No-Action Letter Allows Adviser to Continue to Serve as Investment Adviser to ETFs Pursuant to a Contract Not Approved by Shareholders

April 27, 2010

The SEC staff granted no-action relief from Section 15(a) of the Investment Company Act of 1940 (1940 Act) to Claymore Advisors, part of the Claymore Group fund complex, allowing it to continue to serve as investment adviser to certain series Funds of Claymore Exchange-Traded Fund Trust and Claymore Exchange-Traded Fund Trust 2 (together, the Trusts), even though Claymore Advisors would serve in such capacity pursuant to a written investment advisory agreement that had not been approved by the shareholders of the ETF Trusts.

On July 17, 2009, Claymore Group entered into an agreement and plan of merger between and among Claymore Group, Claymore Holdings, LLC and GuggClay Acquisition, Inc. pursuant to which Claymore Group and its subsidiaries (including Claymore Advisors) would become indirect, wholly owned subsidiaries of Guggenheim Partners, LLC (Guggenheim) upon the closing of such transaction (the "Guggenheim Transaction").  The Board of Trustees of each Trust was advised that the closing of the Guggenheim Transaction would cause the automatic termination of each Fund's then-current investment advisory agreement with Claymore Advisors (the Original Advisory Agreements) pursuant to such Agreement's terms.

On September 28, 2009, the Board of each Trust, including those trustees who are not "interested persons" as defined in the 1940 Act, after determining that it would be appropriate for Claymore Advisors to continue to serve as investment adviser to the Funds, approved an interim investment advisory agreement between such Funds and Claymore Advisors (Interim Advisory Agreements) pursuant to the requirements of Rule 15a-4(b)(2) under the 1940 Act.  Each Interim Advisory Agreement was scheduled to take effect as of the closing date of the Guggenheim Transaction ("Guggenheim Effective Date") and was scheduled to terminate upon the earlier of:

  • 150 calendar days after the Guggenheim Effective Date and
  • the approval of a new advisory agreement ("New Advisory Agreements") by the shareholders of each Fund (Interim Period).

When the Guggenheim Transaction closed on October 14, 2009, each Fund's Original Advisory Agreement automatically terminated and its Interim Advisory Agreement took effect as of such date. Accordingly, both Interim Advisory Agreements were scheduled to expire on March 13, 2010 (Termination Date).

As of March 10, 2010, Claymore Advisors and the Trusts believed that, despite all the efforts made, there was a high probability that the Funds would not receive the number of votes necessary to constitute a quorum with respect to five Funds (Remaining Funds) by the Termination Date.  Claymore Advisors and the Trusts represented in the incoming letter that they acted promptly, immediately after the Guggenheim Effective Date, to prepare, print and mail the relevant proxy materials and made extraordinary efforts to enable a shareholder meeting to be held at which shareholders of each Fund could vote on the approval of the New Advisory Agreements.  The incoming letter further noted that the overwhelming vote from shareholders of the Funds had been cast in favor of approving the New Advisory Agreements and that the only obstacle has been obtaining a quorum with respect to the Remaining Funds.

The SEC staff granted no-action relief permitting Claymore Advisors under Section 15(a) of the 1940 Act to continue to serve as investment adviser to the Remaining Funds for the for an additional period of time after the expiration of the original 150-day period not to exceed the earlier of:

  • the date on which such Remaining Fund obtains the votes necessary to achieve a quorum and holds a shareholder vote, and
  • 45 calendar days after the Termination Date (Additional Period).

During the Additional Period, each Trust, upon the recommendation of its Board, would continue to seek the approval of the New Advisory Agreement by the shareholders of each Remaining Fund.  In light of the continuing extensive proxy solicitation efforts, Claymore Advisors and the Trusts believed that they would be able to obtain a quorum for the Remaining Funds before the expiration of the Additional Period.

Click to access the no-action letter.


Exchange-Traded Funds (ETFs), Investment Advisers, Regulatory