited. The trustee may sell securities from a trust for
limited purposes, including redeeming units tendered for redemption and the
payment of expenses.
RISK FACTORS
STOCKS. An investment in units of a trust should be made with an
understanding of the risks inherent in an investment in equity securities,
including the risk that the financial condition of issuers of the securities may
become impaired or that the general condition of the stock market may worsen
(both of which may contribute directly to a decrease in the value of the
securities and thus, in the value of the units) or the risk that holders of
common stock have a right to receive payments from the issuers of those stocks
that is generally inferior to that of creditors of, or holders of debt
obligations issued by, the issuers and that the rights of holders of common
stock generally rank inferior to the rights of holders of preferred stock.
Common stocks are especially susceptible to general stock market movements and
to volatile increases and decreases in value as market confidence in and
perceptions of the issuers change. These perceptions are based on unpredictable
factors including expectations regarding government, economic, monetary and
fiscal policies, inflation and interest rates, economic expansion or
contraction, and global or regional political, economic or banking crises.
Holders of common stock incur more risk than the holders of preferred
stocks and debt obligations because common stockholders, as owners of the
entity, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of, or holders of debt obligations or
preferred stock issued by the issuer. Holders of common stock of the type held
by a trust have a right to receive dividends only when and if, and in the
amounts, declared by the issuer's board of directors and to participate in
amounts available for distribution by the issuer only after all other claims on
the issuer have been paid or provided for. By contrast, holders of preferred
stock have the right to receive dividends at a fixed rate when and as declared
by the issuer's board of directors, normally on a cumulative basis, but do not
participate in other amounts available for distribution by the issuing
corporation. Cumulative preferred stock dividends must be paid before common
stock dividends and any cumulative preferred stock dividend omitted is added to
future dividends payable to the holders of cumulative preferred stock. Preferred
stocks are also entitled to rights on liquidation which are senior to those of
common stocks. Moreover, common stocks do not represent an obligation of the
issuer and therefore do not offer any assurance of income or provide the degree
of protection of capital debt securities. Indeed, the issuance of debt
securities or even preferred stock will create prior claims for payment of
principal, interest, liquidation preferences and dividends which could adversely
affect the ability and inclination of the issuer to declare or pay dividends on
its common stock or the rights of holders of common stock with respect to assets
of the issuer upon liquidation or bankruptcy. Further, unlike debt securities
which typically have a stated principal amount payable at maturity (whose value,
however, will be subject to market fluctuations prior thereto), common stocks
have neither a fixed principal amount nor a maturity and have values which are
subject to market fluctuations for as long as the stocks remain outstanding. The
value of the securities in a portfolio thus may be expected to fluctuate over
the entire life of a trust to values higher or lower than those prevailing at
the time of purchase.
The sponsor's buying and selling of the securities, especially during the
initial offering of units of the trust or to satisfy redemptions of units may
impact upon the value of the underlying securities and the units. The
publication of the list of the securities selected for the trust may also cause
increased buying activity in certain of the stocks comprising the portfolio.
After such announcement, investment advisory and brokerage clients of the
sponsor and its affiliates may purchase individual securities appearing on the
list during the course of the initial offering period or may purchase warrants
issued by the sponsor or its affiliates which are based on the performance of
the securities on the list. The sponsor or its affiliates may also purchase
securities as a hedge against its risk on the warrants (although generally the
sponsor and its affiliates will not purchase securities for their own account
until after the trust portfolio has been acquired). Such buying activity in the
stock of these companies or issuance of the warrants prior to the purchase of
the securities by the trust may cause the trust to purchase stocks at a higher
price than those buyers who effect purchases by the trust.
FIXED PORTFOLIO. Investors should be aware that the trust is not "managed"
and as a result, the adverse financial condition of a company will not result in
the elimination of its securities from the portfolio of the trust except under
extraordinary circumstances. Investors should note in particular that the
securities were selected on the basis of the criteria set forth in the
prospectus and that the trust may continue to purchase or hold securities
originally selected through this process even though the evaluation of the
attractiveness of the securities may have changed. A number of the securities in
the trust may also be owned by other clients of the sponsor. However, because
these clients may have differing investment objectives, the sponsor may sell
certain securities from those accounts in instances where a sale by the trust
would be impermissible, such as to maximize return by taking advantage of market
fluctuations. In the event a public tender offer is made for a security or a
merger or acquisition is announced affecting a security, the sponsor may
instruct the trustee to tender or sell the security on the open market when, in
its opinion, it is in the best interest of the unitholders of the unit to do so.
Although the portfolio is regularly reviewed and evaluated and the sponsor may
instruct the trustee to sell securities under certain limited circumstances,
securities will not be sold by the trust to take advantage of market
fluctuations or changes in anticipated rates of appreciation. As a result, the
amount realized upon the sale of the securities may not be the highest price
attained by an individual security during the life of the trust. The prices of
single shares of each of the securities in the trust vary widely, and the effect
of a dollar of fluctuation, either higher or lower, in stock prices will be much
greater as a percentage of the lower-price stocks' purchase price than as a
percentage of the higher-price stocks' purchase price.
CLOSED-END FUND RISKS. If set forth in Part A of the prospectus, a trust
may invest in the common stock of closed-end funds ("Closed-End Funds").
Closed-End Funds are actively managed investment companies which invest in
various types of securities. Closed-End Funds issue shares of common stock that
are traded on a securities exchange. Closed-End Funds are subject to various
risks, including management's ability to meet the Closed-End Fund's investment
objective, and to manage the Closed-End Fund portfolio when the underlying
securities are redeemed or sold, during periods of market turmoil and as
investors' perceptions regarding Closed-End Funds or their underlying
investments change.
Shares of Closed-End Funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from the
risk that the net asset value of Closed-End Fund shares may decrease. The amount
of such discount from net asset value is subject to change from time to time in
response to various factors.
Certain of the Closed-End Funds included in the trust may employ the use of
leverage in their portfolios through the issuance of preferred stock. While
leverage often serves to increase the yield of a Closed-End Fund, this leverage
also subjects the Closed-End Fund to increased risks, including the likelihood
of increased volatility and the possibility that the Closed-End Fund's common
share income will fall if the dividend rate on the preferred shares or the
interest rate on any borrowings rises.
MUNICIPAL BOND RISKS. . If set forth in Part A of the prospectus, a trust,
or issuers of securities held by a trust, may invest in municipal bonds. If this
is the case, an investment in units should be made with an understanding of the
risks which an investment in municipal bonds entails.
Failure of issuers to pay interest and/or principal. The primary risk
associated with an investment in municipal bonds is that the issuer or an
insurer of the municipal bond will default on principal and/or interest payments
when due on the municipal bond. Such a default would have the effect of
lessening the income generated by each trust and/or the value of the trust's
units. The bond ratings assigned by major rating organizations are an indication
of the issuer's ability to make interest and principal payments when due on its
municipal bonds. Subsequent to the initial date of deposit the rating assigned
to a municipal bond may decline. Neither the sponsor nor the trustee shall be
liable in any way for any default, failure or defect in any bond.
Fixed-rate bonds. Municipal bonds are subject to the risk that the value of
such municipal bonds (and, therefore, of the units) will decline with increases
in interest rates or a decrease in the federal or state (if applicable) income
tax rate. Inflation and economic recession are two of the major factors, among
others, which contribute to fluctuations in interest rates and the values of
fixed-rate municipal bonds.
Original issue discount bonds and zero coupon bonds. Certain municipal
bonds may be original issue discount bonds and/or zero coupon bonds. Original
issue discount bonds are bonds originally issued at less than the market
interest rate. Zero coupon bonds are original issue discount bonds that do not
provide for the payment of any current interest. Zero coupon bonds are subject
to substantially greater price fluctuations during periods of changing market
interest rates than bonds of comparable quality that pay current income. For
federal income tax purposes, original issue discount on tax-exempt bonds must be
accrued over the term of the bonds. On sale or redemption of the bonds, the
difference between (i) the amount realized (other than amounts treated as
tax-exempt income) and (ii) the tax basis of such bonds (properly adjusted, in
the circumstances described below, for the accrual of original issue discount)
will generally be treated as taxable gain or loss.
"When issued" and "delayed delivery" bonds. Certain municipal bonds have
been purchased by the sponsor or issuers of the securities in a trust on a "when
issued" basis. Municipal bonds purchased on a "when issued" basis have not yet
been issued by their governmental entity on the initial date of deposit
(although such governmental entity had committed to issue such municipal bonds).
In the case of these and/or certain other municipal bonds, the delivery of the
municipal bonds may be delayed ("delayed delivery") or may not occur. The effect
of a trust containing "delayed delivery" or "when issued" municipal bonds is
that unitholders who purchased their units prior to the date such municipal
bonds are actually delivered to the trustee may have to make a downward
adjustment in the tax basis of their units. Such downward adjustment may be
necessary to account for interest accruing on such "when issued" or "delayed
delivery" municipal bonds during the time between their purchase of units and
delivery of such municipal bonds to a trust.
Redemption or sale prior to maturity. Certain municipal bonds are subject
to redemption prior to their stated maturity date pursuant to sinking fund or
call provisions. A call or redemption provision is more likely to be exercised
when the offering price valuation of a bond is higher than its call or
redemption price. Such price valuation is likely to be higher in periods of
declining interest rates. Certain municipal bonds may be sold or redeemed or
otherwise mature.
Market discount. Certain municipal bonds have current market values below
face value. A primary reason for the market value of such municipal bonds being
less than face value at maturity is that the interest rate of such municipal
bonds is at lower rates than the current market interest rate for comparably
rated municipal bonds. Municipal bonds selling at market discounts tend to
increase in market value as they approach maturity. A market discount tax-exempt
municipal bond held to maturity will have a larger portion of its total return
in the form of taxable ordinary income and less in the form of tax-exempt income
than a comparable municipal bond bearing interest at current market rates.
General obligation bonds. Certain municipal bonds may be general
obligations of a governmental entity that are secured by the taxing power of the
entity. General obligation bonds are backed by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest. The
taxing power of any governmental entity may be limited, however, by provisions
of state constitutions or laws. An entity's credit will depend on many factors:
tax base, reliance on federal or state aid, and factors that are beyond the
entity's control.
Appropriations bonds. Certain municipal bonds may be municipal bonds that
are, in whole or in part, subject to and dependent upon either the governmental
entity making appropriations from time to time or the continued existence of
special temporary taxes which require legislative action for their reimposition.
The availability of any appropriation is subject to the willingness or ability
of the governmental entity to continue to make such special appropriations or to
reimpose such special taxes. The obligation to make lease payments exists only
to the extent of the monies available to the governmental entity therefor, and
no liability is incurred by the governmental entity beyond the monies so
appropriated. Once an annual appropriation is made, the governmental entity's
obligation to make lease rental payments is absolute and unconditional
regardless of any circumstances or occurrences which might arise. In the event
of non-appropriation, certificateholders' or bondowners' sole remedy (absent
credit enhancement) generally is limited to repossession of the collateral for
resale or releasing. In the event of non-appropriation, the sponsor may instruct
the trustee to sell such municipal bonds.
Industrial development revenue bonds ("IDRs"). IDRs, including pollution
control revenue bonds, are tax-exempt securities issued by states,
municipalities, public authorities or similar entities to finance the cost of
acquiring, constructing or improving various projects. These projects are
usually operated by corporate entities. IDRs are not general obligations of
governmental entities backed by their taxing power. Issuers are only obligated
to pay amounts due on the IDRs to the extent that funds are available from the
unexpended proceeds of the IDRs or receipts or revenues of the issuer. Payment
of IDRs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Such corporate operators or guarantors
that are industrial companies may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
Hospital and health care facility bonds. The ability of hospitals and other
health care facilities to meet their obligations with respect to revenue bonds
issued on their behalf is dependent on various factors. Some such factors are
the level of payments received from private third-party payors and government
programs and the cost of providing health care services. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will be sufficient to cover the costs associated
with their bonds. It also may be necessary for a hospital or other health care
facility to incur substantial capital expenditures or increased operating
expenses to effect changes in its facilities, equipment, personnel and services.
Hospitals and other health care facilities are additionally subject to claims
and legal actions by patients and others in the ordinary course of business.
There can be no assurance that a claim will not exceed the insurance coverage of
a health care facility or that insurance coverage will be available to a
facility.
Housing bonds. Multi-family housing revenue bonds and single family
mortgage revenue bonds are state and local housing issues that have been issued
to provide financing for various housing projects. Multi-family housing revenue
bonds are payable primarily from mortgage loans to housing projects for low to
moderate income families. Single-family mortgage revenue bonds are issued for
the purpose of acquiring notes secured by mortgages on residences. The ability
of housing issuers to make debt service payments on their obligations may be
affected by various economic and non-economic factors. Such factors include:
occupancy levels, adequate rental income in multi-family projects, the rate of
default on mortgage loans underlying single family issues and the ability of
mortgage insurers to pay claims. All single family mortgage revenue bonds and
certain multi-family housing revenue bonds are prepayable over the life of the
underlying mortgage or mortgage pool. Therefore, the average life of housing
obligations cannot be determined. However, the average life of these obligations
will ordinarily be less than their stated maturities. Mortgage loans are
frequently partially or completely prepaid prior to their final stated
maturities. To the extent that these obligations were valued at a premium when a
unitholder purchased units, any prepayment at par would result in a loss of
capital to the unitholder and reduce the amount of income that would otherwise
have been paid to unitholders.
Power bonds. The ability of utilities to meet their obligations with
respect to bonds they issue is dependent on various factors. These factors
include the rates they may charge their customers, the demand for a utility's
services and the cost of providing those services. Utilities may also be subject
to extensive regulations relating to the rates which they may charge customers.
Utilities can experience regulatory, political and consumer resistance to rate
increases. Utilities engaged in long-term capital projects are especially
sensitive to regulatory lags in granting rate increases. Utilities are
additionally subject to increased costs due to governmental environmental
regulation and decreased profits due to increasing competition. Any difficulty
in obtaining timely and adequate rate increases could adversely affect a
utility's results of operations. The sponsor cannot predict at this time the
ultimate effect of such factors on the ability of any issuers to meet their
obligations with respect to municipal bonds.
Water and sewer revenue bonds. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by a number of factors. Some such factors
are the failure of municipalities to utilize fully the facilities constructed by
these authorities, declines in revenue from user charges, the possible inability
to obtain rate increases, rising construction and maintenance costs, impact of
environmental requirements, the difficulty of obtaining or discovering new
supplies of fresh water, the effect of conservation programs, the impact of "no
growth" zoning ordinances and the continued availability of federal and state
financial assistance and of municipal bond insurance for future bond issues.
Education, university and college bonds. The ability of educational
institutions, including universities and colleges, to meet their obligations is
dependent upon various factors. Some of these factors include the size and
diversity of their sources of revenues, enrollment, reputation, management
expertise, the availability and restrictions on the use of endowments and other
funds, the quality and maintenance costs of campus facilities. Also, in the case
of public institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education may affect an
institution's ability to make payment on its own.
Lease rental bonds. Lease rental bonds are predominantly issued by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings or the purchase or equipment that will be used
by a state or local government. Thus, the bonds are subject to the ability and
willingness of the lessee government to meet its lease rental payments which
include debt service on the bonds. Lease rental bonds are subject to the risk
that the lessee government is not legally obligated to budget and appropriate
for the rental payments beyond the current fiscal year. These bonds are also
subject to the risk of abatement in many states as rental bonds cease in the
event that damage, destruction or condemnation of the project prevents its use
by the lessee. Also, in the event of default by the lessee government, there may
be significant legal and/or practical difficulties involved in the reletting or
sale of the project.
Capital improvement facility bonds. Capital improvement bonds are bonds
issued to provide funds to assist political subdivisions or agencies of a state
through acquisition of the underlying debt of a state or local political
subdivision or agency. The risks of an investment in such bonds include the risk
of possible prepayment or failure of payment of proceeds on and default of the
underlying debt.
Solid waste disposal bonds. Municipal bonds issued for solid waste disposal
facilities are generally payable from tipping fees and from revenues that may be
earned by the facility on the sale of electrical energy generated in the
combustion of waste products. The ability of solid waste disposal facilities to
meet their obligations depends upon the continued use of the facility, the
successful and efficient operation of the facility and, in the case of
waste-to-energy facilities, the continued ability of the facility to generate
electricity on a commercial basis. Also, increasing environmental regulation of
the federal, state and local level has a significant impact on waste disposal
facilities. While regulation requires most waste producers to use waste disposal
facilities, it also imposes significant costs on the facilities.
Moral obligation bonds. Certain bonds may be "moral obligation" bonds. If
an issuer of moral obligation bonds is unable to meet its obligations, the
repayment of the bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question. Thus, such a commitment generally
requires appropriation by the state legislature and accordingly does not
constitute a legally enforceable obligation of debt of the state. The agencies
or authorities generally have no taxing power.
Refunded bonds. Refunded bonds are typically secured by direct obligations
of the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally non-callable prior to maturity or the predetermined redemption date.
In a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.
Airport, port and highway revenue bonds. Certain facility revenue bonds are
payable from and secured by the revenues from the ownership and operation of
particular facilities, such as airports, highways and port authorities. Airport
operating income may be affected by the ability of airlines to meet their
obligations under the agreements with airports. Similarly, payment on bonds
related to other facilities is dependent on revenues from the projects, such as
use fees from ports, tolls on turnpikes and bridges and rents from buildings.
Payment may be adversely affected by reduction in revenues due to such factors
and increased cost of maintenance or decreased use of a facility. The sponsor
cannot predict what effect conditions may have on revenues which are dependent
for payment on these bonds.
Special tax bonds. Special tax bonds are payable for and secured by the
revenues derived by a municipality from a particular tax. Examples of special
taxes are a tax on the rental of a hotel room, on the purchase of food and
beverages, on the rental of automobiles or on the consumption of liquor. Special
tax bonds are not secured by the general tax revenues of the municipality, and
they do not represent general obligations of the municipality. Payment on
special tax bonds may be adversely affected by a reduction in revenues realized
from the underlying special tax. Also, should spending on the particular goods
or services that are subject to the special tax decline, the municipality may be
under no obligation to increase the rate of the special tax to ensure that
sufficient revenues are raised from the shrinking taxable base.
Tax allocation bonds. Tax allocation bonds are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds are located. Municipal bond
payments are expected to be made from projected increases in tax revenues
derived from higher assessed values of property resulting from development in
the particular project area and not from an increase in tax rates. Special risk
considerations include: variations in taxable values of property in the project
area; successful appeals by property owners of assessed valuations; substantial
delinquencies in the payment of property taxes; or imposition of any
constitutional or legislative property tax rate decrease.
Transit authority bonds. Mass transit is generally not self-supporting from
fare revenues. Additional financial resources must be made available to ensure
operation of mass transit systems as well as the timely payment of debt service.
Often such financial resources include federal and state subsidies, lease
rentals paid by funds of the state or local government or a pledge of a special
tax. If fare revenues or the additional financial resources do not increase
appropriately to pay for rising operating expenses, the ability of the issuer to
adequately service the debt may be adversely affected.
Convention facility bonds. Municipal bonds in the convention facilities
category include special limited obligation securities issued to finance
convention and sports facilities payable from rental payments and annual
governmental appropriations. The governmental agency is not obligated to make
payments in any year in which the monies have not been appropriated to make such
payments. In addition, these facilities are limited use facilities that may not
be used for purposes other than as convention centers or sports facilities.
Correctional facility bonds. Municipal bonds in the correctional facilities
category include special limited obligation securities issued to construct,
rehabilitate and purchase correctional facilities payable from governmental
rental payments and/ or appropriations.
Tobacco settlement bonds. Tobacco settlement bonds are municipal
obligations that are backed entirely by expected revenues to be derived from
lawsuits settled between governmental entities and American tobacco companies
involving tobacco related deaths and illnesses. The settlements primarily
involve Phillip Morris; R.J. Reynolds; Brown & Williamson, a division of British
American Tobacco; and Lorillard, a division of the Loews Corporation. Revenues
from approximately 17 other companies are also providing part of the settlement
payments. Because tobacco settlement bonds are backed by a single source of
revenue--the payments from tobacco companies, the creditworthiness of the bonds
depends in large part, on the ability of these companies to meet their
obligations. Risk factors facing tobacco companies include: reduced cigarette
consumption, increased taxes on cigarettes, continuing litigation and the
possibility of bankruptcy. The initial and annual payments made by the tobacco
companies will be adjusted based on a number of factors, the most important of
which is domestic cigarette consumption. If the volume of cigarettes shipped in
the U.S. by manufacturers participating in the settlement decreases
significantly, payments due from them will also decrease. Demand for cigarettes
in the U.S. could continue to decline due to price increases needed to recoup
the cost of payments by tobacco companies. Demand could also be affected by:
anti-smoking campaigns, tax increases, reduced advertising, enforcement of laws
prohibiting sales to minors; elimination of certain sales venues such as vending
machines; and the spread of local ordinances restricting smoking in public
places.
MARKET DISCOUNTS OR PREMIUMS. Certain of the securities may have been
deposited at a market discount or premium principally because their dividend
rates are lower or higher than prevailing rates on comparable securities. The
current returns of market discount securities are lower than comparably rated
securities selling at par because discount securities tend to increase in market
value as they approach maturity. The current returns of market premium
securities are higher than comparably rated securities selling at par because
premium securities tend to decrease in market value as they approach maturity.
Because part of the purchase price is returned through current income payments
and not at maturity, an early redemption at par of a premium security will
result in a reduction in yield to the trust. Market premium of discount
attributable to dividend rate changes does not indicate market confidence or
lack of confidence in the issue.
LIQUIDITY. Whether or not the securities are listed on a national
securities exchange, the principal trading market for the securities may be in
the over-the-counter market. As a result, the existence of a liquid trading
market for the securities may depend on whether dealers will make a market in
the securities. There can be no assurance that a market will be made for any of
the securities, that any market for the securities will be maintained or of the
liquidity of the securities in any markets made. In addition, a trust is
restricted under the Investment Company Act of 1940 from selling securities to
the sponsor. The price at which the securities may be sold to meet redemptions
and the value of a trust will be adversely affected if trading markets for the
securities are limited or absent.
ADDITIONAL DEPOSITS. The trust agreement authorizes the sponsor to increase
the size of a trust and the number of units thereof by the deposit of additional
securities, or cash (including a letter of credit) with instructions to purchase
additional securities, in such trust and the issuance of a corresponding number
of additional units. If the sponsor deposits cash, existing and new investors
may experience a dilution of their investments and a reduction in their
anticipated income because of fluctuations in the prices of the securities
between the time of the cash deposit and the purchase of the securities and
because a trust will pay the associated brokerage fees. To minimize this effect,
the trusts will attempt to purchase the securities as close to the evaluation
time or as close to the evaluation prices as possible.
Some of the securities may have limited trading volume. The trustee, with
directions from the sponsor, will endeavor to purchase securities with deposited
cash as soon as practicable reserving the right to purchase those securities
over the 20 business days following each deposit in an effort to reduce the
effect of these purchases on the market price of those stocks. This could,
however, result in the trusts' failure to participate in any appreciation of
those stocks before the cash is invested. If any cash remains at the end of this
period (and such date is within the 90-day period following the inception date)
and cannot be invested in one or more stocks, at what the sponsor considers
reasonable prices, it intends to use that cash to purchase each of the other
securities in the original proportionate relationship among those securities.
Similarly, at termination of the trust, the sponsor reserves the right to sell
securities over a period of up to 20 business days to lessen the impact of its
sales on the market price of the securities. The proceeds received by
unitholders following termination of the trust will reflect the actual sales
proceeds received on the securities, which will likely differ from the closing
sale price on the termination date.
LITIGATION AND LEGISLATION. At any time litigation may be initiated on a
variety of grounds, or legislation may be enacted with respect to the securities
in a trust or the issuers of the securities. There can be no assurance that
future litigation or legislation will not have a material adverse effect on the
trust or will not impair the ability of issuers to achieve their business goals.
TOBACCO INDUSTRY. Certain of the issuers of securities in the trust may be
involved in the manufacture, distribution and sale of tobacco products. Pending
litigation proceedings against such issuers in the United States and abroad
cover a wide range of matters including product liability and consumer
protection. Damages claimed in such litigation alleging personal injury (both
individual and class actions), and in health cost recovery cases brought by
governments, labor unions and similar entities seeking reimbursement for health
care expenditures, aggregate many billions of dollars.
In November 1998, certain companies in the U.S. tobacco industry entered
into a negotiated settlement with several states which would result in the
resolution of significant litigation and regulatory issues affecting the tobacco
industry generally. The proposed settlement, while extremely costly to the
tobacco industry, would significantly reduce uncertainties facing the industry
and increase stability in business and capital markets. Future litigation and/or
legislation could adversely affect the value, operating revenues and financial
position of tobacco companies. The sponsor is unable to predict the outcome of
litigation pending against tobacco companies or how the current uncertainty
concerning regulatory and legislative measures will ultimately be resolved.
These and other possible developments may have a significant impact upon both
the price of such securities and the value of units of a trust containing such
securities.
FINANCIAL SERVICES RISKS. Certain of the issuers of securities in a trust
may be involved in the financial services industry. An investment in units of a
trust containing securities of such issuers should be made with an understanding
of the problems and risks inherent in the financial services industry in
general.
Banks, thrifts and their holding companies are especially subject to the
adverse effects of economic recession, volatile interest rates, portfolio
concentrations in geographic markets and in commercial and residential real
estate loans, and competition from new entrants in their fields of business.
Banks and thrifts are highly dependent on net interest margin. Recently, bank
profits have come under pressure as net interest margins have contracted, but
volume gains have been strong in both commercial and consumer products. There is
no certainty that such conditions will continue. Bank and thrift institutions
had received significant consumer mortgage fee income as a result of activity in
mortgage and refinance markets. As initial home purchasing and refinancing
activity subsided, this income diminished. Economic conditions in the real
estate markets, which have been weak in the past, can have a substantial effect
upon banks and thrifts and their holding companies are subject to extensive
federal regulation and, when such institutions are state-chartered, to state
regulation as well. Such regulations impose strict capital requirements and
limitations on the nature and extent of business activities that banks and
thrifts may pursue. Furthermore, bank regulators have a wide range of discretion
in connection with their supervisory and enforcement authority and may
substantially restrict the permissible activities of a particular institution if
deemed to pose significant risks to the soundness of such institution or the
safety of the federal deposit insurance fund. Regulatory actions, such as
increases in the minimum capital requirements applicable to banks and thrifts
and increases in deposit insurance premiums required to be paid by banks and
thrifts to the Federal Deposit Insurance Corporation ("FDIC"), can negatively
impact earnings and the ability of a company to pay dividends. Neither federal
insurance of deposits nor governmental regulations, however, insures the
solvency or profitability of banks or their holding companies, or insures
against any risk of investment in the securities issued by such institutions.
The statutory requirements applicable to and regulatory supervision of
banks, thrifts and their holding companies have undergone substantial change in
recent years. The recently enacted Gramm-Leach-Bliley Act repealed most of the
barriers set up by the 1933 Glass-Steagall Act which separated the banking,
insurance and securities industries. Now banks, insurance companies and
securities firms can merge to form one-stop financial conglomerates marketing a
wide range of financial service products to investors. This legislation will
likely result in increased merger activity and heightened competition among
existing and new participants in the field. Starting in mid-1997, banks have
been allowed to turn existing banks into branches. Consolidation is likely to
continue. The Securities and Exchange Commission and the Financial Accounting
Standards Board require the expanded use of market value accounting by banks and
have imposed rules requiring market accounting for investment securities held in
trading accounts or available for sale. Adoption of additional such rules may
result in increased volatility in the reported health of the industry, and
mandated regulatory intervention to correct such problems. Additional
legislative and regulatory changes may be forthcoming. In addition, from time to
time the deposit insurance system is reviewed by Congress and federal
regulators, and proposed reforms of that system could, among other things,
further restrict the ways in which deposited moneys can be used by banks or
reduce the dollar amount or number of deposits insured for any depositor. Such
reforms could reduce profitability as investment opportunities available to bank
institutions become more limited and as consumers look for savings vehicles
other than bank deposits. Banks and thrifts face significant competition from
other financial institutions such as mutual funds, credit unions, mortgage
banking companies and insurance companies, and increased competition may result
from legislative broadening of regional and national interstate banking powers
as has been recently enacted. Among other benefits, the legislation allows banks
and bank holding companies to acquire across previously prohibited state lines
and to consolidate their various bank subsidiaries into one unit. The sponsor
makes no prediction as to what, if any, manner of bank and thrift regulatory
actions might ultimately be adopted or what ultimate effect such actions might
have on the trust's portfolio.
Companies involved in the insurance industry are engaged in underwriting,
reinsuring, selling, distributing or placing of property and casualty, life or
health insurance. Other growth areas within the insurance industry include
brokerage, reciprocals, claims processors and multi-line insurance companies.
Insurance company profits are affected by interest rate levels, general economic
conditions, and price and marketing competition. Property and casualty insurance
profits may also be affected by weather catastrophes and other disasters. Life
and health insurance profits may be affected by mortality and morbidity rates.
Individual companies may be exposed to material risks including reserve
inadequacy and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Proposed or potential tax law changes may also adversely affect
insurance companies' policy sales, tax obligations, and profitability. In
addition to the foregoing, profit margins of these companies continue to shrink
due to the commoditization of traditional businesses, new competitors, capital
expenditures on new technology and the pressures to compete globally.
In addition to the normal risks of business, companies involved in the
insurance industry are subject to significant risk factors, including those
applicable to regulated insurance companies, such as: (i) the inherent
uncertainty in the process of establishing property-liability loss reserves,
particularly reserves for the cost of environmental, asbestos and mass tort
claims, and the fact that ultimate losses could materially exceed established
loss reserves which could have a material adverse effect on results of
operations and financial condition; (ii) the fact that insurance companies have
experienced, and can be expected in the future to experience, catastrophe losses
which could have a material adverse impact on their financial condition, results
of operations and cash flow; (iii) the inherent uncertainty in the process of
establishing property-liability loss reserves due to changes in loss payment
patterns caused by new claims settlement practices; (iv) the need for insurance
companies and their subsidiaries to maintain appropriate levels of statutory
capital and surplus, particularly in light of continuing scrutiny by rating
organizations and state insurance regulatory authorities, and in order to
maintain acceptable financial strength or claims-paying ability rating; (v) the
extensive regulation and supervision to which insurance companies' subsidiaries
are subject, various regulatory initiatives that may affect insurance companies,
and regulatory and other legal actions; (vi) the adverse impact that increases
in interest rates could have on the value of an insurance company's investment
portfolio and on the attractiveness of certain of its products; (vii) the need
to adjust the effective duration of the assets and liabilities of life insurance
operations in order to meet the anticipated cash flow requirements of its
policyholder obligations; and (vii) the uncertainty involved in estimating the
availability of reinsurance and the collectibility of reinsurance recoverables.
The state insurance regulatory framework has, during recent years, come
under increased federal scrutiny, and certain state legislatures have considered
or enacted laws that alter and, in many cases, increase state authority to
regulate insurance companies and insurance holding company systems. Further, the
National Association of Insurance Commissioners ("NAIC") and state insurance
regulators are re-examining existing laws and regulations, specifically focusing
on insurance companies, interpretations of existing laws and the development of
new laws. In addition, Congress and certain federal agencies have investigated
the condition of the insurance industry in the United States to determine
whether to promulgate additional federal regulations. The sponsor is unable to
predict whether any state or federal legislation will be enacted to change the
nature or scope of regulation of the insurance industry, or what effect, if any,
such legislation would have on the industry.
All insurance companies are subject to state laws and regulations that
require diversification of their investment portfolios and limit the amount of
investments in certain investment categories. Failure to comply with these laws
and regulations could cause non-conforming investments to be treated as
non-admitted assets for purposes of measuring statutory surplus and, in some
instances, would require divestiture.
Environmental pollution clean-up is the subject of both federal and state
regulation. By some estimates, there are thousands of potential waste sites
subject to clean up. The insurance industry is involved in extensive litigation
regarding coverage issues. The Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("Superfund") and comparable state statutes
("mini-Superfund") govern the clean-up and restoration by "Potentially
Responsible Parties" ("PRP's"). Superfund and the mini-Superfunds
("Environmental Clean-up Laws" or "ECLs") establish a mechanism to pay for
clean-up of waste sites if PRPs fail to do so, and to assign liability to PRPs.
The extent of liability to be allocated to a PRP is dependent on a variety of
factors. The extent of clean-up necessary and the assignment of liability has
not been established. The insurance industry is disputing many such claims. Key
coverage issues include whether Superfund response costs are considered damages
under the policies, when and how coverage is triggered, applicability of
pollution exclusions, the potential for joint and several liability and
definition of an occurrence. Similar coverage issues exist for clean up and
waste sites not covered under Superfund. To date, courts have been inconsistent
in their rulings on these issues. An insurer's exposure to liability with regard
to its insureds which have been, or may be, named as PRPs is uncertain.
Superfund reform proposals have been introduced in Congress, but none have been
enacted. There can be no assurance that any Superfund reform legislation will be
enacted or that any such legislation will provide for a fair, effective and
cost-efficient system for settlement of Superfund related claims.
While current federal income tax law permits the tax-deferred accumulation
of earnings on the premiums paid by an annuity owner and holders of certain
savings-oriented life insurance products, no assurance can be given that future
tax law will continue to allow such tax deferrals. If such deferrals were not
allowed, consumer demand for the affected products would be substantially
reduced. In addition, proposals to lower the federal income tax rates through a
form of flat tax or otherwise could have, if enacted, a negative impact on the
demand for such products.
Companies engaged in investment banking/brokerage and investment management
include brokerage firms, broker/dealers, investment banks, finance companies and
mutual fund companies. Earnings and share prices of companies in this industry
are quite volatile, and often exceed the volatility levels of the market as a
whole. Recently, ongoing consolidation in the industry and the strong stock
market has benefited securities which investors believe will benefit from
greater investor and issuer activity. Major determinants of future earnings of
these companies are the direction of the stock market, investor confidence,
equity transaction volume, the level and direction of long-term and short-term
interest rates, and the outlook for emerging markets. Negative trends in any of
these earnings determinants could have a serious adverse effect on the financial
stability, as well as on the stock prices, of these companies. Furthermore,
there can be no assurance that the issuers of the equity securities included in
the trust will be able to respond in a timely manner to compete in the rapidly
developing marketplace. In addition to the foregoing, profit margins of these
companies continue to shrink due to the commoditization of traditional
businesses, new competitors, capital expenditures on new technology and the
pressures to compete globally.
HIGH-YIELD BOND RISKS. If set forth in Part A of the prospectus, a trust,
or issuers of securities held by a trust, may invest in high-yield bonds.
High-yield, high risk bonds are subject to greater market fluctuations and risk
of loss than bonds with higher investment ratings. The value of these bonds will
decline significantly with increases in interest rates, not only because
increases in rates generally decrease values, but also because increased rates
may indicate an economic slowdown. An economic slowdown, or a reduction in an
issuer's creditworthiness, may result in the issuer being unable to maintain
earnings at a level sufficient to maintain interest and principal payments.
High-yield or "junk" bonds, the generic names for bonds rated below "Triple
B" by Standard & Poor's or "Baa" Moody's, are frequently issued by corporations
in the growth stage of their development or by established companies who are
highly leveraged or whose operations or industries are depressed. Obligations
rated below "Triple B" should be considered speculative as these ratings
indicate a quality of less than investment grade. Because high-yield bonds are
generally subordinated obligations and are perceived by investors to be riskier
than higher rated bonds, their prices tend to fluctuate more than higher rated
bonds and are affected by short-term credit developments to a greater degree.
The market for high-yield bonds is smaller and less liquid than that for
investment grade bonds. High-yield bonds are generally not listed on a national
securities exchange but trade in the over-the-counter markets. Due to the
smaller, less liquid market for high-yield bonds, the bid- offer spread on such
bonds is generally greater than it is for investment grade bonds and the
purchase or sale of such bonds may take longer to complete.
FOREIGN SECURITIES RISK. If set forth in Part A of the prospectus, a trust,
or issuers of securities held by a trust, may invest in foreign issuers, and
therefore, an investment in such a trust involves some investment risks that are
different in some respects from an investment in a trust that invests entirely
in securities of domestic issuers. Those investment risks include future
political and governmental restrictions which might adversely affect the payment
or receipt of payment of dividends on the relevant securities, currency exchange
rate fluctuations, exchange control policies, and the limited liquidity and
small market capitalization of such foreign countries' securities markets. In
addition, for foreign issuers that are not subject to the reporting requirements
of the Securities Exchange Act of 1934, there may be less publicly available
information than is available from a domestic issuer. Also, foreign issuers are
not necessarily subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
issuers. However, due to the nature of the issuers of the securities included in
the trust, the sponsor believes that adequate information will be available to
allow the sponsor to provide portfolio surveillance.
Certain of the securities in a trust may be in ADR or GDR form. ADRs,
American Depositary Receipts and GDRs, Global Depositary Receipts, represent
common stock deposited with a custodian in a depositary. American Depositary
Receipts and Global Depositary Receipts (collectively, the "Depositary
Receipts") are issued by a bank or trust company to evidence ownership of
underlying securities issued by a foreign corporation. These instruments may not
necessarily be denominated in the same currency as the securities into which
they may be converted. For purposes of the discussion herein, the terms ADR and
GDR generally include American Depositary Shares and Global Depositary Shares,
respectively.
Depositary Receipts may be sponsored or unsponsored. In an unsponsored
facility, the depositary initiates and arranges the facility at the request of
market makers and acts as agent for the Depositary Receipts holder, while the
company itself is not involved in the transaction. In a sponsored facility, the
issuing company initiates the facility and agrees to pay certain administrative
and shareholder-related expenses. Sponsored facilities use a single depositary
and entail a contractual relationship between the issuer, the shareholder and
the depositary; unsponsored facilities involve several depositaries with no
contractual relationship to the company. The depositary bank that issues
Depositary Receipts generally charges a fee, based on the price of the
Depositary Receipts, upon issuance and cancellation of the Depositary Receipts.
This fee would be in addition to the brokerage commissions paid upon the
acquisition or surrender of the security. In addition, the depositary bank
incurs expenses in connection with the conversion of dividends or other cash
distributions paid in local currency into U.S. dollars and such expenses are
deducted from the amount of the dividend or distribution paid to holders,
resulting in a lower payout per underlying shares represented by the Depositary
Receipts than would be the case if the underlying share were held directly.
Certain tax considerations, including tax rate differentials and withholding
requirements, arising from the application of the tax laws of one nation to
nationals of another and from certain practices in the Depositary Receipts
market may also exist with respect to certain Depositary Receipts. In varying
degrees, any or all of these factors may affect the value of the Depositary
Receipts compared with the value of the underlying shares in the local market.
In addition, the rights of holders of Depositary Receipts may be different than
those of holders of the underlying shares, and the market for Depositary
Receipts may be less liquid than that for the underlying shares. Depositary
Receipts are registered securities pursuant to the Securities Act of 1933 and
may be subject to the reporting requirements of the Securities Exchange Act of
1934.
For the securities that are Depositary Receipts, currency fluctuations will
affect the United States dollar equivalent of the local currency price of the
underlying domestic share and, as a result, are likely to affect the value of
the Depositary Receipts and consequently the value of the securities. The
foreign issuers of securities that are Depositary Receipts may pay dividends in
foreign currencies which must be converted into dollars. Most foreign currencies
have fluctuated widely in value against the United States dollar for many
reasons, including supply and demand of the respective currency, the soundness
of the world economy and the strength of the respective economy as compared to
the economies of the United States and other countries. Therefore, for any
securities of issuers (whether or not they are in Depositary Receipt form) whose
earnings are stated in foreign currencies, or which pay dividends in foreign
currencies or which are traded in foreign currencies, there is a risk that their
United States dollar value will vary with fluctuations in the United States
dollar foreign exchange rates for the relevant currencies.
On January 1, 1999, Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal and Spain (eleven of the fifteen
member countries of the European Union ("EU")) established fixed conversion
rates between their existing sovereign currencies and the euro. On such date the
euro became the official currency of these eleven countries. As of January 1,
1999, the participating countries no longer control their own monetary policies
by directing independent interest rates for their currencies. Instead, the
authority to direct monetary policy, including money supply and official
interest rates for the euro, is exercised by the new European Central Bank. The
conversion of the national currencies of the participating countries to the euro
could negatively impact the market rate of the exchange between such currencies
(or the newly created euro) and the U.S. dollar. In addition, European
corporations, and other entities with significant markets or operations in
Europe (whether or not in the participating countries), face strategic
challenges as these entities adapt to a single transnational currency. The euro
conversion may have a material impact on revenues, expenses or income from
operations; increase competition due to the increased price transparency of EU
markets; effect issuers' currency exchange rate risk and derivatives exposure;
disrupt current contracts; cause issuers to increase spending on information
technology updates required for the conversion; and result in potential adverse
tax consequences. The sponsor is unable to predict what impact, if any, the euro
conversion will have on any of the issuers of securities contained in a trust.
PREFERRED STOCK RISKS. If set forth in Part A of the prospectus, a trust,
or issuers of securities held by a trust, may invest in preferred stock. If this
is the case, an investment in units should be made with an understanding of the
risks which an investment in preferred stocks entails, including the risk that
the financial condition of the issuers of the securities or the general
condition of the preferred stock market may worsen, and the value of the
preferred stocks and therefore the value of the units may decline. Preferred
stocks may be susceptible to general stock market movements and to volatile
increases and decreases of value as market confidence in and perceptions of the
issuers change. These perceptions are based on unpredictable factors, including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, market
liquidity, and global or regional political, economic or banking crises.
Preferred stocks are also vulnerable to congressional reductions in the
dividends-received deduction which would adversely affect the after-tax return
to the investors who can take advantage of the deduction. Such a reduction might
adversely affect the value of preferred stocks in general. Holders of preferred
stocks, as owners of the entity, have rights to receive payments from the
issuers of those preferred stocks that are generally subordinate to those of
creditors of, or holders of debt obligations or, in some cases, other senior
preferred stocks of, such issuers. Preferred stocks do not represent an
obligation of the issuer and, therefore, do not offer any assurance of income or
provide the same degree of protection of capital as do debt securities. The
issuance of additional debt securities or senior preferred stocks will create
prior claims for payment of principal and interest and senior dividends which
could adversely affect the ability and inclination of the issuer to declare or
pay dividends on its preferred stock or the rights of holders of preferred stock
with respect to assets of the issuer upon liquidation or bankruptcy. The value
of preferred stocks is subject to market fluctuations for as long as the
preferred stocks remain outstanding, and thus the value of the securities may be
expected to fluctuate over the life of the trust to values higher or lower than
those prevailing on the initial date of deposit.
TRUST PREFERRED SECURITIES RISKS. If set forth in Part A of the prospectus,
a trust, or issuers of securities held by a trust, may invest in trust preferred
securities. Holders of trust preferred securities incur risks in addition to or
slightly different than the typical risks of holding preferred stocks. Trust
preferred securities are limited-life preferred securities that are typically
issued by corporations, generally in the form of interest-bearing notes or
preferred securities issued by corporations, or by an affiliated business trust
of a corporation, generally in the form of beneficial interests in subordinated
debentures issued by the corporation, or similarly structured securities. The
maturity and dividend rate of the trust preferred securities are structured to
match the maturity and coupon interest rate of the interest-bearing notes,
preferred securities or subordinated debentures. Trust preferred securities
usually mature on the stated maturity date of the interest-bearing notes,
preferred securities or subordinated debentures and may be redeemed or
liquidated prior to the stated maturity date of such instruments for any reason
on or after their stated call date or upon the occurrence of certain
circumstances at any time. Trust preferred securities generally have a yield
advantage over traditional preferred stocks, but unlike preferred stocks,
distributions on the trust preferred securities are generally treated as
interest rather than dividends for federal income tax purposes. Unlike most
preferred stocks, distributions received from trust preferred securities are
generally not eligible for the dividends-received deduction. Certain of the
risks unique to trust preferred securities include: (i) distributions on trust
preferred securities will be made only if interest payments on the
interest-bearing notes, preferred securities or subordinated debentures are
made; (ii) a corporation issuing the interest-bearing notes, preferred
securities or subordinated debentures may defer interest payments on these
instruments for up to 20 consecutive quarters and if such election is made,
distributions will not be made on the trust preferred securities during the
deferral period; (iii) certain tax or regulatory events may trigger the
redemption of the interest-bearing notes, preferred securities or subordinated
debentures by the issuing corporation and result in prepayment of the trust
preferred securities prior to their stated maturity date; (iv) future
legislation may be proposed or enacted that may prohibit the corporation from
deducting its interest payments on the interest-bearing notes, preferred
securities or subordinated debentures for tax purposes, making redemption of
these instruments likely; (v) a corporation may redeem the interest-bearing
notes, preferred securities or subordinated debentures in whole at any time or
in part from time to time on or after a stated call date; (vi) trust preferred
securities holders have very limited voting rights; and (vii) payment of
interest on the interest-bearing notes, preferred securities or subordinated
debentures, and therefore distributions on the trust preferred securities, is
dependent on the financial condition of the issuing corporation.
CONVERTIBLE SECURITIES RISKS. If set forth in Part A of the prospectus, a
trust, or issuers of securities held by a trust, may invest in convertible
securities.
Convertible securities generally offer lower interest or dividend yields
than non-convertible fixed-income securities of similar credit quality because
of the potential for capital appreciation. The market values of convertible
securities tend to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, a convertible security's market
value also tends to reflect the market price of the common stock of the issuing
company, particularly when the stock price is greater than the convertible
security's conversion price. The conversion price is defined as the
predetermined price or exchange ratio at which the convertible security can be
converted or exchanged for the underlying common stock. As the market price of
the underlying common stock declines below the conversion price, the price of
the convertible security tends to be increasingly influenced more by the yield
of the convertible security than by the market price of the underlying common
stock. Thus, it may not decline in price to the same extent as the underlying
common stock, and convertible securities generally have less potential for gain
or loss than common stocks. However, mandatory convertible securities (as
discussed below) generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. In the event of a
liquidation of the issuing company, holders of convertible securities would be
paid before that company's common stockholders. Consequently, an issuer's
convertible securities generally entail less risk than its common stock.
However, convertible securities fall below debt obligations of the same issuer
in order of preference or priority in the event of a liquidation and are
typically unrated or rated lower than such debt obligations. In addition,
contingent payment, convertible securities allow the issuer to claim deductions
based on its nonconvertible cost of debt, which generally will result in
deduction in excess of the actual cash payments made on the securities (and
accordingly, holders will recognize income in amounts in excess of the cash
payments received).
Mandatory convertible securities are distinguished as a subset of
convertible securities because the conversion is not optional and the conversion
price at maturity is based solely upon the market price of the underlying common
stock, which may be significantly less than par or the price (above or below
par) paid. For these reasons, the risks associated with investing in mandatory
convertible securities most closely resemble the risks inherent in common
stocks. Mandatory convertible securities customarily pay a higher coupon yield
to compensate for the potential risk of additional price volatility and loss
upon conversion. Because the market price of a mandatory convertible security
increasingly corresponds to the market price of its underlying common stock as
the convertible security approaches its conversion date, there can be no
assurance that the higher coupon will compensate for the potential loss.
SENIOR LOAN RISKS. If set forth in Part A of the prospectus, a trust, or
issuers of securities held by a trust, may invest in senior loans.
Senior loans in which a Closed-End Fund may invest:
o generally are of below investment grade credit quality;
o may be unrated at the time of investment;
o generally are not registered with the SEC or any state securities
commission; and
o generally are not listed on any securities exchange.
The amount of public information available on senior loans generally will
be less extensive than that available for other types of assets.
No reliable, active trading market currently exists for many senior loans,
although a secondary market for certain senior loans has developed over the past
several years. senior loans are thus relatively illiquid. Liquidity relates to
the ability of a Closed-End Fund to sell an investment in a timely manner at a
price approximately equal to its value on the Closed-End Fund's books. The
illiquidity of senior loans may impair a Closed-End Fund's ability to realized
the full value of its assets in the event of a voluntary or involuntary
liquidation of such assets. Because of the lack of an active trading market,
illiquid securities are also difficult to value and prices provided by external
pricing services may not reflect the true value of the securities. However, many
senior loans are of a large principal amount and are held by a large number of
financial institutions. To the extent that a secondary market does exist for
certain senior loans, the market may be subject to irregular trading activity,
wide bid/ask spreads and extended trade settlement periods. The market for
senior loans could be disrupted in the event of an economic downturn or a
substantial increase or decrease in interest rates. This could result in
increased volatility in the market and in the trusts' net asset value.
If legislation or state or federal regulators impose additional
requirements or restrictions on the ability of financial institutions to make
loans that are considered highly leveraged transactions, the availability of
senior loans for investment by the Closed-End Funds may be adversely affected.
In addition, such requirements or restrictions could reduce or eliminate sources
of financing for certain borrowers. This would increase the risk of default. If
legislation or federal or state regulators require financial institutions to
dispose of senior loans that are considered highly leveraged transactions or
subject such senior loans to increased regulatory scrutiny, financial
institutions may determine to sell such senior loans. Such sales could result in
depressed prices. If a Closed-End Fund attempts to sell a senior loan at a time
when a financial institution is engaging in such a sale, the price a Closed-End
Fund could get for the senior loan may be adversely affected.
Some senior loans are subject to the risk that a court, pursuant to
fraudulent conveyance or other similar laws, could subordinate the senior loans
to presently existing or future indebtedness of the borrower or take other
action detrimental to lenders. Such court action could under certain
circumstances include invalidation of senior loans. Any lender, which could
include a Closed-End Fund, is subject to the risk that a court could find the
lender liable for damages in a claim by a borrower arising under the common laws
of tort or contracts or anti-fraud provisions of certain securities laws for
actions taken or omitted to be taken by the lenders under the relevant terms of
a loan agreement or in connection with actions with respect to the collateral
underlying the senior loan.
REAL ESTATE INVESTMENT TRUSTS ("REITS") RISK. If set forth in Part A of the
prospectus, a trust, or issuers of securities held by a trust, securities in a
trust may invest in REITs. REITs may concentrate their investments in specific
geographic areas or in specific property types, such as hotels, shopping malls,
residential complexes and office buildings. The value of the REIT and the
ability of the REIT to distribute income may be adversely affected by several
factors, including rising interest rates, changes in the national, state and
local economic climate and real estate conditions, perceptions of prospective
tenants of the safety, convenience and attractiveness of the properties, the
ability of the owner to provide adequate management, maintenance and insurance,
the cost of complying with the Americans with Disabilities Act, increased
competition from new properties, the impact of present or future environmental
legislation and compliance with environmental laws, changes in real estate taxes
and other operating expenses, adverse changes in governmental rules and fiscal
policies, adverse changes in zoning laws, and other factors beyond the control
of the issuer of the REIT.
ADMINISTRATION OF THE TRUST
DISTRIBUTIONS TO UNITHOLDERS. Income received by a trust is credited by the
trustee to the Income Account of the trust. Other receipts are credited to the
Capital Account of a trust. Income received by a trust will be distributed on or
shortly after the distribution dates each year shown in the prospectus on a pro
rata basis to unitholders of record as of the preceding record date shown in the
prospectus. All distributions will be net of applicable expenses. There is no
assurance that any actual distributions will be made since all dividends
received may be used to pay expenses. In addition, excess amounts from the
Capital Account of a trust, if any, will be distributed at least annually to the
unitholders then of record. Proceeds received from the disposition of any of the
securities after a record date and prior to the following distribution date will
be held in the Capital Account and not distributed until the next distribution
date applicable to the Capital Account. The trustee shall be required to make a
distribution from the Capital Account if the cash balance on deposit therein
available for distribution shall be sufficient to distribute at least $1.00 per
100 units. The trustee is not required to pay interest on funds held in the
Capital or Income Accounts (but may itself earn interest thereon and therefore
benefits from the use of such funds). The trustee is authorized to reinvest any
funds held in the Capital or Income Accounts, pending distribution, in U.S.
Treasury obligations which mature on or before the next applicable distribution
date. Any obligations so acquired must be held until they mature and proceeds
therefrom may not be reinvested.
The distribution to the unitholders as of each record date will be made on
the following distribution date or shortly thereafter and shall consist of an
amount substantially equal to such portion of the unitholders' pro rata share of
the dividend distributions then held in the Income Account after deducting
estimated expenses. Because dividends are not received by a trust at a constant
rate throughout the year, such distributions to unitholders are expected to
fluctuate. Persons who purchase units will commence receiving distributions only
after such person becomes a record owner. A person will become the owner of
units, and thereby a unitholder of record, on the date of settlement provided
payment has been received. Notification to the trustee of the transfer of units
is the responsibility of the purchaser, but in the normal course of business
such notice is provided by the selling broker-dealer.
The trustee will periodically deduct from the Income Account of a trust
and, to the extent funds are not sufficient therein, from the Capital Account of
a trust amounts necessary to pay the expenses of a trust. The trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary to
establish a reserve for any governmental charges payable out of a trust. Amounts
so withdrawn shall not be considered a part of a trust's assets until such time
as the trustee shall return all or any part of such amounts to the appropriate
accounts. In addition, the trustee may withdraw from the Income and Capital
Accounts of a trust such amounts as may be necessary to cover redemptions of
units.
DISTRIBUTION REINVESTMENT. Unitholders may elect to have distributions of
capital (including capital gains, if any) or dividends or both automatically
invested into additional units of their trust without a sales fee.
Your trust will pay any deferred sales fee per unit regardless of any sales
fee discounts. However, if you elect to have distributions on your units
reinvested into additional units of your trust, you will be credited the amount
of any remaining deferred sales charge on such additional units at the time of
reinvestment.
Unitholders who are receiving distributions in cash may elect to
participate in distribution reinvestment by filing with the Program Agent an
election to have such distributions reinvested without charge. Such election
must be received by the Program Agent at least ten days prior to the record date
applicable to any distribution in order to be in effect for such record date.
Any such election shall remain in effect until a subsequent notice is received
by the Program Agent.
The Program Agent is The Bank of New York. All inquiries concerning
participating in distribution reinvestment should be directed to The Bank of New
York at its Unit Investment Trust Division office.
STATEMENTS TO UNITHOLDERS. With each distribution, the trustee will furnish
to each unitholder a statement of the amount of income and the amount of other
receipts, if any, which are being distributed, expressed in each case as a
dollar amount per unit.
The accounts of a trust will not be audited annually unless the sponsor
determines that such an audit would be in the best interest of the unitholders
of the trust. If an audit is conducted, it will be done at the related trust's
expense, by independent public accountants designated by the sponsor. The
accountants' report will be furnished by the trustee to any unitholder upon
written request. Within a reasonable period of time after the end of each
calendar year, the trustee shall furnish to each person who at any time during
the calendar year was a unitholder of a trust a statement, covering the calendar
year, generally setting forth for the trust:
(A) As to the Income Account:
(1) Income received;
(2) Deductions for applicable taxes and for fees and expenses of the
trust and for redemptions of units, if any; and
(3) The balance remaining after such distributions and deductions,
expressed in each case both as a total dollar amount and as a
dollar amount representing the pro rata share of each unit
outstanding on the last business day of such calendar year; and
(B) As to the Capital Account:
(1) The dates of disposition of any securities and the net proceeds
received therefrom;
(2) Deductions for payment of applicable taxes and fees and expenses
of the trust; and
(3) The balance remaining after such distributions and deductions
expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each unit outstanding on the
last business day of such calendar year; and
(C) The following information:
(1) A list of the securities as of the last business day of such
calendar year;
(2) The number of units outstanding on the last business day of such
calendar year;
(3) The redemption price based on the last evaluation made during
such calendar year; and
(4) The amount actually distributed during such calendar year from
the Income and Capital Accounts separately stated, expressed both
as total dollar amounts and as dollar amounts per unit
outstanding on the record dates for each such distribution.
RIGHTS OF UNITHOLDERS. A unitholder may at any time tender units to the
trustee for redemption. The death or incapacity of any unitholder will not
operate to terminate a trust nor entitle legal representatives or heirs to claim
an accounting or to bring any action or proceeding in any court for partition or
winding up of a trust. No unitholder shall have the right to control the
operation and management of a trust in any manner, except to vote with respect
to the amendment of the trust agreement or termination of a trust.
AMENDMENT AND TERMINATION. The trust agreement may be amended by the
trustee and the sponsor without the consent of any of the unitholders: (1) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor governmental
agency; or (3) to make such provisions as shall not adversely affect the
interests of the unitholders. The trust agreement with respect to any trust may
also be amended in any respect by the sponsor and the trustee, or any of the
provisions thereof may be waived, with the consent of the holders of units
representing 66 2/3% of the units then outstanding of the trust, provided that
no such amendment or waiver will reduce the interest of any unitholder thereof
without the consent of such unitholder or reduce the percentage of units
required to consent to any such amendment or waiver without the consent of all
unitholders of the trust. In no event shall the trust agreement be amended to
increase the number of units of a trust issuable thereunder or to permit the
acquisition of any securities in addition to or in substitution for those
initially deposited in the trust, except in accordance with the provisions of
the trust agreement. The trustee shall promptly notify unitholders of the
substance of any such amendment.
The trust agreement provides that a trust shall terminate upon the
liquidation, redemption or other disposition of the last of the securities held
in the trust but in no event is it to continue beyond the mandatory termination
date set forth in Part A of the prospectus. If the value of a trust shall be
less than the applicable minimum value stated in the prospectus (generally 20%
of the total value of securities deposited in the trust during the initial
offering period), the trustee may, in its discretion, and shall, when so
directed by the sponsor, terminate the trust. A trust may be terminated at any
time by the holders of units representing 66 2/3% of the units thereof then
outstanding. In addition, the sponsor may terminate a trust if it is based on a
security index and the index is no longer maintained.
Beginning nine business days prior to, but no later than, the mandatory
termination date described in the prospectus, the trustee may begin to sell all
of the remaining underlying securities on behalf of unitholders in connection
with the termination of the trust. The sponsor may assist the trustee in these
sales and receive compensation to the extent permitted by applicable law. The
sale proceeds will be net of any incidental expenses involved in the sales.
The trustee will attempt to sell the securities as quickly as it can during
the termination proceedings without in its judgment materially adversely
affecting the market price of the securities, but it is expected that all of the
securities will in any event be disposed of within a reasonable time after a
trust's termination. The sponsor does not anticipate that the period will be
longer than one month, and it could be as short as one day, depending on the
liquidity of the securities being sold. The liquidity of any security depends on
the daily trading volume of the security and the amount that the sponsor has
available for sale on any particular day. Of course, no assurances can be given
that the market value of the securities will not be adversely affected during
the termination proceedings.
Approximately five days prior to termination of certain trusts, the trustee
will notify unitholders of the termination and provide a form allowing
qualifying unitholders to elect an in-kind distribution (a "Distribution In
Kind"). A unitholder who owns the minimum number of units shown in Part A of the
prospectus may request a Distribution In Kind from the trustee instead of cash.
The trustee will make a Distribution In Kind through the distribution of each of
the securities of the trust in book entry form to the account of the
unitholder's bank or broker-dealer at Depository Trust Company. The unitholder
will be entitled to receive whole shares of each of the securities comprising
the portfolio of a trust and cash from the Capital Account equal to the
fractional shares to which the unitholder is entitled. The trustee may adjust
the number of shares of any security included in a unitholder's Distribution In
Kind to facilitate the distribution of whole shares. The sponsor may terminate
the Distribution In Kind option at any time upon notice to the unitholders.
Special federal income tax consequences will result if a unitholder requests a
Distribution In Kind. Unitholders of the Convertible and Income Trust who
request a Distribution In Kind will be subject to any 12b-1 Fees applicable to
the underlying securities.
Within a reasonable period after termination, the trustee will sell any
securities remaining in a trust and, after paying all expenses and charges
incurred by the trust, will distribute to unitholders thereof (upon surrender
for cancellation of certificates for units, if issued) their pro rata share of
the balances remaining in the Income and Capital Accounts of the trust.
The sponsor currently intends, but is not obligated, to offer for sale
units of a subsequent series of certain trusts at approximately one year after
the inception date of such trusts. If the sponsor does offer such units for
sale, unitholders may be given the opportunity to purchase such units at a
public offering price which includes a reduced sales fee. There is, however, no
assurance that units of any new series of a trust will be offered for sale at
that time, or if offered, that there will be sufficient units available for sale
to meet the requests of any or all unitholders.
THE TRUSTEE. The trustee is The Bank of New York, a trust company organized
under the laws of New York. The Bank of New York has its Unit Investment Trust
Division offices at 101 Barclay Street, 20th Fl., New York, New York 10286,
telephone 1-800-701-8178. The Bank of New York is subject to supervision and
examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law.
The trustee, whose duties are ministerial in nature, has not participated
in selecting the portfolio of any trust. In accordance with the trust agreement,
the trustee shall keep records of all transactions at its office. Such records
shall include the name and address of, and the number of units held by, every
unitholder of a trust. Such books and records shall be open to inspection by any
unitholder at all reasonable times during usual business hours. The trustee
shall make such annual or other reports as may from time to time be required
under any applicable state or federal statute, rule or regulation. The trustee
shall keep a certified copy or duplicate original of the trust agreement on file
in its office available for inspection at all reasonable times during usual
business hours by any unitholder, together with a current list of the securities
held in each trust. Pursuant to the trust agreement, the trustee may employ one
or more agents for the purpose of custody and safeguarding of securities
comprising a trust.
Under the trust agreement, the trustee or any successor trustee may resign
and be discharged of a trust created by the trust agreement by executing an
instrument in writing and filing the same with the sponsor. The trustee or
successor trustee must mail a copy of the notice of resignation to all
unitholders then of record, not less than sixty days before the date specified
in such notice when such resignation is to take effect. The sponsor upon
receiving notice of such resignation is obligated to appoint a successor trustee
promptly. If, upon such resignation, no successor trustee has been appointed and
has accepted the appointment within thirty days after notification, the retiring
trustee may apply to a court of competent jurisdiction for the appointment of a
successor. The sponsor may at any time remove the trustee, with or without
cause, and appoint a successor trustee as provided in the trust agreement.
Notice of such removal and appointment shall be mailed to each unitholder by the
sponsor. Upon execution of a written acceptance of such appointment by such
successor trustee, all the rights, powers, duties and obligations of the
original trustee shall vest in the successor. The trustee must be a corporation
organized under the laws of the United States, or any state thereof, be
authorized under such laws to exercise trust powers and have at all times an
aggregate capital, surplus and undivided profits of not less than $5,000,000.
THE SPONSOR. Claymore Securities, Inc. specializes in the creation,
development and distribution of investment solutions for advisors and their
valued clients. Claymore Securities, Inc. was created as Ranson & Associates,
Inc., in 1995 and is the successor sponsor to unit investment trusts formerly
sponsored by EVEREN Unit Investment Trusts, a service of EVEREN Securities, Inc.
Claymore Securities, Inc. is also the sponsor and successor sponsor of Series of
Ranson Unit Investment Trusts and The Kansas Tax-Exempt Trust and Multi-State
Series of The Ranson Municipal Trust. On October 29, 2001, Ranson & Associates,
Inc. was acquired by Claymore Group LLC. The sale to Claymore Group LLC was
financed by a loan from The Bank of New York, the trustee. In November 2001, the
sponsor changed its name from Ranson & Associates, Inc. to Claymore Securities,
Inc. Claymore Securities, Inc. has been active in public and corporate finance
and has sold bonds and unit investment trusts and maintained secondary market
activities relating thereto. At present, Claymore Securities, Inc. which is a
member of the National Association of Securities Dealers, Inc., is the sponsor
to each of the above-named unit investment trusts. The sponsor's offices are
located at 2455 Corporate West Drive, Lisle, Illinois 60532, and at 101 W. Elm,
Suite 310, Conshohoken, Pennsylvania 19428.
If at any time the sponsor shall fail to perform any of its duties under
the trust agreement or shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, or (b) terminate the trust agreement and liquidate any trust as
provided therein, or (c) continue to act as trustee without terminating the
trust agreement.
THE SUPERVISOR AND THE EVALUATOR. Claymore Securities, Inc., the sponsor,
also serves as evaluator and supervisor. The evaluator and supervisor may resign
or be removed by the trustee in which event the trustee is to use its best
efforts to appoint a satisfactory successor. Such resignation or removal shall
become effective upon acceptance of appointment by the successor evaluator. If
upon resignation of the evaluator no successor has accepted appointment within
thirty days after notice of resignation, the evaluator may apply to a court of
competent jurisdiction for the appointment of a successor. Notice of such
registration or removal and appointment shall be mailed by the trustee to each
unitholder.
LIMITATIONS ON LIABILITY. The sponsor is liable for the performance of its
obligations arising from its responsibilities under the trust agreement, but
will be under no liability to the unitholders for taking any action or
refraining from any action in good faith pursuant to the trust agreement or for
errors in judgment, except in cases of its own gross negligence, bad faith or
willful misconduct or its reckless disregard for its duties thereunder. The
sponsor shall not be liable or responsible in any way for depreciation or loss
incurred by reason of the sale of any securities.
The trust agreement provides that the trustee shall be under no liability
for any action taken in good faith in reliance upon prima facie properly
executed documents or for the disposition of moneys, securities or certificates
except by reason of its own gross negligence, bad faith or willful misconduct,
or its reckless disregard for its duties under the trust agreement, nor shall
the trustee be liable or responsible in any way for depreciation or loss
incurred by reason of the sale by the trustee of any securities. In the event
that the sponsor shall fail to act, the trustee may act and shall not be liable
for any such action taken by it in good faith. The trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the securities or upon the interest thereof. In addition, the trust
agreement contains other customary provisions limiting the liability of the
trustee.
The trustee and unitholders may rely on any evaluation furnished by the
evaluator and shall have no responsibility for the accuracy thereof. The trust
agreement provides that the determinations made by the evaluator shall be made
in good faith upon the basis of the best information available to it, provided,
however, that the evaluator shall be under no liability to the trustee or
unitholders for errors in judgment, but shall be liable for its gross
negligence, bad faith or willful misconduct or its reckless disregard for its
obligations under the trust agreement.
EXPENSES OF THE TRUST
The sponsor does not charge a trust an annual advisory fee. The sponsor
will receive a portion of the sale commissions paid in connection with the
purchase of units and will share in profits, if any, related to the deposit of
securities in the trust. The sponsor and/or its affiliates do, also, receive an
annual fee as set forth in Part A of the prospectus for maintaining surveillance
over the portfolio and for performing certain administrative services for the
trust (the "Sponsor's Supervisory Fee"). In providing such supervisory services,
the sponsor may purchase research from a variety of sources, which may include
dealers of the trusts. If so provided in Part A of the prospectus, the sponsor
may also receive an annual fee for providing bookkeeping and administrative
services for a trust (the "Bookkeeping and Administrative Fee"). Such services
may include, but are not limited to, the preparation of various materials for
unitholders and providing account information to the unitholders. If so provided
in Part A of the prospectus, the evaluator may also receive an annual fee for
performing evaluation services for the trusts (the "Evaluator's Fee"). In
addition, if so provided in Part A of the prospectus, a trust may be charged an
annual licensing fee to cover licenses for the use of service marks, trademarks,
trade names and intellectual property rights and/or for the use of databases and
research. The trust will bear all operating expenses. Estimated annual trust
operating expenses are as set forth in Part A of the prospectus; if actual
expenses are higher than the estimate, the excess will be borne by the trust.
The estimated expenses include listing fees but do not include the brokerage
commissions and other transactional fees payable by the trust in purchasing and
selling securities.
The trustee receives for its services that fee set forth in Part A of the
prospectus. The trustee's fee, which is calculated monthly, is based on the
largest number of units of a trust outstanding at any time during the primary
offering period. After the primary offering period, the fee shall accrue daily
and be based on the number of units outstanding on the first business day of
each calendar year in which the fee is calculated or the number of units
outstanding at the end of the primary offering period, as appropriate. The
Sponsor's Supervisory Fee, the Bookkeeping and Administrative Fee and the
Evaluator's Fee are calculated monthly and are based on the largest number of
units outstanding at any time during the period for which such compensation is
being computed. The trustee benefits to the extent there are funds for future
distributions, payment of expenses and redemptions in the Capital and Income
Accounts since these Accounts are non-interest bearing and the amounts earned by
the trustee are retained by the trustee. Part of the trustee's compensation for
its services to a trust is expected to result from the use of these funds. In
addition, the Sponsor's Supervisory Fee, Bookkeeping and Administrative Fee,
Evaluator's Fee and the Trustee's Fee may be adjusted in accordance with the
cumulative percentage increase of the United States Department of Labor's
Consumer Price Index entitled "All Services Less Rent" since the establishment
of the trust. In addition, with respect to any fees payable to the sponsor or an
affiliate of the sponsor for providing bookkeeping and other administrative
services, supervisory services and evaluation services, such individual fees may
exceed the actual costs of providing such services for a trust, but at no time
will the total amount received for such services, in the aggregate, rendered to
all unit investment trusts of which Claymore is the sponsor in any calendar year
exceed the actual cost to the sponsor or its affiliates of supplying such
services, in the aggregate, in such year.
The trust will also will pay a fee to the sponsor for creating and
developing the trust, including determining the trust objective, policies,
composition and size, selecting service providers and information services, and
for providing other similar administrative and ministerial functions. Your trust
pays this "creation and development fee" as a fixed dollar amount at the close
of the initial offering period. The sponsor does not use the fee to pay
distribution expenses or as compensation for sales efforts.
The following additional charges are or may be incurred by the trust: (a)
fees for the trustee's extraordinary services; (b) expenses of the trustee
(including legal and auditing expenses, but not including any fees and expenses
charged by an agent for custody and safeguarding of securities) and of counsel,
if any; (c) various governmental charges; (d) expenses and costs of any action
taken by the trustee to protect the trust or the rights and interests of the
unitholders; (e) indemnification of the trustee for any loss, liability or
expense incurred by it in the administration of the trust not resulting from
gross negligence, bad faith or willful misconduct on its part; (f)
indemnification of the sponsor for any loss, liability or expense incurred in
acting in that capacity without gross negligence, bad faith or willful
malfeasance or its reckless disregard for its obligations under the trust
agreement; (g) any offering costs incurred after the end of the initial offering
period; and (h) expenditures incurred in contacting unitholders upon termination
of the trust. The fees and expenses set forth herein are payable out of a trust
and, when owing to the trustee, are secured by a lien on the trust. Since the
securities are all stocks, and the income stream produced by dividend payments,
if any, is unpredictable, the sponsor cannot provide any assurance that
dividends will be sufficient to meet any or all expenses of a trust. If the
balances in the Income and Capital Accounts are insufficient to provide for
amounts payable by the trust, the trustee has the power to sell securities to
pay such amounts. These sales may result in capital gains or losses to
unitholders. It is expected that the income stream produced by dividend payments
may be insufficient to meet the expenses of a trust and, accordingly, it is
expected that securities will be sold to pay all of the fees and expenses of the
trust.
The trust shall also bear the expenses associated with updating the trust's
registration statement and maintaining registration or qualification of the
units and/or a trust under federal or state securities laws subsequent to
initial registration. Such expenses shall include legal fees, accounting fees,
typesetting fees, electronic filing expenses and regulatory filing fees. The
expenses associated with updating registration statements have been historically
paid by a unit investment trust's sponsor.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
When a trust sells securities, the composition and diversity of the
securities in the trust may be altered. In order to obtain the best price for a
trust, it may be necessary for the supervisor to specify minimum amounts (such
as 100 shares) in which blocks of securities are to be sold. In effecting
purchases and sales of a trust's portfolio securities, the sponsor may direct
that orders be placed with and brokerage commissions be paid to brokers,
including brokers which may be affiliated with the trust, the sponsor or dealers
participating in the offering of units.
PURCHASE, REDEMPTION AND PRICING OF UNITS
PUBLIC OFFERING PRICE. Units of a trust are offered at the public offering
price (which is based on the aggregate underlying value of the securities in the
trust and includes the initial sales fee plus a pro rata share of any
accumulated amounts in the accounts of the trust). The initial sales fee is
equal to the difference between the maximum sales fee and the sum of the
remaining deferred sales fee and the creation and development fee ("C&D Fee").
The maximum sales fee is set forth in Part A of the prospectus. The deferred
sales fee and the C&DFee will be collected as described in this prospectus.
Units purchased subsequent to the initial deferred sales fee payment will be
subject to the initial sales fee, the remaining deferred sales fee payments and
the C&D Fee. Units sold or redeemed prior to such time as the entire applicable
deferred sales fee has been collected will be assessed the remaining deferred
sales fee at the time of such sale or redemption. During the initial offering
period, a portion of the public offering price includes an amount of securities
to pay for all or a portion of the costs incurred in establishing a trust
("organization costs"). These organization costs include the cost of preparing
the registration statement, the trust indenture and other closing documents,
registering units with the Securities and Exchange Commission and states, the
initial audit of the trust portfolio, legal fees and the initial fees and
expenses of the trustee. These costs will be deducted from a trust as of the end
of the initial offering period or after six months, at the discretion of the
sponsor. As indicated above, the initial public offering price of the units was
established by dividing the aggregate underlying value of the securities by the
number of units outstanding. Such price determination as of the opening of
business on the date a trust was created was made on the basis of an evaluation
of the securities in the trust prepared by the evaluator. After the opening of
business on this date, the evaluator will appraise or cause to be appraised
daily the value of the underlying securities as of the close of the New York
Stock Exchange on days the New York Stock Exchange is open and will adjust the
public offering price of the units commensurate with such valuation. Such public
offering price will be effective for all orders properly received at or prior to
the close of trading on the New York Stock Exchange on each such day. Orders
received by the trustee, sponsor or any dealer for purchases, sales or
redemptions after that time, or on a day when the New York Stock Exchange is
closed, will be held until the next determination of price.
The value of the securities is determined on each business day by the
evaluator based on the closing sale prices on a national securities exchange or
the Nasdaq National Market System or by taking into account the same factors
referred to under "Computation of Redemption Price".
PUBLIC DISTRIBUTION OF UNITS. During the initial offering period, units of
a trust will be distributed to the public at the public offering price thereof.
Upon the completion of the initial offering, units which remain unsold or which
may be acquired in the secondary market may be offered at the public offering
price determined in the manner provided above.
The sponsor intends to qualify units of a trust for sale in a number of
states. Units will be sold through dealers who are members of the National
Association of Securities Dealers, Inc. and through others. Broker-dealers and
others will be allowed a concession or agency commission in connection with the
distribution of units during the initial offering period as set forth in the
prospectus.
Certain commercial banks may be making units of a trust available to their
customers on an agency basis. Furthermore, as a result of certain legislative
changes effective November 1999, banks are no longer prohibited from certain
affiliations with securities firms. This new legislation grants banks new
authority to conduct certain authorized activity, such as sales of units,
through financial subsidiaries. A portion of the sales charge discussed above is
retained by or remitted to the banks or their financial subsidiaries for these
agency and brokerage transactions. The sponsor reserves the right to change the
concessions or agency commissions set forth in the prospectus from time to time.
In addition to such concessions or agency commissions, the sponsor may, from
time to time, pay or allow additional concessions or agency commissions, in the
form of cash or other compensation, to dealers employing registered
representatives who sell, during a specified time period, a minimum dollar
amount of units of unit investment trusts underwritten by the sponsor. The
sponsor in its discretion may from time to time pursuant to objective criteria
established by the sponsor pay fees to qualifying brokers or dealers for certain
services or activities which are primarily intended to result in sales of units
of a trust. Such payments are made by the sponsor out of its own assets, and not
out of the assets of any trust. These programs will not change the price
unitholders pay for their units or the amount that a trust will receive from the
units sold. The difference between the discount and the sales charge will be
retained by the sponsor.
The sponsor reserves the right to reject, in whole or in part, any order
for the purchase of units.
SPONSOR PROFITS. The sponsor will receive gross sales fees equal to the
percentage of the public offering price of the units of a trust described in the
prospectus. In addition, the sponsor may realize a profit (or sustain a loss) as
of the date a trust is created resulting from the difference between the
purchase prices of the securities to the sponsor and the cost of such securities
to the trust. Thereafter, on subsequent deposits the sponsor may realize profits
or sustain losses from such deposits. The sponsor may realize additional profits
or losses during the initial offering period on unsold units as a result of
changes in the daily market value of the securities in the trust.
MARKET FOR UNITS. After the initial offering period, the sponsor may
maintain a market for units of a trust offered hereby and continuously offer to
purchase said units at prices, determined by the evaluator, based on the value
of the underlying securities. Unitholders who wish to dispose of their units
should inquire of their broker as to current market prices in order to determine
whether there is in existence any price in excess of the redemption price and,
if so, the amount thereof. Unitholders who sell or redeem units prior to such
time as the entire deferred sales fee on such units has been collected will be
assessed the amount of the remaining deferred sales fee at the time of such sale
or redemption. The offering price of any units resold by the sponsor will be in
accord with that described in the currently effective prospectus describing such
units. Any profit or loss resulting from the resale of such units will belong to
the sponsor. If the sponsor decides to maintain a secondary market, it may
suspend or discontinue purchases of units of the trust if the supply of units
exceeds demand, or for other business reasons.
REDEMPTION. A unitholder who does not dispose of units in the secondary
market described above may cause units to be redeemed by the trustee by making a
written request to the trustee at its Unit Investment Trust Division office in
the city of New York. Unitholders must sign the request, and such transfer
instrument, exactly as their names appear on the records of the trustee. If the
amount of the redemption is $500 or less and the proceeds are payable to the
unitholder(s) of record at the address of record, no signature guarantee is
necessary for redemptions by individual account owners (including joint owners).
Additional documentation may be requested, and a signature guarantee is always
required, from corporations, executors, administrators, trustees, guardians or
associations. The signatures must be guaranteed by a participant in the
Securities Transfer Agents Medallion Program ("STAMP") or such other signature
guaranty program in addition to, or in substitution for, STAMP, as may be
accepted by the trustee.
Redemption shall be made by the trustee no later than the third business
day following the day on which a tender for redemption is received (the
"Redemption Date") by payment of cash equivalent to the redemption price,
determined as set forth below under "Computation of Redemption Price," as of the
close of the New York Stock Exchange next following such tender, multiplied by
the number of units being redeemed. Any units redeemed shall be canceled and any
undivided fractional interest in the related trust extinguished. The price
received upon redemption might be more or less than the amount paid by the
unitholder depending on the value of the securities in the trust at the time of
redemption. Unitholders who sell or redeem units prior to such time as the
entire deferred sales fee on such units has been collected will be assessed the
amount of the remaining deferred sales fee at the time of such sale or
redemption. Certain broker-dealers may charge a transaction fee for processing
redemption requests.
Under regulations issued by the Internal Revenue Service, the trustee is
required to withhold a specified percentage of the principal amount of a unit
redemption if the trustee has not been furnished the redeeming unitholder's tax
identification number in the manner required by such regulations. Any amount so
withheld is transmitted to the Internal Revenue Service and may be recovered by
the unitholder only when filing a tax return. Under normal circumstances the
trustee obtains the unitholder's tax identification number from the selling
broker. However, any time a unitholder elects to tender units for redemption,
such unitholder should make sure that the trustee has been provided a certified
tax identification number in order to avoid this possible "back-up withholding."
In the event the trustee has not been previously provided such number, one must
be provided at the time redemption is requested. Any amounts paid on redemption
representing unpaid dividends shall be withdrawn from the Income Account of a
trust to the extent that funds are available for such purpose. All other amounts
paid on redemption shall be withdrawn from the Capital Account for a trust.
Unitholders tendering units for redemption may request a Distribution In
Kind from the trustee in lieu of cash redemption. A unitholder may request a
Distribution In Kind of an amount and value of securities per unit equal to the
redemption price per unit as determined as of the evaluation time next following
the tender, provided that the tendering unitholder is (1) entitled to receive at
least $25,000 of proceeds as part of his or her distribution or if he paid at
least $25,000 to acquire the units being tendered and (2) the unitholder has
elected to redeem at least five days prior to the termination of the trust. If
the unitholder meets these requirements, a Distribution In Kind will be made by
the trustee through the distribution of each of the securities of the trust in
book entry form to the account of the unitholderbank or broker-dealer at
Depository Trust Company. The tendering unitholder shall be entitled to receive
whole shares of each of the securities comprising the portfolio of the trust and
cash from the Capital Account equal to the fractional shares to which the
tendering unitholder is entitled. The trustee shall make any adjustments
necessary to reflect differences between the redemption price of the units and
the value of the securities distributed in kind as of the date of tender. If
funds in the Capital Account are insufficient to cover the required cash
distribution to the tendering unitholder, the trustee may sell securities. The
in-kind redemption option may be terminated by the sponsor at any time. The
trustee is empowered to sell securities in order to make funds available for the
redemption of units. To the extent that securities are sold or redeemed in kind,
the size of a trust will be, and the diversity of a trust may be, reduced but
each remaining unit will continue to represent approximately the same
proportional interest in each security. Sales may be required at a time when
securities would not otherwise be sold and may result in lower prices than might
otherwise be realized. The price received upon redemption may be more or less
than the amount paid by the unitholder depending on the value of the securities
in the portfolio at the time of redemption.
The right of redemption may be suspended and payment postponed for more
than three business days following the day on which tender for redemption is
made (1) for any period during which the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or during which (as
determined by the Securities and Exchange Commission) trading on the New York
Stock Exchange is restricted; (2) for any period during which an emergency
exists as a result of which disposal by the trustee of securities is not
reasonably practicable or it is not reasonably practicable to fairly determine
the value of the underlying securities in accordance with the trust agreement;
or (3) for such other period as the Securities and Exchange Commission may by
order permit. The trustee is not liable to any person in any way for any loss or
damage which may result from any such suspension or postponement.
COMPUTATION OF REDEMPTION PRICE. The redemption price per unit (as well as
the secondary market public offering price) will generally be determined on the
basis of the last sale price of the securities in a trust. The redemption price
per unit is the pro rata share of each unit in a trust determined generally on
the basis of (i) the cash on hand in the trust or moneys in the process of being
collected and (ii) the value of the securities in the trust less (a) amounts
representing taxes or other governmental charges payable out of the trust, (b)
any amount owing to the trustee for its advances and (c) the accrued expenses or
remaining deferred sales fees of the trust. During the initial offering period,
the redemption price and the secondary market repurchase price will also include
estimated organizational costs. The evaluator may determine the value of the
securities in the trust in the following manner: if the securities are listed on
a national or foreign securities exchange or the Nasdaq National Market System,
such evaluation shall generally be based on the last available sale price on or
immediately prior to the Evaluation Time on the exchange or Nasdaq National
Market System which is the principal market therefor, which shall be deemed to
be the New York Stock Exchange if the securities are listed thereon (unless the
evaluator deems such price inappropriate as a basis for evaluation) or, if there
is no such available sale price on such exchange, at the last available bid
prices (offer prices for primary market purchases) of the securities. Securities
not listed on the New York Stock Exchange but principally traded on the Nasdaq
National Market System will be valued at the Nasdaq National Market System's
official closing price. If the securities are not so listed or, if so listed,
the principal market therefor is other than on such exchange or there is no such
available sale price on such exchange, such evaluation shall generally be based
on the following methods or any combination thereof whichever the evaluator
deems appropriate: (i) on the basis of the current bid price (offer prices for
primary market purchases) for comparable securities (unless the evaluator deems
such price inappropriate as a basis for evaluation), (ii) by determining the
valuation of the securities on the bid side (offer side for primary market
purchases) of the market by appraisal or (iii) by any combination of the above.
If the trust holds securities denominated in a currency other than U.S. dollars,
the evaluation of such security shall be converted to U.S. dollars based on
current bid side (offer side for primary market purchases) exchange rates
(unless the evaluator deems such prices inappropriate as a basis for valuation).
RETIREMENT PLANS. A trust may be well suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other qualified retirement
plans. Generally, capital gains and income received under each of the foregoing
plans are deferred from federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax deferred rollover treatment. Investors
considering participation in any such plan should review specific tax laws
related thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan. Such plans are offered by
brokerage firms and other financial institutions. The trust will lower the
minimum investment requirement for IRA accounts to $250. Fees and charges with
respect to such plans may vary.
OWNERSHIP OF UNITS. Ownership of units will not be evidenced by
certificates. All evidence of ownership of units will be recorded in book entry
form either at Depository Trust Company ("DTC") through an investor's brokers'
account or through registration of the units on the books of the trustee. Units
held through DTC will be registered in the nominee name of Cede & Co. Individual
purchases of beneficial ownership interest in the trust will be made in book
entry form through DTC or the trustee. Ownership and transfer of units will be
evidenced and accomplished by book entries made by DTC and its participants if
the units are evidenced at DTC, or otherwise will be evidenced and accomplished
by book entries made by the trustee. DTC will record ownership and transfer of
the units among DTC participants and forward all notices and credit all payments
received in respect of the units held by the DTC participants. Beneficial owners
of units will receive written confirmation of their purchases and sale from the
broker dealer or bank from whom their purchase was made. Units are transferable
by making a written request properly accompanied by a written instrument or
instruments of transfer which should be sent registered or certified mail for
the protection of the unitholder. Unitholders must sign such written request
exactly as their names appear on the records of the trust. The signatures must
be guaranteed by a participant in the STAMP or such other signature guaranty
program in addition to, or in substitution for, STAMP, as may be acceptable by
the trustee.
Units may be purchased in denominations of one unit or any multiple
thereof, subject to the minimum investment requirement. Fractions of units, if
any, will be computed to three decimal places.
TAXES
This section summarizes some of the main U.S. federal income tax
consequences of owning units of a trust. This section is current as of the date
of this prospectus. Tax laws and interpretations change frequently, and these
summaries do not describe all of the tax consequences to all taxpayers. For
example, these summaries generally do not describe your situation if you are a
corporation, a non-U.S. person, a broker/dealer, or other investor with special
circumstances. In addition, this section does not describe your state, local or
foreign tax consequences.
This federal income tax summary is based in part on the advice and opinion
of counsel to the Sponsor. The Internal Revenue Service could disagree with any
conclusions set forth in this section. In addition, our counsel was not asked to
review, and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the trust. This may not be sufficient
for you to use for the purpose of avoiding penalties under federal tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.
ASSETS OF THE TRUSTS. The trust is expected to hold one or more of the
following: (i) shares of stock in corporations (the "Stocks") that are treated
as equity for federal income tax purposes, (ii) equity interests (the "REIT
Shares") in real estate investment trusts ("REITs") that constitute interests in
entities treated as real estate investment trusts for federal income tax
purposes, and (iii) shares (the "RIC Shares") in funds qualifying as regulated
investment companies ("RICs") that are treated as interests in regulated
investment companies for federal income tax purposes.
It is possible that a trust will also hold other assets, including assets
that are treated differently for federal income tax purposes from those
described above, in which case you will have federal income tax consequences
different from or in addition to those described in this section. All of the
assets held by a trust constitute the "Trust Assets." Neither our counsel nor we
have analyzed the proper federal income tax treatment of the Trust Assets and
thus neither our counsel nor we have reached a conclusion regarding the federal
income tax treatment of the Trust Assets.
TRUST STATUS. If a trust is at all times operated in accordance with the
documents establishing the trust and certain requirements of federal income tax
law are met, the trust will not be taxed as a corporation for federal income tax
purposes. As a unit owner, you will be treated as the owner of a pro rata
portion of each of the Trust Assets, and as such you will be considered to have
received a pro rata share of income (e.g., dividends and capital gains, if any)
from each Trust Asset when such income would be considered to be received by you
if you directly owned the Trust Assets. This is true even if you elect to have
your distributions reinvested into additional units. In addition, the income
from Trust Assets that you must take into account for federal income tax
purposes is not reduced by amounts used to pay sales charges or Trust expenses.
YOUR TAX BASIS AND INCOME OR LOSS UPON DISPOSITION. If your trust disposes
of Trust Assets, you will generally recognize gain or loss. If you dispose of
your units or redeem your units for cash, you will also generally recognize gain
or loss. To determine the amount of this gain or loss, you must subtract your
tax basis in the related Trust Assets from your share of the total amount
received in the transaction. You can generally determine your initial tax basis
in each Trust Asset by apportioning the cost of your units, including sales
charges, among the Trust Assets ratably according to their values on the date
you acquire your units. In certain circumstances, however, you may have to
adjust your tax basis after you acquire your units (for example, in the case of
certain dividends that exceed a corporation's accumulated earnings and profits,
or in the case of certain distributions with respect to REIT Shares that
represent a return of capital, as discussed below).
If you are an individual, the maximum marginal federal tax rate for net
capital gain is generally 15% (generally 5% for certain taxpayers in the 10% and
15% tax brackets). These capital gains rates are generally effective for taxable
years beginning before January 1, 2009.
Net capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if the
holding period for the asset is more than one year and is short-term if the
holding period for the asset is one year or less. You must exclude the date you
purchase your units to determine your holding period. The tax rates for capital
gains realized from assets held for one year or less are generally the same as
for ordinary income. The Internal Revenue Code, however, treats certain capital
gains as ordinary income in special situations. Capital gain received from
assets held for more than one year that is considered "unrecaptured section 1250
gain" (which may be the case, for example, with some capital gains attributable
to the REIT Shares) is taxed at a maximum stated tax rate of 25%. In the case of
capital gains dividends, the determination of which portion of the capital gains
dividend, if any, is subject to the 25% tax rate, will be made based on rules
prescribed by the United States Treasury.
DIVIDENDS FROM STOCKS. Certain dividends received with respect to the
Stocks may qualify to be taxed at the same rates that apply to net capital gain
(as discussed above), provided certain holding period requirements are
satisfied. These special rules relating to the taxation of dividends at capital
gains rates generally apply to taxable years beginning before January 1, 2009.
DIVIDENDS FROM RIC SHARES AND REIT SHARES. Some dividends on the REIT
Shares or the RIC Shares may be designated as "capital gain dividends,"
generally taxable to you as long-term capital gains. Some dividends on the RIC
Shares may qualify as "exempt interest dividends," which generally are excluded
from your gross income for federal income tax purposes. Some or all of the
exempt-interest dividends, however may be taken into account in determining your
alternative minimum tax, and may have other tax consequences (e.g., they may
affect the amount of your social security benefits that are taxed). Other
dividends on the REIT Shares or the RIC Shares will generally be taxable to you
as ordinary income. Certain ordinary income dividends from a RIC may qualify to
be taxed at the same rates that apply to net capital gain (as discussed above),
provided certain holding period requirements are satisfied and provided the
dividends are attributable to qualifying dividends received by the RIC itself.
These special rules relating to the taxation of ordinary income dividends from
regulated investment companies generally apply to taxable years beginning before
January 1, 2009. Regulated investment companies are required to provide notice
to their shareholders of the amount of any distribution that may be taken into
account as a dividend that is eligible for the capital gains tax rates. In
limited circumstances, some of the ordinary income dividends from a REIT may
also qualify to be taxed at the same rates that apply to net capital gains. If
you hold a unit for six months or less or if your trust holds a RIC Share or
REIT Share for six months or less, any loss incurred by you related to the
disposition of such RIC Share or REIT Share will be disallowed to the extent of
the exempt-interest dividends you received. To the extent, if any, it is not
disallowed, it will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received (or deemed to have been received)
with respect to such RIC Share or REIT Share. Distributions of income or capital
gains declared on the REIT Shares or the RIC Shares in October, November or
December will be deemed to have been paid to you on December 31 of the year they
are declared, even when paid by the REIT or the RIC during the following
January.
DIVIDENDS RECEIVED DEDUCTION. A corporation that owns units will generally
not be entitled to the dividends received deduction with respect to many
dividends received by your trust, because the dividends received deduction is
generally not available for dividends from most foreign corporations or from
REITs or RICs. However, certain dividends on the RIC Shares that are
attributable to dividends received by the RIC itself from certain domestic
corporations may be designated by the RIC as being eligible for the dividends
received deduction.
IN-KIND DISTRIBUTIONS. Under certain circumstances as described in this
prospectus, you may request an In-Kind Distribution of Trust Assets when you
redeem your units or at your trust's termination. By electing to receive an
In-Kind Distribution, you will receive Trust Assets plus, possibly, cash. You
will not recognize gain or loss if you only receive whole Trust Assets in
exchange for the identical amount of your pro rata portion of the same Trust
Assets held by your trust. However, if you also receive cash in exchange for a
Trust Asset or a fractional portion of a Trust Asset, you will generally
recognize gain or loss based on the difference between the amount of cash you
receive and your tax basis in such Trust Asset or fractional portion.
EXCHANGES. If you elect to have your proceeds from your trust rolled over
into a future series of the trust, it is considered a sale for federal income
tax purposes and any gain on the sale will be treated as a capital gain, and any
loss will be treated as a capital loss. However, any loss you incur in
connection with the exchange of your units of your trusts for units of the next
series will generally be disallowed with respect to this deemed sale and
subsequent deemed repurchase, to the extent the two trusts have substantially
identical Trust Assets under the wash sale provisions of the Internal Revenue
Code.
LIMITATIONS ON THE DEDUCTIBILITY OF TRUST EXPENSES. Generally, for federal
income tax purposes, you must take into account your full pro rata share of your
trust's income, even if some of that income is used to pay trust expenses. You
may deduct your pro rata share of each expense paid by your trust to the same
extent as if you directly paid the expense. You may be required to treat some or
all of the expenses of your trust as miscellaneous itemized deductions.
Individuals may only deduct certain miscellaneous itemized deductions to the
extent they exceed 2% of adjusted gross income.
If any of the RICs pay exempt-interest dividends, which are treated as
tax-exempt interest for federal income tax purposes, you will not be able to
deduct some of your share of the trust expenses. In addition, you will not be
able to deduct some of your interest expense for debt that you incur or continue
to purchase or carry your units.
FOREIGN TAXES. Distributions by your trust that are treated as U.S. source
income (e.g., dividends received on Stocks of domestic corporations) will
generally be subject to U.S. income taxation and withholding in the case of
units held by nonresident alien individuals, foreign corporations or other
non-U.S. persons, subject to any applicable treaty. If you are a foreign
investor (i.e., an investor other than a U.S. citizen or resident or a U.S.
corporation, partnership, estate or trust), you may not be subject to U.S.
federal income taxes, including withholding taxes, on some of the income from
your trust or on any gain from the sale or redemption of your units, provided
that certain conditions are met. You should consult your tax advisor with
respect to the conditions you must meet in order to be exempt for U.S. tax
purposes. You should also consult your tax advisor with respect to other U.S.
tax withholding and reporting requirements.
Some distributions by your trust may be subject to foreign withholding
taxes. Any income withheld will still be treated as income to you. Under the
grantor trust rules, you are considered to have paid directly your share of any
foreign taxes that are paid. Therefore, for U.S. tax purposes, you may be
entitled to a foreign tax credit or deduction for those foreign taxes.
Under certain circumstances, a RIC may elect to pass through to its
shareholders certain foreign taxes paid by the RIC. If the RIC makes this
election with respect to RIC Shares, you must include in your income for federal
income tax purposes your portion of such taxes and you may be entitled to a
credit or deduction for such taxes.
NEW YORK TAX STATUS. Based on the advice of Emmet, Marvin & Martin, LLP,
Special Counsel to the trust for New York tax matters, under the existing income
tax laws of the State and City of New York, your trust will not be taxed as a
corporation, and the income of your trust will be treated as the income of the
unitholders in the same manner as for federal income tax purposes. You should
consult your tax advisor regarding potential foreign, state or local taxation
with respect to your units.
EXPERTS
LEGAL MATTERS. Chapman and Cutler LLP, 111 West Monroe Street, Chicago,
Illinois 60603, acts as counsel for the trusts and has passed upon the legality
of the units.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. The statements of financial
condition, including the Trust Portfolios, appearing herein, have been audited
by Grant Thornton LLP, independent registered public accounting firm, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance on such report given on the authority of such firm as experts in
accounting and auditing.
PERFORMANCE INFORMATION
Information contained in the prospectus, as it currently exists or as
further updated, may also be included from time to time in other prospectuses or
in advertising material. Information on the performance of a trust strategy or
the actual performance of a trust may be included from time to time in other
prospectuses or advertising material and may reflect sales charges and expenses
of a trust. The performance of a trust may also be compared to the performance
of money managers as reported in SEI Fund Evaluation Survey or of mutual funds
as reported by Lipper Analytical Services Inc. (which calculates total return
using actual dividends on ex-dates accumulated for the quarter and reinvested at
quarter end), Money Magazine Fund Watch (which rates fund performance over a
specified time period after sales charge and assuming all dividends reinvested)
or Wiesenberger Investment Companies Service (which states fund performance
annually on a total return basis) or of the New York Stock Exchange Composite
Index, the American Stock Exchange Index (unmanaged indices of stocks traded on
the New York and American Stock Exchanges, respectively), the Dow Jones
Industrial Average (an index of 30 widely traded industrial common stocks) or
the Standard & Poor's 500 Index (an unmanaged diversified index of 500 stocks)
or similar measurement standards during the same period of time.
DESCRIPTION OF RATINGS
STANDARD & POOR'S ISSUE CREDIT RATINGS
A Standard & Poor's issue credit rating is a current opinion of the
credit-worthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium term note programs and commercial paper programs).
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The issue credit rating is not
a recommendation to purchase, sell, or hold a financial obligation, inasmuch as
it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any credit rating
and may, on occasion, rely on unaudited financial information. Credit ratings
may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
Long-term issue credit ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
o Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
o Nature of and provisions of the obligation;
o 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.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.
AAA An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
Obligations rated "BB", "B", "CCC", "CC", and "C" are regarded as
having significant speculative characteristics. "BB" indicates
the least degree of speculation and "C" the highest. While such
obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties
or major exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the
capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated "CCC" is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC An obligation rated "CC" is currently highly vulnerable to
nonpayment.
CA A subordinated debt or preferred stock obligation rated "C" is
CURRENTLY HIGHLY VULNERABLE to nonpayment. The "C" rating may be
used to cover a situation where a bankruptcy petition has been
filed or similar action taken, but payments on this obligation
are being continued. A "C" also will be assigned to a preferred
stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.
D An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's 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 or the taking of a similar
action if payments on an obligation 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.
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the
credit rating.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular obligation as a
matter of policy.
Moody's Ratings
Aaa Bonds and preferred stock which are rated Aaa 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 issues.
Aa Bonds and preferred stock which are rated Aa 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 risk appear somewhat
larger than the Aaa securities.
A Bonds and preferred stock which are rated A 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 some time
in the future.
Baa Bonds and preferred stock which are rated Baa are considered as
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 out standing
investment characteristics and in fact have speculative
characteristics as well.
Ba Bonds and preferred stock which are rated Ba are judged to have
speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds and preferred stock which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa Bonds and preferred stock which are rated Caa are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca Bonds and preferred stock which are rated Ca represent
obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings.
C Bonds and preferred stock which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
CLAYMORE SECURITIES DEFINED PORTFOLIOS
PROSPECTUS-PART B
_______ , 2006
WHERE TO LEARN MORE
You can contact us for free information about this and other investments.
VISIT US ON THE INTERNET
http://www.claymoresecurities.com
BY E-MAIL
invest@claymoresecurities.com
CALL CLAYMORE
(800) 345-7999
Pricing Line (888) 248-4954
CALL THE BANK OF NEW YORK
(800) 701-8178 (investors)
(800) 647-3383 (brokers)
ADDITIONAL INFORMATION
This prospectus does not contain all information filed with the
Securities and Exchange Commission. To obtain a copy of this information (a
duplication fee may be required):
E MAIL: publicinfo@sec.gov
WRITE: Public Reference Section
Washington, D.C. 20549-0102
VISIT: http://www.sec.gov (EDGAR Database)
CALL: 1-202-942-8090 (only for information on the operation of the
Public Reference System)
When units of the trust are no longer available, we may use this
prospectus as a preliminary prospectus for a future trust. In this case you
should note that:
The information in this prospectus is not complete with respect to
future trusts and may be changed. No one may sell units of a future trust
until a registration statement is filed with the Securities and Exchange
Commission and is effective. This prospectus is not an offer to sell units
and is not soliciting an offer to buy units in any state where the offer or
sale is not permitted.
CONTENTS
Investment Summary
- --------------------------------------------------------------------------------
A concise 2 Overview
description 2 Investment Objective
of essential 2 Principal Investment Strategy
information 2 Security Selection
about the 2 Equity Security Selection
portfolio 4 Investment Fund Selection
5 Essential Information
5 Portfolio Diversification
5 Future Trusts
5 Principal Risks
7 Who Should Invest
8 Fees and Expenses
9 Example
9 Estimated Annual Income Distributions
10 Trust Portfolio
Understanding Your Investment
- --------------------------------------------------------------------------------
Detailed 13 How to Buy Units
information 17 How to Sell Your Units
to help you 18 Distributions
understand 19 Investment Risks
your 24 How the Trust Works
investment 25 General Information
25 Expenses
27 Report of Independent Registered Public
Accounting Firm
28 Statements of Financial Condition
For the Table of Contents of Part B, See Part B of the prospectus.
Where to Learn More
- --------------------------------------------------------------------------------
You can contact us for VISIT US ON THE INTERNET
free information about http://www.claymoresecurities.com
these investments. BY E-MAIL
invest@claymoresecurities.com
CALL CLAYMORE (800) 345-7999
Pricing Line (888) 248-4954
CALL THE BANK OF NEW YORK
(800) 701-8178 (investors)
(800) 647-3383 (brokers)
Additional Information
- --------------------------------------------------------------------------------
This prospectus does not contain all information filed with the
Securities and Exchange Commission. To obtain or copy this information
(a duplication fee may be required):
E-MAIL: publicinfo@sec.gov
WRITE: Public Reference Section, Washington, D.C. 20549-0102
VISIT: http://www.sec.gov (EDGAR Database)
CALL: 1-202-942-8090 (only for information on
the operation of the Public Reference Section)
REFER TO:
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277
Securities Act file number: 333-_______
Investment Company Act file number: 811-03763
When units of the trust are no longer available, we may use this prospectus
as a preliminary prospectus for a future trust. In this case you should
note that:
The information in this prospectus is not complete with respect to future
trusts and may be changed. No one may sell units of a future trust until a
registration statement is filed with the Securities and Exchange Commission
and is effective. This prospectus is not an offer to sell units and is not
soliciting an offer to buy units in any state where the offer or sale is
not permitted.
[photo of sword]
Claymore Securities
Defined Portfolios
Series 277
Prospectus
Dated _______ , 2006
MUTIPLE ASSET PORTFOLIO PLUS
(2-YEAR), SERIES 6
[Claymore logo]
CONTENTS OF REGISTRATION STATEMENT
A. Bonding Arrangements of Depositor:
The Depositor has obtained the following Securities Dealer Blanket Bond for
its officers, directors and employees:
INSURER/POLICY NO. AMOUNT
National Union Fire Insurance
Company of Pittsburgh, Pennsylvania $250,000
959-9000
This Registration Statement comprises the following papers and documents.
The Facing Sheet
The Prospectus
The Signatures
Consents of Counsel
The following exhibits:
1.1 Reference Trust Agreement (to be supplied by amendment).
1.1.1 Standard Terms and Conditions of Trust (Reference is made to Exhibit
1.1.1 to Amendment No.1 to the Registration Statement on Form S-6 for
Claymore Securities Defined Portfolios, Series 116 (File No. 333-72828
filed on December 18, 2001).
2.1 Code of Ethics (Reference is made to Exhibit 2.1 to the Registration
Statement on Form S-6 for Claymore Securities Deferred Portfolios,
Series 213 (File No. 333-122184 filed on February 9, 2005).
3.1 Opinion of counsel as to legality of the securities being registered
including a consent to the use of its name in the Registration
Statement (to be supplied by amendment).
3.2 Opinion of counsel as to Federal Income tax status of the securities
being registered including a consent to the use of its name in the
Registration Statement (to be supplied by amendment).
3.3 Opinion of counsel as to New York Income tax status of the securities
being registered including a consent to the use of its name in the
Registration Statement (to be supplied by amendment).
3.4 Opinion of counsel as to the Trustee and the Trust (s) including a
consent to the use of its name in the Registration Statement (to be
supplied by amendment).
4.1 Consent of Independent Registered Public Accounting Firm (to be
supplied by amendment).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Claymore Securities Defined Portfolios, Series 277 has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of Lisle, and State of Illinois, on the
12th day of January, 2005.
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 277,
Registrant
By: CLAYMORE SECURITIES, INC., Depositor
By: /s/ Nicholas Dalmaso
--------------------------
Nicholas Dalmaso
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 12, 2006 by the
following persons, who constitute a majority of the Board of Directors of
Claymore Securities, Inc.
SIGNATURE* TITLE** DATE
) By: /s/ Nicholas Dalmaso
--------------------
) Nicholas Dalmaso
) Attorney-in-Fact*
)
DAVID HOOTEN* Chairman of the Board of ) January 12, 2006
Directors )
)
/S/ STEVEN HILL Chief Financial Officer January 12, 2006
- ------------------------------
STEVEN HILL
/S/ NICHOLAS DALMASO Executive Vice President, January 12, 2006
- --------------------
NICHOLAS DALMASO Secretary, Treasurer and
Director
- -----------------
* An executed copy of the related power of attorney was filed as Exhibit
6.0 to Registration Statement No. 333-98345 on August 22, 2002.
** The titles of the persons named herein represent their capacity in and
relationship to Claymore Securities, Inc., the Depositor.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The consent of Grant Thornton LLP to the use of its report and to the
reference to such firm in the Prospectus included in the Registration Statement
will be filed as Exhibit 4.1 to the Registration Statement.
CONSENT OF CHAPMAN AND CUTLER LLP
The consent of Chapman and Cutler LLP to the use of its name in the
Prospectus included in the Registration Statement will be contained in its
opinions to be filed as Exhibits 3.1 and 3.2 to the Registration Statement.
CONSENT OF EMMET, MARVIN & MARTIN LLP
The consent of Emmet, Marvin & Martin LLP to the use of its name in the
Prospectus included in the Registration Statement will be contained in its
opinions to be filed as Exhibits 3.3 and 3.4 to the Registration Statement.
MEMORANDUM
Re: Claymore Securities Defined Portfolios, Series 277
The list of securities comprising the trust of the fund, the
evaluation, record and distribution dates and other changes pertaining
specifically to the new series, such as size and number of units of the trust in
the fund and the statement of financial condition of the new fund will be filed
by amendment.
1940 ACT
FORMS N-8A AND N-8B-2
Form N-8A and Form N-8B-2 were filed in respect of Claymore Securities
Defined Portfolios, Series 116 (and subsequent series) (File No. 811-03763).
1933 ACT
THE INDENTURE
The form of the proposed Standard Terms and Conditions of Trust is
expected to be in all respects consistent with the form of the Standard Terms
and Conditions of Trust dated December 18, 2001 relative to Claymore Securities
Defined Portfolios, Series 116.
CHAPMAN AND CUTLER LLP
Chicago, Illinois
January 12, 2006