Selection Criteria
The Trust’s portfolio is divided into different
asset segments: common shares of closed-end
investment companies (“closed-end funds”),
common stocks/American Depositary Receipts (“ADRs”), master limited partnerships (“MLPs”),
real estate investment trusts (“REITs”) and stocks
of oil/energy related companies or companies
created to hold investments in operating
companies or their cash flows (“Oil/Energy
Companies”). The selection methodology for each
asset segment is described below. Certain of the closed-end funds selected for
the Trust invest in high-yield or “junk” securities.
Please see “Principal Risks” and “ Investment
Risks” for additional information about the risks
of investing in high-yield or “junk” securities. An investment can be made in the closed-end
funds without paying the sales fee, operating
expenses and organization costs of the Trust. The security selection process begins by
identifying an initial universe of securities traded
on all North American securities exchanges.
These securities include, but are not limited to,
closed-end funds, common stocks, ADRs, MLPs,
REITs, Oil/Energy Companies and exchangetraded
funds. From this initial universe, the Trust
portfolio is compiled using factors designed to
identify securities in each segment below that
meet certain investment criteria. Closed-End Fund Segment - First, eliminate closed-end funds that do
not pay a dividend, are not trading at a
discount to net asset value, have a net
asset value of less than $300 million or
liquidity of less than $1 million, where
liquidity is defined as price times average
three-month trading volume.
- Then, select the 15 closed-end funds with
the highest dividend yield and weight
them based on their yield to make up
approximately 10% of the Trust portfolio.
Common Stock/ADR Segment - First, eliminate stocks/ADRs with market
caps not among the largest 1,000, with
payout ratios greater than 80% or with
liquidity of less than $2 million, where
liquidity is defined as price times average
three-month trading volume.
- Then, select the 40 common stocks/ADRs
with the highest dividend yield and weight
them based on their yield to make up
approximately 30% of the Trust portfolio.
MLP Segment - First, eliminate MLPs that have a share
price of less than $10 or liquidity of less
than $3 million, where liquidity is defined
as price times average three-month
trading volume.
- Next, eliminate the 10% of remaining
MLPs with the highest short interest,
where short interest is defined as the
percentage of MLP shares outstanding
that are held short.
- Then, select the 15 MLPs with the highest
dividend yield and weight them based on
their yield to make up approximately
17.5% of the Trust portfolio.
REIT Segment - First, eliminate REITs that have a share
price of less than $10 or liquidity of less
than $5 million, where liquidity is defined
as price times average three-month
trading volume.
- Next, eliminate the 10% of the remaining
REITs with the highest short interest,
where short interest is defined as the percentage of MLP shares outstanding
that are held short.
- Then, select the 20 REITs with the
highest dividend yield and weight them
based on their yield to make up
approximately 20% of the Trust portfolio.
Oil & Energy Companies/Royalty Trust
Segment - First, eliminate Oil & Energy Companies
that have a share price of less than $10 or
liquidity of less than $3 million, where
liquidity is defined as price times average
three-month trading volume.
- Next, select the 10 Oil & Energy
Companies with the highest
dividend yield.
- Then, weight these 10 securities based on
their liquidity to make up approximately
22.5% of the Trust portfolio.
Final Trust Portfolio Construction Screen
The asset segments are combined to form the
final portfolio. A final liquidity check is performed
to ensure the investability of each security. Any
security eligible for inclusion in the Trust portfolio
with liquidity of less than the estimated total
dollar value of the security in the Trust portfolio
may be removed and replaced by the next highest
ranked security in the same asset segment. In the event that a non-MLP security is
selected which may not be treated as a corporation
for U.S. tax purposes, that non-MLP security will
be removed and the next security in the list will be
selected for inclusion in the portfolio. Please note that due to the fluctuating nature
of security prices, the weighting of an individual security or sector in the Trust portfolio may
change after the portfolio selection date. Zacks & Company Zacks & Company is a Chicago-based
broker-dealer—a member of FINRA and SIPC.
Founded in 1978, it is an affiliate of Zacks
Investment Research, Inc., and is wholly-owned
by Leonard Zacks, president of Zacks Investment
Research, Inc. Zacks’ principal business activity
is the execution of trades for institutional
customers by its independent trading desk. The
company also provides consulting services for its
customers. In addition, through its clearing firm,
Zacks provides stock market execution for soft
dollar research clients of Zacks Investment
Research, Inc. The Trust will pay Zacks
Investment Research, Inc. a one-time licensing
fee for the use of its intellectual property.
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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 invests in MLPs. MLPs are
limited partnerships or limited liability
companies that are taxed as
partnerships and whose interests
(limited partnership units or limited
liability company units) are traded on
securities exchanges like shares of
common stock. Currently, most MLPs
operate in the energy, natural resources
or real estate sectors. Investments in
MLP interests are subject to the risks
generally applicable to companies in
the energy and natural resources
sectors, including commodity pricing
risk, supply and demand risk, depletion
risk and exploration risk.
- The Trust includes securities issued
by companies in the energy sector.
Companies in the energy sector are subject to volatile fluctuations in price
and supply of energy fuels, and can be
impacted by international politics and
conflicts, including the unrest in Iraq
and hostilities in the Middle East,
terrorist attacks, the success of
exploration projects, reduced demand
as a result of increases in energy
efficiency and energy conservation,
natural disasters, clean-up and litigation
costs associated with environmental
damage and extensive regulation.
- The Trust invests in securities issued by
small-capitalization and mid-capitalization
companies. These
securities customarily involve more
investment risk than securities of large-capitalization
companies. Small-capitalization
and mid-capitalization
companies may have limited product lines,
markets or financial resources and may be
more vulnerable to adverse general market
or economic developments.
- 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 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 nonpayment
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 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 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.
- Share prices or dividend rates on the
securities in the Trust may decline during the life of the Trust. There is no
guarantee that the issuers of the securities
will declare dividends in the future and,
if declared, whether they will remain at
current levels or increase over time.
- The Trust and certain closed-end
funds held by the Trust invest in ADRs,
U.S.-listed foreign securities and foreign
securities listed on a foreign exchange.
The Trust’s investment in ADRs and
foreign securities presents additional risk.
ADRs are issued by a bank or Trust
company to evidence ownership of
underlying securities issued by foreign
corporations. Securities of foreign issuers
present risks beyond those of domestic
securities. More specifically, 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. In addition, the
Trust’s investment in Energy Companies
may expose unitholders to additional risks
that may be associated with Canada or the
Canadian securities markets.
- The Trust and 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.
- The Trust may invest in companies
that are considered to be passive
foreign investment companies
(“PFICs”). In general, PFICs are
certain non-U.S. corporations that
receive at least 75% of their annual
gross income from passive sources
(such as interest, dividends, certain
rents and royalties or capital gains) or
that hold at least 50% of their assets in
investments producing such passive
income. As a result of an investment in
PFICs, the Trust could be subject to U.S.
federal income tax and additional
interest charges on gains and certain
distributions with respect to those
equity interests, even if all the income
or gain is distributed to its unitholders
in a timely manner. The Trust will not be
able to pass through to its unitholders
any credit or deduction for such taxes.
- Current economic conditions may
lead to limited liquidity and greater
volatility. The markets for fixed-income
securities, such as those held
by the closed-end funds, 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.
- The Trust and certain closed-end
funds held by the Trust invest in
REITs. 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 REITs and other real estate
securities and the ability of such securities
to distribute income may be adversely
affected by several factors, including:
rising interest rates; changes in the global
and local economic climate and real estate
conditions; perceptions of prospective
tenants of the safety, convenience and
attractiveness of the properties; the ability
of the owner to provide adequate
management, maintenance and insurance;
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 the real
estate markets in the United States; and
other factors beyond the control of the
issuer of the security.
- 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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