[Federal Register Volume 68, Number 97 (Tuesday, May 20, 2003)]
[Notices]
[Pages 27603-27605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-12609]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26046; 812-12768]


Claymore Securities, Inc. and Claymore Securities Defined 
Portfolios; Notice of Application

May 14, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under: (i) section 6(c) of the 
Investment Company Act of 1940 (``Act'') for exemptions from sections 
14(a) and 19(b) of the Act and from rule 19b-1 thereunder; (ii) 
sections 6(c) and 17(b) of the Act for an exemption from section 17(a) 
of the Act; and (iii) section 12(d)(1)(J) of the Act for an exemption 
from section 12(d)(1)(F)(ii) of the Act.

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Summary of Application: Applicants Claymore Securities Inc. 
(``Sponsor''), Claymore Securities Defined Portfolios (the ``Claymore 
Trust''), as well as any unit investment trust (``UIT'') for which the 
Sponsor or an entity controlling, controlled by, or under common 
control with the Sponsor serves as the sponsor in the future (together 
with the Claymore Trust, the ``Trusts'') and any presently outstanding 
or subsequently issued series of the Trusts (each, a ``Trust Series'') 
request an order: (a) under section 12(d)(1)(J) of the Act to permit 
each Trust Series to offer and sell to the public units (``Units'') 
with a sales load that exceeds the 1.5% limit in section 
12(d)(1)(F)(ii) of the Act; (b) under sections 6(c) and 17(b) for an 
exemption from section 17(a) of the Act to permit the Trust Series to 
invest in affiliated registered investment companies within the limits 
of section 12(d)(1)(F) of the Act; and (c) under section 6(c) of the 
Act for exemptions from sections 14(a) and 19(b) of the Act and rule 
19b-1 under the Act to permit Units to be publicly offered without 
requiring the Sponsor to take for its own account or place with others 
$100,000 worth of Units, and to permit the Trust Series to distribute 
capital gains resulting from the sale of portfolio securities within a 
reasonable time after receipt.

Filing Dates: The application was filed on January 30, 2002, and 
amended on May 8, 2003.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on June 9, 2003 and should be accompanied by proof of service on 
the applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, 
DC, 20549-0609; Applicants: Nicholas Dalmaso, c/o Claymore Securities, 
Inc., 210 North Hall Street, Wheaton, Illinois 60187.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574 or Todd F. Kuehl, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC, 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. The Sponsor, a broker-dealer registered under the Securities 
Exchange Act of 1934, will serve as the sponsor to the Claymore Trust 
and any future Trusts.\1\ The Claymore Trust is a UIT registered under 
the Act and each Trust Series is organized under a trust indenture 
between the Sponsor, a banking institution or trust company as trustee 
(``Trustee'') and an evaluator. The Trustee, the Sponsor or an 
affiliate may serve as the evaluator. The evaluator, will be a 
``qualified evaluator'' as defined in rule 22c-1(b)(2) under the Act. 
Pursuant to the trust indenture, the Sponsor will deposit into each 
Trust Series shares of existing registered investment companies 
(``Funds''), or contracts and monies for the purchase of shares of the 
Funds. The Funds may be closed-end or open-end investment companies or 
UITs. Certain of the Funds are open-end investment companies or UITs 
that have received exemptive relief under the Act to sell their shares 
at negotiated prices on an exchange (``Exchange Funds''). In addition, 
a Trust Series may invest a portion of its assets directly in equity 
securities, fixed income securities and other investment instruments 
(together with the Funds, the ``Securities'').
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    \1\ The Claymore Trust is currently the only existing Trust 
intending to rely on the requested order. Any other existing or 
future Trust that may rely on the order in the future will do so 
only in accordance with the terms and conditions of the application.
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    2. The purpose of each Trust Series is to provide retail investors 
(1) an investment with a professionally selected asset allocation model 
or investment theme based upon the Sponsor's assessment of the overall 
economic climate and financial markets, and (2) the opportunity for 
income and/or capital appreciation through a diversified fixed 
portfolio of Funds professionally selected by the Sponsor from the 
total population of available Funds within the various market sectors 
of the Sponsor's asset allocation model or consistent with the 
enunciated investment theme (together with any other Securities 
selected in accordance with the Sponsor's asset allocation model or 
investment theme for the particular Trust Series). Applicants 
anticipate that certain of the Funds selected may be advised and/or 
distributed by the Sponsor or one of its affiliates (``Affiliated 
Funds''). Applicants anticipate that most of the Funds selected will be 
unaffiliated with the Sponsor (``Unaffiliated Funds''). Applicants 
state that the Trust Series' investments in Affiliated Funds and 
Unaffiliated Funds will comply with section 12(d)(1)(F) in all respects 
except for the sales load restriction of section 12(d)(1)(F)(ii).
    3. Shares of each of the Funds (except closed-end Funds or Exchange 
Funds) will be purchased by or deposited into any Trust Series at their 
public offering price (i.e., such Funds' net asset values, plus any 
applicable sales loads). Shares of closed-end Funds and Exchange Funds 
will be purchased by or deposited into a Trust Series at their market 
value as determined by an evaluator. Investors in the Trust Series 
(``Unitholders'') will pay a specified sales load to the Sponsor in 
connection with the purchase of their Units.
    4. The Trustee may receive service fees under a rule 12b-1 plan 
from certain Funds to compensate it for providing servicing and sub-
accounting functions with respect to Fund shares held by the Trust 
Series. In such cases, the Trustee will reduce its regular fee to a 
Trust Series directly by the fees it receives from the Funds and rebate 
any excess fees it receives to the Trust Series. Any fees so rebated 
will be utilized by the Trust Series to absorb other bona fide Trust 
Series' expenses. To the extent that these fees exceed the total Trust 
Series' expenses, the excess will be distributed along with other 
income earned by the Trust Series.

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Applicants' Legal Analysis

A. Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if those securities represent more than 3% of the acquired company's 
total outstanding voting stock, more than 5% of the acquiring company's 
total assets, or if the securities, together with the securities of any 
other acquired investment companies, represent more than 10% of the 
acquiring company's total assets.
    2. Section 12(d)(1)(F) of the Act provides that section 12(d)(1) 
does not apply to an acquiring company if the company and its 
affiliated persons own no more than 3% of an acquired company's total 
outstanding securities, provided that the acquiring company does not 
impose a sales load of more than 1.5%. In addition, the section 
provides that no acquired company may be obligated to honor any 
acquiring company's redemption request in excess of 1% of the acquired 
company's securities during any period of less than 30 days, and the 
acquiring company must vote its acquired company shares either in 
accordance with instructions from its shareholders or in the same 
proportion as all other shareholders of the acquired company.
    3. A Trust Series will invest in Affiliated and Unaffiliated Funds 
in reliance on section 12(d)(1)(F) of the Act. If the requested relief 
is granted, the Trust Series will offer Units to the public with a 
sales load that exceeds the 1.5% limit in section 12(d)(1)(F)(ii).
    4. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt persons or transactions from any provision of section 12(d)(1), 
if and to the extent that such exemption is consistent with the public 
interest and the protection of investors.
    5. Applicants have agreed, as a condition to the requested relief, 
that any sales charges and/or service fees charged with respect to 
Units of a Trust Series will not exceed the limits set forth in rule 
2830 of the National Association of Securities Dealers, Inc. (``NASD'') 
Conduct Rules applicable to a fund of funds. Applicants believe that it 
is appropriate to apply the NASD's rule to the proposed arrangement 
instead of the sales load limitation in section 12(d)(1)(F)(ii). 
Applicants assert that the NASD's rule more accurately reflects today's 
regulatory environment with respect to the methods by which investment 
companies finance sales expenses.
    6. Applicants state that, with respect to Securities issued by 
closed-end Funds which are traded on the open market, no front-end 
sales load, contingent deferred sales charges, 12b-1 fees, or other 
distribution fees or redemption fees will be charged in connection with 
the purchase or sale of the Securities by a Trust Series. Similarly, no 
front-end sales loads, contingent deferred sales charges or redemption 
fees will be assessed in connection with the purchase or sale of 
Securities of an Exchange Fund, but certain Exchange Funds may assess a 
rule 12b-1 fee. Although the Trust Series will likely incur brokerage 
commissions in connection with their open market purchases of 
Securities of closed-end Funds or Exchange Funds, these commissions 
will not differ from commissions otherwise incurred in connection with 
the purchase or sale of comparable portfolio securities.
    7. Applicants also agree, as a condition to the requested relief, 
that each Trust Series will not invest in any underlying Fund which 
acquires securities of any other investment company in excess of the 
limits contained in section 12(d)(1)(A) of the Act.

B. Section 17(a) of the Act

    1. With regard to the Trust Series' investments in Affiliated 
Funds, applicants request relief from section 17(a) of the Act under 
sections 6(c) and 17(b). Section 17(a) of the Act generally prohibits 
an affiliated person, or an affiliated person of an affiliated person, 
of a registered investment company from selling securities to, or 
purchasing securities from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include any 
person directly or indirectly controlling, controlled by, or under 
common control with the other person. Applicants submit that the Trust 
Series and Affiliated Funds may be deemed to be affiliated persons of 
one another by virtue of being under common control of the Sponsor. 
Applicants state that purchases and redemptions of Securities of the 
Affiliated Funds that are open-end investment companies or UITs by a 
Trust Series could be deemed to be principal transactions between 
affiliated persons under section 17(a).
    2. Section 6(c) of the Act provides that the Commission may exempt 
persons or transactions from any provisions of the Act if the exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act. Section 17(b) of the Act provides 
that the Commission will exempt a proposed transaction from section 
17(a) if evidence establishes that: (a) the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching; (b) the proposed 
transaction is consistent with the policies of the registered 
investment company involved; and (c) the proposed transaction is 
consistent with the general purposes of the Act.
    3. Applicants state that Securities of open-end Funds and UITs will 
be sold to the Trust Series at the Fund's public offering price (i.e., 
such Fund's net asset value, plus any applicable sales loads). As a 
result, Applicants believe that the transactions in Securities of 
Affiliated Funds, including the consideration to be paid or received, 
will be reasonable and fair and will not involve overreaching on the 
part of any person involved. Furthermore, Applicants believe that the 
proposed transactions will be consistent with the policies of the Trust 
Series as recited in the registration statements for the Trust Series.

C. Section 14(a) of the Act

    1. Section 14(a) of the Act requires in substance that a registered 
investment company have $100,000 of net worth prior to making a public 
offering. Applicants believe that each Trust Series will comply with 
this requirement because the Sponsor will deposit substantially more 
than $100,000 of Securities in each Trust Series. Applicants assert, 
however, that the Commission has interpreted section 14(a) as requiring 
that the initial capital investment in an investment company be made 
without any intention to dispose of the investment. Applicants state 
that, under this interpretation, a Trust Series would not satisfy 
section 14(a) because of the Sponsor's intention to sell all of the 
Units of the Trust Series.
    2. Rule 14a-3 under the Act exempts UITs from section 14(a) if 
certain conditions are met, one of which is that the UIT invest only in 
``eligible trust securities,'' as defined in the rule. Applicants 
submit that the Trust Series cannot rely on the rule because the Trust 
Series will invest all or a portion of their assets in Fund shares (or 
in a combination of Fund shares and other Securities) and such Fund 
shares and certain equity Securities are not eligible trust securities. 
Pursuant to section 6(c) of the Act, Applicants request an exemption 
from the net worth requirement of section 14(a) of the Act. Applicants 
state that the Trust Series and the Sponsor will comply in all

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respects with the requirements of rule 14a-3, except that the Trust 
Series will not restrict their portfolio investments to ``eligible 
trust securities.''

D. Section 19(b) of the Act

    1. Section 19(b) of the Act and rule 19b-1 under the Act provide 
that, except under limited circumstances, no registered investment 
company may distribute long-term gains more than once every twelve 
months. Rule 19b-1(c), under certain circumstances, excepts a UIT 
investing in ``eligible trust securities'' (as defined in rule 14a-3) 
from the requirements of rule 19b-1. Because the Trust Series do not 
limit their investments to ``eligible trust securities,'' the Trust 
Series do not qualify for the exemption in paragraph (c) of rule 19b-1. 
Therefore, applicants request an exemption under section 6(c) from 
section 19(b) and rule 19b-1 to the extent necessary to permit capital 
gains earned in connection with the redemption of Fund shares, or sales 
of closed-end Fund shares, Exchange Fund shares, or other portfolio 
Securities, to be distributed to Unitholders along with the Trust 
Series' regular distributions. Applicants state that, in all other 
respects, the Trust Series will comply with section 19(b) and rule 19b-
1. Applicants assert that the abuses that section 19(b) and rule 19b-1 
were designed to prevent do not exist with regard to the Trust Series. 
Applicants state that any gains from the redemption or sale of Fund 
shares or other portfolio Securities would be triggered by the need to 
meet Trust Series' expenses or by requests to redeem Units, events over 
which the Sponsor and the Trust Series have no control.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Each Trust Series will comply with section 12(d)(1)(F) in all 
respects except for the sales load limitation of section 
12(d)(1)(F)(ii).
    2. Any sales charges and/or service fees (as those terms are 
defined in NASD Conduct Rule 2830) charged with respect to Units of a 
Trust Series will not exceed the limits set forth in NASD Conduct Rule 
2830 applicable to a fund of funds (as defined in NASD Conduct Rule 
2830).
    3. No Fund will acquire securities of any other investment company 
in excess of the limits contained in section 12(d)(1)(A) of the Act.
    4. The Trust Series and the Sponsor will comply in all respects 
with the requirements of rule 14a-3, except that the Trust Series will 
not restrict their portfolio investments to ``eligible trust 
securities.''
    5. No Trust Series will terminate within thirty days of the 
termination of any other Trust Series that holds shares of one or more 
common Funds.
    6. The prospectus of each Trust Series and any sales literature or 
advertising that mentions the existence of an in-kind distribution 
option will disclose that Unitholders who elect to receive Fund shares 
will incur any applicable rule 12b-1 fees.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-12609 Filed 5-19-03; 8:45 am]
BILLING CODE 8010-01-P