AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 2010
1933 ACT FILE NO. 333-166159
1940 ACT FILE NO. 811-03763
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
REGISTRATION STATEMENT ON
FORM S-6
AMENDMENT NO. 2
------------------------
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 686
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:
KEVIN ROBINSON, ESQ. ERIC F. FESS
Senior Managing Director, General Chapman and Cutler LLP
Counsel and Secretary 111 West Monroe Street
Claymore Securities, Inc. Chicago, Illinois 60603
2455 Corporate West Drive (312) 845-3000
Lisle, Illinois 60532
(630) 505-3736
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.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Preliminary Prospectus Dated April 30, 2010, Subject to Completion
Claymore Securities Defined Portfolios, Series 686
Claymore/Guggenheim High Yield Trust, Series 1
CLAYMORE LOGO
GUGGENHEIM LOGO
A portfolio of investment-grade corporate bonds
selected by Claymore Securities, Inc.
Prospectus
Dated ______ , 2010
The Securities and Exchange Commission has not approved or
disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any 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 Portfolio, Series 686, is a unit investment
trust that consists of Claymore/Guggenheim High Yield Trust, Series 1 (the
"trust"). Claymore Securities, Inc.
("Claymore" or the "sponsor") serves as the sponsor of the trust.
The trust is scheduled to terminate in approximately ___ years.
Investment Objective
The trust seeks to provide current income and to preserve capital by
investing in a portfolio primarily consisting of high yield corporate bonds.
Principal Investment Strategy
The trust will invest in a portfolio of corporate bonds. The sponsor will
select bonds that it believes have the best chance to meet the trust's
investment objective over its life.
The portfolio of the trust consists of high yield corporate debt
obligations which may include U.S. government bonds, corporate bonds, mortgage-
and asset-backed securities, loan participations and corporate instruments. The
trust will invest in a portfolio of bonds with a weighted average rating below
investment-grade ("BBB" or "Baa") as determined by Standard & Poor's, a division
of The McGraw-Hill Companies, Inc. ("Standard & Poor's") and/or Moody's Investor
Services ("Moody's"). High yield or "junk" bonds, the generic name for bonds
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 stage of their
development or by established companies which 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 bonds 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 than
investment-grade bonds. See "Description of Bond Ratings" for details.
Certain bonds in the trust may be covered by insurance policies obtained
from corporate bond insurers identified in "Trust Portfolio," which guarantee
payment of principal and interest on the bonds when due. As a result of such
insurance, the insured bonds may receive ratings that reflect the
creditworthiness of the bond insurer. Please note that the insurance relates
only to the insured bonds in the trust and not to the units or the market value
of the bonds or of the units.
The trust intends to pay interest distributions each month and expects to
prorate the interest distributed on an annual basis; see "Distributions." The
record dates and distribution dates for principal and interest distributions
are the 15th and 25th of each month, respectively. Furthermore, investors may
receive principal distributions from bonds being called or sold prior to their
maturity or as bonds mature.
The sponsor has selected Guggenheim Partners Asset Management, Inc.
("GPAM"), a wholly-owned subsidiary of Guggenheim Partners, LLC, to assist the
sponsor with the selection of the trust's portfolio.
Bond Selection
The sponsor considered the following factors, among others, in selecting
the bonds:
o The bonds will be rated "BBB-" or lower by Standard & Poor's, or
"Baa3" or lower by Moody's;
o The price of the bonds relative to other bonds with comparable
characteristics;
o The diversification of bonds with respect to the issuer with no one
issuer comprising more than 20% of the final portfolio;
o Attractiveness of the interest payments relative to bonds with similar
characteristics; and
o The potential for early return of principal or any event risk which
could have a negative impact on the price of the bonds.
Guggenheim Partners
Asset Management, Inc. (GPAM)
Guggenheim Partners Asset Management, Inc., is a wholly-owned subsidiary
of Guggenheim Partners, LLC and an affiliate of the sponsor, which offers
financial services expertise within its asset management, investment advisory,
capital markets, institutional finance and merchant banking business lines.
Clients consist of an elite mix of individuals, family offices, endowments,
foundations, insurance companies, pension plans and other institutions that
together have entrusted the firm with supervision of more than $100 billion in
assets. A global diversified financial services firm, Guggenheim Partners, LLC
office locations include New York, Chicago, Los Angeles, Miami, Boston,
Philadelphia, St. Louis, Houston, London, Dublin, Geneva, Hong Kong, Singapore,
Mumbai and Dubai.
The Guggenheim Partners Asset Management high yield credit team consists of
55 investment professionals who review and follow approximately 1,000 high yield
credits on a regular basis. GPAM's high yield credit team performs rigorous
credit research which includes stress-testing each credit under recession-like
conditions to ensure sufficient asset value and downside support.
As a result of a merger, the sponsor is also a wholly-owned subsidiary of
Guggenheim Partners, LLC. See "General Information" for additional
information.
Future Trusts
The sponsor intends to create future trusts that follow the same
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.
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Essential Information
(as of the Inception Date)
Inception Date
(Initial Date of Deposit) _____ , 2010
First Settlement Date _____ , 2010
Unit Price $_____
Mandatory
Termination Date
Distribution Date 25th day of each month
(commencing ___ 25, 2010, if any)
Record Date 15th day of each month
(commencing ___ 15, 2010, if any)
Evaluation Time As of the close of trading of
the New York Stock Exchange
(normally 4:00 p.m. Eastern Time).
(However, on the first day units are
sold the Evaluation Time will be as
of the close of trading on the New
York Stock Exchange or the time the
registration statement filed with the
Securities and Exchange Commission
becomes effective, if later.)
CUSIP Numbers
Cash Distributions
Standard Accounts 18387K522
Fee Account Cash 18387K530
Ticker CGSHAX
Dollar Weighted Average Maturity
of Bonds in the Trust ___ years
Minimum Principal Distributions $1.00 per unit
Minimum Par Value of the Bonds
in the Trust under which the
Trust Agreement may be
Terminated $200 per unit
Types of Bonds
Approximate
Type of Issuer/Sectors Portfolio Percentage*
- ---------------------- ---------------------
%
------
Total 100.00%
======
Bond Ratings
Approximate
Standard & Poor's Portfolio Percentage*
- ---------------------- ---------------------
%
------
Total 100.00%
======
Approximate
Moody's Portfolio Percentage*
- ---------------------- ---------------------
%
------
Total 100.00%
======
Minimum Investment
All accounts 1 unit
*Based upon market value.
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Claymore/Guggenheim High Yield Trust, Series 1
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
As of the Inception Date, _____ , 2010
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Principal Amount of Bonds in Trust(1): $
Number of Units:
Fractional Undivided Interest in Trust per Unit:
Principal Amount of Bonds per Unit(1): $
Public Offering Price:
Aggregate Offering Price of Bonds in the Portfolio: $
Aggregate Offering Price of Bonds per Unit: $
Organization Costs per Unit(2): $
Sales Charge of 2.95% of Public Offering Price per unit: $
Public Offering Price per Unit: $
-------------
Redemption Price per Unit(3): $
Excess of Public Offering Price Over Redemption Price per Unit: $
Estimated Annual Interest Income per Unit
(includes cash income accrual only): $
Less Estimated Annual Expenses per Unit: $
-------------
Estimated Net Annual Interest Income per Unit(4): $
=============
Estimated Daily Rate of Net Interest Accrual per Unit: $
Estimated Current Return Based on Public Offering Price
(includes cash income accrual only)(5): %
Estimated Long-Term Return(5): %
Estimated Interest Distributions per Unit(6):
o Date of First Distribution: _____ 25, 2010
o Amount of First Distribution: $
o Record Date of First Distribution: _____ 15, 2010
o Date of Regular Distribution: 25th of each Month
o Amount of Regular Distribution: $
o Record Date of Regular Distribution: 15th of each Month
(1) Represents the principal amount of the underlying bonds held in the trust
as of the Inception Date and does not take into account the impact of the
sale of bonds to pay any expenses of the trust. Bonds will be sold to meet
redemptions, to pay expenses and in other limited circumstances. The sale
of bonds will affect the principal amount of bonds included in the trust
and the principal amount of bonds per unit. Units of the trust, when
redeemed or upon termination, may be worth more or less than their original
cost and there can be no assurance that a unitholder will receive the
principal amount of bonds at any particular point in time.
(2) During the initial offering period, a portion of the Public Offering Price
represents an amount of cash deposited to pay all or a portion of the costs
of organizing the trust.
(3) Based solely upon the bid prices of the bonds. Upon tender for redemption,
the price to be paid will include accrued interest as described in "How to
Sell Your Units--Redemption--Computation of Redemption Price per Unit."
(4) Estimated Net Annual Interest Income per Unit will vary with changes in
fees and expenses of the trustee and the evaluator and with principal
prepayment, redemption, maturity, exchange or sale of bonds.
(5) See "Estimated Current Return and Estimated Long-Term Return to
Unitholders" for an explanation of estimated current return and estimated
long-term return.
(6) Distributions, if any, will be made monthly commencing _____ 25, 2010. The
amount of distributions of the trust may be lower or greater than the above
stated amounts due to certain factors that may include, but are not limited
to, changes in distributions paid by issuers, deduction of trust expenses
or the sale or maturity of trust securities in the portfolio. Fees and
expenses of the trust may vary as a result of a variety of factors
including the trust's size, redemption activity, brokerage and other
transaction costs and extraordinary expenses.
Principal Risks
As with all investments, you may lose some or all of your investment in
the trust. No assurance can be given that the trust's investment objective will
be achieved. The trust also might not perform as well as you expect. This can
happen for reasons such as these:
o All of the bonds held by the trust 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 with investment- grade
securities. In addition, below investment-grade bonds may be more
sensitive to interest rate changes and more likely to receive early
returns of principal.
o Corporate bonds are fixed rate debt obligations that generally decline
in value with increases in interest rates. Foreign and U.S. interest
rates may rise or fall by differing amounts and, as a result, the
trust's investment in foreign securities may expose the trust to
additional risks. Generally, bonds with longer periods before maturity
are more sensitive to interest rate changes.
o Corporate bonds are subject to credit risk in that an issuer of a bond
may be unable to make interest and principal payments when due. In
general, lower rated bonds carry greater credit risk.
o The sponsor does not actively manage the portfolio. Because the
portfolio is fixed and not managed, in general, the sponsor only sells
bonds at the trust's termination or in order to meet redemptions, for
tax purposes, for credit issues or to pay sales charges and expenses.
As a result, the price at which a bond is sold may not be the highest
price the trust could have received during the life of the trust.
Units of the trust are not deposits of any bank and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
o No assurance can be given that the trust's investment objective will
be achieved. This objective is subject to the continuing ability of
the respective issuers of the bonds to meet their obligations.
o The trust is subject to market risk. Market value fluctuates in
response to various factors. These can include changes in interest
rates, inflation, the financial condition of a bonds' issuer,
perceptions of the issuer, ratings on a bond, or political or economic
events affecting the issuer.
o Due to the current state of the economy, the value of the securities
held by the trust may be subject to steep declines or increased
volatility due to changes in performance or perception of the issuers.
Starting in December 2007 and throughout most of 2009, economic
activity declined across all sectors of the economy, and the United
States experienced increased unemployment. The economic crisis
affected the global economy with European and Asian markets also
suffering historic losses. Although the latest economic data suggests
slightly increased activity in the U.S. economy, unemployment remains
high. Extraordinary steps have been taken by the governments of
several leading
economic countries to combat the economic crisis; however, the impact
of these measures is not yet fully known and cannot be predicted.
o An issuer or an insurer of the bonds may be unwilling or unable to
make principal payments and/or to declare distributions in the future,
may call a security before its stated maturity, or may reduce the
level of distributions declared. In addition, there is no guarantee
that the issuers will be able to satisfy their interest or principal
payment obligations to the trust over the life of the trust. This may
result in a reduction in the value of your units.
o The financial condition of an issuer or an insurer of the bonds 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 income generated by the trust may be reduced over time in response
to bond sales, changes in distributions paid by issuers, unit
redemptions and expenses.
o The trust will invest in foreign securities. The trust's investment in
foreign securities 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 with respect to
certain industries or differing legal and/or accounting standards.
o The trust includes securities issued by companies in the financial
sector. Companies in the financial sector include banks, insurance
companies and investment firms. The profitability of companies in the
financial sector is largely dependent upon the availability and cost
of capital which may fluctuate significantly in response to changes in
interest rates and general economic developments.
o The trust includes securities of companies in the consumer products
sector. General risks of companies in the consumer products sector
include cyclicality of revenues and earnings, economic recession,
currency fluctuations, changing consumer tastes, extensive
competition, product liability litigation and increased government
regulation. A weak economy and its effect on consumer spending would
adversely affect companies in the consumer products sector.
o Certain corporate bonds may be rated as investment-grade by only one
rating agency. As a result, such split-rated securities may have more
speculative characteristics and are subject to a greater risk of
default than securities rated as investment-grade by both Standard &
Poor's or Moody's.
o Certain bonds in the trust may have been purchased by the sponsor on a
"when issued" basis. Bonds purchased on a "when issued" basis have not
yet been issued by the issuer on the Inception Date (although such
issuer has committed to issue such bonds). The effect of the trust
holding a "when issued" bond is that unitholders who purchase the
their units prior to the delivery date of such bond
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" bond during the time between
their purchase of units and delivery of such bonds to the trust.
o The trust may sell bonds to meet redemptions, pay expenses, for credit
issues and in other circumstances. Accordingly, the size, diversity,
composition, returns and income generated by the trust may be
adversely affected. In addition, such sales of bonds may be at a loss.
If such sales are substantial enough, provisions of the trust's
indenture could cause a complete and unexpected liquidation of the
trust before its scheduled maturity, resulting in unanticipated losses
for investors.
o Certain of the bonds included in the trust may be original issue
discount bonds or "zero coupon" bonds, as noted in "Trust Portfolio."
These bonds may be subject to greater price fluctuations with changing
interest rates and contain additional risks.
o Inflation may lead to a decrease in the value of assets or income from
investments.
See "Investment Risks" for additional information.
Taxes
Distributions from the trust are generally subject to federal income taxes
for U.S. investors. The distributions may also be subject to state and local
taxes.
For non-resident aliens, certain income from the trust will be exempt from
withholding for U.S. federal income tax, provided certain conditions are met.
Consult your tax advisor with respect to the conditions that must be met in
order to be exempt for U.S. tax purposes.
See "Tax Status" for further tax information.
Distributions
Holders of units will receive interest payments from the trust each month.
The trust prorates the interest distributed on an annual basis. Annual interest
distributions are expected to vary from year to year. Furthermore, investors
may receive principal distributions from bonds being called or sold prior to
their maturity or as bonds mature.
As of the trust's initial date of deposit (the "Inception Date"), each
unit of the trust represents the fractional undivided interest in the principal
amount of underlying bonds set forth in the "Trust Portfolio" and net income of
the trust.
Market for Units
The sponsor currently intends to repurchase units from unitholders who
want to redeem their units. These redemptions will generally be at prices based
upon the aggregate bid price of the underlying bonds. The sponsor is not
obligated to maintain a market and may stop doing so without prior notice for
any business reason. If the sponsor stops repurchasing units, a unitholder may
dispose of its units by redemption through The Bank of New York Mellon, which
serves as the trustee of the trust (the "trustee"). The price received from the
trustee by the unitholder for units being redeemed is generally based upon the
aggregate bid price of the underlying bonds.
Until six months after the Inception Date or the end of the initial
offering period, 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 generally includes estimated organization
costs. After such period, the amount paid will not include such estimated
organization costs.
Who Should Invest
You should consider this investment if:
o You want to own a defined portfolio of below investment-grade
corporate bonds;
o The trust is part of a longer-term investment strategy; and
o The trust represents only a portion of your overall investment
portfolio.
You should not consider this investment if:
o You are uncomfortable with the risks associated with a defined
portfolio of below investment-grade or "junk" securities; or
o You are uncomfortable with the risks of an unmanaged investment in
securities.
Fees and Expenses
The amounts below are estimates of the direct and indirect expenses that
you may incur for primary market purchases based on a $1,000 unit price. Actual
expenses may vary.
Percentage
of Public
Offering Amount
Investor Fees Price (1) Per Unit
- -------------------------- ---------- --------
Maximum sales fee
paid on purchase 2.95% $29.50
===== ======
Estimated organization
costs (2) $
=====
Approximate
Annual Fund % of Public
Operating Offering Amount
Expenses Price (3) Per Unit
- -------------------------- ---------- --------
Trustee's fee (4)(5) % $
Sponsor's supervisory fee (3) 0.030 0.30
Evaluator's fee (4) 0.035 0.35
Bookkeeping and
administrative fee (4) 0.035 0.35
Estimated other trust
operating expenses (6)
------ ------
Total % $
====== ======
(1) The maximum sales fee consists entirely of an initial sales fee deducted at
the time of purchase. Investors will not be assessed a sales fee on the
portion of their units represented by cash to pay the trust's organization
costs.
(2) The estimated organization costs include the amount per unit paid by the
trust at the end of the initial offering period or after six months, at the
discretion of the sponsor.
(3) Based on a unit with a $1,000 per unit Public Offering Price as of the
Inception Date.
(4) The trustee's fees and the sponsor's evaluation fee are based on the
principal amount of the bonds in the trust on a monthly basis. Because such
fees are based on the principal amount of the bonds in the trust, rather
than the trust's net asset value, the fees will represent a greater
percentage of the trust's net asset value if the bonds in the trust, on
average, are valued below par. The sponsor's supervisory fee and the
bookkeeping and administrative fee are based on the largest number of units
in the trust at any time during that period. Because these fees are based
on the largest number of units during a particular period, these fees will
represent a greater percentage of the trust's net asset value as the number
of units decrease during that period. The sponsor serves as the evaluator.
(5) During the first year the trustee may reduce its fee by a nominal amount
that relates to the estimated interest to be earned prior to the expected
delivery dates for the "when, as and if issued" or "delayed delivery"
bonds. Should the interest exceed this amount, the trustee will reduce its
fee up to its annual fee. After the first year, the trustee's fee will be
the amount indicated above.
(6) The estimated trust operating expenses are based upon an estimated trust
size of approximately $__ million. Because certain of the operating
expenses are fixed
amounts, if the trust does not reach such estimated size or falls below the
estimated size over its life, the actual amount of the operating expenses
may exceed the amounts reflected. In some cases, the actual amount of the
operating expenses may greatly exceed the amounts reflected. Other
operating expenses do not include brokerage costs and other transactional
fees.
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 transaction fees paid by the trust or that broker-dealers may
charge for processing redemption requests.
Trust Portfolio
Claymore Securities Defined Portfolios, Series 686
Claymore/Guggenheim High Yield Trust, Series 1
As of the Inception Date, ______ , 2010
- -------------------------------------------------------------------------------------------------
1st Optional
Aggregate Redemption Cost To
Principal Company Name (1) Provisions (2) Moody's (3) S&P (3) Portfolio (4)(5)(6)
- -------------------------------------------------------------------------------------------------
- --------- --------------
$ $
========= ==============
(1) Bonds of these issuers are all represented by "regular way" or "when
issued" contracts to purchase bonds. All contracts to purchase the bonds
were entered into on _____ , 2010 through _____ , 2010. All contracts are
expected to be settled prior to or on _____ , 2010.
Trust Portfolio (continued)
Claymore Securities Defined Portfolios, Series 686
Claymore/Guggenheim High Yield Trust, Series 1
As of the Inception Date, ______ , 2010
- --------------------------------------------------------------------------------
(2) If applicable, this heading shows the year in which each issue of bonds is
initially redeemable and the redemption price for that year unless
otherwise indicated. Each such issue generally continues to be redeemable
at declining prices thereafter, but not below par. "S.F." indicates a
sinking fund has been or will be established with respect to an issue of
bonds. In addition, certain bonds in the trust may be redeemed in whole or
in part other than by operation of the stated optional call or sinking fund
provisions under certain unusual or extraordinary circumstances specified
in the instruments setting forth the terms and provisions of such bonds. A
sinking fund is a reserve fund accumulated over a period of time for the
retirement of debt. A sinking fund may be estimated based upon various
factors or may be mandatory.
Redemption pursuant to call provisions generally will, and redemption
pursuant to sinking fund provisions may, occur at times when the redeemed
bonds have an offering side valuation which represents a premium over par.
To the extent that the bonds were deposited in the trust at a price higher
than the price at which they are redeemed, this will represent a loss of
capital when compared with the original Public Offering Price of the units.
Conversely, to the extent that the bonds were acquired at a price lower
than the redemption price, this will represent an increase in capital when
compared with the original Public Offering Price of the units.
Distributions generally will be reduced by the amount of the income which
would otherwise have been paid with respect to redeemed bonds and there
will be distributed to unitholders the principal amount and any premium
received on such redemption. The estimated current return in this event may
be affected by such redemptions. The tax effect on unitholders of such
redemptions and resultant distributions is described in the section
entitled "Tax Status."
(3) The Standard & Poor's and Moody's corporate or municipal bond ratings are a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers or lessees. The bond
rating is not a recommendation to purchase, sell or hold a bond, inasmuch
as it does not comment as to market price or suitability for a particular
investor. A brief description of the rating symbols and their meanings is
set forth under "Description of Bond Ratings."
(4) See Note (1) to "Statement of Financial Condition" regarding cost of bonds.
The sponsor is responsible for initially acquiring the bonds that it
selects for the trust and will deliver the bonds or arrange for the
delivery of the bonds to the trust on the Inception Date at a price
determined by the evaluator based upon prices provided by Standard & Poor's
Securities Evaluations, an independent, industry-recognized corporate bond
pricing service. The sponsor may acquire bonds from Guggenheim Capital
Markets, LLC, a wholly-owned subsidiary of Guggenheim Partners, LLC and
GPAM, who may accumulate such bonds at the request of the sponsor. Standard
& Poor's Securities Evaluations will provide the sponsor with an "offered
side" quotation for the bonds, on the trust's Inception Date. The offering
prices are greater than the current bid prices of the bonds which are the
basis on which redemption price per unit is determined for purposes of
redemption of units (see the first paragraphs under "Public Offering--
Offering Price" and "How to Sell Your Units--Redemption--Computation of
Redemption Price Per Unit"). Other information regarding the bonds is as
follows:
Cost to Sponsor Profit (Loss) to Sponsor
(on the deposit (on the deposit
of the bonds) of the bonds)
--------------- -------------------------
$_____ $_____
(5) Estimated annual interest income to the trust is $_____ .
(6) In accordance with Accounting Standards Codification 820, "Fair Value
Measurements and Disclosures" ("ASC 820"), fair value is defined as the
price that the trust would receive upon selling an investment in a orderly
transaction to an independent buyer in the principal or most advantageous
market of the investment. ASC 820 established a three-tier hierarchy to
maximize the use of the observable market data and minimize the use of
unobservable inputs and to establish classification of the fair value
measurements for disclosure purposes. Inputs refer broadly to the
assumptions that market participants would use in pricing the asset or
liability, including the technique or pricing model used to measure fair
value and the risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable. Observable inputs are inputs that
reflect the assumptions market participants would use in pricing the asset
or liability, developed based on market data obtained from sources
independent of the reporting entity. Unobservable inputs are inputs that
reflect the reporting entity's own assumptions about the assumptions market
participants would use in pricing the asset or liability, developed based
on the best information available in the circumstances. The three-tier
hierarchy of inputs is summarized in the three broad levels. Level 1 which
represents quoted prices in active markets for identical investments. Level
2 which represents fair value based on other significant observable inputs
(including quoted prices for similar investments, interest
Trust Portfolio (continued)
Claymore Securities Defined Portfolios, Series 686
Claymore/Guggenheim High Yield Trust, Series 1
As of the Inception Date, ______ , 2010
- --------------------------------------------------------------------------------
rates, prepayment speeds, credit risks, etc. ). Level 3 which represents
fair value based on significant unobservable inputs (including the trust's
own assumptions in determining the fair value of investments). At the
Inception Date, all of the trust's investments are classified as Level 2 as
the securities are transacted through a dealer network.
(e) This is an "Expected Rating" and is intended to anticipate S&P's and/or
Moody's forthcoming rating assignment. Expected Ratings are generated by
Bloomberg Finance L.P. based on sources it considers reliable or
established S&P and Moody's rating practices. Expected Ratings exist only
until S&P or Moody's assigns a rating to the issue. There is no guarantee
that the ratings, when assigned, will not differ from those currently
expected.
+ This security represents the corporate debt obligation of a foreign
company.
================================================================================
UNDERSTANDING YOUR INVESTMENT
The Trust
Organization. The trust is one of a series of similar but separate unit
investment trusts created under the laws of the State of New York by a Trust
Indenture and Agreement (the "Trust Agreement"). The Trust Agreement is dated
as of the Inception Date and is between Claymore Securities, Inc. as sponsor
and as evaluator ("evaluator") and The Bank of New York Mellon, as trustee. The
evaluator determines the value of the bonds held in the trust generally based
upon prices provided by a pricing service. On the Inception Date, the sponsor
deposited bonds, contracts and/or funds (represented by cash or a certified
check(s) and/or an irrevocable letter(s) of credit issued by a major commercial
bank) for the purchase of certain interest-bearing obligations. After the
deposit of the bonds and the creation of the trust, the trustee delivered to
the sponsor the units (the "units") comprising the ownership of the trust.
These units are now being offered pursuant to this prospectus.
Units. Each unit represents the fractional undivided interest in the
principal and net income of the trust. If any units of the trust are redeemed
after the Inception Date, the fractional undivided interest in the trust
represented by each unredeemed unit will increase. Units will remain
outstanding until redeemed or until the termination of the Trust Agreement for
the related trust.
Public Offering
Offering Price. The sponsor will serve as the trust's principal
underwriter. The price of the units of the trust as of the Inception Date was
determined by adding to the evaluator's determination of the aggregate offering
price of the bonds per unit, based upon prices provided by Standard & Poor's
Securities Evaluations, cash and other net assets in the portfolio and a pro
rata portion of estimated organization costs. Included within the Public
Offering Price is also a sales charge. During the initial public offering
period, for sales of at least $100,000 or 100 units investors will be entitled
to a volume discount from the sales charge as described below. For purchases
settling after the First Settlement Date, a proportionate share of accrued and
undistributed interest on the bonds at the date of delivery of the units to the
purchaser is also added to the Public Offering Price. However, after the initial
offering period or six months after the Inception Date, at the discretion of the
sponsor, the Public Offering Price of the units will not include a pro rata
portion of estimated organizational costs.
During the initial offering period the aggregate offering price of the
bonds in the trust is determined by the evaluator. To determine such prices,
the evaluator utilizes prices received from Standard & Poor's Securities
Evaluations. Standard & Poor's Securities Evaluations determines such offering
prices (1) on the basis of current offering prices for the bonds, (2) if
offering prices are not available for any bonds, on the basis of current
offering prices for comparable bonds, (3) by making an appraisal of the value
of the bonds on the basis of offering prices in the market, or (4) by any
combination of the above. On or after the Inception Date, such determinations
are made each business day during the initial public offering period as of the
Evaluation Time set forth in "Essential Information," effective for all sales
made subsequent to the last preceding determination. For information relating
to the calculation of the redemption price, which is based upon the aggregate
bid price of the underlying bonds and which is expected to be less than the
aggregate offering price, see "How to Sell Your Units--Redemption."
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.
Cash has been deposited in the trust for purposes of the payment of
organization costs. However, the trust may need to sell securities to reimburse
the sponsor for these costs at the end of the initial offering period or after
six months, at the discretion of the sponsor. Organization costs will not
exceed the estimate set forth under "Fees and Expenses."
Transactional Sales Fee. You pay a sales fee when you buy units. We refer
to this fee as the "transactional sales fee." The maximum transactional sales
fee equals 2.95% of the Public Offering Price per unit, less cash deposited to
pay the trust's organization costs (equivalent to ___% of the net amount
invested). After the end of the initial offering period, the maximum sales fee
for secondary market transactions will be a maximum of ___% of the Public
Offering Price per unit at the time of purchase.
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.
Large Purchases. During the primary offering period, you can reduce your
maximum sales fee by increasing the size of your investment.
Investors who make large purchases during the primary offering period are
entitled to the following sales charge reductions:
Sales Charge
Reductions
(as a % of
the Public
Purchase Amount Offering Price)
- ---------------------- ---------------
Less than $99,999 0.00%
$100,000 - $249,999 0.25
$250,000 - $499,999 0.50
$500,000 - $999,999 0.80
$1,000,000 - $2,999,999 1.00
$3,000,000 - $4,999,999 1.70
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 primary 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 reduce your 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"). If you purchase units for a Fee Account, you will pay the Public
Offering Price less the maximum applicable concession the sponsor typically
allows to broker-dealers for non-breakpoint trades.
This discount applies during the initial offering period. 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 numbers to qualify for the discount. If you purchase
units with these special CUSIP numbers, you should be aware that you may
receive cash distributions. We reserve the right to limit or deny purchases of
units with this discount by investors whose frequent trading activity we
determine to be detrimental to your trust. See "Expenses and Fees" in this
prospectus.
Exchange or Rollover Option. If you are buying units of your trust in the
primary market with redemption or termination proceeds from any other Claymore
unit trust, you may purchase units at 99% of the maximum Public Offering Price,
which may include an upfront sales fee. 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." An exchange
or rollover is generally treated as a sale for federal income tax purposes. See
"Tax Status" and "Expenses and Fees" in this prospectus.
Employees. We do not charge the portion of the 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. This discount applies
during the initial offering period. Only those broker-dealers that allow their
employees to participate in employee discount programs will be eligible for
this discount.
Distribution of 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. For units sold during the primary offering period,
the distribution fee paid for a given transaction is as follows:
Concession
per Unit
(as a % of
Purchase Amount/ the Public
Form of Purchase Offering Price)
- ---------------------- ---------------
Less than $99,999 2.00%
$100,000 - $249,999 1.75
$250,000 - $499,999 1.50
$500,000 - $999,999 1.25
$1,000,000 - $2,999,999 1.10
$3,000,000 - $4,999,999 0.50
Rollover Purchases 1.00
We apply these amounts as a percent of the unit price per transaction at
the time of the transaction. Firms that are serving as underwriters are
entitled to additional compensation as described in "Underwriting Concessions"
below. For secondary market sales, the dealer concession will be 80% of the
applicable sales charge.
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 payments will be
equal to 0.10% of the value of eligible Claymore unit trusts sold in the
primary market during a calendar quarter so long as the broker-dealers or other
firms sell at least $25 million of eligible Claymore unit trusts during the
calendar quarter. Eligible unit trusts include all Claymore unit trusts sold in
the primary market. Redemptions of units during the primary offering period
will reduce the amount of units used to calculate the volume concessions. In
addition, dealer firms will not receive volume concessions on the sale of units
which are not subject to a transactional sales fee. However, such sales will be
included in determining whether a firm has met the sales level breakpoints for
volume concessions.
Underwriters other than the sponsor will sell units of the trust to other
broker-dealers and selling agents at the Public Offering Price per unit less a
concession or agency commission not in excess of the underwriter concession
allowed to the underwriters by the sponsor as described in "Underwriting
Concessions" below.
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.
In addition to the concessions described above, the sponsor may pay
additional compensation out of its own assets to broker-dealers that meet
certain sales targets and that have agreed to provide services relating to the
trust to their customers.
Other Compensation and Benefits to Broker-Dealers. The sponsor, at its own
expense and out of its own profits, may provide additional compensation and
benefits to broker-dealers who sell shares of units of this trust and other
Claymore products. This compensation is intended to result in additional sales
of Claymore products and/or compensate broker-dealers and financial advisors
for past sales. A number of factors are considered in determining whether to
pay these additional amounts. Such factors may include, but are not limited to,
the level or type of services provided by the intermediary, the level or
expected level of sales of Claymore products by the intermediary or its agents,
the placing of Claymore products on a preferred or recommended product list,
access to an intermediary's personnel, and other factors.
The sponsor makes these payments for marketing, promotional or related
expenses, including, but not limited to, expenses of entertaining retail
customers and financial advisers, advertising, sponsorship of events or
seminars, obtaining information about the breakdown of unit sales among an
intermediary's representatives or offices, obtaining shelf space in
broker-dealer firms and similar activities designed to promote the sale of the
sponsor's products. The sponsor may make such payments to many intermediaries
that sell Claymore products. The sponsor may also make certain payments to, or
on behalf of, intermediaries to defray a portion of their costs incurred for
the purpose of facilitating unit sales, such as the costs of developing trading
or purchasing trading systems to process unit trades.
Payments of such additional compensation, some of which may be
characterized as "revenue sharing," may create an incentive for financial
intermediaries and their agents to sell or recommend a Claymore product,
including your
trust, over products offered by other sponsors or fund companies. These
arrangements will not change the price you pay for your units.
We generally register units for sale in various states in the United
States. 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 in the amounts set forth in the "Trust Portfolio."
Additional Units. After your trust is created, additional units of the
trust may be issued by depositing in the trust bonds and/or cash (or a bank
letter of credit in lieu of cash) with instructions to purchase bonds,
contracts to purchase bonds or additional bonds.
Underwriting Concessions
The sponsor has entered into an Agreement Among Underwriters pursuant to
which it shall serve as the principal underwriter for units of the trust. The
Agreement Among Underwriters provides that a public offering of the units of
the trust will be made at the Public Offering Price described in the
prospectus. Units may also be sold to or through dealers and other selling
agents during the initial offering period and in the secondary market at
prices
representing a concession as described in "Distribution of Units." Dealers that
do not enter into the Agreement Among Underwriters but sell at least $500,000
in units of the trust on the first day units are sold publicly will also be
entitled to receive the concession available to underwriters. However, such
dealers will not be eligible to receive any acquisition profit (as defined
below).
In lieu of the concessions provided in "Distribution of Units," the
entities that have executed the Agreement Among Underwriters and acquired at
least $500,000 in units of the trust from the sponsor on the first day units
are sold publicly (the "Underwriters") will receive from the sponsor the
maximum dealer concession contained in the following table:
Maximum
Dealer
Concession
per Unit
(as a % of
the Public
Purchase Amount Offering Price)
- ---------------------- ---------------
$500,000 - $999,999 2.10%
$1,000,000 - $2,999,999 2.15
$3,000,000 or more 2.20
Following the first day that units are sold publicly, Underwriters that
sell $499,999 or less in units of the trust on a given day will be entitled to
a maximum dealer concession per unit of 2.10% of the Public Offering Price, and
Underwriters that sell at least $500,000 in units on a given day will be
entitled to a maximum dealer concession per unit equal to the amount received
for sales occurring on the first day units are sold publicly.
The dealer concessions provided above represent the maximum compensation
available for dealer firms for non-breakpoint
trades. For breakpoint trades by investors, the compensation received by dealer
firms for a given transaction will be reduced by the amount of the sales charge
reduction provided to the investor purchasing units. (See "Public
Offering--Large Purchases" in the prospectus for the Sales Charge Reductions
schedule.)
In addition to any other benefits, the sponsor will share with the
Underwriters, on a pro rata basis, 50% of the net gain, if any, represented by
the difference between the sponsor's cost of the securities in connection with
their acquisition (including the cost of insurance obtained by the sponsor
prior to the Inception Date for individual securities, if any, and including
the effects of portfolio hedging gains and losses and portfolio hedging
transaction costs, if any) and the aggregate offering price thereof on the
Inception Date (the "acquisition profit") less a charge for acquiring the bonds
in the portfolio and for the sponsor maintaining a secondary market for the
units. For purposes of determining the acquisition profit, the sponsor will
utilize the prices of the bonds derived from Standard & Poor's Securities
Evaluations. All units created by the sponsor on the Inception Date will be
eligible for the purpose of determining the acquisition profit. Dealers who are
Underwriters will be eligible for a portion of such acquisition profit, if
any.
Underwriting
Name and Address Number of Units
- -----------------------------------------
Sponsor and Underwriter:
Claymore Securities, Inc.
2455 Corporate West Drive
Lisle, Illinois 60532
Underwriters:
Total:
Sponsor's and Dealers' Profits. As set forth under "Public Offering--
Offering Price," the sponsor and the dealers will receive gross commissions
equal to the specified percentages of the Public Offering Price of the units of
the trust.
Also, any difference between the sponsor's cost to purchase the securities
and the price at which it sells them to the trust is considered profit or loss.
In offering units of the trust the sponsor and dealers will also realize
profits or sustain losses in the amount of any difference between the price at
which they acquire or buy units and the price at which they resell or redeem
such units and to the extent they earn sales charges on purchases.
Investment Risks
All investments involve risk. This section describes the main risks that
can impact the value of the bonds in your trust. You should understand these
risks before you invest. You could lose some or all of your investment in the
trust. Recently, securities markets have experienced
significant volatility. If the value of the bonds 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.
Failure of Issuers or Insurers to Pay Interest and/or Principal. The
primary risk associated with an investment in bonds is that the issuer or
insurer of a bond may default on principal and/or interest payments when due on
the bond. Such a default would have the effect of lessening the income
generated by the trust and/or the value of the bonds and 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 bonds.
Subsequent to the Inception Date the rating assigned to a bond may decline.
Neither the sponsor nor the trustee shall be liable in any way for any default,
failure or defect in any bond or responsible for a decline in the rating of any
bond in the portfolio.
High-yield securities risk. All of the bonds held by the trust are rated
below investment-grade and are considered to be "junk" 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 increase 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 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.
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.
Current Economic Conditions Risk. The U.S. economy's recession began in
December
2007 and lasted through most of 2009. This recession began with problems in the
housing and credit markets, many of which were caused by defaults on "subprime"
mortgages and mortgage-backed securities, eventually leading to the failures of
some large financial institutions. Economic activity declined across all
sectors of the economy, and the United States has experienced increased
unemployment. The economic crisis affected the global economy with European and
Asian markets also suffering historic losses. Although the latest economic data
suggests that the recession may be over and that the U.S. economy will
experience slightly increased activity in 2010, unemployment remains high. Due
to the current state of uncertainty in the economy, the value of the securities
held by the trust may be subject to steep declines or increased volatility due
to changes in performance or perception of the issuers. Extraordinary steps
have been taken by the governments of several leading economic countries to
combat the economic crisis; however, the impact of these measures is not yet
fully known and cannot be predicted.
Market Risk. Market risk is the risk that the value of the bonds in the
trust will fluctuate. Market value fluctuates in response to various factors.
These can include changes in interest rates, inflation, the financial condition
of a bonds' issuer, perceptions of the issuer, ratings on a bond, or political
or economic events affecting the issuer. Because the trust is not managed, the
trustee will not sell bonds in response to or in anticipation of market
fluctuations, as is common in managed investments.
Income Risk. The income from the trust's portfolio may decline for a
variety of reasons including, but not limited to, falling market interest
rates, bonds that are sold from the trust's portfolio and increased expenses.
Price Volatility of Fixed-Rate Bonds. An investment in units of the trust
should be made with an understanding of the risks entailed in investments in
fixed-rate bonds, including the risk that the value of such bonds (and,
therefore, of the units) will decline with increases in interest rates.
Inflation and the overall economy are two of the major factors, among others,
which contribute to fluctuations in interest rates and the values of fixed-rate
bonds. Bonds are also subject to the risk that their values may decline if the
issuer's financial condition worsens or if perceptions of the issuer's
financial condition change.
Original Issue Discount Bonds and Zero Coupon Bonds. Certain of the bonds
in the trust 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.
Original issue discount bonds typically pay a lower interest rate than
comparable bonds that were issued at or above their par value. Under current
law, the original issue discount, which is the difference between the stated
redemption price at maturity and the issue price of the bonds, is deemed to
accrue on a daily basis. The trust may also pay a premium when it buys a bond,
even a bond issued with original issue discount. The trust may be required to
amortize the premium over the term of the bond and reduce its basis for the
bond even though it does not get any deduction for the amortization. Therefore,
sometimes the trust may have a taxable gain
when it sells a bond for an amount equal to or less than its original tax
basis.
On sale or redemption, unitholders may receive ordinary income dividends
from the trust if the trust sells or redeems bonds that were acquired at a
market discount, or sells bonds at a short-term capital gain. In general, the
Internal Revenue Service will treat bonds as market discount bonds when the
cost of the bond, plus any original issue discount that has not yet accrued, is
less than the amount due to be paid at the maturity of the bond. Any gain
realized that is in excess of the earned portion of original issue discount
will be taxable as capital gain unless the gain is attributable to market
discount in which case the accretion of market discount is taxable as ordinary
income.
The current value of an original issue discount bond reflects the present
value of its stated redemption price at maturity. In a stable interest rate
environment, the market value of these bonds tends to increase more slowly in
early years and greater increments as the bonds approach maturity. The issuers
of these bonds may be able to call or redeem a bond before its stated maturity
date and at a price less than the bond's par value. See "Tax Status" herein.
"When Issued" and "Delayed Delivery" Bonds. Certain bonds in the trust may
have been purchased by the sponsor on a "when issued" basis. Bonds purchased on
a "when issued" basis have not yet been issued by the issuer on the Inception
Date (although such issuer had committed to issue such bonds). In the case of
these and/or certain other bonds, the delivery of the bonds may be delayed
("delayed delivery") or may not occur. The effect of the trust containing
"delayed delivery" or "when issued" bonds is that unitholders who purchased
their units prior to the date such 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" bonds during the time between their purchase
of units and delivery of such bonds to the trust.
Restricted Bonds. The trust may invest in bonds that may only be resold
bonds that may only be resold pursuant to Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"). Such bonds may not be readily
marketable. For purposes of this restriction, illiquid bonds include, but are
not limited to, restricted bonds (bonds the disposition of which is restricted
under the federal securities laws), but that are deemed to be illiquid; and
repurchase agreements with maturities in excess of seven days.
Restricted bonds may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in
effect under the Securities Act. Where registration is required, the trust may
be obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
trust may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the trust might obtain a less favorable price than that which prevailed when it
decided to sell.
Redemption or Sale Prior to Maturity. Certain of the bonds in the portfolio
of the trust may be called prior to their stated maturity date pursuant to
sinking fund or call provisions. A call provision is more likely to be exercised
when the offering price valuation of a bond is higher than its call price. Such
price valuation is likely to be higher in periods of declining interest rates.
Certain of the bonds may be sold or otherwise
mature. In such cases, the proceeds from such events will be distributed to
unitholders. Thus, no assurance can be given that the trust will retain for any
length of time its present size and composition.
The trust may contain bonds that have "make whole" call options that
generally cause the bonds to be redeemable at any time at a designated price.
Such bonds are generally more likely to be subject to early redemption and may
result in the reduction of income received by the trust and the early
termination of the trust.
To the extent that a bond was deposited in the trust at a price higher
than the price at which it is redeemable, or at a price higher than the price
at which it is sold, a sale or redemption will result in a loss in the value of
units. Distributions will generally be reduced by the amount of the income
which would otherwise have been paid with respect to sold or redeemed bonds.
The Estimated Current Return and Estimated Long-Term Return of the Units may be
adversely affected by such sales or redemptions.
Market Discount. The portfolio of the trust may consist of some bonds
whose current market values were below principal value on the Inception Date. A
primary reason for the market value of such bonds being less than principal
value at maturity is that the interest rate of such bonds is at lower rates
than the current market interest rate for comparably rated bonds. Bonds selling
at market discounts tend to increase in market value as they approach maturity.
Because the trust is not actively managed, the trustee will not sell bonds in
response to or in anticipation of market discounts or fluctuations.
Failure of a Contract to Purchase Bonds and Substitution of Bonds. In the
event of a failure to deliver any bond that has been purchased for the trust
under a contract ("failed bonds"), the sponsor is authorized to purchase other
bonds ("replacement bonds"). The trustee shall pay for replacement bonds out of
funds held in connection with the failed bonds and will accept delivery of such
bonds to make up the original principal of the trust. The replacement bonds must
be purchased within 20 days after delivery of the notice of the failed contract,
and the purchase price (exclusive of accrued interest) may not exceed the
principal attributable to the failed bonds. Whenever a replacement bond has been
acquired for the trust, the trustee shall, within five days thereafter, notify
all unitholders of the trust of the acquisition of the replacement bond and
shall, on the next distribution date which is more than 30 days thereafter, make
a pro rata distribution of the amount, if any, by which the cost to the trust of
the failed bond exceeded the cost of the replacement bond. In addition, a
replacement bond must (at the time of purchase):
o be a corporate debt obligation;
o have a fixed maturity or disposition date comparable to that of the
failed bond it replaces;
o be purchased at a price that results in a yield to maturity and in a
current return which is approximately equivalent to the yield to
maturity and current return of the failed bond which it replaces; and
o be rated at least in the category of BBB or Baa by a major rating
organization.
If the right of limited substitution described above shall not be used to
acquire replacement bonds in the event of a failed contract, the sponsor will
refund the sales charge attributable to such failed bonds to all unitholders of
the trust, and distribute the principal attributable to such failed bonds on
the next monthly
distribution date which is more than 30 days thereafter. In the event a
replacement bond is not acquired by the trust, the Estimated Net Annual
Interest Income per unit for the trust would be reduced and the Estimated
Current Return thereon might be lowered.
Financial Sector Risk. Your trust includes securities issued by companies
in the financial sector. Banks, thrifts and their holding companies are
especially subject to the adverse effects of economic recession, decreases in
the availability of capital, 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. Although legislation
repealed most of the barriers which separated the banking, insurance and
securities industries, these industries are still extensively regulated at both
the federal and state level and may be adversely affected by increased
regulations.
Recent negative developments initially relating to the subprime mortgage
market and subsequently spreading to other parts of the economy, have adversely
affected credit and capital markets worldwide and reduced the willingness of
lenders to extend credit, thus making borrowing more difficult. In addition,
the liquidity of certain debt instruments has been reduced or eliminated due to
the lack of available market makers. Negative economic events in the credit
markets have also led some firms to declare bankruptcy, forced short notice
sales to competing firms, or required government intervention by the Federal
Deposit Insurance Corporation ("FDIC") or through an infusion of Troubled Asset
Relief Program funds. Furthermore, accounting rule changes, including the
standards regarding the valuation of assets, consolidation in the banking
industry and additional volatility in the stock market have the potential to
significantly impact financial services companies as well.
In response to recent market and economic conditions, the U.S. Government
has taken a variety of extraordinary measures designed to stimulate the economy
and financial markets including capital injections and the acquisition of
illiquid assets. Recent laws and regulations contain provisions limiting the
way banks and their holding companies are able to pay dividends, purchase their
own common stock and compensate officers. Legislation has been proposed to
create the Financial Services Oversight Council to facilitate information
sharing and identify systemic risks. Additional proposed legislation would
allow the FDIC to "take over" a failing bank in situations when the overall
stability of the financial system could be at risk. These regulatory changes
could cause business disruptions or result in significant loss of revenue, and
there can be no assurance as to the actual impact that these laws and their
regulations will have on the financial markets.
Banks and thrifts face increased competition from nontraditional lending
sources and financial services providers including brokerage firms,
broker/dealers, investment banks, mutual fund companies and other companies
that offer various financial products in addition to their brokerage and
investment advice. However, proposed legislation would subject such non-bank
financial firms to the requirements of the Bank Holding Company Act of 1956
which generally restricts bank holding companies from engaging in business
activities other than the business of banking and certain closely related
activities. Under the proposed legislation, these companies would be required
to register as bank holding companies with the Federal Reserve Board and would
be subject to capital and other regulatory requirements of traditional banks.
This may result in a decrease in profits, missed business opportunities and
cessation of financing activities for companies unable to meet the newly
imposed regulatory requirements, which could further reduce available credit
for consumers.
Companies involved in the insurance industry are engaged in underwriting,
selling, distributing or placing of property and casualty, life or health
insurance. Insurance company profits are affected by many factors, including
interest rate movements, the imposition of premium rate caps, competition and
pressure to compete globally. Property and casualty insurance profits may also
be affected by weather catastrophes, acts of terrorism and other disasters.
Life and health insurance profits may be affected by mortality rates. Already
extensively regulated, insurance companies' profits may also be adversely
affected by increased government regulations or tax law changes. Proposed
legislation may establish the Office of National Insurance within the U.S.
Department of the Treasury. This proposed federal agency would gather
information, develop expertise, negotiate international agreements, and
coordinate policy in the insurance sector. This enhanced oversight into the
insurance industry may pose unknown risks to the sector as a whole.
Consumer Products Risk. The trust invests in securities of companies in the
consumer products sectors. General risks of companies in the consumer products
sectors include cyclicality of revenues and earnings, economic recession,
currency fluctuations, changing consumer tastes, extensive competition, product
liability litigation and increased government regulation. Generally, spending on
consumer products is affected by the health of consumers. Companies in the
consumer products sectors are subject to government regulation affecting the
permissibility of using various food additives and production methods, which
regulations could affect company profitability. Tobacco companies may be
adversely affected by the adoption of proposed legislation and/or by litigation.
Also, the success of foods and soft drinks may be strongly affected by fads,
marketing campaigns and other factors affecting supply and demand. A weak
economy and its effect on consumer spending would adversely affect consumer
products companies.
Foreign Securities Risk. Your trust invests 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 the trust'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 the 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 the trust's foreign currency
holdings.
o Future political and governmental restrictions which might adversely
affect the payment or receipt of income on the foreign securities.
Risk Inherent in an Investment in Different Types of Bonds. Corporate Debt
Obligations. An investment in units of the trust should be made with an
understanding of the risks that an investment in fixed rate, investment-grade
corporate debt obligations may entail, including the risk that the value of the
units will decline with increases in interest rates. Generally, bonds with
longer maturities will fluctuate in value more than bonds with shorter
maturities.
A slowdown in the economy, or a development adversely affecting an issuer's
creditworthiness, may result in the issuer being unable to maintain earnings or
sell assets at the rate and at the prices, respectively, that are required to
produce sufficient cash flow to meet its interest and principal requirements and
accordingly such issuer may not be able to meet its obligations to make
principal and income payments. In addition, a slowdown in the economy or a
development adversely affecting an issuer's creditworthiness may also result in
the ratings of the bonds and the value of the underlying portfolio being
reduced. The trust may consist of corporate debt obligations that, in many
cases, do not have the benefit of covenants that would prevent the issuer from
engaging in capital restructurings or borrowing transactions in connection with
corporate acquisitions, leveraged buyouts or restructurings that could have the
effect of reducing the ability of the issuer to meet its obligations and might
also result in the ratings of the bonds and the value of the underlying
portfolio being reduced.
Should the issuer of any corporate debt obligation default in the payment
of principal or interest, the trust may incur additional expenses seeking
payment on the defaulted bond. Because amounts recovered by the trust in
payment under the defaulted corporate debt obligation, if any, may not be
reflected in the value of the units until actually received by the trust, and
depending upon when a unitholder purchases or sells his or her units, it is
possible that a unitholder would bear a portion of the cost of recovery without
receiving a portion of any payment recovered.
Liquidity. The bonds in the trust may not have been registered under the
Securities Act and may not be exempt from the registration requirements of the
Securities Act. Many of the bonds may not be listed on a securities exchange.
Whether or not the bonds are listed, the principal trading market for the bonds
will generally be in the over-the-counter market. As a result, the existence of
a liquid trading market for the bonds may depend on whether dealers will make a
market in the bonds. There can be no assurance that a market will be made for
any of the bonds, that any market for the bonds will be maintained or of the
liquidity of the bonds in any markets made. The price at which the bonds may be
sold to meet redemptions and the value of a trust will be adversely affected if
trading markets for the bonds are limited or absent. The trust may also contain
non-exempt bonds in registered form which have been purchased on a private
placement basis. Sales of these bonds may not be practicable outside the United
States, but can generally be made to U.S. institutions in the private placement
market which may not be as liquid as the general U.S. securities market. Since
the private placement market is less liquid, the prices received may be
less than would have been received had the markets been broader.
Concentration Risk. The trust is considered to be "concentrated'' in a
particular category when the bonds in that category constitute 25% or more of
the aggregate value of the portfolio. This makes the trust subject to more
market risk.
Litigation and Legislation. To the best knowledge of the sponsor, there is
no litigation pending as of the Inception Date in respect of any bonds which
might reasonably be expected to have a material adverse effect upon the trust.
Nevertheless, lawsuits involving the bonds included in the trust or their
issuers may exist. At any time after the Inception Date, litigation may be
initiated on a variety of grounds, or legislation may be enacted, with respect
to bonds in the trust. The outcome of litigation of this nature can never be
entirely predicted. In addition, other factors may arise from time to time
which potentially may impair the ability of issuers to make payments due on the
bonds.
The Secondary Market
Although it is not obligated to do so, the sponsor intends to maintain a
market for the units of the trust and continuously to offer to purchase units
of the trust during the initial offering period at prices based upon the
aggregate offering price of the securities in the trust, and thereafter at
prices based on the aggregate bid price of the related securities. After the
initial offering period, the sponsor's repurchase price shall be not less than
the redemption price plus accrued interest through the expected date of
settlement. See "Rights of Unitholders--Redemption--Computation of Redemption
Price per Unit." Any units repurchased by the sponsor may be reoffered to the
public by the sponsor at the Public Offering Price at such time, plus accrued
interest.
If the supply of units of any series exceeds demand, or for some other
business reason, the sponsor may discontinue purchases of units of such series
at prices based on the aggregate bid price of the securities. The sponsor does
not in any way guarantee the enforceability, marketability, or price of any
security in the portfolio or of the units of the trust. In the event that a
market is not maintained or for some other business reason, the sponsor may
discontinue purchases of units of such series at prices based on the aggregate
bid price of the underlying securities. In the event that a market is not
maintained for the units of the trust, a unitholder may be able to dispose
units by tendering such units to the trustee for redemption at the redemption
price, which is based upon the aggregate bid price of the underlying
securities. The aggregate bid price of the securities in the trust may be
expected to be less than the aggregate offering price. A unitholder should
inquire of the sponsor as to current market prices prior to making a tender for
redemption to the trustee. See "Rights of Unitholders--Redemption" and
"Claymore."
Estimated Current Return and Estimated Long-Term Return to Unitholders
The rate of return on each unit is measured in terms of both Estimated
Current Return and Estimated Long-Term Return. The Estimated Current Return per
unit and Estimated Long-Term Return per unit, each as of the Inception Date, is
set forth under "Summary of Essential Financial Information." Information
regarding the estimated distributions of principal and interest to unitholders
of the trust is available from the sponsor on request.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per unit by the Public Offering Price. Estimated Net Annual
Interest Income per unit will vary with changes in fees and expenses of the
trustee and the evaluator and with principal prepayment, redemption, maturity,
exchange or sale of bonds. The Estimated Net Annual Interest Income per unit
assumes that such sales of securities will be made on a pro rata basis. The
Public Offering Price per unit will vary with changes in the offering price of
the bonds. Estimated Current Return takes into account only the interest
payable on the bonds and does not involve a computation of yield to maturity or
to an earlier redemption date nor does it reflect any amortization of premium
or discount from principal value on the bond's purchase price. Moreover,
because interest rates on bonds purchased at a premium are generally higher
than current interest rates on newly issued bonds of a similar type with
comparable ratings, the Estimated Current Return per unit may be affected
adversely if such bonds are redeemed prior to their maturity. Therefore, there
is no assurance that the Estimated Current Return as set forth under "Summary
of Essential Financial Information" will be realized in the future.
Estimated Long-Term Return is calculated using a formula that (i) takes
into consideration, and determines and factors in the relative weightings of,
the market values, yields (taking into account the amortization of premiums and
the accretion of discounts) and estimated retirements of all the bonds in the
trust and (ii) takes into account the expenses and sales charge associated with
each unit of the trust. The Estimated Long-Term Return assumes that each bond is
retired on its pricing life date (i.e., that date which produces the lowest
dollar price when yield price calculations are done for each optional call date
and the maturity date of a callable bond). If the bond is retired on any
optional call or maturity date other than the pricing life date, the yield to
the holder of that bond may be different than the initial quoted yield. Since
the market values and estimated retirements of the bonds, the expenses of the
trust and the Net Annual Interest Income and Public Offering Price per unit may
change, there is no assurance that the Estimated Long-Term Return as set forth
under "Summary of Essential Financial Information" will be realized in the
future. Contact the sponsor, as indicated on the back page of the Prospectus,
for information regarding the estimated principal and interest distribution
schedule of the trust.
Tax Status
This section summarizes some of the main U.S. federal income tax
consequences of owning units of your 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 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.
Trust Status. The trust intends to qualify as a "regulated investment
company" under the federal tax laws. If the trust qualifies as a
regulated investment company and distributes its income as required by the tax
law, the trust generally will not pay federal income taxes.
Distributions. Trust distributions are generally taxable. After the end of
each year, you will receive a tax statement that separates the trust's
distributions into two categories, ordinary income distributions and capital
gains dividends. Ordinary income distributions are generally taxed at your
ordinary tax rate. Generally, you will treat all capital gains dividends as
long-term capital gains regardless of how long you have owned your units. To
determine your actual tax liability for your capital gains dividends, you must
calculate your total net capital gain or loss for the tax year after
considering all of your other taxable transactions, as described below. In
addition, the trust may make distributions that represent a return of capital
for tax purposes and thus will generally not be taxable to you. The tax status
of your distributions from your trust is not affected by whether you reinvest
your distributions in additional units or receive them in cash. The income from
your trust that you must take into account for federal income tax purposes is
not reduced by amounts used to pay expenses, if any. The tax laws may require
you to treat distributions made to you in January as if you had received them
on December 31 of the previous year. Under the "Health Care and Education
Reconciliation Act of 2010," income from the trust may also be subject to a new
3.8% "medicare tax" imposed for taxable years beginning after 2012. This tax
will generally apply to your net investment income if your adjusted gross
income exceeds certain threshold amounts, which are $250,000 in the case of
married couples filing joint returns and $200,000 in the case of single
individuals.
Dividends Received Deduction. A corporation that owns units generally will
not be entitled to the dividends received deduction with respect to dividends
received from the trust because the dividends received deduction is generally
not available for distributions from regulated investment companies.
Sale or Redemption of Units. If you sell or redeem your units, you will
generally recognize a taxable gain or loss. To determine the amount of this
gain or loss, you must subtract your tax basis in your units from the amount
you receive in the transaction. Your tax basis in your units is generally equal
to the cost of your units, generally including sales charges. In some cases,
however, you may have to adjust your tax basis after you purchase your units.
Capital Gains and Losses. 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, 2011. For
later periods, if you are an individual, the maximum marginal federal tax rate
for net capital gain is generally 20% (10% for certain taxpayers in the 10% and
15% tax brackets). The 20% rate is reduced to 18% and the 10% rate is reduced
to 8% for long-term capital gains from most property acquired after December
31, 2000 with a holding period of more than five years.
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. However, if you receive a
capital gain dividend from your trust and sell your unit at a loss after
holding it for six months or less, the loss will be recharacterized as long-
term capital loss to the extent of the capital gain dividend received. 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 treats
certain capital gains as ordinary income in special situations.
In-Kind Distributions. Under certain circumstances, as described in this
prospectus, you may receive an in-kind distribution of trust securities when
you redeem units or up to 30 business days before your trust terminates. By
electing to receive an in-kind distribution, you will receive trust securities
plus, possibly, cash. This distribution will be treated as a sale and you will
generally recognize gain or loss, generally based on the value at that time of
the securities and the amount of cash received. The Internal Revenue Service
could however assert that a loss could not be currently deducted.
Exchanges. If you elect to have your proceeds from your trust rolled over
into a future trust, the exchange would generally be considered a sale for
federal income tax purposes.
Deductibility of Trust Expenses. Expenses incurred and deducted by your
trust will generally not be treated as income taxable to you. In some cases,
however, you may be required to treat your portion of these trust expenses as
income. In these cases you may be able to take a deduction for these expenses.
However, certain miscellaneous itemized deductions, such as investment
expenses, may be deducted by individuals only to the extent that all of these
deductions exceed 2% of the individual's adjusted gross income.
Foreign Tax Credit. If your trust invests in any foreign securities, the
tax statement that you receive may include an item showing foreign taxes your
trust paid to other countries. In this case, dividends taxed to you will include
your share of the taxes your trust paid to other countries. You may be able to
deduct or receive a tax credit for your share of these taxes.
Foreign Investors. 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 should be aware that, generally, subject to applicable tax
treaties, distributions from the trust will be characterized as dividends for
federal income tax purposes (other than dividends which the trust designates as
capital gain dividends) and will be subject to U.S. income taxes, including
withholding taxes, subject to certain exceptions described below. However,
distributions received by a foreign investor from the trust that are properly
designated by the trust as capital gain dividends may not be subject to U.S.
federal income taxes, including withholding taxes, provided that the trust
makes certain elections and certain other conditions are met.
In addition, distributions after December 31, 2012 may be subject to a
U.S. withholding tax of 30% in the case of distributions to (i) certain
non-U.S. financial institutions that have not entered into an agreement with
the U.S. Treasury to collect and disclose certain information and (ii) certain
other non-U.S. entities that do not provide certain certifications and
information about the entity's U.S. owners.
Rights of Unitholders
Ownership of Units. Ownership of units of the trust will not be evidenced
by certificates. All evidence of ownership of units will be recorded in
book-entry form at Depository Trust Company ("DTC") through an investor's
broker's account. Units held through DTC will be registered in the nominee name
Cede & Co. Individual purchases of beneficial ownership interest in the trust
will be made in book-entry
form through DTC. Ownership and transfer of book-entry units will be evidenced
and accomplished by book-entries made by DTC and its participants if the units
are evidenced at DTC. 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 book-entry 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 to the
trustee. Record holders must sign such written request exactly as their names
appear on the records of the trustee.
Fractions of units, if any, will be computed to three decimal places.
Distribution of Interest and Principal. Unitholders will receive interest
distributions on a monthly basis. Principal, including capital gains, and
interest will be distributed on the distribution date; provided, however, that,
other than for purposes of redemption, no distribution need be made from the
Principal Account if the balance therein is less than $1.00 per unit then
outstanding. If such condition exists, the trustee shall, on the next succeeding
distribution date, distribute the unitholder's pro rata share of the balance of
the Principal Account. Interest received by the trust will be distributed on
each applicable distribution date to unitholders of record of the trust as of
the preceding applicable Record Date who are entitled to such distributions at
that time. All distributions will be net of applicable expenses and funds
required for the redemption of units. See "Essential Information," "Rights of
Unitholders--Expenses and Fees" and "How to Sell Your Units--Selling Units."
The trustee will credit to the Interest Account for the trust all interest
received by the trust, including that part of the proceeds of any disposition
of bonds which represents accrued interest. Other receipts of the trust will be
credited to the Principal Account for the trust. The pro rata share of the
Interest Account of the trust and the pro rata share of cash in the Principal
Account (other than amounts representing failed contracts as previously
discussed) represented by each unit thereof will be computed by the trustee
each applicable Record Date. See "Essential Information." The trustee is not
required to pay interest on funds held in the Principal or Interest Accounts
(but may itself earn interest thereon and therefore benefits from the use of
such funds). Proceeds received from the disposition of any of the bonds
subsequent to a monthly Record Date and prior to the next succeeding monthly
distribution date will be held in the Principal Account for the trust and will
not be distributed until the second succeeding monthly distribution date.
Because interest on the bonds is not received by the trust at a constant rate
throughout the year, any particular interest distribution may be more or less
than the amount credited to the Interest Account of the trust as of the
applicable Record Date. See "Essential Information." Persons who purchase units
between a Record Date and a distribution date will receive their first
distribution on the second distribution date following their purchase of units.
The difference between the estimated net interest accrued to the first
Record Date and to the related distribution date is an asset of the respective
unitholder and will be realized in subsequent distributions or upon the earlier
of the sale of such units or the maturity, redemption or sale of bonds in the
trust.
Record dates for interest and principal distributions will be the 15th day
of the month.
All unitholders, however, who purchase units during the initial public offering
period and who hold them of record on the first Record Date will receive the
first distribution of interest. Details of estimated interest distributions, on
a per unit basis, appear in the "Summary of Essential Financial Information."
The amount of the regular distributions will generally change when bonds are
redeemed, mature or are sold, or when fees and expenses increase or decrease,
or if issuers or insurers are unwilling or unable to pay distributions when
due.
The trustee will deduct each month from the Interest Account and, to the
extent funds are not sufficient therein, from the Principal Account, amounts
necessary to pay the expenses of the trust. See "Rights of
Unitholders--Expenses and Fees." 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 the trust. Amounts so withdrawn shall
not be considered a part of the trust's assets until such time as the trustee
shall return all or any part of such amounts to the appropriate account. In
addition, the trustee may withdraw from the Interest Account and the Principal
Account such amounts as may be necessary to cover redemption of units by the
trustee. See "Rights of Unitholders--Redemption." Funds which are available for
future distributions, payments of expenses and redemptions are in accounts
which are non-interest bearing to the unitholders and are available for use by
the trustee pursuant to normal banking procedures.
Because interest on bonds in the trust is payable at varying intervals,
usually in semiannual installments, the interest accruing to the trust will not
be equal to the amount of money received and available for distribution from the
Interest Account to unitholders. See "Tax Status." Therefore, on each applicable
distribution date, the amount of interest actually deposited in the Interest
Account and available for distribution may be slightly more or less than the
interest distribution made. In order to eliminate fluctuations in interest
distributions resulting from such variances during the first year of the trust,
the trustee is required by the Trust Agreement to advance such amounts as may be
necessary to provide interest distributions of approximately equal amounts. In
addition, the trustee has agreed to advance sufficient funds to the trust in
order to reduce the amount of time before distributions of interest to
unitholders commence. The trustee will be reimbursed, without interest, for any
such advances from funds available from the Interest Account of the trust. The
trustee's fee takes into account the costs attributable to the outlay of capital
needed to make such advances.
In order to acquire certain of the bonds subject to contract, it may be
necessary to pay on the settlement dates for delivery of such bonds amounts
covering accrued interest on such bonds which exceed the amounts paid by
unitholders. The trustee has agreed to pay for any amounts necessary to cover
any such excess and will be reimbursed therefor (without interest) when funds
become available from interest payments on the particular bonds with respect to
which such payments may have been made.
In addition, because of the varying interest payment dates of the bonds
comprising the trust portfolio, accrued interest at any point in time,
subsequent to the recovery of any advancements of interest made by the trustee,
will be greater than the amount of interest actually received by the trust and
distributed to unitholders.
Therefore, there will usually remain an item of accrued interest that is
added to the value of the units. If a unitholder sells all or a portion of
his units, he will be entitled to receive his proportionate share of the
accrued interest from the purchaser of his units. Similarly, if a unitholder
redeems all or a portion of his units, the redemption price per unit which he
is entitled to receive from the trustee will also include accrued interest on
the bonds. Thus, the accrued interest attributable to a unit will not be
entirely recovered until the unitholder either redeems or sells such unit or
until the trust is terminated.
Expenses and Fees. Investors will bear all or a portion of the costs
incurred in organizing the trust -- including costs of preparing the
registration statement, the trust indenture and other closing documents,
registering units with the Securities and Exchange Commission and the states,
the initial audit of the trust's portfolio, legal expenses, payment of closing
fees and any other out-of-pocket expenses. During the initial public offering
period only, a pro rata portion of such organization costs will be charged upon
the investor's purchase of units.
The trustee's, sponsor's supervisory, bookkeeping and administrative and
sponsor's evaluation fees are set forth under "Fees and Expenses." The trustee's
fee and the sponsor's evaluation fee, which is earned for portfolio evaluation
services, are based on the par amount of bonds on a monthly basis. Because such
fees are based on the par amount of the bonds in the trust, rather than the
trust's net asset value, the fees will represent a greater percentage of the
trust's net asset value if the bonds in the trust, on average, are valued below
par. The sponsor's supervisory fee, which is earned for portfolio supervisory
services, and the bookkeeping and administrative fees are based on the largest
number of units in the trust at any time during such period. Because these fees
are based on the largest number of units during a particular period, these fees
will represent a greater percentage of the trust's net asset value as the number
of units decreased during that period. The sponsor's supervisory fee,
bookkeeping and administrative and sponsor's evaluation fee, which are not to
exceed the maximum amount set forth under "Fees and Expenses" for the trust, may
exceed the actual costs of providing portfolio supervisory, bookkeeping and
administrative or evaluation services for the trust, but at no time will the
total amount the sponsor receives for portfolio supervisory services,
bookkeeping and administrative or evaluation services rendered to all series of
Claymore Securities Defined Portfolios in any calendar year exceed the aggregate
cost to them of supplying such services in such year. The trustee may reimburse
the sponsor out of its own assets for services performed by employees of the
sponsor in connection with the operation of the trust.
The trustee will receive for its ordinary recurring services to the trust
an annual fee in the amount set forth under "Fees and Expenses" for the trust.
There is no minimum fee and, except as hereinafter set forth, no maximum fee.
For a discussion of certain benefits derived by the trustee from the trust's
funds, see "Rights of Unitholders--Distribution of Interest and Principal." For
a discussion of the services performed by the trustee pursuant to its
obligations under the Trust Agreement, reference is made to the material set
forth under "Rights of Unitholders."
The trustee's fee, bookkeeping and administrative fees and the sponsor's
fees are payable monthly, each from the Interest Account to the extent funds
are available and then from the Principal Account. These fees may be increased
without approval of the unitholders by amounts not exceeding proportionate
increases in consumer prices for services as measured by the United States
Department of Labor's Consumer Price Index entitled "All Services Less Rent."
If the balances in the Principal and Interest Accounts are insufficient to
provide for amounts
payable by the trust, or amounts payable to the trustee which are secured by
its prior lien on the trust, the trustee is permitted to sell bonds to pay such
amounts.
Other Charges. The following additional charges are or may be incurred by
the trust: all expenses (including audit and counsel fees) of the trustee
incurred in connection with its activities under the Trust Agreement, including
annual audit expenses by independent public accountants selected by the sponsor,
the expenses and costs of any action undertaken by the trustee to protect the
trust and the rights and interests of the unitholders; fees of the trustee for
any extraordinary services performed under the Trust Agreement; indemnification
of the trustee for any loss or liability accruing to it without willful
misconduct, bad faith, or gross negligence on its part, arising out of or in
connection with its acceptance or administration of the trust; and all taxes and
other governmental charges imposed upon the bonds or any part of the trust (no
such taxes or charges are being levied or made or, to the knowledge of the
sponsor, contemplated). To the extent lawful, the trust shall bear the expenses
associated with updating the trust's registration statement and maintaining
registration or qualification of the units and/or the trust under federal or
state bonds laws subsequent to initial registration. Such expenses shall include
legal fees, accounting fees, typesetting fees, electronic filing expenses and
regulatory filing fees. All direct distribution expenses of the trusts
(including the costs of maintaining the secondary market for the trusts), such
as printing and distributing prospectuses, and preparing, printing and
distributing any advertisements or sales literature will be paid at no cost to
the trust. Any payments received by the sponsor reimbursing it for payments made
to update the trust's registration statement will not exceed the costs incurred
by the sponsor. The above expenses, including the trustee's fee, when paid by or
owing to the trustee, are secured by a lien on the trust. The trustee is
empowered to sell bonds in order to make funds available to pay all expenses.
Thus, no assurance can be given that the trust will retain for for any length of
time its present size and composition.
Reports and Records. The trustee shall furnish unitholders of a trust in
connection with each distribution a statement of the amount of interest, if
any, and the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per unit. Within a reasonable time
after the end of each calendar year, the trustee will furnish to each person
who at any time during the calendar year was a unitholder of record, a
statement providing the following information: (1) as to the Interest Account:
interest received (including amounts representing interest received upon any
disposition of bonds and any earned original issue discount), deductions for
payment of applicable taxes and for fees and expenses of the trust, redemptions
of units and 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; (2) as to the Principal Account: the dates of disposition of any
bonds and the net proceeds received therefrom (excluding any portion
representing interest), deductions for payments of applicable taxes and for
fees and expenses of the trust, purchase of replacement bonds, redemptions of
units, the amount of any "when issued" interest treated as a return of capital
and 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;
(3) a list of the bonds held and the number of units outstanding on the last
business day of such calendar year; (4) the redemption price per unit based
upon the last computation thereof made during such calendar year; and (5)
amounts actually distributed during such calendar year from the Interest
Account and from the Principal Account, separately stated, expressed both as
total dollar amounts and as dollar amounts representing the pro rata share of
each unit outstanding.
The trustee shall keep available for inspection by unitholders at all
reasonable times during usual business hours, books of record and account of
its transactions as trustee including a current list of bonds in the trust and
a copy of the Trust Agreement.
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.claymore.com or through your financial professional. We
often refer to the sale price of units as the "liquidation price." 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.
Redemption. Tender of Units. Units may be tendered to The Bank of New York
Mellon, the trustee, for redemption at its Unit Investment Trust Division
offices at 2 Hanson Place, 12th Fl., Brooklyn, New York 11217, on any day the
New York Stock Exchange is open. At the present time there are no specific
taxes related to the redemption of the units. No redemption fee will be charged
by the sponsor or the trustee. Units redeemed by the trustee will be canceled.
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. 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.
Within three business days following such tender, the unitholder will be
entitled to receive in cash an amount for each unit tendered equal to the
redemption price per unit computed as of the Evaluation Time set forth under
"Essential Information" as of the next subsequent Evaluation Time. See
"Redemption--Computation of Redemption Price per Unit."
The "date of tender" is deemed to be the date on which units are properly
received by the trustee, except that with regard to units received after the
Evaluation Time on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading and such units will be deemed to
have been tendered to the trustee on such day for redemption at the redemption
price computed on that day.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account. The trustee is empowered to sell securities in order to make
funds available for redemption. Such sales, if required, could result in a sale
of bonds by the trustee at a loss. To the extent bonds are sold, the size and
diversity of the trust may be reduced.
The trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the redemption price per unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted (as
determined by the Securities and Exchange Commission by rule or regulation) or
during which an emergency exists as a result of which disposal or evaluation of
the underlying bonds is not reasonably practicable, or for such other periods
as the Securities and Exchange Commission has by order permitted.
Two months after the end of the initial offering period, you can generally
request an in-kind distribution of the bonds underlying your units if you own
units worth at least $1,000,000 or you originally paid at least that amount for
your units. This option is generally available only for bonds traded and held in
the United States and is not available within 30 business days of the trust's
termination. Additionally, only the sponsor may redeem units in-kind during the
primary offering period or during the subsequent two months. We may modify or
discontinue this option at any time without notice. If you request an in-kind
distribution of the bonds underlying units of your trust, you may incur any
distribution or service fees (Rule 12b-1 fees) applicable to those bonds.
Computation of Redemption Price per Unit. The redemption price per unit is
determined by the trustee on the basis of the bid prices of the bonds in the
trust, while the Public Offering Price of units during the initial offering
period is determined on the basis of the offering prices of the bonds, both as
of the Evaluation Time on the day any such determination is made. The bid prices
of the securities may be expected to be less than the offering prices. This
redemption price per unit is each unit's pro rata share, determined by the
trustee, of: (1) the aggregate value of the bonds in the trust (determined by
the evaluator, generally based upon prices provided by a pricing service as set
forth below), (2) cash on hand in the trust (other than cash covering contracts
to purchase bonds), and (3) accrued and unpaid interest on the bonds as of the
date of computation, less (a) amounts representing taxes or governmental charges
payable out of the trust, (b) the accrued expenses of a trust, (c) cash held for
distribution to unitholders of record as of a date prior to the evaluation, and
(d) unpaid organization costs. The evaluator, generally based upon prices
provided by a pricing service, may determine the value of the bonds in the trust
(1) on the basis of current bid prices for the bonds, (2) if bid prices are not
available for any bonds, on the basis of current bid prices for comparable
bonds, (3) by appraisal, or (4) by any combination of the above.
Until six months after the Inception Date or the end of the initial
offering period, 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 includes estimated organization costs. After such period, the amount paid
will not include such estimated organization costs.
The difference between the bid and offer prices of bonds with
characteristics consistent with the objectives of the trust are expected to be
___% to ___% of the principal value of the bonds. This value can fluctuate
depending on liquidity and the balance of supply and demand for the individual
issues. Immediately prior to the deposit of the trust, the aggregate bid side
evaluation was lower than the aggregate offering side evaluation by the amount
set forth in the footnotes to the "Trust Portfolio." For this reason, among
others, the price at which units may be redeemed could be less than the price
paid by the unitholder.
Purchase by the Sponsor of Units Tendered for Redemption. The Trust
Agreement requires that the trustee notify the sponsor of any tender of units
for redemption. So long as the sponsor maintains a bid in the secondary market,
the sponsor, prior to the close of business on the second succeeding business
day, may purchase any units tendered to the trustee for redemption at the price
so bid by making payment therefor to the unitholder in an amount not less than
the redemption price on the date of tender not later than the day on which the
units would otherwise have been redeemed by the trustee (see "Public
Offering--Offering Price"). Units held by the sponsor may be tendered to the
trustee for redemption as any other units. In addition, the sponsor may tender
units for redemption that were initially allocated to the sponsor on the
Inception Date if the sponsor was unable to sell such units. Such redemption
may impact the size, composition, returns, expenses and longevity of the
trust.
The offering price of any units resold by the sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus (see
"Public Offering--Offering Price"). Any profit resulting from the resale of
such units will belong to the sponsor which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such units (see "Public Offering--Other Compensation and
Benefits to Broker-Dealers").
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 may need to meet certain
criteria. We may discontinue this option at any time.
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, have underwritten closed-end funds and have
distributed bonds, mutual funds, closed-end funds, exchange-traded funds,
structured products and unit trusts in the primary and secondary markets. We
are a registered broker-dealer and member of the Financial Industry Regulatory
Authority (FINRA). 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 the 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 securities held by the trust.
On October 14, 2009, Claymore Group Inc., the parent of the sponsor,
became a wholly-owned subsidiary of Claymore Holdings, LLC, which is a
wholly-owned, indirect subsidiary of Guggenheim Partners, LLC.
Claymore and the 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 the trust.
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 to
be 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 foregoing information with regard to the sponsor relates to the sponsor
only and not to the trust. Such information is included in this prospectus only
for the purpose of informing investors as to the financial responsibility of the
sponsor and its ability to carry out its contractual obligations with respect to
the trust. More comprehensive financial information can be obtained upon request
from the sponsor.
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 or for errors in judgment; nor will
they be responsible in any way for depreciation or loss incurred by reason of
the sale of any bonds, except in cases of their willful misconduct, bad faith,
gross negligence or reckless disregard for their obligations and duties.
Responsibility. The trustee shall sell, for the purpose of redeeming units
tendered by any unitholder and for the payment of expenses for which funds are
not available, such of the bonds in a list furnished by the sponsor as the
trustee in its sole discretion may deem necessary. The sponsor may also
instruct the trustee to sell bonds in order to maintain the qualification of
the trust as a regulated investment company or to provide funds to make any
distribution for a taxable year in order to avoid imposition of any income or
excise taxes on undistributed income in the trust.
It is the responsibility of the sponsor to instruct the trustee to reject
any offer made by an issuer of any of the bonds to issue new obligations in
exchange and substitution for any bonds pursuant to a refunding or refinancing
plan, except that the sponsor may instruct the trustee to accept such an offer
or to take any other action with respect thereto as the sponsor may deem proper
if the issuer is in default with respect to such bonds or in the judgment of
the sponsor the issuer will probably default in respect to such bonds in the
foreseeable future.
Any obligations so received in exchange or substitution will be held by
the trustee subject to the terms and conditions of the Trust Agreement to the
same extent as bonds originally deposited thereunder. Within five days after
the deposit of obligations in exchange or substitution for underlying bonds,
the trustee is required to give notice thereof to each unitholder, identifying
the obligations eliminated and the bonds substituted therefor. Except as stated
in the Trust Agreement or in this and the preceding paragraph and in the
discussion under "Investment Risks--Failure of a Contract to Purchase Bonds and
Substitution of Bonds" regarding the substitution of replacement bonds for
failed bonds, the acquisition by a trust of any bonds other than the bonds
initially deposited is prohibited.
The sponsor may direct the trustee to dispose of bonds in certain limited
circumstances, including upon default in the payment of principal or interest,
institution of certain legal proceedings or the existence of certain other
impediments to the payment of bonds, default under other documents which may
adversely affect debt service, default in the payment of principal or interest
on other obligations of the same issuer, decline in projected income pledged
for debt service on revenue bonds, or decline in price or the occurrence of
other market factors, including advance refunding, so that in the opinion of
the sponsor the retention of such bonds in a trust would be detrimental to the
interest of the unitholders. The proceeds from any such sales will be credited
to the Principal Account for distribution to the unitholders.
Resignation. If the sponsor resigns or becomes unable to perform its duties
under the Trust Agreement, and no express provision is made for action by the
trustee in such event, the trustee may appoint a successor sponsor, terminate
the Trust Agreement and liquidate the trusts or continue to act as Trustee.
The Trustee. The Bank of New York Mellon 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, 2 Hanson Place, 12th Fl., Brooklyn, New York
11217. The sponsor may remove and replace the trustee in some cases without
your consent. The trustee may also resign by notifying Claymore and investors.
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 the 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 or available
for inspection at all reasonable times during usual business hours by any
unitholder, together with a current list of the bonds held in the trust.
Pursuant to the Trust Agreement, the trustee may employ one or more agents for
the purpose of custody and safeguarding of bonds comprising the trust.
Limitations on Liability. The trustee shall not be liable or responsible
in any way for depreciation or loss incurred by reason of the disposition of
any monies, bonds or certificates or in respect of any evaluation or for any
action taken in good faith reliance on prima facie properly executed documents
except, generally, in cases of its willful misconduct, lack of good faith or
gross negligence. In addition, the trustee shall
not be personally liable for any taxes or other governmental charges imposed
upon or in respect of the trust which the trustee may be required to pay under
current or future law of the United States or any other taxing authority having
jurisdiction. See "Trust Portfolio."
Responsibility. For information relating to the responsibilities of the
trustee under the Trust Agreement, reference is made to the material set forth
under "Rights of Unitholders" and "Claymore--Resignation."
Resignation. 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 Evaluator. The sponsor will serve as the evaluator of the bonds in the
trust, and as such will appraise the bonds or cause the bonds to be appraised.
To appraise the bonds, the evaluator generally utilizes prices received from
Standard & Poor's Securities Evaluations.
Limitations on Liability. The trustee and the sponsor may rely on any
evaluation furnished by the evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the evaluator under the Trust Agreement
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, the sponsor or unitholders for errors in judgment. However, this
provision shall not protect the evaluator in cases of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and
duties.
Responsibility. The Trust Agreement requires the evaluator to evaluate the
bonds on the basis of their bid prices on each business day after the initial
offering period, when any unit is tendered for redemption and on any other day
such evaluation is desired by the trustee or is requested by the sponsor. For
information relating to the responsibility of the evaluator to evaluate the
bonds on the basis of their offering prices, see "Public Offering--Offering
Price."
Resignation. The evaluator may resign or may be removed by the sponsor and
the trustee, and the sponsor and the trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the 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.
Amendment and Termination of the Trust Agreement
The sponsor and the trustee have the power to amend the Trust Agreement
without the consent of any of the unitholders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, (2) to change any provision required to be changed by the
Securities and Exchange Commission, (3) to maintain the qualification of the
trust as a regulated investment company, or (4) to make such other provisions
as shall not adversely affect the interest of the unitholders. The sponsor and
the trustee may amend the Trust Agreement with the consent of unitholders
representing 66 2/3% of the units then outstanding, provided that no such
amendment will reduce the interest in the trust of any unitholder without the
consent of such unitholder or reduce the percentage of units required to
consent to any such amendment without the consent of all the unitholders. In no
event shall the Trust Agreement be amended to permit the deposit or acquisition
of bonds either in addition to or in substitution for any of the bonds
initially deposited in a trust, except in accordance with the provisions of
each Trust Agreement. In the event of any amendment, the trustee is obligated
to notify promptly all unitholders of the substance of such amendment. The
Trust Agreement specifies other limitations on amending the Trust Agreement.
A trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the bonds. The sponsor may
direct the trustee to terminate the trust if the par value of the trust falls
below $200 per unit. The trustee shall notify the sponsor when the par value of
the bonds in a trust is less than $2,000,000. A trust may also be terminated (i)
by the consent of 66 2/3% of the units or (ii) by the trustee in certain
circumstances. In addition, the sponsor may direct the trustee to terminate the
trust if the sponsor is unable to sell more than 60% of the units initially
authorized and the net worth of the trust is reduced to less than 40% of the
aggregate value of the bonds in the trust. In no event, however, may a trust
continue beyond the Mandatory Termination Date set forth herein. In the event of
termination, written notice thereof will be sent by the trustee to all
unitholders. Within a reasonable period after termination, the trustee will sell
any remaining bonds, and, after paying all expenses and charges incurred by the
trust, will distribute to each unitholder, upon surrender of his units, his pro
rata share of the balances remaining in the Interest and Principal Accounts of
the trust.
Experts
Legal Matters. Chapman and Cutler LLP, 111 West Monroe Street, Chicago,
Illinois 60603, acts as counsel for the trust and has passed upon the legality
of the units.
Independent Registered Public Accounting Firm. The statement of financial
condition, including the Trust Portfolio, 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 is included in
reliance on such report given on the authority of such firm as experts in
accounting and auditing.
Description of Bond Ratings
Standard & Poor's Rating. A Standard & Poor's issue credit rating is a
current opinion of
the creditworthiness 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 opinion
evaluates the obligor's capacity and willingness to meet its financial
commitments as they come due, and may assess terms, such as collateral security
and subordination, which could affect ultimate payment in the event of default.
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.
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; and
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.
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 -- n obligation rated "CC" is currently highly vulnerable to
nonpayment.
C -- A "C" rating is assigned to obligations that are CURRENTLY HIGHLY
VULNERABLE to nonpayment, obligations that have payment arrearages allowed by
the terms of the documents, or obligations of an issuer that is the subject of
a bankruptcy petition or similar action which have not experienced a payment
default. Among others, the 'C' rating may be assigned to subordinated debt,
preferred stock or other obligations on which cash payments have been suspended
in accordance with the instrument's terms or when preferred stock is the
subject of a distressed exchange offer, whereby some or all of the issue is
either repurchased for an amount of cash or replaced by other instruments
having a total value that is less than par.
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.
NR -- 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 Investors Service Rating. A summary of the meaning of the
applicable rating symbols as published by Moody's follows:
Aaa -- Obligations rated Aaa are judged to be of the highest quality, with
minimal credit risk.
Aa -- Obligations rated Aa are judged to be of high quality and are
subject to very low credit risk.
A -- Obligations rated A are considered upper-medium grade and are subject
to low credit risk.
Baa -- Obligations rated Baa are subject to moderate credit risk. They are
considered medium-grade and as such may possess certain speculative
characteristics.
Ba -- Obligations rated Ba are judged to have speculative elements and are
subject to substantial credit risk.
B -- Obligations rated B are considered speculative and are subject to
high credit risk.
Caa -- Obligations rated Caa are judged to be of poor standing and are
subject to very high credit risk.
Ca -- Obligations rated Ca are highly speculative and are likely in, or
very near, default, with some prospect of recovery of principal and interest.
C -- Obligations rated C are the lowest rated class of bonds and are
typically in default, with little prospect for recovery of principal or
interest.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Moody's does not
rate a particular obligation as a matter of policy.
WR -- Withdrawn. When Moody's no longer rates an obligation on which it
previously maintained a rating, the symbol WR is employed.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from "Aa" through "Caa." The modifier 1 indicates that the
issuer or 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 ranks in the lower end of its generic rating category.
Report of Independent Registered Public Accounting Firm
Unitholders
Claymore Securities Defined Portfolios, Series 686
We have audited the accompanying statement of financial condition,
including the trust portfolio set forth on pages 11, 12 and 13 of this
prospectus, of Claymore Securities Defined Portfolios, Series 686, as of ______
, 2010, the Inception Date. 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 the 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 statement 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 statement of financial condition, assessing the accounting
principles used and significant estimates made by the sponsor, as well as
evaluating the overall statement of financial condition presentation. Our
procedures included confirmation with The Bank of New York Mellon, trustee, of
securities owned, cash or an irrevocable letter of credit deposited for the
purchase of securities as shown in the statement of financial condition as of
______ , 2010, by correspondence with the trustee. We believe that our audit of
the statement of financial condition provides 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 686, as of ______ , 2010, in conformity
with accounting principles generally accepted in the United States of America.
Grant Thornton LLP
Chicago, Illinois
______ , 2010
Claymore Securities Defined Portfolios, Series 686
Statement of Financial Condition
as of the Inception Date, ______ , 2010
Investment in bonds
Sponsor's contracts to purchase underlying securities backed by
cash deposited (1)(2) $
Cash (3)
Accrued interest receivable (2)(4)
-----------
Total $
===========
Liabilities and interest of unitholders
Liabilities:
Amount due to Trustee (4) $
Organization costs and transactional sales fee
-----------
Total $
===========
Interest of unitholders:
Cost to unitholders (5) $
Less: transactional sales fee (6)
Less: organization costs (7)
-----------
Net interest of unitholders
-----------
Total $
===========
Number of units
===========
Net Asset Value per Unit $
===========
(1) Aggregate cost to the trust of the bonds listed under "Trust Portfolio" are
based on offering side valuations determined by the evaluator, based upon
prices provided by Standard & Poor's Securities Evaluations, on the basis
set forth under "Public Offering--Offering Price."
(2) On the Inception Date, the sponsor deposited bonds, contracts and/or funds
(represented by cash or a certified check issued by a major commercial
bank) necessary for the purchase of the underlying securities according to
their purchase contracts and accrued interest from the Inception Date to
the expected dates of delivery.
(3) During the initial offering period, a portion of the Public Offering Price
represents an amount of cash deposited to pay all or a portion of the costs
of organizing the trust.
(4) On the basis set forth under "Rights of Unitholders--Distribution of
Interest and Principal" the trustee will advance an amount equal to the
accrued interest on the bonds as of the "First Settlement Date," plus any
cash received by the trustee with respect to interest on the bonds prior to
such date, and the same will be distributed to the sponsor on the First
Settlement Date. Consequently, the amount of interest accrued on a unit to
be added to the Public Offering Price thereof will include only such
accrued interest from the First Settlement Date to the date of settlement,
less all withdrawals and deductions from the Interest Account subsequent to
the First Settlement Date made with respect to the unit.
(5) Aggregate Public Offering Price (exclusive of interest) is computed on the
number of units set forth above under "Public Offering-- Offering Price."
(6) On the Inception Date, the total transactional sales fee is 2.95% of the
Public Offering Price.
(7) A portion of the Public Offering Price consists of an amount sufficient to
pay for all or a portion of the costs of establishing the trust. These
costs have been estimated at $___ per unit for the trust.
Contents
Investment Summary
- ------------------------------------------------------------------
A concise 2 Overview
description 2 Investment Objective
of essential 2 Principal Investment Strategy
information 3 Bond Selection
about the 3 Guggenheim Partners Asset Management,
portfolio Inc. (GPAM)
3 Future Trusts
4 Essential Information
4 Types of Bonds
4 Bond Ratings
5 Summary of Essential Financial Information
6 Principal Risks
8 Taxes
8 Distributions
8 Market for Units
9 Who Should Invest
9 Fees and Expenses
10 Example
11 Trust Portfolio
Understanding Your Investment
- ------------------------------------------------------------------
Detailed 14 The Trust
information 14 Public Offering
to help you 18 Underwriting Concessions
understand 19 Underwriting
your 19 Investment Risks
investment 27 The Secondary Market
27 Estimated Current Return and Estimated
Long-Term Return to Unitholders
28 Tax Status
30 Rights of Unitholders
35 How to Sell Your Units
37 General Information
41 Amendment and Termination
of the Trust Agreement
41 Experts
41 Description of Bond Ratings
45 Report of Independent Registered Public
Accounting Firm
46 Statement of Financial Condition
Where to Learn More
- ------------------------------------------------------------------
You can contact us for Visit us on the Internet
free information about http://www.claymore.com
these investments. By e-mail
invest@claymore.com
Call Claymore (800) 345-7999
Pricing Line (888) 248-4954
Call The Bank of New York Mellon
(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 686
Securities Act file number: 333-166159
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.
CLAYMORE LOGO
GUGGENHEIM LOGO
PROSPECTUS
Claymore/Guggenheim
High Yield Trust, Series 1
Claymore Securities
Defined Portfolios
Series 686
DATED ______ , 2010
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 $4,000,000
5692790
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. 2 to the Registration Statement on Form S-6 for
Claymore Securities Defined Portfolios, Series 118 (File No.
333-81826) filed on February 6, 2002.
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 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 686 has duly caused this
Amendment No. 2 to the 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 30th day of April, 2010.
CLAYMORE SECURITIES DEFINED PORTFOLIOS, SERIES 686
Registrant
By: CLAYMORE SECURITIES, INC.
Depositor
By: /s/ Kevin Robinson
-----------------------
Kevin Robinson
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below on April 30, 2010 by
the following persons, who constitute a majority of the Board of Directors of
Claymore Securities, Inc.
SIGNATURE* TITLE** DATE
) By: /s/ Kevin Robinson
------------------
) Kevin Robinson
) Attorney-in-Fact*
)
DAVID HOOTEN* Chief Executive Officer and ) April 30, 2010
Chairman of the Board of )
Directors )
MICHAEL RIGERT* Vice Chairman ) April 30, 2010
ANTHONY DILEONARDI* Vice Chairman ) April 30, 2010
BRUCE ALBELDA* Chief Financial Officer and April 30, 2010
Director
/s/ Kevin Robinson
KEVIN ROBINSON Senior Managing Director, April 30, 2010
General Counsel and Secretary
- ---------------------
* An executed copy of the related power of attorney was filed as Exhibit 6.0
to Registration Statement No. 333-149523 on April 9, 2008.
** 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
opinion to be filed as Exhibit 3.1 to the Registration Statement.
CONSENT OF DORSEY & WHITNEY LLP
The consent of Dorsey & Whitney LLP to the use of its name in the
Prospectus included in the Registration Statement will be contained in its
opinion to be filed as Exhibit 3.2 to the Registration Statement.
MEMORANDUM
Re: Claymore Securities Defined Portfolios, Series 686
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 118 (and subsequent series) (File No. 333-81826).
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 February 6, 2002 relative to Claymore Securities
Defined Portfolios, Series 118.
CHAPMAN AND CUTLER LLP
Chicago, Illinois
April 30, 2010