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.
- 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.
- 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.
- Certain closed-end funds held by
the Trust may 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 investment-grade
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 split-rated
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 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 may 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 convertible securities.
Convertible securities generally offer
lower interest or dividend yields than nonconvertible
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 real estate
investment trusts (“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 sub-prime mortgage
lending market and the real estate
markets in the United States; and other
factors beyond the control of the issuer
of the REIT.
- 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.
- Current economic conditions may
lead to limited liquidity and greater
volatility. The markets for fixed-income
securities, such as those held by certain
closed-end funds held by the Trust,
may experience periods of illiquidity
and volatility. General market
uncertainty and consequent repricing
risk have led to market imbalances of
sellers and buyers, which in turn have
resulted in significant valuation
uncertainties in a variety of fixed-income
securities. These conditions
resulted, and in many cases continue to
result in, greater volatility, less liquidity,
widening credit spreads and a lack of
price transparency, with many debt
securities remaining illiquid and of uncertain value. These market
conditions may make valuation of some
of the securities held by a closed-end
fund uncertain and/or result in sudden
and significant valuation increases or
declines in its holdings.
- 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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