SELECTION CRITERIA
The Sponsor selects U.S.-listed companies that it believes are core holdings of a well-diversified U.S.-listed large-cap portfolio. To select the portfolio the Sponsor follows a very disciplined process which includes both quantitative screening and qualitative analysis.
The Sponsor begins with the companies that currently comprise the Russell 3000® Index and separates these companies into three capitalization groups (large, mid and small-cap). The stocks comprising the first (or largest) 72.5% of capitalization are classified as large-cap, the stocks comprising the next 15% of capitalization are classified as mid-cap and the remaining 12.5% are classified as small-cap. The Sponsor then takes the large-cap group and separates these companies into twenty groups based on style and Global Industry Classification Standard (“GICS”) sector. Please note that due to the fluctuating nature of security prices, a company’s classification as large-cap, mid-cap or small-cap may change after its selection for the portfolio.
The Sponsor then reduces the universe to approximately 250 companies by performing quantitative screening, which may be primarily based on, but not limited to, the following factors:
- Valuation. The Sponsor favors companies whose valuations appear to be attractive based on measures such as price-to-earnings, price-to-book and price-to-cash flow.
- Growth. The Sponsor may screen for companies with a history of (and prospects for) above average growth of dividends, sales and earnings.
- Profitability. The Sponsor may screen for companies with a history of consistent and high profitability as measured by return-on-assets, return-on-equity, gross margin and net margin.
The Sponsor then reduces the 250 companies to approximately 50 by performing qualitative analysis, which may be primarily based on, but not limited to, the following factors:
- Balance Sheet. The Sponsor favors companies that possess overall financial strength and exhibit balance sheet improvements relative to their peers and the marketplace
- Industry Leadership. The Sponsor favors companies that possess a strong competitive position among their domestic and global peers
- Valuation. The Sponsor favors companies whose valuations appear to be attractive based on measures such as price-to-earnings, price-to-book and price-to-cash flow
- Growth. The Sponsor favors companies with a history of (and prospects for) above average growth of revenues, earnings and dividends (if applicable)
- Profitability. The Sponsor favors companies with a history of (and prospects for) consistent and high profitability as measured by return-on-assets, return-on-equity, gross margin and net margin.
For the final step, the Sponsor weights the selected stocks such that the portfolio has a style and sector representation that closely resembles that of the Russell 1000® Index.
Russell 3000® Index
Russell 3000® Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market.
Russell 1000® Index
Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® represents approximately 92% of the U.S. market.
It is not possible to invest directly in the Russell 1000® Index or the Russell 3000® Index. The Trust will not try to replicate the performance of the Russell 1000® Index or the Russell 3000® Index and will not necessarily invest any substantial portion of its assets in securities in the Indices. There is no guarantee that the perceived intrinsic value of a security will be realized.
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. In the last year, economic activity has declined across all sectors of the economy, and the United States is experiencing increased unemployment. The current economic crisis has affected the global economy with European and Asian markets also suffering historic losses. Extraordinary steps have been taken by the governments of several leading economic countries to combat the economic crisis; however, the impact of these measures is not yet known and cannot be predicted.
- 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 invests in a U.S.-listed foreign security. The Trust’s investment in a U.S.-listed foreign security presents additional risk. 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.
- 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.
- The Sponsor does not actively manage the portfolio. The Trust will generally hold, and may continue to buy, the same securities even though a security’s outlook, market value or yield may have changed.
- Inflation may lead to a decrease in the value of assets or income from investments.
Please see the Trust prospectus for more complete risk information.
Unit Investment Trusts (“UITs”) are fixed and not actively managed. An investment in this fixed portfolio should be made with an understanding of the risks involved with owning various types of investments. Industry predictions may not materialize and securities selected for the Trust may not participate in overall industry growth, if any. Units, when redeemed, may be worth more or less than their original purchase price.
This UIT is part of a long-term strategy. Consult an attorney or tax advisor regarding tax consequences associated with an investment from one series to the next, if available. Investors should consult their tax advisor to determine tax consequences associated with the purchase or sale of units. Guggenheim Funds Distributors, Inc. does not offer tax advice.