UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21652
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Fiduciary/Claymore MLP Opportunity Fund
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(Exact name of registrant as specified in charter)
2455 Corporate West Drive, Lisle, IL 60532
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(Address of principal executive offices) (Zip code)
J. Thomas Futrell
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2455 Corporate West Drive, Lisle, IL 60532
(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 505-3700
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Date of fiscal year end: November 30
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Date of reporting period: November 30, 2009
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), is as follows:
ANNUAL FIDUCIARY/CLAYMORE
REPORT MLP OPPORTUNITY FUND | FMO
November 30, 2009
artwork: pipeline
artwork: FAMCO
Fiduciary Asset Management
artwork: CLAYMORE(R)
WWW.CLAYMORE.COM/FMO
.... YOUR PIPELINE TO THE LATEST,
MOST UP-TO-DATE INFORMATION ABOUT THE
FIDUCIARY/CLAYMORE MLP OPPORTUNITY FUND
artwork: pipeline
artwork: FAMCO
Fiduciary Asset Management
artwork: CLAYMORE(R)
FMO | Fiduciary
LISTED | Claymore
NYSE | MLP Opportunity
Fund
[LOGO OF FAMCO] [LOGO OF CLAYMORE]
FIDUCIARY ASSET MANAGEMENT CLAYMORE(R)
There can be no assurance the fund will achive its investment objective. The
value of the fund will fluctuate with the value of the underlying securities.
Historically, closed-end funds often trade at a discount to their net asset
value.
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
The shareholder report you are reading right now is just the beginning of the
story. Online at WWW.CLAYMORE.COM/FMO, you will find:
o Daily, weekly and monthly data on share prices, distributions, dividends and
more
o Portfolio overviews and performance analyses
o Announcements, press releases and special notices
o Fund and adviser contact information
Fiduciary Asset Management and Claymore are constantly updating and expanding
shareholder information services on the Fund's website, in an ongoing effort to
provide you with the most current information about how your Fund's assets are
managed, and the results of our efforts. It is just one more small way we are
working to keep you better informed about your investment in the Fund.
2 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund
Dear SHAREHOLDER |
We thank you for your investment in the Fiduciary/Claymore MLP Opportunity Fund
(the "Fund"). This report covers the Fund's performance for the fiscal year
ended November 30, 2009.
The Fund's investment objective is to provide a high level of after-tax total
return with an emphasis on current distributions paid to shareholders.
Fiduciary Asset Management, LLC ("FAMCO"), the Fund's sub-adviser, seeks to
achieve that objective by investing at least 80% of the Fund's managed assets
in master limited partnership ("MLP") entities, which can provide shareholders
with attractive tax-deferred income.
FAMCO manages a wide range of institutional products and is one of the leading
managers of hedged equity investments. As of November 30, 2009, FAMCO managed
and supervised approximately $14.9 billion in assets.
On October 15, 2009, Guggenheim Partners, LLC, a global diversified financial
services firm, and Claymore Group Inc. ("Claymore"), the parent company of the
Fund's adviser, announced the completion of a previously announced merger. The
closing of the transaction took place on October 14, 2009 (the "Effective
Date"). As a result of the transaction, Claymore and its associated entities,
including Claymore Securities, Inc., Claymore Advisors, LLC (the Fund's adviser)
and Claymore Investments, Inc. (in Canada), are now indirect wholly-owned
subsidiaries of Guggenheim Partners.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"), the
consummation of this transaction resulted in the automatic termination of the
Advisory & Sub-Advisory Agreements. Accordingly, on September 23, 2009, the
Board of Trustees approved an interim investment advisory agreement between the
Fund and the Adviser (the "Interim Advisory Agreement") and an interim
investment sub-advisory agreement among the Fund, the Adviser and FAMCO (the
"Interim Sub-Advisory Agreement" and together with the Interim Advisory
Agreement, the "Interim Agreements"). The Interim Agreements took effect as of
the Effective Date and will terminate upon the earlier of: (a) 150 calendar days
after the Effective Date or (b) the approval of a new investment advisory
agreement and a new investment sub-advisory agreement by the shareholders of the
Fund. In addition, the advisory fees earned by the Adviser pursuant to the
Interim Advisory Agreement and the sub-advisory fees earned by FAMCO pursuant to
the Interim Sub-Advisory Agreement will be held in an interest-bearing escrow
account with the Fund's custodian during the term of the Interim Agreements. If
the Fund's shareholders approve a new advisory agreement with the Adviser prior
to the expiration of the term of the Interim Advisory Agreement, the amount in
the escrow account (including any interest earned) with respect to the Fund
shall be paid to the Adviser. If the Fund's shareholders approve a new
sub-advisory agreement with FAMCO prior to the expiration of the term of the
Interim Sub-Advisory Agreement, the amount in the escrow account (including any
interest earned) with respect to the Fund shall be paid to FAMCO. If the Fund's
shareholders do not approve a new advisory agreement with the Adviser, or a new
sub-advisory agreement with FAMCO, prior to the expiration of the term of the
Interim Agreements, the Adviser or FAMCO, as applicable, shall be paid, out of
the escrow account with respect to the Fund, the lesser of (i) the Adviser's or
FAMCO's costs incurred in providing the services under the Interim Agreements
(including any interest earned on that amount while in escrow) with respect to
the Fund; or (ii) the total amount in the escrow account (including any interest
earned) with respect to the Fund. Other than the effective dates and the
provisions set forth above regarding the advisory and sub-advisory fees'
placement into an escrow account, the terms and conditions of the Interim
Agreements are substantively identical to those of the original Advisory
Agreement and Sub-Advisory Agreement.
On September 23, 2009, the Board of Trustees approved a new investment advisory
agreement between the Fund and the Adviser (the "New Advisory Agreement") and a
new investment sub-advisory agreement among the Fund, the Adviser and FAMCO (the
"New Sub-Advisory Agreement" and together with the New Advisory Agreement, the
"New Agreements") and recommended that the New Agreements be submitted to the
shareholders
Annual Report | November 30, 2009 | 3
FMO | Fiduciary/Claymore MLP Opportunity Fund | DEAR SHAREHOLDER continued
of the Fund for their approval. The New Agreements will take effect with respect
to the Fund upon their approval by the shareholders of the Fund and will have an
initial term of one year. Thereafter, the New Agreements will continue in effect
only if their continuance is approved by the Board of Trustees. Other than
effective dates, there are no material differences between the terms of the New
Agreements and those of the original Advisory Agreement and Sub-Advisory
Agreement.
All Fund returns cited--whether based on net asset value ("NAV") or market
price--assume the reinvestment of all distributions. For the 12-month period
ending November 30, 2009, the Fund provided a total return based on market price
of 57.32% and a return of 38.03% based on NAV. As of November 30, 2009, the
Fund's last closing market price of $16.24 represented a premium of 8.27% to the
Fund's NAV of $15.00. Past performance is not a guarantee of future results. The
market value of the Fund's shares fluctuates from time to time, and it may be
higher or lower than the Fund's NAV.
The Fund paid quarterly distributions of $0.37185 per share on January 30, 2009,
and April 30, 2009, and distributions of $0.335 on July 31, 2009, and October
30, 2009.
Under the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), a
shareholder whose Common Shares are registered in his or her own name will have
all distributions reinvested automatically unless the shareholder elects to
receive cash. Distributions with respect to Common Shares registered in the name
of a broker-dealer or other nominee (that is, in "street name") will be
reinvested by the broker or nominee in additional Common Shares under the Plan,
unless the service is not provided by the broker or nominee or the shareholder
elects to receive distributions in cash. The Plan is described in detail on page
27 of the Fund's annual report. When shares trade at a discount to NAV, the Plan
takes advantage of the discount by reinvesting the quarterly dividend
distribution in common shares of the Fund purchased in the market at a price
less than NAV. Conversely, when the market price of the Fund's common shares is
at a premium above NAV, the Plan reinvests participants' dividends in
newly-issued common shares at NAV, subject to an IRS limitation that the
purchase price cannot be more than 5% below the market price per share. The Plan
provides a cost-effective means to accumulate additional shares and enjoy the
benefits of compounding returns over time.
On October 15, 2009, a prospectus became effective for the offering of
additional shares of the Fund. This offering allows for the issuance of up to an
additional $125 million of common shares. The Fund intends to invest the net
proceeds from the offering in accordance with its investment objective and
policies. The Fund hopes to recognize economies of scale from a larger asset
base resulting from the offering of additional shares.
To learn more about the Fund's performance and investment strategy, we encourage
you to read the Questions & Answers section of the report, which begins on page
5. You'll find information on FAMCO's investment philosophy, its views on the
economy and market environment, and detailed information about the factors that
impacted the Fund's performance.
We appreciate your investment and look forward to serving your investment needs
in the future. For the most up-to-date information on your investment, please
visit the Fund's website at www.claymore.com/fmo.
Sincerely,
/s/ J. Thomas Futrell
J. Thomas Futrell
Chief Executive Officer
Fiduciary/Claymore MLP Opportunity Fund
4 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund
QUESTIONS & ANSWERS |
The Fiduciary/Claymore MLP Opportunity Fund (the "Fund") is managed by Fiduciary
Asset Management, LLC ("FAMCO"). In the following interview, Portfolio Managers
James J. Cunnane, Jr., CFA, and Quinn T. Kiley discuss the Fund's performance
for the fiscal year ended November 30, 2009.
PLEASE REMIND US OF THIS FUND'S OBJECTIVE AND INVESTMENT STRATEGY.
The Fund's investment objective is to provide a high level of after-tax total
return with an emphasis on current distributions paid to shareholders. The total
return sought by the Fund includes appreciation in the net asset value ("NAV")
of the Fund's common shares and all distributions made by the Fund to its common
shareholders, regardless of the tax characterization of such distributions. The
Fund has been structured to seek to provide an efficient vehicle through which
its shareholders may invest in a portfolio of primarily publicly traded
securities of master limited partnerships ("MLPs") and related entities. MLPs
combine the tax benefits of limited partnerships with the liquidity of publicly
traded securities. The Fund believes that as a result of the tax
characterization of cash distributions made by MLPs to their investors, in a
typical year a significant portion of the Fund's income will be tax-deferred,
which may allow distributions by the Fund to its shareholders to include high
levels of tax deferred income.
Under normal market conditions, at least 80% of the Fund's managed assets are
invested in MLP entities, and at least 65% of managed assets in equity
securities of MLP entities. It is anticipated that a substantial portion of the
MLP entities in which the Fund invests will be engaged primarily in the energy,
natural resources and real estate sectors of the economy. MLP entities include
affiliates of MLPs that own general partner interests or, in some cases,
subordinated units, registered or unregistered common units, or other limited
partner units in an MLP. The Fund may also invest in common stock of large
capitalization companies, including companies engaged primarily in the
aforementioned sectors. FAMCO may employ an option strategy of writing (selling)
covered call options on securities, which may include MLPs held in the Fund's
portfolio, in order to generate current income and gains. Up to 40% of the
Fund's managed assets may be invested in unregistered or otherwise restricted
securities, which may consist of equity securities of MLP entities and other
securities of public and non-public companies, but no more than 20% of its
managed assets will be invested in restricted securities issued by non-public
companies. The Fund may invest a total of up to 25% of its managed assets in
debt securities of MLP entities and non-MLP entity issuers, including securities
rated below investment grade.
HOW WOULD YOU DESCRIBE THE MASTER LIMITED PARTNERSHIP MARKET OVER THE LAST 12
MONTHS?
At the time of the Fund's last annual report, dated November 30, 2008,
conditions in the MLP market were extremely challenging. Capital markets were
essentially frozen, and that made it extremely difficult for MLPs to obtain new
capital. Because MLPs pay out most of their cash each year as distributions to
shareholders, they need to be able to tap the capital markets on a continuing
basis to finance growth. With the ability to issue new equity or obtain new debt
almost non-existent, balance sheets of many MLP entities deteriorated and
prospects for near-term growth in earnings and distributions were dim.
Liquidity conditions in the MLP market improved dramatically in the first
calendar quarter of 2009, as forced selling by investors in need of reducing
leverage abated, and there was consistent further improvement in the MLP market
as the year progressed. At the end of November 2009, the market is still not as
robust as it was a year and a half ago, before the financial crisis began, but
it is much better than in the early months of the Fund's fiscal year. In recent
months, MLPs have successfully completed a number of equity and debt offerings,
and the tone of the market for these offerings has improved. Early in 2009, only
the strongest MLPs were able to raise equity, and most offerings had difficulty
attracting investors. More recently, some of the smaller entities have been able
to refinance, and the stronger MLPs have seen their cost of debt financing drop
substantially.
Using the Alerian MLP Index(1) (the "Index") as a benchmark for the industry,
the total return for the 12-month period ended November 30, 2009, was 59.37%
..This unusually high return made MLPs one of the best performing asset classes
over the period. Some of the names that had the highest returns over the last
year were in the riskier sectors, but even MLPs in lower risk sectors, such as
long-haul federally regulated natural gas pipelines had returns in the 50% range
for the 12 months ended November 30, 2009.
A year ago, market prices of MLPs indicated that the market was assigning an
extremely high degree of risk to the entire category, with little
differentiation among the high quality, stable entities and the weaker players.
Every MLP seemed to be priced as if it were a very risky investment. As the
market has recovered,
(1) The Alerian MLP Index measures the composite performance of the 50 most
prominent energy MLPs, and is calculated by Standard & Poor's using a
float-adjusted, capitalization-weighted methodology. An index is unmanaged,
reflects no expenses and it is not possible to invest directly in an index.
Annual Report | November 30, 2009 | 5
FMO | Fiduciary/Claymore MLP Opportunity Fund | QUESTIONS & ANSWERS continued
there has been increased differentiation between the MLPs that involve more risk
and those with less risk, which FAMCO considers appropriate.
HOW DID THE FUND PERFORM IN THIS MARKET ENVIRONMENT?
All Fund returns cited--whether based on NAV or market price--assume the
reinvestment of all distributions. For the fiscal year ended November 30, 2009,
the Fund provided a total return based on market price of 57.32% and a return of
38.03% based on NAV. Past performance is not a guarantee of future results.
The market value of the shares of closed-end funds fluctuates from time to time,
and a fund's market value may be higher or lower than its net asset value. The
closing price of the Fund's shares as of November 30, 2009, was $16.24,
representing an 8.27% premium to the NAV of $15.00. On November 30, 2008, the
Fund's market price closed at $11.42, which represented a discount of 5.54% to
the NAV of $12.09. At its inception in December 2004, the Fund's NAV was $19.10.
It is important to remember that the Fund is a taxable entity--meaning it
recognizes either a deferred tax liability on realized and unrealized portfolio
gains or a deferred tax benefit on realized and unrealized portfolio losses.
This accounting treatment of the tax impact of gains and losses in the portfolio
is intended to ensure the Fund's NAV reflects the net after-tax value of the
Fund's portfolio. As of November 30, 2009, the Fund's NAV included a net
deferred tax liability of $31.3 million, or $1.67 per share.
PLEASE TELL US ABOUT THE FUND'S DISTRIBUTIONS.
The Fund paid quarterly distributions of $0.37185 per share on January 30, 2009,
and April 30, 2009, and distributions of $0.335 on July 31, 2009, and October
30, 2009.
PLEASE EXPLAIN THE MAJOR FACTORS THAT AFFECTED THE FUND'S PERFORMANCE.
FAMCO is pleased that the Fund's holdings had strongly positive returns for the
fiscal year ended November 30, 2009, in line with the MLP asset class. The
publicly-traded portion of the portfolio, on an unlevered basis, had a return of
approximately 68% for the period, exceeding the 59% return of the Index.
However, the Fund's NAV return for the period trailed the Index and FAMCO
attributes this to three main drivers: 1) During the volatile markets of the
fourth quarter of 2008 and the first quarter of 2009, the terms of the Fund's
new credit facility required FAMCO to shift the portfolio away from smaller
capitalized MLPs towards more liquid MLPs at an inopportune time; 2) The credit
crisis took a significant toll on the Fund's private equity investments, which
hurt performance; and 3) The Fund's NAV is calculated net of all current and
future taxation, therefore its performance is not directly comparable to a
pre-tax Index.
WHICH INVESTMENTS WERE MAJOR CONTRIBUTORS TO THE STRONG PERFORMANCE OF THE
PUBLIC PORTION OF THE PORTFOLIO?
It is interesting to note that the gathering and processing and the upstream oil
and gas producing sectors, which were the two worst performing sectors in the
prior fiscal year, were the best performing sectors among MLPs, with many of
these entities returning almost 100% for the 12 months ended November 30, 2009.
Some of the Fund's investments in these sectors contributed importantly to
performance, notably DCP Midstream Partners, LP (3.8% of the Fund's long-term
investments as of November 30, 2009), which returned more than 250%. Also quite
strong was EV Energy Partners, LP (2.4% of the Fund's long-term investments as
of November 30, 2009), returning more than 130%. These dramatic swings are more
indicative of how far some quality entities had fallen than of major fundamental
changes; in fact, both DCP Midstream and EV Energy are still well below the peak
prices reached in 2007. FAMCO maintained positions such as these in the
portfolio during periods when they were very detrimental to performance because
of confidence in their business models and in their long-term prospects, and
this patience has been rewarded. The sharp recovery of these investments
provides evidence of the market's extreme exaggeration of the risk of some of
these solid entities during crisis period of 2008 and early 2009.
HOW IS THE FUND POSITIONED IN TERMS OF MARKET CAPITALIZATION AND INDUSTRY
SECTORS?
This Fund's portfolio has generally had a slightly smaller capitalization than
the Index or most competing funds. However, like most MLP funds, the Fund has a
significant position in the largest MLPs because these positions are essential
to maintaining the desired liquidity. Within the MLP asset class, there is a
huge range of market capitalizations: the largest entities have market
capitalizations in the $13 billion to $15 billion range, while market
capitalizations of many smaller but still significant MLPs are $150 million to
$200 million.
If you compare market capitalizations of the Fund's investments to those of the
Alerian MLP Index by quintiles, the Fund has a much lower weight in the top two
quintiles combined. The Fund also has a much higher weight in the Index in the
two lowest quin-tiles, because FAMCO believes that there are many attractive
opportunities in the smaller capitalization MLPs, many of which
6 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund | QUESTIONS & ANSWERS continued
have opportunities for rapid growth when conditions are favorable. This small
cap exposure contributed significantly to performance during the 2009 fiscal
year.
The Fund continues to be concentrated in the two largest sectors of the MLP
market, which are midstream gas and midstream oil; these two sectors together
represent more than 80% of the Index. As of November 30, 2009, midstream oil
represented 36.0% of the Fund's long-term investments and midstream gas
represented 46.4%, for a total of 82.4% of the Fund's long-term investments. The
Fund is somewhat underweight relative to the Index in midstream oil and
overweight in midstream gas. FAMCO favors midstream gas because of changing
dynamics in the gas market domestically versus stable conditions for crude and
refined products for midstream oil.
The natural gas overweight contributed to the Fund's performance for the 2009
fiscal year, especially higher risk names such as DCP Midstream Partners, LP and
Copano Energy LLC (3.8% of the Fund's long-term investments as of November 30,
2009), which rallied significantly in the last few months of the fiscal year,
when riskier investments tended to perform best. Also very important for
performance were the Fund's positions in natural gas pipelines such as El Paso
Pipeline Partners LP, TC PipeLines LP, and Boardwalk Pipeline Partners LP (3.1%,
2.5% and 4.6%, respectively, of the Fund's long-term investments as of November
30, 2009). These are some of the smaller to midcap names in the MLP world, but
with high quality, lower risk businesses, they performed well throughout the
year.
FAMCO finds the non-conventional shale plays around the U.S. particularly
interesting; this has become the fastest growing part of the supply side of the
gas market because they are generally in areas that have a lack of
infrastructure to process the gas and bring it to market. That means there is a
need for investment to build that infrastructure: MLPs are the major builders of
gas infrastructure in the U.S. There has also been a demographic shift in
demand. In the past, most natural gas demand was in the major population centers
of the Midwest and Northeast, so the infrastructure was focused on moving
natural gas from Louisiana and Texas to Chicago and New York. Now, population
(and therefore demand) is growing in the southern states and on the West Coast.
Shifting supply zones and shifting demand zones means a need for new
infrastructure, creating growth opportunities for MLPs. The portfolio is
therefore positioned for exposure to the changing demand/supply situation for
natural gas, with diversification among multiple geographies and multiple
fields.
In the first few months of 2009, FAMCO added some riskier investments,
concentrating on those for which the main risk was changes in commodity prices,
rather than risk inherent in the operations of a particular MLP. It is worth
noting that FAMCO's definition of risk is somewhat different from the market's
perception. The MLP market in general regards size and liquidity of the shares
as a major element of quality; in contrast, FAMCO evaluates risk in terms of the
strength of an MLP's businesses, its balance sheet, its geographic footprint,
its growth outlook and its management team.
WHAT IS THE CURRENT OUTLOOK FOR THE MLP MARKET?
FAMCO believes that the long-term outlook for MLPs is positive, as they believe
that an improving economy will stimulate energy demand, resulting in improving
cash flow and earnings for energy-related MLPs. FAMCO believes that MLPs offer a
combination of current yield and growth potential that provides greater
stability, higher income and better long-term potential than other
income-oriented investments such as bonds, utility stocks or real estate
investment trusts. MLPs also have a reasonable level of growth potential and tax
deferral features.
Annual Report | November 30, 2009 | 7
FMO | Fiduciary/Claymore MLP Opportunity Fund | QUESTIONS & ANSWERS continued
RISKS AND OTHER CONSIDERATIONS
The views expressed in this report reflect those of the portfolio manager and
Claymore only through the report period as stated on the cover. These views are
subject to change at any time, based on market and other conditions and should
not be construed as a recommendation of any kind. The material may also include
forward looking statements that involve risk and uncertainty, and there is no
guarantee that any predictions will come to pass. There can be no assurance that
the Fund will achieve its investment objectives. The value of the Fund will
fluctuate with the value of the underlying securities. Historically, closed-end
funds often trade at a discount to their net asset value.
RISKS OF INVESTING IN MLP UNITS. An investment in MLP units involves risks that
differ from a similar investment in equity securities, such as common stock, of
a corporation. Holders of MLP units have the rights typically afforded to
limited partners in a limited partnership. As compared to common shareholders of
a corporation, holders of MLP units have more limited control and limited rights
to vote on matters affecting the partnership. There are certain tax risks
associated with an investment in MLP units. Additionally, conflicts of interest
may exist between common unit holders, subordinated unit holders and the general
partner of an MLP; for example a conflict may arise as a result of incentive
distribution payments.
TAX RISKS OF INVESTING IN EQUITY SECURITIES OF MLPS. There are certain tax risks
associated with an investment in MLP units. Much of the benefit the Fund derives
from its investment in equity securities of MLPs is a result of MLPs generally
being treated as partnerships for U.S. federal income tax purposes. A change in
current tax law, or a change in the business of a given MLP, could result in an
MLP being treated as a corporation for U.S. federal income tax purposes, which
would result in such MLP being required to pay U.S. federal income tax on its
taxable income. The classification of an MLP as a corporation for U.S. federal
income taxation purposes would have the effect of reducing the amount of cash
available for distribution by the MLP and causing any such distributions
received by the Fund to be taxed as dividend income. Thus, if any of the MLPs
owned by the Fund were treated as corporations for U.S. federal income tax
purposes, the after-tax return to the Fund with respect to its investment in
such MLPs would be materially reduced, which could cause a substantial decline
in the value of the common shares.
Because of the Fund's concentration in MLPs, the Fund is not eligible to be
treated as a "regulated investment company" under the Internal Revenue Code of
1986, as amended. Instead, the Fund will be treated as a regular corporation for
US federal income tax purposes and as a result, unlike most investment
companies, will be subject to corporate income tax to the extent the Fund
recognizes taxable income. The Fund believes that as a result of the tax
characterization of cash distributions made by MLPs, a significant portion of
the Fund's income will be tax-deferred, which will allow distributions by the
Fund to its shareholders to include high levels of tax-deferred income. However,
there can be no assurance in this regard. If this expectation is not realized,
the Fund will have a larger corporate income tax expense than expected, which
will result in less cash available to distribute to shareholders.
EQUITY SECURITIES RISK. Equity risk is the risk that MLP units or other equity
securities held by the Fund will fall due to general market or economic
conditions, perceptions regarding the industries in which the issuers of
securities held by the Fund participate, changes in interest rates, and the
particular circumstances and performance of particular companies whose
securities the Fund holds. In addition, MLP units or other equity securities
held by the Fund may decline in price if the issuer fails to make anticipated
distributions or dividend payments because, among other reasons, the issuer
experiences a decline in its financial condition.
CONCENTRATION RISK. Because the Fund will invest in MLP entities, a substantial
portion of which are expected to be engaged primarily in the energy, natural
resources and real estate sectors of the economy, such concentration may present
more risks than if the Fund were broadly diversified over numerous industries
and sectors of the economy.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES. There are several risks associated
with transactions in options on securities. 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. As the writer of a covered call option, 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
should the price of the underlying security decline. The writer of an option has
no control over the time when it may be required to fulfill its obligation as a
writer of the option.
CASH FLOW RISK. The Fund expects that a substantial portion of the cash flow it
receives will be derived from its investments in equity securities of MLP
entities. The amount and tax characterization of cash available for distribution
by an MLP entity depends upon the amount of cash generated by such entity's
operations. Cash available for distribution by MLP entities will vary widely
from quarter to quarter and is affected by various factors affecting the
entity's operations. In addition to the risks described herein, operating costs,
capital expenditures, acquisition costs, construction costs, exploration costs
and borrowing costs may reduce the amount of cash that an MLP entity has
available for distribution in a given period.
SMALL CAPITALIZATION RISK. The Fund may invest in securities of MLP entities and
other issuers that have comparatively smaller capitalizations relative to
issuers whose securities are included in major benchmark indices, which present
unique investment risks.
RESTRICTED SECURITIES RISK. The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered, held by control persons of the issuer or are subject to
contractual restrictions on their resale. Restricted securities are often
purchased at a discount from the market price of unrestricted securities of the
same issuer reflecting the fact that such securities may not be readily
marketable without some time delay. Such securities are often more difficult to
value and the sale of such securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of liquid securities trading on national securities exchanges or
in the over-the-counter markets. Contractual restrictions on the resale of
securities result from negotiations between the issuer and purchaser of such
securities and therefore vary substantially in length and scope. To dispose of a
restricted security that the Fund has a contractual right to sell, the Fund may
first be required to cause the security to be registered. A considerable period
may elapse between a decision to sell the securities and the time when the Fund
would be permitted to sell, during which time the Fund would bear market risks.
LOWER GRADE SECURITIES RISK. The Fund may invest in fixed-income securities
rated below investment grade, which are commonly referred to as "junk bonds."
Investment in securities of below-investment grade quality involves substantial
risk of loss.
FOREIGN SECURITIES. Investing in securities of foreign companies (or foreign
governments) may involve certain risks not typically associated with investing
in domestic companies. The prices of foreign securities may be affected by
factors not present with securities traded in the U.S. markets, including,
political and economic conditions, less stringent regulation and higher
volatility.
8 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund | QUESTIONS & ANSWERS continued
RISKS OF LEVERAGE. The Fund's use of leverage creates special risks that may
adversely affect the return for the holders of common shares, including: greater
volatility of the net asset value and market price of the Fund's common shares;
fluctuations in the interest rates on forms of leverage; and the possibility
that the increased costs associated with leverage, which would be borne entirely
by holders of the Fund's common shares, may reduce the Fund's total return.
Leverage is a speculative investment technique, and there can be no assurance
that the Fund's potential leverage strategy will be successful. Because the fees
received by Claymore Advisors, LLC and Fiduciary Asset Management, LLC are based
on the managed assets of the Fund (including the proceeds of any leverage),the
aforementioned firms have a financial incentive for the Fund to utilize
leverage, which may create a conflict of interest between them and the common
shareholders.
NON-DIVERSIFIED STATUS. The Fund may invest a greater portion of its assets in a
more limited number of issuers than a diversified fund.
In addition to the risks described above, the Fund is also subject to:
Affiliated Party Risk, Energy Sector Risks, Other Sector Risks, Liquidity Risk,
Valuation Risk, Interest Rate Risk, Portfolio Turnover Risk, Derivatives Risk,
Market Discount Risk, Other Investment Companies Risk, Royalty Trust Risk,
Management Risk, and Current Developments Risk. Please see www.claymore.com/fmo
for a more detailed discussion about Fund risks and considerations.
Annual Report | November 30, 2009 | 9
FMO | Fiduciary/Claymore MLP Opportunity Fund
Fund SUMMARY | AS OF NOVEMBER 30, 2009 (unaudited)
FUND STATISTICS
--------------------------------------------------------
Share Price $16.24
Common Share Net Asset Value $15.00
Premium/(Discount) to NAV 8.27%
Net Assets ($000) $282,089
--------------------------------------------------------
TOTAL RETURNS
--------------------------------------------------------
(INCEPTION 12/28/04) MARKET NAV
--------------------------------------------------------
One Year 57.32% 38.03%
Three Year (annualized) -2.12% -5.43%
Since Inception (annualized) 2.79% 2.07%
--------------------------------------------------------
% OF LONG-TERM
TOP SECTORS INVESTMENTS
--------------------------------------------------------
Midstream Gas Infrastructure 46.4%
Midstream Oil Infrastructure 36.0%
Propane 9.8%
Oil and Gas Production 4.3%
Coal 2.8%
Consumer Discretionary 0.7%
--------------------------------------------------------
% OF LONG-TERM
TOP TEN ISSUERS INVESTMENTS
--------------------------------------------------------
Enterprise Products Partners, L.P. 12.2%
Inergy Holdings, L.P. 9.1%
Kinder Morgan Management, L.L.C. 7.8%
Plains All American Pipeline, L.P. 7.4%
Energy Transfer Equity L.P. 7.4%
Enbridge Energy Partners, L.P. 6.5%
Magellan Midstream Partners, L.P. 6.0%
ONEOK Partners L.P. 5.3%
Boardwalk Pipeline Partners L.P. 4.6%
Copano Energy, L.L.C. 3.8%
--------------------------------------------------------
Past performance does not guarantee future results. All portfolio data is
subject to change daily. For more current information, please visit
www.claymore.com/fmo. The above summaries are provided for informational
purposes only and should not be viewed as recommendations.
SHARE PRICE & NAV PERFORMANCE
line chart:
Share
Price ($) NAV ($)
---------------------------------------------
11/30/07 22.66 23.11
22.60 23.11
22.35 23.11
22.00 23.11
22.44 22.58
22.16 22.58
21.99 22.58
21.79 22.58
21.58 22.58
21.30 22.44
21.58 22.44
21.19 22.44
21.08 22.44
20.89 22.44
20.59 22.14
20.79 22.14
20.33 22.14
20.20 22.14
20.18 23.17
20.80 23.17
20.88 23.11
21.46 23.11
22.37 23.17
22.35 23.17
22.17 23.17
21.80 23.17
22.25 23.17
22.42 22.86
22.18 22.86
21.75 22.86
21.92 22.86
22.11 22.86
22.11 21.99
21.25 21.99
19.75 21.99
19.60 21.99
20.26 21.60
21.03 21.60
21.45 21.60
21.31 21.60
22.00 21.60
21.99 22.10
22.50 22.10
22.65 22.10
22.23 22.10
21.91 22.10
21.59 22.03
21.71 22.03
21.84 22.03
21.69 22.03
21.94 22.03
21.17 21.97
20.79 21.97
21.01 21.97
21.22 21.97
21.36 21.77
21.48 21.77
21.44 21.77
21.71 21.77
22.25 21.77
22.19 22.19
22.09 21.99
22.06 21.99
22.13 21.99
22.09 21.99
21.80 21.57
21.35 21.57
20.70 21.57
20.82 21.57
20.93 21.57
20.73 20.80
20.34 20.80
19.80 20.80
20.54 20.80
20.50 20.80
20.60 19.83
20.89 19.83
20.92 19.83
21.02 19.83
20.90 20.54
20.91 20.54
20.96 20.57
21.24 20.57
22.04 21.04
21.89 21.13
22.16 21.13
22.33 21.13
22.24 21.13
21.90 21.13
22.20 21.33
21.75 21.33
21.15 21.33
21.43 21.33
21.47 21.33
21.23 21.18
21.20 21.18
21.25 21.18
21.19 21.18
21.24 21.18
21.34 21.36
21.74 21.36
21.65 21.36
21.26 21.36
21.57 21.60
22.10 21.54
22.90 21.54
22.20 21.54
21.91 21.54
22.17 21.54
22.21 21.96
22.18 21.96
22.64 21.96
22.32 21.96
22.54 21.96
22.42 21.90
22.26 21.90
22.60 21.90
22.64 21.90
22.38 21.90
22.27 21.88
22.40 21.88
22.47 21.88
22.59 21.88
22.52 21.73
22.70 21.90
22.84 21.90
22.65 21.90
22.68 21.90
23.20 21.99
23.26 21.99
22.89 21.99
22.68 21.99
22.72 21.99
22.95 21.61
23.00 21.61
22.61 21.61
22.26 21.61
22.15 21.61
22.50 21.41
22.35 21.41
22.02 21.41
21.50 21.41
21.42 21.41
20.93 21.03
20.64 21.03
20.67 20.71
20.26 20.71
20.60 20.71
20.60 20.32
21.10 20.32
20.32 20.32
20.51 20.32
20.73 20.22
20.07 20.22
19.71 20.22
19.14 20.22
18.88 20.22
19.25 18.88
19.58 18.88
19.95 18.88
20.43 18.88
20.32 18.88
20.30 18.99
19.85 18.99
20.42 18.99
20.15 18.99
20.79 18.99
21.00 19.79
21.26 19.79
21.00 19.79
20.54 19.79
20.04 19.79
20.33 19.14
20.68 19.14
20.51 19.14
20.02 19.14
19.94 19.14
19.88 19.44
19.63 19.44
20.00 19.44
20.96 19.44
21.35 19.44
20.81 19.57
20.62 19.57
20.70 19.57
20.71 19.57
21.35 19.57
21.41 19.87
21.14 19.83
20.89 19.83
20.83 19.83
20.52 19.28
20.24 19.28
20.01 19.28
19.76 19.28
19.80 19.28
19.65 17.75
19.60 17.75
18.67 17.75
17.54 17.75
15.90 17.75
16.07 15.99
18.12 15.99
18.03 15.99
18.01 15.99
17.86 15.99
18.25 17.40
18.05 17.40
17.28 17.40
18.53 16.35
18.50 16.35
17.50 15.81
17.85 15.81
15.20 15.81
15.11 15.81
14.89 15.81
13.27 10.50
10.83 10.50
14.45 10.50
14.00 10.50
12.62 10.50
12.09 12.66
13.16 12.66
14.98 12.66
15.83 12.66
15.00 12.66
15.20 14.33
16.90 14.33
15.85 14.33
16.72 14.33
16.74 14.33
16.25 14.84
16.24 14.90
15.55 14.90
15.15 14.90
14.54 14.90
14.90 13.82
14.65 13.82
14.16 13.82
14.21 13.82
12.63 13.82
13.12 12.61
12.50 12.61
12.56 12.61
12.00 12.61
10.95 12.61
10.15 10.77
9.50 10.77
11.00 10.77
11.65 10.77
11.60 11.81
11/30/08 11.42 12.09
11.30 12.10
10.85 12.10
11.29 12.10
10.69 11.37
11.64 11.37
11.78 11.37
12.00 11.37
12.50 11.37
12.05 11.84
11.88 11.84
13.22 11.84
13.12 11.84
12.89 11.84
12.52 11.40
13.00 11.40
12.60 11.40
11.00 11.40
11.15 10.92
11.90 10.92
11.59 10.92
12.58 10.92
12.42 11.47
13.40 11.47
14.30 11.47
14.50 11.47
13.41 11.47
13.67 13.56
14.74 13.56
14.65 13.56
13.90 13.56
13.22 13.56
13.27 11.60
13.90 11.60
13.15 11.60
12.96 11.60
12.07 11.67
12.06 11.67
12.78 11.67
13.59 11.67
14.50 11.67
14.13 12.31
14.14 12.22
12.89 12.22
12.49 12.22
12.44 12.22
12.84 12.31
14.12 12.31
14.59 12.31
13.90 12.31
13.92 12.31
14.28 12.45
14.47 12.45
13.80 12.45
13.61 12.45
12.60 11.89
12.08 11.89
12.29 11.89
12.87 11.89
12.73 11.89
12.61 11.60
12.46 11.69
10.74 11.69
11.07 11.69
12.39 11.69
11.05 10.79
11.10 10.79
11.51 10.79
12.19 10.79
12.74 10.79
12.51 11.44
12.49 11.44
12.99 11.44
13.35 11.44
13.12 11.44
13.50 11.78
13.28 11.78
13.49 11.78
13.40 11.78
14.38 11.78
14.74 11.90
14.04 11.90
13.13 11.90
13.41 11.64
13.62 11.64
13.40 11.89
14.05 11.89
13.71 11.89
13.91 11.89
14.24 11.89
14.55 12.06
13.75 12.06
14.05 12.06
14.45 12.06
14.12 11.87
14.00 11.87
13.76 11.87
13.31 11.87
13.35 11.87
13.22 11.94
13.24 11.94
13.87 11.94
13.63 11.94
13.27 11.94
12.95 12.30
13.52 12.30
13.09 12.30
13.41 12.30
13.77 12.30
13.84 12.51
13.97 12.51
13.85 12.51
14.06 12.51
13.11 12.51
13.45 12.40
13.63 12.40
13.85 12.40
13.71 12.40
13.36 12.40
13.40 12.68
14.03 12.68
14.12 12.68
14.02 12.68
14.56 12.93
14.81 13.14
14.43 13.14
15.13 13.14
15.20 13.14
15.55 13.38
15.68 13.38
15.31 13.38
15.24 13.38
14.92 13.38
14.89 13.34
14.87 13.34
14.40 13.34
13.95 13.34
14.53 13.34
15.00 12.80
15.17 12.80
14.01 12.80
13.88 12.80
14.50 12.80
14.47 12.80
14.80 12.80
15.05 12.80
15.22 13.02
14.25 13.02
14.35 12.99
14.34 12.99
14.04 12.99
14.05 12.99
14.70 13.02
15.32 13.02
15.40 13.02
15.64 13.02
16.02 13.02
16.75 13.33
16.11 13.33
16.30 13.33
16.34 13.33
16.66 13.33
16.22 13.60
16.08 13.60
16.28 13.60
15.95 13.60
15.85 13.60
15.85 13.90
15.60 14.02
15.85 14.02
15.72 14.02
15.82 14.02
15.45 13.82
15.68 13.82
15.96 13.82
15.70 13.82
16.15 13.82
16.25 13.68
16.40 13.68
15.41 13.68
15.82 13.68
16.00 13.68
16.21 13.61
16.70 13.61
16.52 13.61
16.57 13.61
16.74 13.61
16.79 13.65
16.50 13.65
16.39 13.59
15.82 13.59
14.77 13.59
14.82 13.46
15.80 13.46
15.59 13.46
15.91 13.46
16.00 13.83
16.46 13.83
16.06 13.83
16.15 13.83
16.13 13.83
15.84 14.10
16.37 14.10
16.44 14.10
16.75 14.10
16.75 14.10
16.30 14.08
16.63 14.08
17.00 14.08
16.49 14.08
16.47 14.18
15.85 13.99
16.00 13.99
16.64 13.99
17.00 13.99
16.93 13.99
16.90 14.52
16.90 14.52
16.98 14.52
16.90 14.52
16.98 14.52
17.00 14.54
16.68 14.54
16.75 14.54
16.54 14.54
16.59 14.54
16.64 14.73
16.37 14.73
16.34 14.73
16.71 14.73
16.41 14.73
16.20 14.43
16.25 14.24
16.08 14.24
16.08 14.24
16.39 14.24
16.47 14.56
16.41 14.53
16.64 14.71
16.52 14.62
16.35 14.64
16.11 14.63
16.13 14.73
16.16 14.84
16.00 14.86
15.95 14.86
15.65 14.79
15.91 14.76
16.05 14.82
16.06 14.90
16.25 15.06
16.24 15.03
11/30/09 16.24 15.00
DISTRIBUTIONS TO SHAREHOLDERS
bar chart:
Jan 08 $0.36000
Apr 08 0.36500
Jul 08 0.37000
Oct 08 0.37185
Jan 09 0.37185
Apr 09 0.37185
Jul 09 0.33500
Oct 09 0.33500
10 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund
Portfolio of INVESTMENTSlNOVEMBER 30, 2009
NUMBER
OF SHARES VALUE
-------------------------------------------------------------------------------------------
MASTER LIMITED PARTNERSHIPS AND MLP AFFILIATES - 145.3%
COAL - 4.0%
156,800 Alliance Resource Partners L.P. $ 6,126,176
217,270 Natural Resource Partners, L.P. 5,173,199
-------------------------------------------------------------------------------------------
11,299,375
-------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 1.0%
162,680 StoneMor Partners, L.P. (a) 2,897,331
-------------------------------------------------------------------------------------------
MIDSTREAM GAS INFRASTRUCTURE - 68.3%
673,082 Boardwalk Pipeline Partners L.P. (a) 19,001,105
598,692 Copano Energy, L.L.C. (a) 12,093,578
190,000 Copano Energy, L.L.C., Unregistered Series D Units (b) (c) (d) 3,748,208
627,095 DCP Midstream Partners, L.P. (a) 15,765,168
545,054 El Paso Pipeline Partners, L.P. (a) 12,917,780
558,050 Energy Transfer Equity L.P. (a) 16,462,475
329,237 Energy Transfer Partners, L.P. (a) 14,252,670
1,704,101 Enterprise Products Partners, L.P. (a) 50,765,169
117,585 Exterran Partners L.P. 2,272,918
248,301 Hiland Partners, L.P. (a) 2,443,282
377,035 ONEOK Partners L.P. 22,128,184
83,660 Spectra Energy Partners, L.P. 2,319,892
285,550 TC PipeLines L.P. 10,334,054
347,755 Western Gas Partners, L.P. (a) 6,760,357
46,200 Williams Partners, L.P. 1,300,530
-------------------------------------------------------------------------------------------
192,565,370
-------------------------------------------------------------------------------------------
MIDSTREAM OIL INFRASTRUCTURE - 53.0%
543,902 Enbridge Energy Partners, L.P. (a) 26,808,929
278,685 Genesis Energy, L.P. (a) 4,810,103
235,825 Holly Energy Partners, L.P. (a) 8,654,777
644,755 Kinder Morgan Management, L.L.C. (a) (d) (e) 32,411,834
604,626 Magellan Midstream Partners, L.P. (a) 24,850,129
248,105 NuStar Energy L.P. (a) 13,013,107
607,851 Plains All American Pipeline, L.P. (a) 30,757,261
130,385 Sunoco Logistics Partners L.P. (a) 8,051,274
-------------------------------------------------------------------------------------------
149,357,414
-------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
-------------------------------------------------------------------------------------------
OIL AND GAS PRODUCTION - 4.5%
389,212 EV Energy Partners, L.P. (a) $ 10,061,130
133,346 Pioneer Southwest Energy Partners, L.P. (a) 2,737,593
-------------------------------------------------------------------------------------------
12,798,723
-------------------------------------------------------------------------------------------
PROPANE - 14.5%
127,055 Global Partners, L.P. (a) 2,984,522
517,600 Inergy Holdings, L.P. (a) 27,691,600
308,711 Inergy, L.P. (a) 10,205,986
-------------------------------------------------------------------------------------------
40,882,108
-------------------------------------------------------------------------------------------
TOTAL MASTER LIMITED PARTNERSHIPS AND MLP AFFILIATES
(Cost $266,425,316) 409,800,321
-------------------------------------------------------------------------------------------
COMMON STOCKS - 1.8%
OIL AND GAS PRODUCTION - 1.8%
363,512 Abraxas Petroleum Corp. (a) (d) 705,213
2,270,770 Abraxas Petroleum Corp. (b) (c) (d) 4,384,853
-------------------------------------------------------------------------------------------
(Cost $8,798,911) 5,090,066
-------------------------------------------------------------------------------------------
OTHER EQUITY SECURITIES - 0.0%
COAL - 0.0%
1,145,621 Clearwater Natural Resources, L.P. (b) (c) (d) (f) --
123 Clearwater GP Holding Co. (b) (c) (d) (f) --
-------------------------------------------------------------------------------------------
(Cost $23,107,679) --
-------------------------------------------------------------------------------------------
INCENTIVE DISTRIBUTION RIGHTS - 0.0%
43 Clearwater Natural Resources, L.P. (b) (c) (d) (f) --
(Cost $0)
-------------------------------------------------------------------------------------------
WARRANTS - 0.0%
114,230 Abraxas Petroleum Corp. (b) (c) (d) 47,340
9,499 Clearwater Natural Resources, L.P. (b) (c) (d) (f) --
-------------------------------------------------------------------------------------------
(Cost $0) 47,340
-------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------------------------------------
TERM LOANS - 0.2%
$ 1,237,397 Clearwater Subordinate Note, 13.75%, 12/03/09,
NR (b) (c) (d) (e) (f) (g) 433,089
(Cost $1,237,397)
-------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 147.3%
(Cost $299,569,303) 415,370,816
-------------------------------------------------------------------------------------------
See notes to financial statements.
Annual Report | November 30, 2009 | 11
FMO | Fiduciary/Claymore MLP Opportunity Fund | PORTFOLIO OF INVESTMENTS
continued
NUMBER
OF SHARES VALUE
-------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 5.3%
MONEY MARKET FUND - 5.3%
15,048,466 Dreyfus Treasury & Agency Cash Management - Investor Shares
(Cost $15,048,466) $ 15,048,466
-------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 152.6%
(Cost $314,617,769) 430,419,282
Borrowings Outstanding - (39.1% of Net Assets or 25.6% of
Total Investments) (110,262,708)
Liabilities in excess of Other Assets - (13.5%) (38,067,916)
-------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 282,088,658
===========================================================================================
L.L.C. Limited Liability Company
L.P. Limited Partnership
MLP Master Limited Partnership
NR Ratings shown are per Standard & Poor's. Securities classified as NR
are not rated by Standard & Poor's. (unaudited)
(a) All or a portion of these securities have been physically segregated in
connection with swap agreements or as collateral for borrowings
outstanding. The total amount segregated is $273,666,842.
(b) Security is restricted and may be resold only in transactions exempt
from registration, normally to qualified institutional buyers. At
November 30, 2009, restricted securities aggregate market value
amounted to $8,613,490 or 3.1% of net assets. See Note 10 to the
Financial Statements for additional disclosure.
(c) Security is valued in accordance with Fair Valuation procedures
established in good faith by the Board of Trustees. The total market
value of such securities is $8,613,490 which represents 3.1% of net
assets.
(d) Non-income producing security.
(e) While non-income producing, security makes regular in-kind
distributions.
(f) Company has filed for protection in federal bankruptcy court.
(g) Floating rate security. The rate shown is as of November 30, 2009.
See notes to financial statements.
12 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund |
Statement of ASSETS AND LIABILITIES | NOVEMBER 30, 2009
ASSETS
Investments in securities, at value (cost $299,569,303) $ 415,370,816
Short term investments (cost $15,048,466) 15,048,466
--------------------------------------------------------------------------------
Total investments (cost $314,617,769) 430,419,282
--------------------------------------------------------------------------------
Receivable for investments sold 849,648
Receivable for fund shares sold 569,482
Current tax receivable 39,173
Interest receivable 69
Other assets 10,786
--------------------------------------------------------------------------------
Total assets 431,888,440
--------------------------------------------------------------------------------
LIABILITIES
Borrowings 110,262,708
Net deferred tax liability 31,384,550
Net unrealized depreciation on interest rate swaps 6,138,661
Payable for investments purchased 1,284,410
Advisory fee payable 314,299
Interest due on borrowings 188,592
Offering costs payable 26,651
Administration fee payable 7,545
Accrued expenses and other liabilities 192,366
--------------------------------------------------------------------------------
Total liabilities 149,799,782
--------------------------------------------------------------------------------
NET ASSETS $ 282,088,658
================================================================================
COMPOSITION OF NET ASSETS
Common stock, $.01 par value per share; unlimited number of shares authorized,
18,807,181 shares issued and outstanding $ 188,072
Additional paid-in capital 240,948,673
Net unrealized appreciation on investments and swaps, net of tax 61,914,740
Accumulated net realized gain on investments and swaps, net of tax 6,443,424
Accumulated net investment loss, net of tax (27,406,251)
--------------------------------------------------------------------------------
NET ASSETS $ 282,088,658
================================================================================
NET ASSET VALUE
(based on 18,807,181 common shares outstanding) $ 15.00
================================================================================
See notes to financial statements.
Annual Report | November 30, 2009 | 13
FMO | Fiduciary/Claymore MLP Opportunity Fund |
Statement of OPERATIONS | FOR THE YEAR ENDED NOVEMBER 30, 2009
INVESTMENT INCOME
Distributions from master limited partnerships $ 28,791,708
Less: Return of capital on distributions (28,791,708)
Less: Reclassification of prior year income (see Note 2b in the Notes to Financial Statements) (899,131)
-----------------------------------------------------------------------------------------------------------------------------------
Net distributions from master limited partnerships (899,131)
Interest 1,274
-----------------------------------------------------------------------------------------------------------------------------------
Total investment income $ (897,857)
-----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fee 3,296,771
Professional fees 281,644
Trustees' fees and expenses 186,524
Printing expense 97,400
Fund accounting 93,496
Administration fee 80,935
Custodian fee 58,754
Insurance 29,098
NYSE listing fee 21,858
Transfer agent fee 18,882
Miscellaneous 17,977
Interest expense and fees on borrowings 2,916,220
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,099,559
Advisory fees waived (1,318)
-----------------------------------------------------------------------------------------------------------------------------------
Net expenses 7,098,241
-----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS BEFORE TAXES (7,996,098)
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax benefit 3,664,204
Current tax expense (374,791)
-----------------------------------------------------------------------------------------------------------------------------------
Net investment loss (4,706,685)
-----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) on investments before taxes (21,009,487)
Net realized gain/(loss) on swaps (3,185,179)
Deferred tax benefit 9,953,134
-----------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) on investments (14,241,532)
-----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments before taxes 168,741,518
Net change in unrealized depreciation on swaps (1,988,926)
Deferred tax expense (68,598,218)
-----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and swaps 98,154,374
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on investments and swaps 83,912,842
-----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 79,206,157
===================================================================================================================================
See notes to financial statements.
14 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund |
Statements of CHANGES IN NET ASSETS |
FOR THE FOR THE
YEAR ENDED YEAR ENDED
NOVEMBER 30, 2009 NOVEMBER 30, 2008
-----------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment loss $ (4,706,685) $ (7,642,053)
Net realized gain/(loss) (14,241,532) 3,203,406
Net change in unrealized appreciation/(depreciation) 98,154,374 (169,693,139)
-----------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations 79,206,157 (174,131,786)
-----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income -- (1,486,710)
Return of capital (25,989,000) (25,162,072)
-----------------------------------------------------------------------------------------------------------
(25,989,000) (26,648,782)
CAPITAL SHARE TRANSACTIONS
Net proceeds from common shares issued through add-on offering 4,330,730 --
Net proceeds from common shares issued through dividend reinvestment 3,412,685 3,497,034
Common share offering costs charged to paid in capital (26,651) --
-----------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 7,716,764 3,497,034
-----------------------------------------------------------------------------------------------------------
Total increase/(decrease) in net assets 60,933,921 (197,283,534)
NET ASSETS
Beginning of period 221,154,737 418,438,271
-----------------------------------------------------------------------------------------------------------
End of period (including accumulated net investment losses of
$27,406,251 and $22,699,566, respectively, net of deferred tax) $ 282,088,658 $ 221,154,737
===========================================================================================================
See notes to financial statements.
Annual Report | November 30, 2009 | 15
FMO | Fiduciary/Claymore MLP Opportunity Fund |
Statement of CASH FLOWS | FOR THE YEAR ENDED NOVEMBER 30, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 79,206,157
--------------------------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH USED
BY OPERATING AND INVESTING ACTIVITIES:
Net change in unrealized appreciation on investments and swaps before taxes (166,752,592)
Net realized loss on investments before taxes 21,009,487
Purchases of long-term investments (139,666,014)
Proceeds from sale of long-term investments 98,413,429
Net proceeds of short-term investments 10,874,446
Increase in receivable for investments sold (765,558)
Increase in receivable for fund shares sold (569,482)
Increase in current tax receivable (39,173)
Decrease in interest receivable 60,825
Increase in other assets (2,131)
Increase in deferred tax liability 54,980,880
Decrease in current tax liability (1,460,109)
Decrease in payable for investments purchased (4,977,540)
Decrease in interest due on borrowings (239,170)
Increase in advisory fee payable 48,786
Increase in administration fee payable 1,006
Decrease in accrued expenses and other liabilities (51,430)
Return of capital distributions received from investee companies 28,791,708
Adjustment to prior year estimated return of capital distributions received from investee companies 899,131
--------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities $ (20,237,344)
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common shares 4,330,730
Proceeds from borrowings 38,000,000
Distributions to Common Shareholders (22,576,315)
--------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 19,754,415
--------------------------------------------------------------------------------------------------------------------------
Net change in cash (482,929)
CASH AT BEGINNING OF PERIOD 482,929
--------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ --
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR INTEREST $ 3,155,390
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITY: IN KIND STOCK DIVIDENDS RECEIVED DURING THE PERIOD $ 2,403,925
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: TAXES PAID DURING THE PERIOD $ 1,874,073
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITY: DIVIDEND REINVESTMENT $ 3,412,685
==========================================================================================================================
See notes to financial statements.
16 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund |
Financial HIGHLIGHTS |
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE DECEMBER 28,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 2004* THROUGH
PER SHARE OPERATING PERFORMANCE NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD 2009 2008 2007 2006 2005
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.09 $ 23.11 $ 22.49 $ 19.78 $ 19.10(c)
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (b) (0.44) (0.70) (0.67) (0.33) (0.26)
Net realized and unrealized gain/loss (b) 4.76 (8.85) 2.66 4.29 1.92
--------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.32 (9.55) 1.99 3.96 1.66
--------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES' OFFERING EXPENSES CHARGED TO
PAID-IN CAPITAL --** -- -- -- (0.04)
--------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income -- (0.08) -- -- --
Return of capital (1.41) (1.39) (1.37) (1.25) (0.94)
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.00 $ 12.09 $ 23.11 $ 22.49 $ 19.78
================================================================================================================================
MARKET VALUE, END OF PERIOD $ 16.24 $ 11.42 $ 22.66 $ 21.87 $ 17.99
================================================================================================================================
TOTAL INVESTMENT RETURN (D)
Net asset value 38.03% -43.55% 8.53% 20.70% 8.38%
Market value 57.32% -45.67% 9.70% 29.68% -5.81%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 282,089 $ 221,155 $ 418,438 $ 406,295 $ 357,441
Ratios to Average Net Assets applicable
to Common Shares:(e)
Total expenses, excluding interest expense
and tax expense/benefit 1.76%(g) 1.79% 1.62% 1.69% 1.48%
Total expenses, including interest expense
and tax expense/benefit 26.32%(g) (28.34)% 9.40% 16.89% 8.41%
Interest expense 1.23% 1.83% 2.13% 2.17% 1.02%
Current and deferred tax expense/(benefit) 23.33% (31.96)% 5.65% 13.03% 5.91%
Net investment income/(loss), excluding
interest expense and tax expense/benefit (2.14)%(g) (1.71)% (0.62)% 0.55% (0.37)%
Net investment income/(loss), including
interest expense and tax expense/benefit (26.70)%(g) 28.42% (8.40)% (14.66)% (7.30)%
Portfolio Turnover Rate 30% 22% 11% 21% 41%
Senior Indebtedness
Total borrowings outstanding (in thousands) $ 110,263 $ 72,263 $ 175,000 $ 150,000 $ 150,000
Asset coverage per $1,000 of indebtedness (f) $ 3,558 $ 4,060 $ 3,391 $ 3,709 $ 3,383
* Commencement of investment operations.
** Less than $0.01.
(a) Based on average shares outstanding during the period.
(b) The character of dividends received for each period is based upon
estimates made at the time the distribution was received. Any necessary
adjustments are reflected in the following fiscal year when the actual
character is known. See Note 2(b) of the Notes to Financial Statements for
additional information.
(c) Before deduction of offering expenses charged to capital.
(d) Total investment return is calculated assuming a purchase of a common
share at the beginning of the period and a sale on the last day of the
period reported either at net asset value ("NAV") or market price per
share. Dividends and distributions are assumed to be reinvested at NAV for
NAV returns or the prices obtained under the Fund's Dividend Reinvestment
Plan for market value returns. Total investment return does not reflect
brokerage commissions. A return calculated for a period of less than one
year is not annualized.
(e) Annualized.
(f) Calculated by subtracting the Fund's total liabilities (not including the
borrowings) from the Fund's total assets and dividing by the total
borrowings.
(g) The impact of the advisory fee waiver is less than 0.01%
See notes to financial statements.
Annual Report | November 30, 2009 | 17
FMO | Fiduciary/Claymore MLP Opportunity Fund |
Notes to FINANCIAL STATEMENTS | NOVEMBER 30, 2009
Note 1 -- ORGANIZATION:
Fiduciary/Claymore MLP Opportunity Fund (the "Fund") was organized as a Delaware
statutory trust on October 4, 2004. The Fund is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. On October 15, 2009, the Fund's prospectus for the offering of
additional shares became effective. This offering ("add-on offering") allows for
the issuance of up to an additional $125,000,000 of common shares.
The Fund's investment objective is to provide a high level of after-tax total
return with an emphasis on current distributions paid to shareholders. The Fund
has been structured to seek to provide an efficient vehicle through which its
shareholders may invest in a portfolio of publicly traded securities of master
limited partnerships ("MLPs") and MLP affiliates. MLPs combine the tax benefits
of limited partnerships with the liquidity of publicly traded securities. The
Fund believes that as a result of the tax characterization of cash distributions
made by MLPs to their investors (such as the Fund) a significant portion of the
Fund's income will be tax-deferred returns of capital, which will allow
distributions by the Fund to its shareholders to include high levels of
tax-deferred income. There can be no assurance that the Fund will achieve its
investment objective.
Note 2 --ACCOUNTING POLICIES:
The preparation of the financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
In June 2009, the Financial Accounting Standards Board ("FASB") established the
FASB Accounting Standards CodificationTM ("ASC") as the single source of
authoritative accounting principles reorganized by the FASB in preparation of
financial statements in conformity with GAAP. The ASC superseded existing
non-grandfathered, non-U.S. Securities and Exchange Commission ("SEC")
accounting and reporting standards. The ASC did not change GAAP but rather
organized it into a hierarchy where all guidance with the ASC carried an equal
level of authority. The ASC became effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The implementation
of ASC did not have a material effect of the Fund's financial statements.
The following is a summary of significant accounting policies followed by the
Fund.
(A) VALUATION OF INVESTMENTS
Readily marketable securities listed on an exchange are valued at the last
reported sale price on the primary exchange or in the principal over the counter
("OTC") market on which they are traded. Readily marketable securities traded on
an exchange or OTC for which there are no transactions on a given day are valued
at the mean of the closing bid and asked prices. Securities traded on NASDAQ are
valued at the NASDAQ Official Closing Price. Debt securities are valued by
independent pricing services or dealers using the last available bid price for
such securities or, if such prices are not available, at prices for securities
of comparable maturity, quality and type. Short-term securities having a
remaining maturity of sixty days or less are valued at amortized cost, which
approximates market value.
For those securities whose quotations or prices are not available, the
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Valuations in accordance with these procedures
are intended to reflect each security's (or asset's) "fair value". Such "fair
value" is the amount that the Fund might reasonably expect to receive for the
security (or asset) upon its current sale. Each such determination should be
based on a consideration of all relevant factors, which are likely to vary from
one pricing context to another. Examples of such factors may include, but are
not limited to: (i) the type of security, (ii) the initial cost of the security,
(iii) the existence of any contractual restrictions on the security's
disposition, (iv) the price and extent of public trading in similar securities
of the issuer or of comparable companies, (v) quotations or evaluated prices
from broker-dealers and/or pricing services, (vi) information obtained from the
issuer, analysts, and/or the appropriate stock exchange (for exchange traded
securities), (vii) an analysis of the company's financial statements, and (viii)
an evaluation of the forces that influence the issuer and the market(s) in which
the security is purchased and sold (e.g. the existence of pending merger
activity, public offerings or tender offers that might affect the value of the
security).
The Fund adopted ASC 820, Fair Value Measurements and Disclosures ("ASC 820")
(formerly known as the Statement of Financial Accounting Standard ("FAS") No.
157). In accordance with ASC 820, fair value is defined as the price that the
Fund would receive to sell an investment or pay to transfer a liability in an
orderly transaction with an independent buyer in the principal market, or in the
absence of a principal market the most advantageous market for the investment or
liability. ASC 820 establishes three different categories for valuations. Level
1 valuations are those based upon quoted prices in active markets. Level 2
valuations are those based upon quoted prices in inactive markets or based upon
significant observable inputs (e.g. yield curves; benchmark interest rates;
indices). Level 3 valuations are those based upon unobservable inputs (e.g.
discounted cash flow analysis; non-market based methods used to determine fair
valuation). The following table represents the Fund's investments carried on the
Statement of Assets and Liabilities by caption and by level within the fair
value hierarchy as of November 30, 2009:
DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------
(value in $000s)
ASSETS:
Master Limited Partnerships
Coal $ 11,299 $ -- $ -- $ 11,299
Consumer Discretionary 2,897 -- -- 2,897
Midstream Gas Infrastructure 188,817 3,748 -- 192,565
Midstream Oil Infrastructure 149,358 -- -- 149,358
Oil and Gas Production 12,799 -- -- 12,799
Propane 40,882 -- -- 40,882
Common Stocks
Oil and Gas Production 705 4,385 -- 5,090
Other Equity Securities
Coal -- -- -- --
Incentive Distribution Rights -- -- -- --
Warrants -- 47 -- 47
Term Loans -- -- 433 433
Money Market Fund 15,049 -- -- 15,049
------------------------------------------------------------------------------
Total $ 421,806 $ 8,180 $ 433 $ 430,419
==============================================================================
LIABILITIES:
Derivatives $ -- $ 6,139 $ -- $ 6,139
------------------------------------------------------------------------------
Total $ -- $ 6,139 $ -- $ 6,139
==============================================================================
18 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund | NOTES TO FINANCIAL STATEMENTS
continued
LEVEL 3 HOLDINGS
--------------------------------------------
Balance at 11/30/08
Master Limited Partnerships $ 8,750
Common Stocks --
Other Equity Securities 11,610
Incentive Distribution Rights --
Warrants 33
Term Loans 1,184
Total Realized Gain/Loss --
Change in Unrealized Gain/Loss
Other Equity Securities (11,610)
Warrants 14
Term Loans (804)
Net Purchases and Sales
Master Limited Partnerships (8,750)
Term Loans 53
Net Transfers In/Out
Warrants (47)
Ending Balance at 11/30/09
Master Limited Partnerships --
Common Stocks --
Other Equity Securities --
Incentive Distribution Rights --
Warrants --
Term Loans 433
--------------------------------------------
Total Level 3 holdings $ 433
============================================
All net realized and unrealized gains/losses in the above table are reflected in
the Statement of Operations. Net unrealized gains/losses relate to those
investments held by the Fund at November 30, 2009.
(B) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend date and interest income is recorded on an
accrual basis. Discounts or premiums on debt securities purchased are accreted
or amortized to interest income over the lives of the respective securities
using the effective interest method.
The Fund records the character of dividends received from MLPs based on
estimates made at the time such distributions are received. These estimates are
based upon a historical review of information available from each MLP and other
industry sources. The Fund's characterization of the estimates may subsequently
be revised based on information received from MLPs after their tax reporting
periods conclude.
For the year ended November 30, 2009, the Fund estimated 100% of its
distributions from MLPs as return of capital, which is reflected in the
Statement of Operations.
Subsequent to November 30, 2008, the Fund reclassified the amount of investment
income and return of capital it recognized based on the 2008 tax reporting
information received from the individual MLPs. This reclassification amounted to
a decrease in pre-tax net investment income of $899,131 ($541,771 net of
deferred tax benefit), an increase in realized gain on investments of $932,799
($562,058 net of deferred tax benefit) and a decrease in unrealized appreciation
on investments of $33,668 ($20,287 net of deferred tax benefit). On a per share
basis, the reclassification resulted in a decrease in pre-tax net investment
income of $0.05 per share ($0.03 per share, net of deferred tax benefit), an
increase in realized gain on investments of $0.05 per share ($0.03 per share,
net of deferred tax benefit) and a decrease in unrealized appreciation on
investments of less than $0.01 per share (less than $0.01 per share, net of
deferred tax benefit). The reclassification is reflected in the period ended
November 30, 2009.
(C) DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to make quarterly distributions to shareholders. Distributions
to shareholders are recorded on the ex-dividend date. Distributions are
determined in accordance with U.S. generally accepted accounting principles
which may differ from their ultimate characterization for federal income tax
purposes. The Fund anticipates that a significant portion of its distributions
will be comprised of return of capital as a result of the tax character of cash
distributions made by MLPs. The Fund is unable to make final determinations as
to the tax character of the distributions to shareholders until after the end of
the calendar year. The Fund will inform shareholders of the final tax character
of the distributions on IRS Form 1099 DIV in January 2010.
(D) SUBSEQUENT EVENTS
Effective November 30, 2009, the Fund adopted ASC 855, Subsequent Events ("ASC
855") (formerly known as FAS No. 165 ("SFAS No. 165")). ASC855 requires an
entity to recognize in the financial statements the effects of all subsequent
events that provide additional evidence about conditions that existed at the
date of the statement of assets and liabilities. ASC 855 is intended to
establish general standards of accounting and for disclosure of events that
occur after the statement of assets and liabilities date but before the
financial statements are issued or are available to be issued. The Fund has
performed an evaluation of subsequent events through January 25, 2010, which is
the date the financial statements were issued.
Note 3 -- INVESTMENT ADVISORY AGREEMENT, SUB-ADVISORY AGREEMENT AND OTHER
AGREEMENTS:
Pursuant to an Investment Advisory Agreement (the "Advisory Agreement") between
the Fund and Claymore Advisors, LLC (the "Adviser"), the Adviser will furnish
offices, necessary facilities and equipment, oversee the activities of Fiduciary
Asset Management, LLC ("FAMCO" or the "Sub-Adviser"), provide personnel
including certain officers required for its administrative management and pay
the compensation of all officers and Trustees of the Fund who are its
affiliates. As compensation for these services, the Fund will pay the Adviser an
annual fee, payable monthly, in an amount equal to 1.00% of the Fund's average
daily Managed Assets (net assets plus any assets attributable to financial
leverage).
Pursuant to a Sub-Advisory Agreement (the "Sub-Advisory Agreement") between the
Fund, the Adviser and the Sub-Adviser, the Sub-Adviser under the supervision of
the Fund's Board of Trustees and the Adviser, provides a continuous investment
program for the Fund's portfolio; provides investment research and makes and
executes recommendations for the purchase and sale of securities; and provides
certain facilities and personnel, including certain officers required for its
administrative management and pays the compensation of all officers and Trustees
of the Fund who are its affiliates. As compensation for its services, the
Adviser pays the Sub-Adviser a fee, payable monthly, in an annual amount equal
to 0.50% of the Fund's average daily Managed Assets.
The Fund agreed to waive the advisory fees on all shares issued through the
add-on offering for the first three months those shares are outstanding and
waive half the advisory fees
Annual Report | November 30, 2009 | 19
FMO | Fiduciary/Claymore MLP Opportunity Fund | NOTES TO FINANCIAL STATEMENTS
continued
on those shares for the next three months. Advisory fees of $1,318 were waived
for the period ended November 30, 2009. See Note 8 for additional information
regarding the add-on offering.
On July 17, 2009, Claymore Group Inc., the parent of the Adviser, entered into
an Agreement and Plan of Merger between and among Claymore Group Inc., Claymore
Holdings, LLC and GuggClay Acquisition, Inc., (with the latter two entities
being wholly-owned, indirect subsidiaries of Guggenheim Partners, LLC
("Guggenheim")) whereby GuggClay Acquisition, Inc. merged into Claymore Group
Inc. which is the surviving entity (the "Transaction"). This Transaction was
completed on October 14, 2009 (the "Effective Date") and resulted in a
change-of-control whereby Claymore Group Inc. and its subsidiaries, including
the Adviser, became indirect, wholly-owned subsidiaries of Guggenheim. The
transaction is not expected to affect the daily operations of the Fund or the
investment management activities of the Adviser.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"), the
consummation of this transaction resulted in the automatic termination of the
Advisory & Sub-Advisory Agreements. Accordingly, on September 23, 2009, the
Board of Trustees approved an interim investment advisory agreement between the
Fund and the Adviser (the "Interim Advisory Agreement") and an interim
investment sub-advisory agreement among the Fund, the Adviser and FAMCO (the
"Interim Sub-Advisory Agreement" and together with the Interim Advisory
Agreement, the "Interim Agreements"). The Interim Agreements took effect as of
the Effective Date and will terminate upon the earlier of: (a) 150 calendar days
after the Effective Date or (b) the approval of a new investment advisory
agreement and a new investment sub-advisory agreement by the shareholders of the
Fund. In addition, the advisory fees earned by the Adviser pursuant to the
Interim Advisory Agreement and the sub-advisory fees earned by FAMCO pursuant to
the Interim Sub-Advisory Agreement will be held in an interest-bearing escrow
account with the Fund's custodian during the term of the Interim Agreements. If
the Fund's shareholders approve a new advisory agreement with the Adviser prior
to the expiration of the term of the Interim Advisory Agreement, the amount in
the escrow account (including any interest earned) with respect to the Fund
shall be paid to the Adviser. If the Fund's shareholders approve a new
sub-advisory agreement with FAMCO prior to the expiration of the term of the
Interim Sub-Advisory Agreement, the amount in the escrow account (including any
interest earned) with respect to the Fund shall be paid to FAMCO. If the Fund's
shareholders do not approve a new advisory agreement with the Adviser, or a new
sub-advisory agreement with FAMCO, prior to the expiration of the term of the
Interim Agreements, the Adviser or FAMCO, as applicable, shall be paid, out of
the escrow account with respect to the Fund, the lesser of (i) the Adviser's or
FAMCO's costs incurred in providing the services under the Interim Agreements
(including any interest earned on that amount while in escrow) with respect to
the Fund; or (ii) the total amount in the escrow account (including any interest
earned) with respect to the Fund. Other than the effective dates and the
provisions set forth above regarding the advisory and sub-advisory fees'
placement into an escrow account, the terms and conditions of the Interim
Agreements are substantively identical to those of the original Advisory
Agreement and Sub-Advisory Agreement.
On September 23, 2009, the Board of Trustees approved a new investment advisory
agreement between the Fund and the Adviser (the "New Advisory Agreement") and a
new investment sub-advisory agreement among the Fund, the Adviser and FAMCO (the
"New Sub-Advisory Agreement" and together with the New Advisory Agreement, the
"New Agreements") and recommended that the New Agreements be submitted to the
shareholders of the Fund for their approval. The New Agreements will take effect
with respect to the Fund upon their approval by the shareholders of the Fund and
will have an initial term of one year. Thereafter, the New Agreements will
continue in effect only if their continuance is approved by the Board of
Trustees. Other than effective dates, there are no material differences between
the terms of the New Agreements and those of the original Advisory Agreement and
Sub-Advisory Agreement.
Under a separate Fund Administration agreement, the Adviser provides Fund
Administration services to the Fund. As compensation for services performed
under the Administration Agreement, the Adviser receives an administration fee
payable monthly at the annual rate set forth below as a percentage of the
average daily managed assets of the Fund:
MANAGED ASSETS RATE
-----------------------------
First $200,000,000 0.0275%
Next $300,000,000 0.0200%
Next $500,000,000 0.0150%
Over $1,000,000,000 0.0100%
The Bank of New York Mellon ("BNY") acts as the Fund's custodian, accounting
agent and transfer agent. As custodian, BNY is responsible for the custody of
the Fund's assets. As accounting agent, BNY is responsible for maintaining the
books and records of the Fund's securities and cash. As transfer agent, BNY is
responsible for performing transfer agency services for the Fund.
Note 4 -- FEDERAL INCOME TAXES:
The Fund is treated as a regular corporation, or "C" corporation, for U.S.
federal income tax purposes. Accordingly, the Fund generally is subject to U.S.
federal income tax on its taxable income at the graduated rates applicable to
corporations (currently at a maximum rate of 35%). In addition, as a regular
corporation, the Fund is subject to various state and Canadian income taxes by
reason of its investments in MLPs. As a limited partner in the MLPs, the Fund
includes its allocable share of the MLP's taxable income in computing its own
taxable income. Deferred income taxes reflect (i) taxes on unrealized
gains/(losses), which are attributable to the temporary difference between fair
market value and tax basis, (ii) the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and (iii) the net tax
benefit of accumulated net operating losses and capital loss carryforwards. The
Fund may be subject to a 20% alternative minimum tax to the extent that it
exceeds the Fund's regular income tax liability. The amount to which the Fund is
required to pay U.S. corporate income tax or alternative minimum tax could
materially reduce the Fund's cash available to make distributions on Common
Shares.
Information on the tax components of investments as of November 30, 2009 is as
follows:
COST OF NET TAX NET TAX
INVESTMENTS GROSS TAX GROSS TAX UNREALIZED UNREALIZED
FOR TAX UNREALIZED UNREALIZED APPRECIATION DEPRECIATION
PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS ON DERIVATIVES
-------------------------------------------------------------------------
$290,307,312 $158,958,694 $(18,846,724) $140,111,970 $(5,043,661)
The Fund accrues deferred income taxes for its future tax liability or benefit
associated with that portion of MLP distributions considered to be a
tax-deferred return of capital as well as capital appreciation or depreciation
of its investments. To the extent the Fund has a deferred tax asset,
consideration is given as to whether or not a valuation allowance is required.
The need to establish a valuation allowance for deferred tax assets is assessed
periodically by the Fund based on the criterion established by ASC 740, Income
Taxes, ("ASC 740") (formerly known as Statement of Financial Accounting Standard
("FAS") No. 109) that it is more likely
20 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund | NOTES TO FINANCIAL STATEMENTS
continued
than not that some portion or all of the deferred tax asset will not be
realized. In the assessment for a valuation allowance, consideration is given to
all positive and negative evidence related to the realization of the deferred
tax asset. This assessment considers, among other matters, the nature, frequency
and severity of current and cumulative losses, forecasts of future profitability
(which are highly dependent on future MLP cash distributions), the duration of
statutory carryforward periods and the associated risk that operating loss
carryforwards may expire unused.
The Fund may rely to some extent on information provided by the MLPs, which may
not necessarily be timely, to estimate taxable income allocable to the MLP units
held in the portfolio and to estimate the associated deferred tax liability.
Such estimates are made in good faith. From time to time, as new information
becomes available, the Fund modifies its estimates or assumptions regarding the
deferred tax liability.
The Fund's income tax provision consists of the following:
Current tax expense $ 374,791
Deferred federal income tax expense 44,406,118
Deferred state income tax expense 10,574,762
-----------------------------------------------------
Total deferred tax expense $ 55,355,671
-----------------------------------------------------
Total income tax benefit differs from the amount computed by applying the
federal statutory income tax rate of 35% to net investment income and realized
and unrealized gains before taxes as follows:
RATE
--------------------------------------------------------------------
Application of statutory income tax rate $ 47,096,640 35.00%
State income taxes 8,259,031 6.14%
--------------------------------------------------------------------
Total $ 55,355,671 41.14%
--------------------------------------------------------------------
Components of the Fund's deferred tax assets and liabilities as of November 30,
2009 are as follows:
DEFERRED TAX ASSETS:
Net operating loss carryforward $ 16,308,286
Capital loss carryforward 11,238,185
Valuation allowance (4,131,946)
---------------------------------------------------------
Deferred tax asset $ 23,414,525
---------------------------------------------------------
DEFERRED TAX LIABILITIES:
Unrealized gain on investments and swaps $ (54,799,075)
---------------------------------------------------------
Net deferred tax liability $ (31,384,550)
---------------------------------------------------------
At November 30, 2009, the Fund had a remaining net operating loss carryforward
of $32,611,740. The net operating loss carryforward is set to expire as follows:
$15,066,691 in 2026, $10,333,986 in 2027 and $7,211,063 in 2029. At November 30,
2009, the Fund had a capital loss carryforward of $28,275,719. If not utilized,
the capital loss carryforward will expire November 30, 2014.
The Fund periodically reviews the recoverability of any deferred tax asset based
on the weight of available evidence. For the year ended November 30, 2008, the
Fund's analysis of the need for a valuation allowance considered that it had
incurred a cumulative loss over the three year period ended November 30, 2008.
Substantially all of the Fund's net pre-tax losses related to unrealized
depreciation of investments occurred during the fiscal fourth quarter of 2008 as
a result of the unprecedented decline in the overall financial, commodity and
MLP markets. The Fund recognized significant appreciation of investments during
the year ended November 30, 2009.
When assessing the recoverability of any deferred tax asset, significant weight
is given to the Fund's forecast of future taxable income, which is based
principally on the expected continuation of MLP cash distributions at or near
current levels. Consideration is also given to the effects of the potential of
additional future realized and unrealized gains or losses on investments and the
period over which deferred tax assets can be realized, as the expiration dates
for the federal tax loss carryforwards range from seventeen to twenty years and
capital loss carryforwards expire in five years. Recovery of a deferred tax
asset is dependent on continued payment of the MLP cash distributions at or near
current levels in the future and the resultant generation of taxable income. As
of November 30, 2009, 2008, 2007 and 2006, a valuation allowance for state
income tax purposes of $1,138,993, $652,188, $1,665,241 and $675,523,
respectively, was recorded as it is unlikely that the Fund will be able to
utilize the net operating losses sourced to states (other than Illinois). The
Fund will continue to assess the need for a valuation allowance in the future.
The Fund will review its financial forecasts in relation to actual results and
expected trends on an ongoing basis. If a valuation allowance is required in the
future, it could have an impact on the Fund's net assets and results of
operations in the period it is recorded.
For all open tax years and all major jurisdictions, management of the Fund has
concluded that there are no significant uncertain tax positions that would
require recognition in the financial statements. Open tax years are those that
are open for examination by taxing authorities (i.e. generally the last four tax
year ends and the interim tax period since then). Furthermore, management of the
Fund is also not aware of any tax positions for which it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly change in
the next twelve months.
Note 5 -- INVESTMENTS IN SECURITIES:
For the year ended November 30, 2009, purchases and sales of investments,
excluding short-term securities, were $139,666,014 and $98,413,429,
respectively.
Note 6 -- DERIVATIVES:
A swap is an agreement to exchange the return generated by one instrument for
the return generated by another instrument. The Fund may enter into swap
agreements to manage its exposure to interest rates and/or credit risk or to
generate income. Interest rate swap agreements involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest.
The swaps are valued daily at current market value and any unrealized gain or
loss is included in the Statement of Assets and Liabilities. Gain or loss is
realized on the termination date of the swap and is equal to the difference
between the Fund's basis in the swap and the proceeds of the closing
transaction, including any fees. During the period that the swap agreement is
open, the Fund may be subject to risk from the potential inability of the
counterparty to meet the terms of the agreement. The swaps involve elements of
both market and credit risk in excess of the amounts reflected on the Statement
of Assets and Liabilities.
Realized gain (loss) upon termination of swap contracts is recorded on the
Statement of Operations. Fluctuations in the value of swap contracts are
recorded as a component of net change in unrealized appreciation (depreciation)
of swap contracts. Net periodic payments received by the Fund are included as
part of realized gains (losses) and, in the case of accruals for periodic
payments, are included as part of unrealized appreciation (depreciation) on the
Statement of Operations.
Annual Report | November 30, 2009 | 21
FMO | Fiduciary/Claymore MLP Opportunity Fund | NOTES TO FINANCIAL STATEMENTS
continued
The Fund had interest rate swap agreements outstanding during the year ended
November 30, 2009 in order to hedge its exposure to short-term rates paid on its
credit facility. As of November 30, 2009, the Fund had swaps with a total
notional value of $120,000,000 outstanding. Details of the swap agreements
outstanding as of November 30, 2009 were as follows:
NOTIONAL UNREALIZED
TERMINATION AMOUNT FIXED APPRECIATION/
COUNTERPARTY DATE ($000S) RATE FLOATING RATE (DEPRECIATION)
----------------------------------------------------------------------------
Merrill Lynch 01/30/2011 $ 30,000 3.05% 1-Month LIBOR $ (1,194,893)
Merrill Lynch 01/30/2013 $ 30,000 3.49% 1-Month LIBOR (2,161,599)
Morgan Stanley 02/07/2011 $ 30,000 2.92% 1-Month LIBOR (1,128,766)
Morgan Stanley 03/19/2013 $ 30,000 3.13% 1-Month LIBOR (1,653,403)
----------------------------------------------------------------------------
$ (6,138,661)
----------------------------------------------------------------------------
For each swap noted, the Fund is obligated to pay the fixed rate and entitled to
receive the floating rate.
The unrealized depreciation on interest rate swaps of $6,138,661 is presented as
a liability on the Statement of Assets and Liabilities.
The Fund adopted ASC 815, Derivatives and Hedging ("ASC 815") (formerly known as
FAS No. 161), effective November 30, 2009. ASC 815 is intended to improve
financial reporting about derivative instruments by requiring enhanced
disclosures to enable investors to better understand: a) how and why a fund uses
derivative instruments, b) how derivatives instruments and related hedge fund
items are accounted for, and c) how derivative instruments and related hedge
items affect a fund's financial position, results of operations and cash flows.
The following table presents the effect of Derivatives Instruments on the
Statement of Operations for the year ended November 30, 2009.
EFFECT OF DERIVATIVE INSTRUMENTS BEFORE TAXES ON THE STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED NOVEMBER 30, 2009:
================================================================================
(Values in $000s)
AMOUNT OF REALIZED GAIN/(LOSS) ON DERIVATIVES BEFORE TAXES
--------------------------------------------------------------------------------
Swaps
Interest Rate Risk $ (3,185)
================================================================================
CHANGE IN UNREALIZED DEPRECIATION ON DERIVATIVES BEFORE TAXES
--------------------------------------------------------------------------------
Swaps
Interest Rate Risk $ (1,989)
================================================================================
The Fund did not enter into any new swap agreements during the year ended
November 30, 2009.
Note 7 -- BORROWINGS:
On September 30, 2008, the Fund entered into a $155,000,000 credit facility
agreement. The Fund incurred an issuance cost of 0.25% on the credit facility.
Interest on the amount borrowed is based on the 3-month LIBOR plus 1.50% . On
August 3, 2009, the credit facility total was reduced to $120,000,000. An unused
fee of 1.15% is charged on the difference
between the total credit facility and the amount borrowed. At November 30, 2009
there was $110,262,708 outstanding in connection with the Fund's credit
facility.
The average daily amount of borrowings on the credit facility during the year
ended November 30, 2009 was $92,372,297 with a related weighted average interest
rate of 3.16%, inclusive of the program fees. The maximum amount outstanding
during the year ended November 30, 2009, was $110,262,708.
Note 8 -- CAPITAL:
COMMON SHARES
The Fund has an unlimited amount of common shares, $0.01 par value, authorized
and 18,807,181 issued and outstanding.
Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED
NOVEMBER 30, 2009 NOVEMBER 30, 2008
--------------------------------------------------------------------------------
Beginning shares 18,285,742 18,105,218
Shares issued through dividend reinvestment 246,739 180,524
Common shares issued through add-on offering 274,700 --
--------------------------------------------------------------------------------
Ending shares 18,807,181 18,285,742
--------------------------------------------------------------------------------
On November 6, 2009, the Fund entered into an add-on offering sales agreement
among the Fund, the Adviser and Cantor Fitzgerald & Co. to offer and sell up to
an additional $125,000,000 of common shares, from time to time, through Cantor
Fitzgerald & Co. as agent for the Fund. As of November 30, 2009, the Fund had
pending subscriptions of 36,000 shares of its common stock for net proceeds of
$569,482.
The Advisor has paid the costs associated with this offering of shares and will
be reimbursed by the Fund up to 0.60% of the value of each share sold under this
program up to the costs incurred. As of November 30, 2009, the Fund has not
reimbursed the Advisor for any offering costs associated with the add-on
offering. As of November 30, 2009, an offering costs payable liability of
$26,651 is outstanding on the Statement of Assets and Liabilities.
Note 9 -- CONCENTRATION OF RISK:
Because the Fund is focused in MLP entities in the energy, natural resources and
real estate sectors of the economy, such concentration may present more risks
than if the Fund were broadly diversified over numerous industries and sectors
of the economy. A downturn in the energy, natural resources or real estate
sectors of the economy could have a larger impact on the Fund than on an
investment company that does not concentrate in such sectors. At times, the
performance of securities of companies in the energy, natural resources and real
estate sectors of the economy may lag the performance of other sectors or the
broader market as a whole.
An investment in MLP units involves risks that differ from a similar investment
in equity securities, such as common stock, of a corporation. Holders of MLP
units have the rights typically afforded to limited partners in a limited
partnership. As compared to common shareholders of a corporation, holders of MLP
units have more limited control and limited rights to vote on matters affecting
the partnership. There are certain tax risks associated with an investment in
MLP units. Additionally, conflicts of interest may exist between common
22 | Annual Report | November 30, 2009
FMO | Fiduciary/Claymore MLP Opportunity Fund | NOTES TO FINANCIAL STATEMENTS
continued
unit holders, subordinated unit holders and the general partner of an MLP; for
example, a conflict may arise as a result of incentive distribution payments.
Note 10 -- RESTRICTED SECURITIES:
The Fund may invest up to 40% of its managed assets in unregistered or otherwise
restricted securities. Restricted securities are securities that are
unregistered, held by control persons of the issuer or are subject to
contractual restrictions on resale. The Fund will typically acquire restricted
securities in directly negotiated transactions. Restricted securities are fair
valued in accordance with procedures established by the Fund's Board of
Trustees. As of November 30, 2009, the Fund held the following restricted
securities:
FAIR PRICE AT
DATE OF SHARES/ CURRENT MARKET ACQUISITION DATE 11/30/2009
SECURITY ACQUISITION PAR COST VALUE (UNRESTRICTED)*** PRICE
------------------------------------------------------------------------------------------------------------------
Abraxas Petroleum Corp.1 10/05/2009 756,923 $ 2,468,886 $ 1,468,008 $ 1.75 $ 1.9394
Abraxas Petroleum Corp.1 10/05/2009 756,923 $ 2,468,886 $ 1,462,673 $ 1.75 $ 1.9324
Abraxas Petroleum Corp.1 10/05/2009 756,924 $ 2,468,889 $ 1,454,172 $ 1.75 $ 1.9212
Abraxas Petroleum Corp.* 05/25/2007 114,230 $ -- $ 47,340 $ -- $ 0.4144
Clearwater GP Holding Co. 02/29/2008 123 $ 195,256 $ -- $ 1,252.03 $ --
Clearwater Natural
Resources, L.P.* 01/13/2009 9,499 $ -- $ -- $ -- $ --
Clearwater Natural
Resources, L.P.** 08/01/2005 43 $ -- $ -- $ -- $ --
Clearwater Natural
Resources, L.P. 08/01/2005 892,857 $ 17,857,143 $ -- $ -- $ --
Clearwater Natural
Resources, L.P. 10/02/2006 252,764 $ 5,055,280 $ -- $ -- $ --
Clearwater Subordinate Note 07/08/2008 $ 212,000 $ 212,000 $ 74,200 $ 100.00 $ 35.00
Clearwater Subordinate Note 08/06/2008 $ 212,000 $ 212,000 $ 74,200 $ 100.00 $ 35.00
Clearwater Subordinate Note 09/29/2008 $ 759,880 $ 759,880 $ 265,958 $ 100.00 $ 35.00
Clearwater Subordinate Note 01/09/2009 $ 53,517 $ 53,517 $ 18,731 $ 100.00 $ 35.00
Copano Energy, L.L.C.,
Unregistered Series D Units 03/14/2008 190,000 $ 4,987,500 $ 3,748,208 $ 34.05 $19.7274
--------------------------
Total $ 36,739,237 $ 8,613,490
--------------------------
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