Selection Criteria
The Sponsor has selected closed-end funds
for the portfolio believed to have the best
potential to achieve the Trust’s investment
objective. The closed-end funds’ portfolios
consist primarily of income-producing
securities, including: high-yield bonds,
convertible bonds, preferred securities, REITs,
corporate bonds, government bonds,
international bonds and equities. An investment
can be made in the closed-end funds without
paying the sales fee, operating expenses and
organization costs of the Trust. When selecting closed-end funds for
inclusion in the portfolio the Sponsor primarily
considers current distribution rates and favors
funds that have a history of paying a consistent
and competitive dividend. The Sponsor also
considers secondary factors which include, but
are not limited to: - Investment Objective. The Sponsor favors
funds that have a clear investment
objective in line with the Trust’s objective
and, based upon a review of publicly available information, appear to be
maintaining it.
- Performance. The Sponsor favors funds
that have a history of strong relative
performance (based on market price and
net asset value) when compared to their
peers and an applicable benchmark.
- Premium/Discount. The Sponsor favors
funds that are trading at a discount relative
to their peers and relative to their long-term
average.
- Portfolio Diversification. The Sponsor
favors a trust of funds that are diversified
across multiple sectors.
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Risks and Other Considerations
As with all investments, you may lose some
or all of your investment in the Trust. No
assurance can be given that the Trust’s investment
objective will be achieved. The Trust also might
not perform as well as you expect. This can
happen for reasons such as these: - Securities prices can be volatile. The
value of your investment may fall over
time. Market value fluctuates in response
to various factors. These can include
stock market movements, purchases or
sales of securities by the Trust, government policies, litigation, and
changes in interest rates, inflation, the
financial condition of the securities’ issuer
or even perceptions of the issuer. Units of
the Trust are not deposits of any bank and
are not insured or guaranteed by the
Federal Deposit Insurance Corporation or
any other government agency.
- Due to the current state of the economy,
the value of the securities held by the
Trust may be subject to steep declines or
increased volatility due to changes in
performance or perception of the
issuers. Starting in December 2007,
economic activity declined across all
sectors of the economy, and the United
States experienced increased
unemployment. The economic crisis
affected the global economy with
European and Asian markets also
suffering historic losses. Standard &
Poor’s Rating Services recently lowered
its long-term sovereign credit rating on the
United States to “AA+” from “AAA,”
which could lead to increased interest
rates and volatility. Extraordinary steps
have been taken by the governments of
several leading countries to combat the
economic crisis; however, the impact of
these measures is not yet fully known and
cannot be predicted.
- The Trust includes closed-end funds.
Closed-end funds are actively managed
investment companies that invest in
various types of securities. Closed-end
funds issue common shares that are
traded on a securities exchange. Closed-
End Funds are subject to various risks,
including management’s ability to meet
the closed-end fund’s investment
objective and to manage the closed-end
fund’s portfolio during periods of market
turmoil and as investors’ perceptions regarding closed-end funds or their
underlying investments change. Closed-
End Funds are not redeemable at the
option of the shareholder and they may
trade in the market at a discount to their
net asset value. Closed-end funds may
also employ the use of leverage which
increases risk and volatility. Instability in
the auction rate preferred shares market
may affect the volatility of closed-end
funds that use such instruments to
provide leverage.
- The value of the fixed-income
securities in the closed-end funds will
generally fall if interest rates, in
general, rise. Typically, fixed-income
securities with longer periods before
maturity are more sensitive to interest
rate changes.
- A closed-end fund or an issuer of
securities held by a closed-end fund
may be unwilling or unable to make
principal payments and/or to declare
distributions in the future, may call a
security before its stated maturity, or
may reduce the level of distributions
declared. This may result in a reduction
in the value of your units.
- The financial condition of a Closed-
End Fund or an issuer of securities
held by a closed-end fund may
worsen, resulting in a reduction in
the value of your units. This may
occur at any point in time, including
during the primary offering period.
- Certain closed-end funds held by
the Trust invest in preferred
securities. Preferred securities are
typically subordinated to bonds and
other debt instruments in a company’s
capital structure in terms of priority to corporate income and therefore will be
subject to greater credit risk than those
debt instruments.
- Certain closed-end funds held by the
Trust invest in bonds that are rated
below investment-grade and are
considered to be “junk” securities.
Below investment-grade obligations are
considered to be speculative and are
subject to greater market and credit risks,
and accordingly, the risk of non-payment
or default is higher than with investmentgrade
securities. In addition, such
securities may be more sensitive to
interest rate changes and more likely to
receive early returns of principal.
- Certain closed-end funds held by the
Trust may invest in bonds that are
rated as investment-grade by only one
rating agency. As a result, such splitrated
securities may have more
speculative characteristics and are subject
to a greater risk of default than securities
rated as investment-grade by more than
one rating agency.
- Certain closed-end funds held by
the Trust may invest in senior loans.
Borrowers under senior loans may
default on their obligations to pay
principal or interest when due. This nonpayment
would result in a reduction of
income to the applicable closed-end
fund, a reduction in the value of the
senior loan experiencing non-payment
and a decrease in the net asset value of
the closed-end fund. Although senior
loans in which the closed-end funds
invest may be secured by specific
collateral, there can be no assurance that
liquidation of collateral would satisfy
the borrower’s obligation in the event of
non-payment of scheduled principal or interest or that such collateral could be
readily liquidated.
- Senior loans in which the closed-end
funds invest:
generally are of below investmentgrade
credit quality;
— may be unrated at the time of
investment;
— generally are not registered with the
Securities and Exchange
Commission (“SEC”) or any state
securities commission; and
— generally are not listed on any
securities exchange. - In addition, the amount of public
information available on senior loans
generally is less extensive than that
available for other types of assets.
- Certain closed-end funds held by
the Trust invest in convertible
securities. Convertible securities
generally offer lower interest or
dividend yields than non-convertible
fixed-income securities of similar credit
quality because of the potential for
capital appreciation. The market values
of convertible securities tend to decline
as interest rates increase and,
conversely, to increase as interest rates
decline. However, a convertible
security’s market value also tends to
reflect the market price of the common
stock of the issuing company,
particularly when that stock price is
greater than the convertible security’s
“conversion price.” Convertible
securities fall below debt obligations of the same issuer in order of preference
or priority in the event of a liquidation
and are typically unrated or rated lower
than such debt obligations.
- Certain closed-end funds held by the
Trust invest in call options. The call
writing portion of the investment
strategy of the closed-end funds may
not be successful in that the closed-end
funds may not realize the full
appreciation of stocks on which the
closed-end funds have written call
options. The ability to successfully
implement the closed-end fund’s
investment strategy depends on the
closed-end fund’s adviser’s ability to
predict pertinent market movements,
which cannot be assured.
- The value of a call option held by a
closed-end fund may be adversely
affected if the market for the option
becomes less liquid or smaller. The
value of an option will be affected by
changes in the value and dividend rates
of the stock subject to the option, an
increase in interest rates, a change in the
actual and perceived volatility of the
stock market and the common stock, and
the remaining time to expiration.
- Certain closed-end funds held by
the Trust invest in foreign securities.
Investment in foreign securities presents
additional risk. Foreign risk is the risk
that foreign securities will be more
volatile than U.S. securities due to such
factors as adverse economic, currency,
political, social or regulatory
developments in a country, including
government seizure of assets, excessive
taxation, limitations on the use or
transfer of assets, the lack of liquidity or
regulatory controls with respect to certain industries or differing legal
and/or accounting standards.
- Certain closed-end funds held by the
Trust invest in securities issued by
companies headquartered or
incorporated in countries considered
to be emerging markets. Emerging
markets are generally defined as
countries with low per capita income in
the initial stages of their industrialization
cycles. Risks of investing in developing
or emerging countries include the
possibility of investment and trading
limitations, liquidity concerns, delays
and disruptions in settlement
transactions, political uncertainties and
dependence on international trade and
development assistance. Companies
headquartered in emerging market
countries may be exposed to greater
volatility and market risk.
- Certain closed-end funds held by the
Trust invest in REITs and other real
estate securities. REITs may concentrate
their investments in specific geographic
areas or in specific property types, such
as hotels, shopping malls, residential
complexes and office buildings. The
value of the REIT and the ability of the
REIT to distribute income may be
adversely affected by several factors,
including: rising interest rates; changes in
the national, state and local economic
climate and real estate conditions;
perceptions of prospective tenants about
the safety, convenience and attractiveness
of the properties; the ability of the owner
to provide adequate management,
maintenance and insurance; the cost of
complying with the Americans with
Disabilities Act; increased competition
from new properties; the impact of
present or future environmental legislation and compliance with
environmental laws; changes in real
estate taxes and other operating expenses;
adverse changes in governmental rules
and fiscal policies; adverse changes in
zoning laws; declines in the value of real
estate; the downturn in the subprime
mortgage lending market and real estate
markets in the United States; and other
factors beyond the control of the issuer of
the REIT.
- Certain closed-end funds held by the
Trust invest in common stocks.
Common stocks represent a proportional
share of ownership in a company.
Common stock prices fluctuate for
several reasons including changes in
investors’ perceptions of the financial
condition of an issuer, changes in the
general condition of the relevant stock
market, such as the market volatility
recently exhibited, or when political or
economic events affect the issuers.
Common stock prices may also be
particularly sensitive to rising interest
rates, as the cost of capital rises and
borrowing costs increase.
- Inflation may lead to a decrease in the
value of assets or income from
investments.
- The Sponsor does not actively manage
the portfolio. The Trust will generally
hold, and may, when creating additional
units, continue to buy, the same securities
even though a security’s outlook, market
value or yield may have changed.
- Please note that the Sponsor or an affiliate may be engaged as a service provider to certain closed-end funds held by the
Trust and therefore certain fees paid by the Trust to such closed-end funds will be paid to the Sponsor or an affiliate for its
services to such closed-end funds. In addition to the expenses of the units of the Trust, the Trust is subject to various
expenses of closed-end funds. Please see the Trust prospectus for more complete risk information.
See “Investment Risks” in Part A of the
prospectus and “Risk Factors” in Part B of the
prospectus for additional information.
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