SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP FIRM/AFFILIATE
155 NORTH WACKER DRIVE OFFICES
CHICAGO, ILLINOIS 60606-1720 -------
------- BOSTON
HOUSTON
TEL: (312) 407-0700 LOS ANGELES
FAX: (312) 407-0411 NEW YORK
www.skadden.com PALO ALTO
SAN FRANCISCO
WASHINGTON, D.C.
June 23, 2010 WILMINGTON
-------
BEIJING
BRUSSELS
FRANKFURT
HONG KONG
LONDON
MOSCOW
MUNICH
PARIS
SAO PAULO
SHANGHAI
Ms. Kimberly A. Browning SINGAPORE
Securities and Exchange Commission SYDNEY
100 F Street, NE
Washington, DC 20549
RE: Guggenheim Enhanced Equity Income Fund (formerly
Old/Mutual Claymore Long-Short Fund) (811-21681)
Proxy Statement
------------------------------------------------
Dear Ms. Browning:
Enclosed for filing as EDGAR Correspondence are selected pages from the
Proxy Statement of Guggenheim Enhanced Equity Income Fund (formerly Old/Mutual
Claymore Long-Short Fund) (the "Fund") which reflect revisions made to the Proxy
Statement in response to your telephonic comments received June 18, 2010
regarding the Preliminary Proxy Statement of the Fund, filed with the Securities
and Exchange Commission (the "Commission") on June 2, 2010 pursuant to Section
14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the General Rules and Regulations of the Commission promulgated thereunder
(the "General Rules and Regulations").
Should you have any additional comments or concerns, please do not hesitate
to contact me at (312) 407-0570 or Kevin Hardy at (312) 407-0641.
Sincerely,
/s/ Thomas A. Hale
Thomas A. Hale
Enclosures
PROPOSAL 1: APPROVAL OF NEW SUB-ADVISORY AGREEMENT
INTRODUCTION
Following the deliberations and considerations described below, on
April 20, 2010 the Board approved the termination of the Analytic Sub-Advisory
Agreement and the Adviser provided notice to Analytic of such termination,
effective as of the close of business on June 21, 2010. The Board approved the
Interim Investment Sub-Advisory Agreement among the Fund, the Adviser and GPAM,
which was entered into and become effective on June 21, 2010, upon the
termination of the Analytic Sub-Advisory Agreement. Pursuant to the Interim
Sub-Advisory Agreement, GPAM serves as the Fund's investment sub-adviser on an
interim basis and is responsible for the day-to-day management of the Fund.
Pursuant to Rule 15a-4 under the 1940 Act, GPAM may act as investment
sub-adviser pursuant to the Interim Sub-Advisory Agreement for up to 150 days
from the termination of the Analytic Sub-Advisory Agreement, pending
shareholder approval of the New Sub-Advisory Agreement among the Fund, Claymore
and GPAM. Therefore, in order for GPAM to continue to act as investment
sub-adviser to the Fund beyond October 19, 2010, the New Sub-Advisory Agreement
must be approved by shareholders of the Fund.
In connection with the retention of GPAM as investment sub-adviser,
the name of the Fund changed to "Guggenheim Enhanced Equity Income Fund"
effective as of the close of business on June 21, 2010. At such time, the
Fund's NYSE ticker symbol changed to "GPM" and the Fund's CUSIP also changed.
ABOUT GPAM
GPAM, a wholly-owned subsidiary of Guggenheim Partners, LLC
("Guggenheim"), is an investment manager specializing in innovative investment
strategies that aim to add alpha relative to benchmarks in both up and down
markets. GPAM's investment philosophy is predicated upon the belief that
thorough research and independent thought are rewarded with performance that
has the potential to outperform benchmark indexes with both lower volatility
and lower correlation of returns over time as compared to such benchmark
indexes. GPAM manages more than $29 billion in investments for a mix of
individuals, family offices, endowments, foundations, insurance companies and
other institutions. Claymore is also a wholly-owned subsidiary of Guggenheim
and is an affiliate of GPAM.
Guggenheim is a diversified financial services firm with wealth
management, capital markets, investment management and proprietary investing
businesses, whose clients are a mix of individuals, family offices, endowments,
foundations, insurance companies and other institutions that have entrusted
Guggenheim with the supervision of more than $100 billion of assets.
INVESTMENT STRATEGY
Pursuant to the Interim Sub-Advisory Agreement, GPAM is responsible
for the management of the Fund's portfolio, subject to the supervision of the
Adviser and the Board. The Fund continues to seek its primary investment
objective
10
of seeking a high level of current income and gains with a secondary objective
of long-term capital appreciation. The Fund's investment strategy under its
previous investment sub-adviser sought to achieve its investment objective
through a long-short strategy and an opportunistic covered call writing
strategy. GPAM seeks to achieve the Fund's investment objective by obtaining
broadly diversified exposure to the equity markets and utilizing a covered call
strategy which follows GPAM's proprietary dynamic rules-based methodology to
seek to utilize efficiencies from the tax characteristics of the Fund's
portfolio. Under GPAM's management, selling securities short is no longer a
principal investment strategy of the Fund.
The Fund may seek to obtain exposure to equity markets through
investments in exchange-traded funds or other investment funds that track
equity market indices, through investments in individual common stocks and
other equity securities and/or through derivative instruments that replicate
the economic characteristics of exposure to equity securities or markets. In
current market conditions, GPAM initially expects to seek to obtain exposure to
equity markets by investing primarily in one or more exchange-traded funds. The
Fund has the ability to write call options on indices and/or securities which
will typically be at- or out-of-the money. GPAM's strategy typically targets
one-month options, although options of any strike price or maturity may be
utilized. The Fund seeks to earn income and gains both from dividends paid on
securities owned by the Fund and cash premiums received from selling options.
Although the Fund will receive premiums from the options written, by writing a
covered call option, the Fund forgoes any potential increase in value of the
underlying securities above the strike price specified in an option contract
through the expiration date of the option. To the extent GPAM's strategy seeks
to achieve broad equity exposure through a portfolio of common stocks, the Fund
would hold a diversified portfolio of stocks, whereas to the extent GPAM's
equity exposure strategy is implemented through investment in one or more
broad-based equity exchange-traded funds and other investment funds or
instruments, the Fund's portfolio may comprise fewer holdings. The Fund will
ordinarily focus its investments in securities of U.S. issuers but may invest
in or seek exposure to foreign issuers, including through investments in
American Depositary Receipts ("ADRs"). The Fund may invest in or seek exposure
to equity securities of issuers of any market capitalization.
In connection with the implementation of GPAM's strategy, the Fund
intends to utilize financial leverage. The goal of the use of financial
leverage is to enhance shareholder value, consistent with the Fund's investment
objective, and provide superior risk-adjusted returns. The Fund may utilize
financial leverage up to the limits imposed by the 1940 Act. The 1940 Act
generally limits the extent to which the Fund may utilize senior securities
representing indebtedness to 33 1/3% of the Fund's total assets at the time
utilized. Also, under the 1940 Act, the Fund is not permitted to issue
preferred shares unless immediately after such issuance the liquidation value
of such preferred shares plus the aggregate amount of senior securities
representing indebtedness does not exceed 50% of the Fund's total assets. The
Fund's use of financial leverage is intended to be flexible in nature and will
be
11
monitored and adjusted, as appropriate, on an ongoing basis by Claymore and
GPAM. Under current market conditions, the Fund initially intends to utilize
financial leverage in an amount not to exceed 30% of the Fund's total assets
(including the proceeds of such financial leverage) at the time utilized. The
Fund expects to employ financial leverage through the issuance of senior
securities represented by indebtedness, including through bank borrowing by the
Fund or issuance by the Fund of notes, commercial paper or other forms of
debt.
In addition, the Fund may engage in certain portfolio transactions,
including reverse repurchase agreements, total return swaps, other swaps and
other derivative instruments that have characteristics similar to senior
securities. Reverse repurchase agreements are transactions, which may have the
economic effect of financial leverage, in which the Fund sells portfolio
securities to financial institutions such as banks and broker-dealers and
agrees to repurchase them at a particular date and price. To the extent the
terms of such transactions obligate the Fund to make payments, the Fund will
"segregate" liquid securities or cash in a separate account with the custodian
of the Fund to collateralize the positions in an amount at least equal to the
current value of the amount then payable by the Fund under the terms of such
transactions. As a result of such segregation or cover, the Fund does not
intend to treat its obligations under such transactions as senior securities
representing indebtedness for purposes of the 1940 Act, in accordance with
releases and interpretive letters issued by the Securities and Exchange
Commission (the "SEC"), or include such transactions in calculating the
aggregate amount of the Fund's financial leverage.
The Fund may use a variety of derivative instruments (including both
long and short positions), including options and futures contracts, options on
futures contracts, forward contracts and swap, cap, floor or collar agreements.
The Fund may also purchase and sell forward contracts on foreign currencies.
The Fund may enter into derivatives transactions for hedging or risk management
purposes or as part of its investment strategies, including to gain exposure to
equity and other securities in which the Fund may invest and/or for speculative
purposes. Generally, derivatives are financial contracts whose value depends
upon, or is derived from, the value of any underlying asset, reference rate or
index, and may relate to, among others, individual securities, interest rates,
currencies and related indexes. In addition, derivative transactions may
include new techniques, instruments or strategies that are developed or
permitted as regulatory changes occur. The Fund's use of derivative instruments
involves risks different from, or possibly greater than, the risks associated
with investment directly in securities and other more traditional investments.
In addition to the change in the Fund's investment strategy discussed
above, the Fund adopted the following non-fundamental investment policy: Under
normal market conditions, the Fund will invest at least 80% of its net assets,
plus the amount of any borrowings for investment purposes, in equity
securities. If this policy is changed, the Fund will provide shareholders at
least 60 days' notice before implementation of the change. Investments in
exchange-traded funds and other
12
investment funds which invest at least 80% of their assets in equity securities
or have investment objectives or strategies of tracking equity market indices
will be included as investments in equity securities for the purpose of this
policy. Investments in derivative instruments with economic characteristics
similar to equity securities or equity market indices will be included as
investments in equity securities for purposes of this policy.
PRINCIPAL RISKS ASSOCIATED WITH THE FUND'S INVESTMENT STRATEGY
Equity Securities and Related Market Risk. The market price of common
stocks and other equity securities may go up or down, sometimes rapidly or
unpredictably. Equity securities may decline in value due to factors affecting
equity securities markets generally, particular industries represented in those
markets or the issuer itself. The values of equity securities may decline due
to general market conditions which are not specifically related to a particular
company, such as real or perceived adverse economic conditions, changes in the
general outlook for corporate earnings, changes in interest or currency rates
or adverse investor sentiment generally. They may also decline due to factors
which affect a particular industry or industries, such as labor shortages or
increased production costs and competitive conditions within an industry. The
value of equity securities may also decline for a number of other reasons which
directly relate to the issuer, such as management performance, financial
leverage, the issuer's historical and prospective earnings, the value of its
assets and reduced demand for its goods and services. Equity securities
generally have greater price volatility than bonds and other debt securities.
Other Investment Companies Risk. The Fund may invest in securities of
other open-or closed-end investment companies, including ETFs. As a stockholder
in an investment company, the Fund will bear its ratable share of that
investment company's expenses, and would remain subject to payment of the
Fund's investment management fees with respect to the assets so invested.
Shareholders would therefore be subject to duplicative expenses to the extent
the Fund invests in other investment companies. In addition, these other
investment companies may utilize financial leverage, in which case an
investment would subject the Fund to additional risks associated with
leverage.
Options Risk. There are various risks associated with the Fund's
covered call option strategy. The purchaser of an index option written by the
Fund has the right to any appreciation in the cash value of the index over the
strike price on the expiration date. Therefore, as the writer of an index call
option, the Fund forgoes the opportunity to profit from increases in the index
over the strike price of the option. However, the Fund has retained the risk of
loss (net of premiums received) should the price of the Fund's portfolio
securities decline. Similarly, as the writer of a call option on an individual
security held in the Fund's portfolio, the Fund forgoes, during the option's
life, the opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and the strike
price of the call but has retained the risk of loss (net of premiums received)
should the price of the underlying security decline.
13
The value of options written by the Fund, which will be priced daily,
will be affected by, among other factors, changes in the value of underlying
securities (including those comprising an index), changes in the dividend rates
of underlying securities, changes in interest rates, changes in the actual or
perceived volatility of the stock market and underlying securities and the
remaining time to an option's expiration. The value of an option also may be
adversely affected if the market for the option is reduced or becomes less
liquid.
There are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. In the case of index
options, Analytic will attempt to maintain for the Fund written call options
positions on equity indexes whose price movements, taken in the aggregate, are
closely correlated with the price movements of common stocks and other
securities held in the Fund's equity portfolio. However, this strategy involves
significant risk that the changes in value of the indexes underlying the Fund's
written call options positions will not correlate closely with changes in the
market value of securities held by the Fund. To the extent that there is a lack
of correlation, movements in the indexes underlying the options positions may
result in losses to the Fund, which may more than offset any gains received by
the Fund from options premiums. In these and other circumstances, the Fund may
be required to sell portfolio securities to satisfy its obligations as the
writer of an index call option, when it would not otherwise choose to do so, or
may choose to sell portfolio securities to realize gains to supplement Fund
distributions. Such sales would involve transaction costs borne by the Fund and
may also result in realization of taxable capital gains, including short-term
capital gains taxed at ordinary income tax rates, and may adversely impact the
Fund's after-tax returns.
There can be no assurance that a liquid market will exist when the
Fund seeks to close out an option position. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or The Options Clearing Corporation (the "OCC") may
not at all times be adequate to handle current trading volume; or (vi) one or
more exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular class
or series of options). If trading were discontinued, the secondary market on
that exchange (or in that class or series of options) would cease to exist.
However, outstanding options on that exchange that had been issued by the OCC
as a result of trades on that exchange would continue to be exercisable in
accordance
14
with their terms. In the event that the Fund were unable to close out a call
option that it had written on a portfolio security, it would not be able to
sell the underlying security unless the option expired without exercise. To the
extent that the Fund owns unlisted (or "over-the-counter") options, the Fund's
ability to terminate these options may be more limited than with
exchange-traded options and may involve enhanced risk that counterparties
participating in such transactions will not fulfill their obligations.
The hours of trading for options may not conform to the hours during
which the securities held by the Fund are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets. Additionally, the exercise
price of an option may be adjusted downward before the option's expiration as a
result of the occurrence of certain corporate events affecting underlying
securities, such as extraordinary dividends, stock splits, mergers or other
extraordinary distributions or events. A reduction in the exercise price of an
option might reduce the Fund's capital appreciation potential on underlying
securities held by the Fund.
The Fund's use of purchased put options on equity indexes as a
hedging strategy would involve certain risks similar to those of written call
options, including that the strategy may not work as intended due to a lack of
correlation between changes in value of the index underlying the put option and
changes in the market value of the Fund's portfolio securities. Further, a put
option acquired by the Fund and not sold prior to expiration will expire
worthless if the cash value of the index or market value of the underlying
security at expiration exceeds the exercise price of the option, thereby
causing the Fund to lose its entire investment in the option.
The Fund's options transactions will be subject to limitations
established by each of the exchanges, boards of trade or other trading
facilities on which the options are traded. These limitations govern the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written or purchased on the same or different exchanges, boards
of trade or other trading facilities or are held or written in one or more
accounts or through one or more brokers. Thus, the number of options which the
Fund may write or purchase may be affected by options written or purchased by
other investment advisory clients of the Sub-Adviser. An exchange, board of
trade or other trading facility may order the liquidation of positions found to
be in excess of these limits, and it may impose other sanctions.
Other Derivatives Risk. Derivatives are subject to a number of risks
such as liquidity risk, equity securities risk, issuer risk, interest rate
risk, credit risk, leveraging risk, counterparty risk, management risk and, if
applicable, medium and smaller company risk. They also involve the risk of
mispricing or improper valuation, the risk of ambiguous documentation and the
risk that changes in the
15
value of a derivative may not correlate perfectly with an underlying asset,
interest rate or index. Suitable derivative transactions may not be available
in all circumstances and there can be no assurance that the Fund will engage in
these transactions to reduce exposure to other risks when that would be
beneficial. The use of derivatives transactions may result in losses greater
than if they had not been used, may require the Fund to sell or purchase
portfolio securities at inopportune times or for prices other than current
market values, may limit the amount of appreciation the Fund can realize on an
investment or may cause the Fund to hold a security that it might otherwise
sell. Additionally, amounts paid by the Fund as premiums and cash or other
assets held in margin accounts with respect to derivatives transactions are not
otherwise available to the Fund for investment purposes.
Proposed legislation regarding regulation of the financial sector
could change the way in which derivative instruments are regulated and/or
traded. Among the legislative proposals are requirements that derivative
instruments be traded on regulated exchanges and cleared through central
clearinghouses, limitations on derivative trading by certain financial
institutions, reporting of derivatives transactions, regulation of derivatives
dealers and imposition of additional collateral requirements. There can be no
assurance Such regulation, if enacted, may impact the availability, liquidity
and cost of derivative instruments. There can be no assurance that such
legislation or regulation will not have a material adverse effect on the Fund
or will not impair the ability of the Fund to achieve its investment objective.
The Fund may enter into derivatives transactions that may in certain
circumstances produce effects similar to leverage and expose the Fund to
related risks. See "Leverage Risk" below.
Counterparty Risk. The Fund will be subject to risk with respect to
the counterparties to the derivative contracts purchased or sold by the Fund.
If a counterparty becomes bankrupt or otherwise fails to perform its
obligations under a derivative contract due to financial difficulties, the Fund
may experience significant delays in obtaining any recovery under the
derivative contract in a bankruptcy or other reorganization proceeding. The
Fund may obtain only a limited recovery or may obtain no recovery in these
circumstances.
Financial Leverage Risk. Use of financial leverage creates an
opportunity for increased income and capital appreciation but, at the same
time, creates special risks. There can be no assurance that a leveraging
strategy will be utilized or will be successful. Financial leverage is a
speculative technique that exposes the Fund to greater risk and increased costs
than if it were not implemented. Increases and decreases in the value of the
Fund's portfolio will be magnified when the Fund uses financial leverage. As a
result, financial leverage may cause greater changes in the Fund's net asset
value and returns than if financial leverage had not been used. The Fund will
also have to pay interest on its indebtedness, if any, which may reduce the
Fund's return. This interest expense may be greater than the
16
Fund's return on the underlying investment, which would negatively affect the
performance of the Fund.
During the time in which the Fund is utilizing financial leverage,
the amount of the fees paid to the Adviser and the Sub-Adviser for investment
advisory services will be higher than if the Fund did not utilize financial
leverage because the fees paid will be calculated based on the Fund's Managed
Assets, including proceeds of financial leverage. This may create a conflict of
interest between the Adviser and the Sub-Adviser and common shareholders.
Common shareholders bear the portion of the investment advisory fee
attributable to the assets purchased with the proceeds of financial leverage,
which means that common shareholders effectively bear the entire advisory fee.
In order to manage this conflict of interest, any use of financial leverage
must be approved by the Board of Trustees and the Board of Trustees will
receive regular reports from the Adviser and the Sub-Adviser regarding the
Fund's use of financial leverage and the effect of financial leverage on the
management of the Fund's portfolio and the performance of the Fund.
Reverse repurchase agreements involve the risks that the interest
income earned on the investment of the proceeds will be less than the interest
expense and Fund expenses, that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
such securities and that the securities may not be returned to the Fund.
Medium and Smaller Company Risk. The general risks associated with
the types of securities in which the Fund invests are particularly pronounced
for securities issued by companies with medium and smaller market
capitalizations. These companies may have limited product lines, markets or
financial resources or they may depend on a few key employees. As a result,
they may be subject to greater levels of credit, market and issuer risk.
Securities of medium and smaller companies may trade less frequently and in
lesser volume than more widely held securities and their values may fluctuate
more sharply than other securities.
Foreign Investment Risk. Investments in securities of foreign issuers
involve special risks. For example, the value of these investments may decline
in response to unfavorable political and legal developments, unreliable or
untimely information, or economic and financial instability. There may be less
publicly available information about a foreign company than a U.S. company.
Foreign companies are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those standards applicable
to U.S. companies. Foreign securities exchanges, brokers and listed companies
may be subject to less government supervision and regulation than exists in the
United States. Dividend and interest income may be subject to withholding and
other foreign taxes, which may adversely affect the net return on such
investments. There may be difficulty in obtaining or enforcing a court judgment
abroad. In addition, it may be difficult to effect repatriation of capital
invested in certain countries. In addition, with respect to certain countries,
there are risks of expropriation,
17
confiscatory taxation, political or social instability or diplomatic
developments that could affect assets of the Fund held in foreign countries.
Foreign securities markets may have substantially less volume than U.S.
securities markets and some foreign company securities are less liquid than
securities of otherwise comparable U.S. companies. Foreign markets also have
different clearance and settlement procedures that could cause the Fund to
encounter difficulties in purchasing and selling securities on such markets and
may result in the Fund missing attractive investment opportunities or
experiencing loss. In addition, a portfolio that includes foreign securities
can expect to have a higher expense ratio because of the increased transaction
costs on non-U.S. securities markets and the increased costs of maintaining the
custody of foreign securities. Similar foreign investment risks may apply to
futures contracts and other derivative instruments in which the Fund invests
that trade on foreign exchanges. The value of derivative and other instruments
denominated in or that pay revenues in foreign currencies may fluctuate based
on changes in the value of those currencies relative to the U.S. dollar, and a
decline in applicable foreign exchange rates could reduce the value of such
instruments held by the Fund. Foreign settlement procedures also may involve
additional risks.
ADRs are receipts issued by United States banks or trust companies in
respect of securities of foreign issuers held on deposit for use in the United
States securities markets. While ADRs may not necessarily be denominated in the
same currency as the securities into which they may be converted, many of the
risks associated with foreign securities may also apply to ADRs. In addition,
the underlying issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
Inflation/Deflation Risk. Inflation risk is the risk that the value
of assets or income from the Fund's investments will be worth less in the
future as inflation decreases the value of payments at future dates. As
inflation increases, the real value of the Fund's portfolio could decline.
Deflation risk is the risk that prices throughout the economy decline over
time. Deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the
value of the Fund's portfolio.
Management Risk. The Fund is subject to management risk because it
has an actively managed portfolio. The Sub-Adviser will apply investment
techniques and risk analysis in making investment decisions for the Fund, but
there can be no guarantee that these will produce the desired results. The Fund
will invest in securities that the Sub-Adviser believes are undervalued or
mispriced as a result of recent economic events, such as market dislocations,
the inability of other investors to evaluate risk and forced selling. If the
Sub-Adviser's perception of the value of a security is incorrect, your
investment in the Fund may lose value.
18
Portfolio Turnover Risk. The Fund's annual portfolio turnover rate
may vary greatly from year to year. Portfolio turnover rate is not considered a
limiting factor in the execution of investment decisions for the Fund. A higher
portfolio turnover rate results in correspondingly greater brokerage
commissions and other transactional expenses that are borne by the Fund. High
portfolio turnover may result in an increased realization of net short-term
capital gains by the Fund which, when distributed to shareholders, will be
taxable as ordinary income. Additionally, in a declining market, portfolio
turnover may create realized capital losses.
Recent Market Developments. Global financial markets have experienced
periods of unprecedented turmoil. The debt and equity capital markets in the
United States were negatively impacted by significant write-offs in the
financial services sector relating to subprime mortgages and the re-pricing of
credit risk in the broader market, among other things. These events, along with
the deterioration of the housing market, the failure of major financial
institutions and the concerns that other financial institutions as well as the
global financial system were also experiencing severe economic distress
materially and adversely impacted the broader financial and credit markets and
reduced the availability of debt and equity capital for the market as a whole
and financial firms in particular. These events contributed to severe market
volatility and caused severe liquidity strains in the credit markets. Volatile
financial markets can expose the Fund to greater market and liquidity risk and
potential difficulty in valuing portfolio instruments held by the Fund. The
third and fourth quarters of 2009 witnessed more stabilized economic activity
as expectations for an economic recovery increased. However, risks to a robust
resumption of growth persist: a weak consumer weighed down by too much debt and
increasing joblessness, the growing size of the federal budget deficit and
national debt, and the threat of inflation. A return to unfavorable economic
conditions or sustained economic slowdown may place downward pressure on equity
markets, which in turn, may adversely affect the Fund. The current financial
market situation, as well as various social, political, and psychological
tensions in the United States and around the world, may continue to contribute
to increased market volatility, may have long-term effects on the U.S. and
worldwide financial markets; and may cause further economic uncertainties or
deterioration in the United States and worldwide. The prolonged continuation or
further deterioration of the current U.S. and global economic downturn could
adversely impact the Fund's portfolio. The Sub-Adviser does not know how long
the financial markets will continue to be affected by these events and cannot
predict the effects of these or similar events in the future on the U.S.
economy and securities markets in the Fund's portfolio.
Government Intervention in Financial Markets. The instability in the
financial markets discussed above has led the U.S. Government to take a number
of unprecedented actions designed to support certain financial institutions and
segments of the financial markets that have experienced extreme volatility, and
in some cases a lack of liquidity. Federal, state, and other governments, their
regulatory agencies, or self regulatory organizations may take actions that
affect the
19
regulation of the instruments in which the Fund invests, or the issuers of such
instruments, in ways that are unforeseeable. Governments or their agencies may
also acquire distressed assets from financial institutions and acquire
ownership interests in those institutions. The long-term implications of
government ownership and disposition of these assets are unclear, and may have
positive or negative effects on the liquidity, valuation and performance of the
Fund's portfolio holdings.
Legislation Risk. At any time after the date hereof, legislation may
be enacted that could negatively affect the assets of the Fund or the issuers
of such assets. Changing approaches to regulation may have a negative impact on
the Fund entities in which the Fund invests. Legislation or regulation may also
change the way in which the Fund itself is regulated. There can be no assurance
that future legislation, regulation or deregulation will not have a material
adverse effect on the Fund or will not impair the ability of the Fund to
achieve its investment objective.
Market Disruption and Geopolitical Risk. The aftermath of the war in
Iraq and the continuing occupation of Iraq, instability in the Middle East and
terrorist attacks in the United States and around the world have contributed to
increased market volatility, may have long-term effects on the U.S. and
worldwide financial markets and may cause further economic uncertainties or
deterioration in the United States and worldwide. The Adviser and Sub-Adviser
do not know how long the financial markets will continue to be affected by
these events and cannot predict the effects of these or similar events in the
future on the U.S. and global economies and securities markets.
MANAGEMENT OF THE FUND
The portfolio management personnel of the Sub-Adviser who are
primarily responsible for the day-to-day management of the Fund's portfolio
are: Robert Daviduk, Managing Director and Senior Portfolio Manager of the
Sub-Adviser; Jayson Flowers, Managing Director of the Sub-Adviser; Jamal
Pesaran, Portfolio Sector Manager of the Sub-Adviser; Farhan Sharaff, Assistant
Chief Investment Officer, Equities of the Sub-Adviser; and Scott Minerd, Chief
Investment Officer of the Sub-Adviser. Robert Daviduk serves as the lead
portfolio manager of the Fund. The portfolio management personnel primarily
responsible for the day-to-day management of the Fund's portfolio are supported
by a team of equity analysts and risk managers.
Robert Daviduk. Bob Daviduk is a Managing Director and Senior
Portfolio Manager in the fixed-income group at Guggenheim and has over 25 years
of portfolio management experience. He is a member of the Portfolio
Construction Group and is the lead portfolio manager for several client
portfolios. Prior to joining Guggenheim in 2006, Mr. Daviduk was a Partner and
COO at Global Fixed-Income Partners, LLC (2005-2006), a money manager and hedge
fund. At Wells Capital Management (2002-2005), Mr. Daviduk was a Managing
Director and headed several investment teams responsible for the management of
$25 billion of fixed income assets across a full range of durations, asset
classes and credit qualities. Before that, Mr. Daviduk was a Senior Vice
President at Banc of America Capital
20
The following is a summary of the experience, qualifications,
attributes and skills of each Trustee that support the conclusion, as of the
date of this proxy statement, that each Trustee should serve as a Trustee in
light of the Fund's business and structure. References to the qualifications,
attributes and skills of Trustees do not constitute holding out of the Board or
any Trustee as having any special expertise.
Matthew J. Appelstein. Mr. Appelstein has served as a Trustee of the
Fund and another fund in the Claymore Fund Complex since 2005. Through his
service as a Trustee of the Fund, his service on other public company boards,
including other investment company boards, his experience as Executive Vice
President of Old Mutual Asset Management, an investment services company, and
his prior experience, including Senior Vice President of Fidelity Management
Trust Company, also an investment services company, Mr. Appelstein is
experienced in financial, investment, technology and regulatory matters.
Randall C. Barnes. Mr. Barnes has served as a Trustee of the Fund and
other funds in the Claymore fund complex since 2003. Mr. Barnes also serves on
the board of certain Claymore sponsored Canadian funds. Through his service as
a Trustee of the Fund and as chairman of the Audit Committee, employment
experience as President of Pizza Hut International and as Treasurer of PepsiCo,
Inc., and his personal investment experience, Mr. Barnes is experienced in
financial, accounting, regulatory and investment matters.
Steven D. Cosler. Mr. Cosler has served as a Trustee of the Fund and
another fund in the Claymore Fund Complex since 2005. Through his service as a
Trustee of the Fund, his service on other public and private company boards,
and his prior experience, including President and Chief Executive Officer of
Priority Healthcare Corporation, Mr. Cosler is experienced in financial,
investment and regulatory matters.
Robert M. Hamje. Mr. Hamje has served as a Trustee of the Fund and
another fund in the Claymore Fund Complex since 2004. Through his service as a
Trustee of the Fund, his service on other public company boards, including
funds in another investment company complex, and his prior experience,
including President and Chief Investment Officer of TRW Investment Management
Company, Mr. Hamje is experienced in financial, investment and regulatory
matters.
L. Kent Moore. Mr. Moore has served as a Trustee of the Fund and
another fund in the Claymore Fund Complex since 2004. Through his service as a
Trustee of the Fund and funds in another investment company complex and his
experience as an analyst, portfolio manager and principal at both Janus Capital
and Marsico Capital Management, Mr. Moore is experienced in financial,
investment and regulatory matters.
Ronald A. Nyberg. Mr. Nyberg has served as a Trustee of the Fund and
other funds in the Claymore Fund Complex since 2003. Through his service as a
Trustee of the Fund and as chairman of the Nominating & Governance Committee,
his professional training and experience as an attorney and partner of a law
firm,
34