Registration No. 333-237435
1940 Act No. 811-05903
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to Form S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust:
FT 8672
B. Name of depositor:
FIRST TRUST PORTFOLIOS L.P.
C. Complete address of depositor's principal executive offices:
120 East Liberty Drive
Suite 400
Wheaton, Illinois 60187
D. Name and complete address of agents for service:
| | Copy to: |
| | |
| JAMES A. BOWEN | ERIC F. FESS |
| c/o First Trust Portfolios L.P. | c/o Chapman and Cutler LLP |
| 120 East Liberty Drive | 111 West Monroe Street |
| Suite 400 | Chicago, Illinois 60603 |
| Wheaton, Illinois 60187 | |
E. Title and Amount of Securities Being Registered:
An indefinite number of Units pursuant to Rule 24f-2 promulgated under the Investment Company Act of 1940, as amended.
F. Approximate date of proposed sale to public:
As soon as practicable after the effective date of the Registration Statement.
| | Check box if it is proposed that this filing will become effective on April 28, 2020 at 2:00 p.m. pursuant to Rule 487.
________________________________
Limited Duration Fixed Income ETF Portfolio, Series 35
FT 8672
FT 8672 is a series of a unit investment trust, the FT Series. FT 8672
consists of a single portfolio known as Limited Duration Fixed Income ETF
Portfolio, Series 35 (the "Trust"). The Trust invests in a diversified
portfolio of shares ("Securities") issued by fixed-income exchange-traded
funds (the "ETFs" or "Funds"). Certain of the ETFs invest in high-yield
securities. See "Risk Factors" for a discussion of the risk of investing
in high-yield securities or "junk" bonds. An investment can be made in the
underlying Securities directly rather than through the Trust. These direct
investments can be made without paying the sales charge, operating
expenses and organizational costs of the Trust. The Trust seeks current
monthly income and capital appreciation.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FIRST TRUST(R)
800-621-1675
The date of this prospectus is April 28, 2020
Page 1
Table of Contents
Summary of Essential Information 3
Fee Table 4
Report of Independent Registered Public Accounting Firm 5
Statement of Net Assets 6
Schedule of Investments 7
The FT Series 8
Portfolio 9
Risk Factors 9
Public Offering 17
Distribution of Units 20
The Sponsor's Profits 21
The Secondary Market 21
How We Purchase Units 21
Expenses and Charges 22
Tax Status 22
Retirement Plans 25
Rights of Unit Holders 25
Income and Capital Distributions 25
Redeeming Your Units 26
Removing Securities from the Trust 27
Amending or Terminating the Indenture 28
Information on the Sponsor, Trustee and Evaluator 28
Other Information 29
Page 2
Summary of Essential Information (Unaudited)
Limited Duration Fixed Income ETF Portfolio, Series 35
FT 8672
At the Opening of Business on the Initial Date of Deposit-April 28, 2020
Sponsor: First Trust Portfolios L.P.
Trustee: The Bank of New York Mellon
Evaluator: First Trust Advisors L.P.
Initial Number of Units (1) 14,912
Fractional Undivided Interest in the Trust per Unit (1) 1/14,912
Public Offering Price:
Public Offering Price per Unit (2) $ 10.000
Less Initial Sales Charge per Unit (3) (.000)
__________
Aggregate Offering Price Evaluation of Securities per Unit (4) 10.000
Less Deferred Sales Charge per Unit (3) (.225)
__________
Redemption Price per Unit (5) 9.775
Less Creation and Development Fee per Unit (3) (5) (.050)
Less Organization Costs per Unit (5) (.023)
__________
Net Asset Value per Unit $ 9.702
==========
Cash CUSIP Number 30313X 346
Reinvestment CUSIP Number 30313X 353
Fee Account Cash CUSIP Number 30313X 361
Fee Account Reinvestment CUSIP Number 30313X 379
Pricing Line Product Code 130019
Ticker Symbol FVYSRX
First Settlement Date April 30, 2020
Mandatory Termination Date (6) April 28, 2022
Income Distribution Record Date Tenth day of each month, commencing May 10, 2020.
Income Distribution Date (7) Twenty-fifth day of each month, commencing May 25, 2020.
_____________
(1) As of the Evaluation Time on the Initial Date of Deposit, we may
adjust the number of Units of the Trust so that the Public Offering Price
per Unit will equal approximately $10.00. If we make such an adjustment,
the fractional undivided interest per Unit will vary from the amount
indicated above.
(2) The Public Offering Price shown above reflects the value of the
Securities on the business day prior to the Initial Date of Deposit. No
investor will purchase Units at this price. The price you pay for your
Units will be based on their valuation at the Evaluation Time on the date
you purchase your Units. On the Initial Date of Deposit, the Public
Offering Price per Unit will not include any accumulated dividends on the
Securities. After this date, a pro rata share of any accumulated dividends
on the Securities will be included.
(3) You will pay a maximum sales charge of 2.75% of the Public Offering
Price per Unit (equivalent to 2.75% of the net amount invested) which
consists of an initial sales charge, a deferred sales charge and a
creation and development fee. The sales charges are described in the "Fee
Table."
(4) Each listed Security is valued at its last closing sale price at the
Evaluation Time on the business day prior to the Initial Date of Deposit.
If a Security is not listed, or if no closing sale price exists, it is
valued at its closing ask price on such date. See "Public Offering-The
Value of the Securities." Evaluations for purposes of determining the
purchase, sale or redemption price of Units are made as of the close of
trading on the New York Stock Exchange ("NYSE") (generally 4:00 p.m.
Eastern time) on each day on which it is open (the "Evaluation Time").
(5) The creation and development fee will be deducted from the assets of
the Trust at the end of the initial offering period and the estimated
organization costs per Unit will be deducted from the assets of the Trust
at the earlier of six months after the Initial Date of Deposit or the end
of the initial offering period. If Units are redeemed prior to any such
reduction, these fees will not be deducted from the redemption proceeds.
See "Redeeming Your Units."
(6) See "Amending or Terminating the Indenture."
(7) The Trustee will distribute money from the Capital Account monthly on
the twenty-fifth day of each month to Unit holders of record on the tenth
day of each month if the amount available for distribution equals at least
$1.00 per 100 Units. In any case, the Trustee will distribute any funds in
the Capital Account in December of each year and as part of the final
liquidation distribution. See "Income and Capital Distributions."
Page 3
Fee Table (Unaudited)
This Fee Table describes the fees and expenses that you may, directly or
indirectly, pay if you buy and hold Units of the Trust. See "Public
Offering" and "Expenses and Charges." Although the Trust has a term of
approximately two years and is a unit investment trust rather than a
mutual fund, this information allows you to compare fees.
Amount
per Unit
________
Unit Holder Sales Fees (as a percentage of public offering price)
Maximum Sales Charge
Initial sales charge 0.00%(a) $.000
Deferred sales charge 2.25%(b) $.225
Creation and development fee 0.50%(c) $.050
_____ _____
Maximum sales charge (including creation and development fee) 2.75% $.275
===== =====
Organization Costs (as a percentage of public offering price)
Estimated organization costs .230%(d) $.0230
===== ======
Estimated Annual Trust Operating Expenses(e)
(as a percentage of average net assets)
Portfolio supervision, bookkeeping, administrative and evaluation fees .080% $.0080
Trustee's fee and other operating expenses .138%(f) $.0138
Acquired Fund fees and expenses .270%(g) $.0271
_____ ______
Total .488% $.0489
===== ======
Example
This example is intended to help you compare the cost of investing in the
Trust with the cost of investing in other investment products. The example
assumes that you invest $10,000 in the Trust for the periods shown. The
example also assumes a 5% return on your investment each year and that the
Trust's operating expenses stay the same. The example does not take into
consideration transaction fees which may be charged by certain
broker/dealers for processing redemption requests. Although your actual
costs may vary, based on these assumptions your costs, assuming you sell
or redeem your Units at the end of each period, would be:
1 Year 2 Years
______ _______
$347 $396
The example will not differ if you hold rather than sell your Units at the
end of each period.
_____________
(a) The combination of the initial and deferred sales charge comprises
what we refer to as the "transactional sales charge." The initial sales
charge is actually equal to the difference between the maximum sales
charge of 2.75% and the sum of any remaining deferred sales charge and
creation and development fee. When the Public Offering Price per Unit
equals $10, there is no initial sales charge. If the price you pay for
your Units exceeds $10 per Unit, you will pay an initial sales charge.
(b) The deferred sales charge is a fixed dollar amount equal to $.225 per
Unit which, as a percentage of the Public Offering Price, will vary over
time. The deferred sales charge will be deducted in three monthly
installments commencing August 20, 2020.
(c) The creation and development fee compensates the Sponsor for creating
and developing the Trust. The creation and development fee is a charge of
$.050 per Unit collected at the end of the initial offering period, which
is expected to be approximately three months from the Initial Date of
Deposit. If the price you pay for your Units exceeds $10 per Unit, the
creation and development fee will be less than 0.50%; if the price you pay
for your Units is less than $10 per Unit, the creation and development fee
will exceed 0.50%. If you purchase Units after the initial offering
period, you will not be assessed the creation and development fee.
(d) Estimated organization costs will be deducted from the assets of the
Trust at the earlier of six months after the Initial Date of Deposit or
the end of the initial offering period. Estimated organization costs are
assessed on a fixed dollar amount per Unit basis which, as a percentage of
average net assets, will vary over time.
(e) With the exception of the underlying Fund expenses, each of the fees
listed herein is assessed on a fixed dollar amount per Unit basis which,
as a percentage of average net assets, will vary over time.
(f) Other operating expenses do not include brokerage costs and other
portfolio transaction fees. In certain circumstances the Trust may incur
additional expenses not set forth above. See "Expenses and Charges."
(g) Although not actual Trust operating expenses, the Trust, and therefore
Unit holders, will indirectly bear similar operating expenses of the Funds
in which the Trust invests in the estimated amounts set forth in the
table. These expenses are estimated based on the actual Fund expenses
disclosed in a Fund's most recent SEC filing but are subject to change in
the future. An investor in the Trust will therefore indirectly pay higher
expenses than if the underlying Fund shares were held directly.
Page 4
Report of Independent
Registered Public Accounting Firm
To the Unit Holders and the Sponsor, First Trust Portfolios L.P., of FT 8672
Opinion on the Statement of Net Assets
We have audited the accompanying statement of net assets of FT 8672,
comprising Limited Duration Fixed Income ETF Portfolio, Series 35 (the
"Trust"), one of the series constituting the FT Series, including the
schedule of investments, as of the opening of business on April 28, 2020
(Initial Date of Deposit), and the related notes. In our opinion, the
statement of net assets presents fairly, in all material respects, the
financial position of the Trust as of the opening of business on April 28,
2020 (Initial Date of Deposit), in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
This statement of net assets is the responsibility of the Trust's Sponsor.
Our responsibility is to express an opinion on this statement of net
assets based on our audit. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Trust in accordance
with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of net assets is free of
material misstatement, whether due to error or fraud. The Trust is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audit we are required to
obtain an understanding of internal control over financial reporting but
not for the purpose of expressing an opinion on the effectiveness of the
Trust's internal control over financial reporting. Accordingly, we express
no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the statement of net assets, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the statement of net assets. Our audit also
included evaluating the accounting principles used and significant
estimates made by the Trust's Sponsor, as well as evaluating the overall
presentation of the statement of net assets. Our procedures included
confirmation of the irrevocable letter of credit held by The Bank of New
York Mellon, the Trustee, and deposited in the Trust for the purchase of
securities, as shown in the statement of net assets, as of the opening of
business on April 28, 2020, by correspondence with the Trustee. We believe
that our audit provides a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
April 28, 2020
We have served as the auditor of one or more investment companies
sponsored by First Trust Portfolios L.P. since 2001.
Page 5
Statement of Net Assets
Limited Duration Fixed Income ETF Portfolio, Series 35
FT 8672
At the Opening of Business on the Initial Date of Deposit-April 28, 2020
NET ASSETS
Investment in Securities represented by purchase contracts (1) (2) $149,122
Less liability for reimbursement to Sponsor for organization costs (3) (343)
Less liability for deferred sales charge (4) (3,355)
Less liability for creation and development fee (5) (746)
________
Net assets $144,678
========
Units outstanding 14,912
Net asset value per Unit (6) $ 9.702
ANALYSIS OF NET ASSETS
Cost to investors (7) $149,122
Less maximum sales charge (7) (4,101)
Less estimated reimbursement to Sponsor for organization costs (3) (343)
________
Net assets $144,678
========
_____________
NOTES TO STATEMENT OF NET ASSETS
The Trust is registered as a unit investment trust under the Investment
Company Act of 1940. The Sponsor is responsible for the preparation of
financial statements in accordance with accounting principles generally
accepted in the United States which require the Sponsor to make estimates
and assumptions that affect amounts reported herein. Actual results could
differ from those estimates. The Trust intends to comply in its initial
fiscal year and thereafter with provisions of the Internal Revenue Code
applicable to regulated investment companies and as such, will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gains) distributed to Unit holders.
(1) The Trust invests in a diversified portfolio of ETFs. Aggregate cost
of the Securities listed under "Schedule of Investments" for the Trust is
based on their aggregate underlying value. The Trust has a Mandatory
Termination Date of April 28, 2022.
(2) An irrevocable letter of credit issued by The Bank of New York Mellon,
of which approximately $200,000 has been allocated to the Trust, has been
deposited with the Trustee as collateral, covering the monies necessary
for the purchase of the Securities according to their purchase contracts.
(3) A portion of the Public Offering Price consists of an amount
sufficient to reimburse the Sponsor for all or a portion of the costs of
establishing the Trust. These costs have been estimated at $.0230 per
Unit. A payment will be made at the earlier of six months after the
Initial Date of Deposit or the end of the initial offering period to an
account maintained by the Trustee from which the obligation of the
investors to the Sponsor will be satisfied. To the extent that actual
organization costs of the Trust are greater than the estimated amount,
only the estimated organization costs added to the Public Offering Price
will be reimbursed to the Sponsor and deducted from the assets of the Trust.
(4) Represents the amount of mandatory deferred sales charge distributions
of $.225 per Unit, payable to the Sponsor in three equal monthly
installments beginning on August 20, 2020 and on the twentieth day of each
month thereafter (or if such date is not a business day, on the preceding
business day) through October 20, 2020. If Unit holders redeem Units
before October 20, 2020, they will have to pay the remaining amount of the
deferred sales charge applicable to such Units when they redeem them.
(5) The creation and development fee ($.050 per Unit) is payable by the
Trust on behalf of Unit holders out of assets of the Trust at the end of
the initial offering period. If Units are redeemed prior to the close of
the initial offering period, the fee will not be deducted from the proceeds.
(6) Net asset value per Unit is calculated by dividing the Trust's net
assets by the number of Units outstanding. This figure includes
organization costs and the creation and development fee, which will only
be assessed to Units outstanding at the earlier of six months after the
Initial Date of Deposit or the end of the initial offering period in the
case of organization costs or the close of the initial offering period in
the case of the creation and development fee.
(7) The aggregate cost to investors in the Trust includes a maximum sales
charge (comprised of an initial and a deferred sales charge and the
creation and development fee) computed at the rate of 2.75% of the Public
Offering Price (equivalent to 2.75% of the net amount invested, exclusive
of the deferred sales charge and the creation and development fee),
assuming no reduction of the maximum sales charge as set forth under
"Public Offering."
Page 6
Schedule of Investments
Limited Duration Fixed Income ETF Portfolio, Series 35
FT 8672
At the Opening of Business on the Initial Date of Deposit-April 28, 2020
Percentage Market Cost of
Ticker Symbol and of Aggregate Number Value per Securities to
Name of Issuer of Securities (1) Offering Price of Shares Share the Trust (2)
________________________________ _______________ _________ _________ _____________
EXCHANGE-TRADED FUNDS (100%):
LMBS First Trust Low Duration Opportunities ETF (3) 4% 116 $ 51.52 $ 5,976
FTSL First Trust Senior Loan Fund (3) 4% 136 43.92 5,973
BKLN Invesco Senior Loan ETF 4% 287 20.78 5,964
VRP Invesco Variable Rate Preferred ETF 4% 258 23.13 5,968
SHYG iShares 0-5 Year High Yield Corporate Bond ETF 4% 144 41.48 5,973
USHY iShares Broad USD High Yield Corporate Bond ETF 4% 164 36.37 5,965
CMBS iShares CMBS ETF 4% 111 53.19 5,904
ISTB iShares Core 1-5 Year USD Bond ETF 4% 117 50.77 5,940
AGG iShares Core U.S. Aggregate Bond ETF 4% 51 116.82 5,958
FLOT iShares Floating Rate Bond ETF 4% 120 49.88 5,986
MBB iShares MBS ETF 4% 54 110.40 5,962
PFF iShares Preferred & Income Securities ETF 4% 175 34.10 5,967
SHV iShares Short Treasury Bond ETF 4% 54 110.89 5,988
IGSB iShares Short-Term Corporate Bond ETF 4% 112 53.42 5,983
SRLN SPDR Blackstone/GSO Senior Loan ETF 4% 143 41.61 5,950
SJNK SPDR Bloomberg Barclays Short Term High Yield Bond ETF 4% 248 24.10 5,977
SPHY SPDR Portfolio High Yield Bond ETF 4% 255 23.32 5,947
SPIB SPDR Portfolio Intermediate Term Corporate Bond ETF 4% 170 35.18 5,981
SPMB SPDR Portfolio Mortgage Backed Bond ETF 4% 223 26.80 5,976
SPSB SPDR Portfolio Short Term Corporate Bond ETF 4% 193 30.83 5,950
FLTR VanEck Vectors Investment Grade Floating Rate ETF 4% 243 24.63 5,985
VGIT Vanguard Intermediate-Term Treasury ETF 4% 85 70.35 5,980
VMBS Vanguard Mortgage-Backed Securities ETF 4% 110 54.26 5,969
VCSH Vanguard Short-Term Corporate Bond ETF 4% 74 80.75 5,975
ELD WisdomTree Emerging Markets Local Debt Fund 4% 201 29.48 5,925
____ ________
Total Investments 100% $149,122
==== ========
_____________
(1) All Securities are represented by regular way contracts to purchase
such Securities which are backed by an irrevocable letter of credit
deposited with the Trustee. The Sponsor entered into purchase contracts
for the Securities on April 28, 2020. Such purchase contracts are expected
to settle within two business days.
(2) The cost of the Securities to the Trust represents the aggregate
underlying value with respect to the Securities acquired (generally
determined by the closing sale prices of the listed Securities and the ask
prices of over-the-counter traded Securities at the Evaluation Time on the
business day prior to the Initial Date of Deposit). The cost of Securities
to the Trust may not compute due to rounding the market value per share.
The valuation of the Securities has been determined by the Evaluator, an
affiliate of the Sponsor. In accordance with Financial Accounting
Standards Board Accounting Standards Codification 820, "Fair Value
Measurement," the Trust's investments are classified as Level 1, which
refers to securities traded in an active market. The cost of the
Securities to the Sponsor and the Sponsor's loss (which is the difference
between the cost of the Securities to the Sponsor and the cost of the
Securities to the Trust) are $149,230 and $108, respectively.
(3) This Security is advised by First Trust Advisors L.P., an affiliate of
the Sponsor.
Page 7
The FT Series
The FT Series Defined.
We, First Trust Portfolios L.P. (the "Sponsor"), have created hundreds of
similar yet separate series of a unit investment trust which we have named
the FT Series. The series to which this prospectus relates, FT 8672,
consists of a single portfolio known as Limited Duration Fixed Income ETF
Portfolio, Series 35.
The Trust was created under the laws of the State of New York by a Trust
Agreement (the "Indenture") dated the Initial Date of Deposit. This
agreement, entered into among First Trust Portfolios L.P., as Sponsor, The
Bank of New York Mellon as Trustee and First Trust Advisors L.P. as
Portfolio Supervisor and Evaluator, governs the operation of the Trust.
YOU MAY GET MORE SPECIFIC DETAILS CONCERNING THE NATURE, STRUCTURE AND
RISKS OF THIS PRODUCT IN AN "INFORMATION SUPPLEMENT" BY CALLING THE
SPONSOR AT 800-621-1675, DEPT. CODE 2.
How We Created the Trust.
On the Initial Date of Deposit, we deposited a portfolio of ETFs with the
Trustee and, in turn, the Trustee delivered documents to us representing
our ownership of the Trust in the form of units ("Units").
After the Initial Date of Deposit, we may deposit additional Securities in
the Trust, or cash (including a letter of credit or the equivalent) with
instructions to buy more Securities in order to create new Units for sale.
If we create additional Units, we will attempt, to the extent practicable,
to maintain the percentage relationship established among the Securities
on the Initial Date of Deposit (as set forth under "Schedule of
Investments"), adjusted to reflect the sale, redemption or liquidation of
any of the Securities or any stock split or merger or other similar event
affecting the issuer of the Securities.
Since the prices of the Securities will fluctuate daily, the ratio of
Securities in the Trust, on a market value basis, will also change daily.
The portion of Securities represented by each Unit will not change as a
result of the deposit of additional Securities or cash in the Trust. If we
deposit cash, you and new investors may experience a dilution of your
investment. This is because prices of Securities will fluctuate between
the time of the cash deposit and the purchase of the Securities, and
because the Trust pays the associated brokerage fees. To reduce this
dilution, the Trust will try to buy the Securities as close to the
Evaluation Time and as close to the evaluation price as possible. In
addition, because the Trust pays the brokerage fees associated with the
creation of new Units and with the sale of Securities to meet redemption
and exchange requests, frequent redemption and exchange activity will
likely result in higher brokerage expenses.
An affiliate of the Trustee may receive these brokerage fees or the
Trustee may retain and pay us (or our affiliate) to act as agent for the
Trust to buy Securities. If we or an affiliate of ours act as agent to the
Trust, we will be subject to the restrictions under the Investment Company
Act of 1940, as amended (the "1940 Act"). When acting in an agency
capacity, we may select various broker/dealers to execute securities
transactions on behalf of the Trust, which may include broker/dealers who
sell Units of the Trust. We do not consider sales of Units of the Trust or
any other products sponsored by First Trust as a factor in selecting such
broker/dealers.
We cannot guarantee that the Trust will keep its present size and
composition for any length of time. Securities may be periodically sold
under certain circumstances to satisfy Trust obligations, to meet
redemption requests and, as described in "Removing Securities from the
Trust," to maintain the sound investment character of the Trust, and the
proceeds received by the Trust will be used to meet Trust obligations or
distributed to Unit holders, but will not be reinvested. However,
Securities will not be sold to take advantage of market fluctuations or
changes in anticipated rates of appreciation or depreciation, or if they
no longer meet the criteria by which they were selected. You will not be
able to dispose of or vote any of the Securities in the Trust. As the
holder of the Securities, the Trustee will vote the Securities and, except
as described in "Removing Securities from the Trust," will endeavor to
vote the Securities such that the Securities are voted as closely as
possible in the same manner and the same general proportion as are the
Securities held by owners other than such Trust.
Neither we nor the Trustee will be liable for a failure in any of the
Securities. However, if a contract for the purchase of any of the
Securities initially deposited in the Trust fails, unless we can purchase
substitute Securities ("Replacement Securities"), we will refund to you
that portion of the purchase price and transactional sales charge
resulting from the failed contract on the next Income Distribution Date.
Any Replacement Security the Trust acquires will be identical to those
from the failed contract.
Page 8
Portfolio
Objectives.
The Trust seeks current monthly income and capital appreciation. Under
normal circumstances, the Trust will invest at least 80% of its assets in
ETFs which invest 80% of their assets in fixed-income securities which
include corporate and government bonds.
Portfolio Selection Process.
The Trust is a unit investment trust which invests in a broad range of
ETFs. The ETFs invest in U.S. and foreign fixed-income securities. Under
normal circumstances, the Trust will have a weighted average modified
duration of four years or less. Modified duration refers to the percentage
price change of a security for a given change in yield. The higher the
modified duration of a security, the more sensitive it will be to changes
in interest rates.
The ETFs were selected by our research department based on a number of
factors including, but not limited to, the size and liquidity of the ETF,
the current dividend yield of the ETF, the quality and character of the
securities held by the ETF, and the expense ratio of the ETF, while
attempting to limit the overlap of the securities held by the ETFs. The
Trust's exposure to emerging markets will be capped at 8% on the Initial
Date of Deposit.
The duration of a bond is a measure of its price sensitivity to interest
rate movements based on the weighted average term to maturity of its
interest and principal cash flows. In general, duration represents the
expected percentage change in the value of a security for an immediate 1%
change in interest rates. For example, the price of a security with a
three-year duration would be expected to drop by approximately 3% in
response to a 1% increase in interest rates.
Portfolio Contents.
Expanding on the disclosure above, the Trust has exposure to the following
investments through the Funds held by the Trust: floating-rate securities,
high-yield securities, investment grade securities, mortgage-backed
securities, senior loans, covenant-lite loans, U.S. Treasury obligations,
foreign securities (including American Depositary Receipts) and companies
with various market capitalizations.
Of course, as with any similar investments, there can be no guarantee that
the objective of the Trust will be achieved. See "Risk Factors" for a
discussion of the risks of investing in the Trust.
Risk Factors
Principal Risks.
The following is a discussion of the principal risks of investing in the
Trust.
Price Volatility. The Trust invests in ETFs. The value of the Trust's
Units will fluctuate with changes in the value of these Securities. The
value of a security fluctuates for several reasons including changes in
investors' perceptions of the financial condition of an issuer or the
general condition of the relevant stock market, such as market volatility,
or when political or economic events affecting the issuers occur.
Because the Trust is not managed, the Trustee will not sell Securities in
response to or in anticipation of market fluctuations, as is common in
managed investments. As with any investment, we cannot guarantee that the
performance of the Trust will be positive over any period of time or that
you won't lose money. 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.
Market Risk. Market risk is the risk that a particular security, or Units
of the Trust in general, may fall in value. Securities are subject to
market fluctuations caused by such factors as economic, political,
regulatory or market developments, changes in interest rates and perceived
trends in securities prices. Units of the Trust could decline in value or
underperform other investments. In addition, local, regional or global
events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a
significant negative impact on the Trust and its investments. Such events
may affect certain geographic regions, countries, sectors and industries
more significantly than others. Such events could adversely affect the
prices and liquidity of the Trust's portfolio securities and could result
in disruptions in the trading markets. Any such circumstances could have a
materially negative impact on the value of the Trust's Units and result in
increased market volatility.
The recent outbreak of a respiratory disease designated as COVID-19 was
first detected in China in December 2019. The global economic impact of
the COVID-19 outbreak is impossible to predict but is expected to disrupt
manufacturing, supply chains and sales in affected areas and negatively
impact global economic growth prospects. The COVID-19 outbreak has also
caused significant volatility and declines in global financial markets,
Page 9
which have caused losses for investors. The impact of the COVID-19
outbreak may be short term or may last for an extended period of time, and
in either case could result in a substantial economic downturn or
recession.
Distributions. As stated under "Summary of Essential Information," the
Trust will generally make monthly distributions of income. The Funds held
by the Trust make distributions on a monthly or quarterly basis. As a
result of changing interest rates, refundings, sales or defaults on the
underlying securities held by the Funds, and other factors, there is no
guarantee that distributions will either remain at current levels or
increase over time.
Exchange-Traded Funds. The Trust invests in shares of ETFs. ETFs are
subject to various risks, including management's ability to meet the
fund's investment objective, and to manage the fund's portfolio when the
underlying securities are redeemed or sold, during periods of market
turmoil and as investors' perceptions regarding ETFs or their underlying
investments change. The Trust and the underlying funds have management and
operating expenses. You will bear not only your share of your Trust's
expenses, but also the expenses of the underlying funds. By investing in
other funds, the Trust incurs greater expenses than you would incur if you
invested directly in the funds.
Shares of ETFs may trade at a discount from their net asset value in the
secondary market. This risk is separate and distinct from the risk that
the net asset value of the ETF shares may decrease. The amount of such
discount from net asset value is subject to change from time to time in
response to various factors.
Investment in Other Investment Companies Risk. Because the Trust holds
Funds, Unit holders are subject to the risk that the securities selected
by the Funds' investment advisors will underperform the markets, the
relevant indices or the securities selected by other funds. Further, Funds
may in the future invest in other types of securities which involve risk
which may differ from those set forth below. In addition, because the
Trust holds Funds, Unit holders bear both their proportionate share of the
expenses of the Trust and, indirectly the expenses of the Funds. Certain
of the Funds held by the Trust may invest a relatively high percentage of
their assets in a limited number of issuers. As a result, these Funds may
be more susceptible to a single adverse economic or regulatory occurrence
affecting one or more of these issuers, experience increased volatility
and be highly concentrated in certain issuers.
Interest Rate Risk. Interest rate risk is the risk that the value of the
securities held by the Funds held by the Trust will fall if interest rates
increase. Securities typically fall in value when interest rates rise and
rise in value when interest rates fall. Securities with longer periods
before maturity are often more sensitive to interest rate changes.
Index Correlation Risk. Index correlation risk is the risk that the
performance of an index-based ETF will vary from the actual performance of
the fund's target index, known as "tracking error." This can happen due to
transaction costs, market impact, corporate actions (such as mergers and
spin-offs) and timing variances. Some index-based ETFs use a technique
called "representative sampling," which means that the ETF invests in a
representative sample of securities in its target index rather than all of
the index securities. This could increase the risk of a tracking error.
Floating-Rate Securities. Certain of the Funds held by the Trust invest in
floating-rate securities. A floating-rate security is an instrument in
which the interest rate payable on the obligation fluctuates on a periodic
basis based upon changes in an interest rate benchmark. As a result, the
yield on such a security will generally decline in a falling interest rate
environment, causing the Trust to experience a reduction in the income it
receives from such securities. A sudden and significant increase in market
interest rates may increase the risk of payment defaults and cause a
decline in the value of this investment and the value of the Units.
LIBOR Risk. Certain of the Funds held by the Trust invest significantly in
floating-rate securities that pay interest based on LIBOR. In 2012,
regulators in the United States and the United Kingdom alleged that
certain banks, including some banks serving on the panel for U.S. dollar
LIBOR, engaged in manipulative acts in connection with their submissions
to the British Bankers Association. Manipulation of the LIBOR rate-setting
process would raise the risk to a Fund of being adversely impacted if a
Fund received a payment based upon LIBOR and such manipulation of LIBOR
resulted in lower resets than would have occurred had there been no
manipulation.
In 2017, the head of the United Kingdom's Financial Conduct Authority
announced a desire to phase out the use of LIBOR by the end of 2021. While
some instruments tied to LIBOR may include a replacement rate in the event
LIBOR is discontinued, not all instruments have such fallback provisions
and the effectiveness of such replacement rates remains uncertain. The
potential cessation of LIBOR could affect the value and liquidity of
investments tied to LIBOR, especially those that do not include fallback
Page 10
provisions. Due to the uncertainty regarding the future utilization of
LIBOR and the nature of any replacement rate, the potential effect of a
transition away from LIBOR on a Fund or the financial instruments in which
the Fund invests cannot yet be determined.
High-Yield Securities. Certain of the Funds held by the Trust invest in
securities rated below investment grade by one or more rating agencies
(high-yield securities or "junk" bonds). High-yield securities held by
Funds represent approximately 28.30% of the underlying assets of the Trust.
High-yield, high-risk securities are subject to greater market
fluctuations and risk of loss than securities with higher investment
ratings. The value of these securities will decline significantly with
increases in interest rates, not only because increases in rates generally
decrease values, but also because increased rates may indicate an economic
slowdown. An economic slowdown, or a reduction in an issuer's
creditworthiness, may result in the issuer being unable to maintain
earnings at a level sufficient to maintain interest and principal payments.
High-yield securities or "junk" bonds, the generic names for securities
rated below "BBB-" by Standard & Poor's or below "Baa3" by Moody's, are
frequently issued by corporations in the growth stage of their development
or by established companies that are highly leveraged or whose operations
or industries are depressed. Obligations rated below "BBB-" should be
considered speculative as these ratings indicate a quality of less than
investment grade, and therefore carry an increased risk of default as
compared to investment grade issues. The Funds held by the Trust may
invest in securities of any high-yield credit quality, including
securities rated as low as "D" by Standard and Poor's or "C" by Moody's.
Because high-yield securities are generally subordinated obligations and
are perceived by investors to be riskier than higher rated securities,
their prices tend to fluctuate more than higher rated securities and are
affected by short-term credit developments to a greater degree.
The market for high-yield securities is smaller and less liquid than that
for investment grade securities. High-yield securities are generally not
listed on a national securities exchange but trade in the over-the-counter
markets. Due to the smaller, less liquid market for high-yield securities,
the bid-offer spread on such securities is generally greater than it is
for investment grade securities and the purchase or sale of such
securities may take longer to complete.
Distressed debt securities are speculative and involve substantial risks
in addition to the risks of investing in high-yield securities that are
not in default. Generally, holders of distressed debt securities will not
receive interest payments, and there is a substantial risk that the
principal will not be repaid. In any reorganization or liquidation
proceeding related to a distressed debt security, holders may lose their
entire investment in the security.
Investment Grade Securities. All of the Funds held by the Trust invest in
investment grade securities. The value of these securities will decline
with increases in interest rates, not only because increases in rates
generally decrease values, but also because increased rates may indicate
an economic slowdown. An economic slowdown, or a reduction in an issuer's
creditworthiness, may result in the issuer being unable to maintain
earnings at a level sufficient to maintain interest and principal payments.
Limited Duration Bonds. A significant percentage of the Funds held by the
Trust invest in limited duration bonds. Limited duration bonds are subject
to interest rate risk, which is the risk that the value of a security will
fall if interest rates increase. While limited duration bonds are
generally subject to less interest rate sensitivity than longer duration
bonds, there can be no assurance that interest rates will not rise during
the life of the Trust.
Mortgage-Backed Securities. Certain of the Funds held by the Trust invest
in mortgage-backed securities. Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from,
Page 11
mortgage loans secured by real property and can include single- and multi-
class pass-through securities and collateralized mortgage obligations.
Mortgage-backed securities are based on different types of mortgages,
including those on commercial real estate or residential properties. These
securities often have stated maturities of up to thirty years when they
are issued, depending upon the length of the mortgages underlying the
securities. In practice, however, unscheduled or early payments of
principal and interest on the underlying mortgages may make the
securities' effective maturity shorter than this. Rising interest rates
tend to extend the duration of mortgage-backed securities, making them
more sensitive to changes in interest rates, and may reduce the market
value of the securities. In addition, mortgage-backed securities are
subject to prepayment risk, the risk that borrowers may pay off their
mortgages sooner than expected, particularly when interest rates decline.
This can reduce the Funds', and therefore the Trust's, returns because the
Funds may have to reinvest that money at lower prevailing interest rates.
Mortgage-backed securities, and particularly non-agency mortgage-backed
securities, are subject to liquidity risk, which is the risk that the
value of such securities held by a Fund will fall if trading in the
securities is limited or absent. No one can guarantee that a liquid
trading market will exist for any mortgage-backed security because these
securities generally trade in the over-the-counter market (they are not
listed on a securities exchange). The liquidity of a mortgage-backed
security may change drastically over time.
Senior Loans. Certain of the Funds held by the Trust invest in senior
loans issued by banks, other financial institutions, and other investors
to corporations, partnerships, limited liability companies and other
entities to finance leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, debt refinancings and, to a lesser
extent, for general operating and other purposes. An investment in senior
loans involves risk that the borrowers under senior loans may default on
their obligations to pay principal or interest when due. Although senior
loans 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 or that such collateral could be readily
liquidated. Senior loans are typically structured as floating-rate
instruments in which the interest rate payable on the obligation
fluctuates with interest rate changes. As a result, the yield on Funds
investing in senior loans will generally decline in a falling interest
rate environment and increase in a rising interest rate environment.
Senior loans are generally below investment grade quality and may be
unrated at the time of investment; are generally not registered with the
SEC or state securities commissions; and are generally not listed on any
securities exchange. Transactions in senior loans may take longer than
seven days to settle which could affect an underlying Fund's ability to
manage the liquidity of its portfolio. Because senior loans are generally
not registered with the SEC under the Securities Act of 1933, as amended,
they may not be subject to the protections afforded under the federal
securities laws. See "Risk Factors-High-Yield Securities" for a
description of the risks involved in investing in below investment grade
securities. In addition, the amount of public information available on
senior loans is generally less extensive than that available for other
types of assets.
Covenant-Lite Loans. Certain of the Funds held by the Trust invest
significantly in "covenant-lite" loans, which are loans made with minimal
protections for the lender. Because covenant-lite loans are less
restrictive on borrowers and provide less protection for lenders than
typical corporate loans, the risk of default may be significantly higher.
Covenant-lite loans contain fewer maintenance covenants, or no maintenance
covenants at all, than traditional loans and may not include terms that
allow the lender to monitor the financial performance of the borrower and
declare a default if certain criteria are breached. This may hinder the
Funds' ability to reprice credit risk associated with the borrower and
reduce the Funds' ability to restructure a problematic loan and mitigate
potential loss. As a result, the Funds' exposure to losses on such
investments is increased, especially during a downturn in the credit cycle.
U.S. Treasury Obligations. Certain of the Funds held by the Trust invest
in U.S. Treasury obligations. U.S. Treasury obligations are direct
obligations of the United States which are backed by the full faith and
credit of the United States. U.S. Treasury obligations are generally not
affected by credit risk, but are subject to changes in market value
resulting from changes in interest rates. The value of U.S. Treasury
obligations will be adversely affected by decreases in bond prices and
increases in interest rates, not only because increases in interest rates
generally decrease values, but also because increased interest rates may
indicate an economic slowdown.
Foreign Securities. Certain of the Funds held by the Trust invest in
foreign entities, which makes the Trust subject to more risks than if it
only invested in Funds which invest solely in domestic securities. A
foreign security is either directly listed on a U.S. securities exchange,
is in the form of an American Depositary Receipt/ADR or a Global
Depositary Receipt/GDR which trades on the over-the-counter market or is
listed on a U.S. or foreign securities exchange, or is directly listed on
a foreign securities exchange. Risks of foreign securities include higher
brokerage costs; different accounting standards; expropriation,
nationalization or other adverse political or economic developments;
currency devaluations, blockages or transfer restrictions; restrictions on
foreign investments and exchange of securities; inadequate financial
information; lack of liquidity of certain foreign markets; and less
government supervision and regulation of exchanges, brokers, and issuers
in foreign countries. Certain foreign markets have experienced heightened
volatility due to recent negative political or economic developments or
natural disasters. Securities issued by non-U.S. issuers may pay interest
and/or dividends in foreign currencies and may be principally traded in
foreign currencies. Therefore, there is a risk that the U.S. dollar value
of these interest and/or dividend payments and/or securities will vary
with fluctuations in foreign exchange rates. Investments in debt
securities of foreign governments present special risks, including the
fact that issuers may be unable or unwilling to repay principal and/or
Page 12
interest when due in accordance with the terms of such debt, or may be
unable to make such repayments when due in the currency required under the
terms of the debt. Political, economic and social events also may have a
greater impact on the price of debt securities issued by foreign
governments than on the price of U.S. securities.
American Depositary Receipts/ADRs, Global Depositary Receipts/GDRs and
similarly structured securities may be less liquid than the underlying
shares in their primary trading market. Any distributions paid to the
holders of depositary receipts are usually subject to a fee charged by the
depositary. Issuers of depositary receipts are not obligated to disclose
information that is considered material in the United States. As a result,
there may be less information available regarding such issuers. Holders of
depositary receipts may have limited voting rights, and investment
restrictions in certain countries may adversely impact the value of
depositary receipts because such restrictions may limit the ability to
convert shares into depositary receipts and vice versa. Such restrictions
may cause shares of the underlying issuer to trade at a discount or
premium to the market price of the depositary receipts.
Brexit Risk. Certain of the Funds held by the Trust are subject to Brexit
risk. On January 31, 2020, the United Kingdom officially departed the
European Union (commonly referred to as "Brexit"). The United Kingdom is
expected to continue to follow European Union law during an 11-month
transition period set to terminate on December 31, 2020. The effects of
Brexit will depend, in part, on agreements the United Kingdom negotiates
to retain access to markets in the European Union during the transitional
period, including current trade and finance agreements. Brexit has led to
volatility in global financial markets, in particular those of the United
Kingdom and across Europe, and may also lead to weakening in political,
regulatory, consumer, corporate and financial confidence in the United
Kingdom and Europe. Given the size and importance of the United Kingdom's
economy, uncertainty or unpredictability about its legal, political and/or
economic relationships with Europe has been, and may continue to be, a
source of instability and could lead to significant currency fluctuations
and other adverse effects on international markets and international trade.
It is not currently possible to determine the extent of the impact Brexit
may have on the Trust's investments. The continued uncertainty following
the United Kingdom's exit from the European Union could negatively impact
current and future economic conditions in the United Kingdom and other
countries, which could negatively impact the value of the Trust's
investments.
Large Capitalization Companies. Certain of the Funds held by the Trust may
invest in large capitalization companies. The return on investment in
stocks of large capitalization companies may be less than the return on
investment in stocks of small and/or mid capitalization companies. Large
capitalization companies may also grow at a slower rate than the overall
market.
Credit Risk. Credit risk is the risk that a security's issuer is unable or
unwilling to make dividend, interest or principal payments when due and
the related risk that the value of a security may decline because of
concerns about the issuer's ability or willingness to make such payments.
Call Risk. Call risk is the risk that the issuer prepays or "calls" a bond
before its stated maturity. An issuer might call a bond if interest rates
fall and the bond pays a higher than market interest rate or if the issuer
no longer needs the money for its original purpose. A bond's call price
could be less than the price the Fund paid for the bond and could be below
the bond's par value. This means a Fund could receive less than the amount
paid for the bond and may not be able to reinvest the proceeds in
securities with as high a yield as the called bond. A Fund may contain
bonds that have "make whole" call options that generally cause the bonds
to be redeemable at any time at a designated price. Such bonds are
generally more likely to be subject to early redemption and may result in
the reduction of income received by the Fund.
Extension Risk. If interest rates rise, certain obligations may be paid
off by the obligor at a slower rate than expected, which will cause the
value of such obligations to fall.
Leverage Risk. Certain of the Funds held by the Trust may employ the use
of leverage in their portfolios. Leverage may be structural leverage,
through borrowings or the issuance of preferred stock, or effective
leverage, which results from a Fund's investment in derivative instruments
that are inherently leveraged. While leverage often serves to increase the
yield of a Fund, this leverage also subjects the Fund to increased risks,
including the likelihood of increased volatility and the possibility that
the Fund's common share income will fall if the dividend rate on the
preferred shares or the interest rate on any borrowings rises.
Liquidity Risk. Liquidity risk is the risk that the value of a fixed-
income security held by a Fund will fall if trading in the security is
limited or absent. No one can guarantee that a liquid trading market will
Page 13
exist for any fixed-income security because these securities generally
trade in the over-the-counter market (they are not listed on a securities
exchange). During times of reduced market liquidity, the Funds held by the
Trust may not be able to sell the underlying securities readily at prices
reflecting the values at which the underlying securities are carried on a
Fund's books. Sales of large blocks of securities by market participants
that are seeking liquidity can further reduce security prices in an
illiquid market.
Prepayment Risk. Many types of debt instruments are subject to prepayment
risk, which is the risk that the issuer will repay principal prior to the
maturity date. Debt instruments allowing prepayment may offer less
potential for gains during a period of declining interest rates.
Valuation Risk. Unlike publicly traded securities that trade on national
securities exchanges, there is no central place or exchange for trading
most debt securities. Debt securities generally trade on an "over-the-
counter" market. Due to the lack of centralized information and trading,
the valuation of debt securities may carry more uncertainty and risk than
that of publicly traded securities. Accordingly, determinations of the
fair value of debt securities may be based on infrequent and dated
information. Also, because the available information is less reliable and
more subjective, elements of judgment may play a greater role in valuation
of debt securities than for other types of securities.
Authorized Participant Concentration Risk. Only an authorized participant
may engage in creation or redemption transactions directly with an ETF.
ETFs have a limited number of institutions that act as authorized
participants. To the extent that these institutions exit the business or
are unable to proceed with creation and/or redemption orders with respect
to an ETF and no other authorized participant is able to step forward to
create or redeem, in either of these cases, ETF shares may trade at a
discount to the ETF's net asset value and possibly face delisting.
Fluctuation of Net Asset Value Risk. The net asset value of shares of a
Fund will generally fluctuate with changes in the market value of the
Fund's holdings. The market prices of shares will generally fluctuate in
accordance with changes in net asset value as well as the relative supply
of and demand for shares on the exchange on which they trade. The Trust
cannot predict whether shares will trade below, at or above their net
asset value because the shares trade on an exchange at market prices and
not at net asset value. Price differences may be due, in large part, to
the fact that supply and demand forces at work in the secondary trading
market for shares will be closely related to, but not identical to, the
same forces influencing the prices of the holdings of a Fund trading
individually or in the aggregate at any point in time.
Management Risk. Actively managed Funds are subject to management risk. In
managing a Fund's investment portfolio, the Fund's investment advisor will
apply investment techniques and risk analyses that may not have the
desired result. There can be no guarantee that the Funds will meet their
investment objectives.
Market Maker Risk. If a Fund has lower average daily trading volumes, it
may rely on a small number of third-party market makers to provide a
market for the purchase and sale of shares. Any trading halt or other
problem relating to the trading activity of these market makers could
result in a dramatic change in the spread between a Fund's net asset value
and the price at which the Fund's shares are trading on the exchange,
which could result in a decrease in value of the Fund's shares. In
addition, decisions by market makers to reduce their role or step away
from these activities in times of market stress could inhibit the
effectiveness of the arbitrage process in maintaining the relationship
between the underlying values of a Fund's portfolio securities and the
Fund's market price. This reduced effectiveness could result in a Fund's
shares trading at a discount to net asset value and also in greater than
normal intraday bid-ask spreads for Fund shares.
Trading Issues Risk. Although the shares of a Fund are listed for trading
on a securities exchange, there can be no assurance that an active trading
market for such shares will develop or be maintained. Trading in shares on
such exchanges may be halted due to market conditions or for reasons that,
in the view of an exchange, make trading in shares inadvisable. In
addition, trading in shares on an exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the exchange's
"circuit breaker" rules. Market makers are under no obligation to make a
market in a Fund's shares. There can be no assurance that the requirements
of the exchange necessary to maintain the listing of a Fund will continue
to be met or will remain unchanged. In particular, if a Fund does not
comply with any provision of the listing standards of an exchange that are
applicable to the Fund, and cannot bring itself into compliance within a
reasonable period after discovering the matter, the exchange may remove
the shares of the Fund from listing. The Funds may have difficulty
maintaining their listing on an exchange in the event that a Fund's assets
are small or the Fund does not have enough shareholders.
Cybersecurity Risk. As the use of Internet technology has become more
prevalent in the course of business, the Trust has become more susceptible
Page 14
to potential operational risks through breaches in cybersecurity. A breach
in cybersecurity refers to both intentional and unintentional events that
may cause the Trust to lose proprietary information, suffer data
corruption or lose operational capacity. Such events could cause the
Sponsor of the Trust to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or
financial loss. Cybersecurity breaches may involve unauthorized access to
digital information systems utilized by the Trust through "hacking" or
malicious software coding, but may also result from outside attacks such
as denial-of-service attacks through efforts to make network services
unavailable to intended users. In addition, cybersecurity breaches of the
Trust's third-party service providers, or issuers in which the Trust
invests, can also subject the Trust to many of the same risks associated
with direct cybersecurity breaches. The Sponsor of, and third-party
service provider to, the Trust have established risk management systems
designed to reduce the risks associated with cybersecurity. However, there
is no guarantee that such efforts will succeed, especially because the
Trust does not directly control the cybersecurity systems of issuers or
third-party service providers.
Legislation/Litigation. From time to time, various legislative initiatives
are proposed in the United States and abroad which may have a negative
impact on certain of the Trust's investments. In addition, litigation
regarding any of the issuers of the Securities, or the industries
represented by these issuers, may negatively impact the value of these
Securities. We cannot predict what impact any pending or proposed
legislation or pending or threatened litigation will have on the value of
the Trust's investments.
Additional Risks.
The following is a discussion of additional risks of investing in the Trust.
Business Development Companies ("BDCs"). Certain of the Funds held by the
Trust invest in BDCs. BDCs invest in and lend to private middle-market
businesses. BDCs are publicly-traded mezzanine/private equity funds that
are subject to regulatory oversight by the SEC. BDCs are unique in that at
least 70% of their investments must be made to private U.S. businesses
that do not have marginable securities and they are required to provide
managerial assistance to portfolio companies. An investment in BDCs is
subject to various risks, including management's ability to meet the
fund's investment objective, and to manage the fund's portfolio when the
underlying securities are redeemed or sold, during periods of market
turmoil and as investors' perceptions regarding the funds or their
underlying investments change. BDCs are not redeemable at the option of
the shareholder and they may trade in the market at a discount to their
net asset value.
Common Stocks. Certain of the 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
or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers
occur. Common stock prices may also be particularly sensitive to rising
interest rates, as the cost of capital rises and borrowing costs increase.
Convertible Securities. Certain of the Funds held by the Trust invest in
convertible securities. Convertible securities are bonds, preferred
stocks, and other securities that pay interest or dividends and are
convertible into common stocks. As such, convertible securities have some
characteristics of both bonds and common stocks. Like a bond (or some
preferred stocks), a convertible security typically pays a fixed rate of
interest (or dividends) and promises to repay principal at a given date in
the future. However, an investor can exchange the convertible security for
a specific number of shares of the issuing company's common stock at a
"conversion price" specified at the time the convertible security is
issued. Companies that issue convertible securities often do not have high
credit ratings. In addition, the credit rating of a company's convertible
securities is typically lower than the rating of the company's
conventional debt securities, because convertibles are normally considered
junior or subordinate securities. Convertible securities are predominantly
high-yield securities. Convertible securities are typically issued at
prices which represent a premium to their conversion value. Accordingly,
the value of the convertible security increases (or decreases) as the
price of the underlying common stock increases (or decreases). Convertible
securities typically pay income yields that are higher than the dividend
yields of the issuer's common stock, but lower than the yields of the
issuer's debt securities.
In general, a convertible security performs more like a stock when the
underlying common stock's price is closer to the conversion price of the
convertible security (because it is assumed that it will be converted into
the stock) and more like a bond when the underlying common stock's price
Page 15
is significantly lower than the convertible security's conversion price
(because it is assumed that it will not be converted). For these reasons
Unit holders must be willing to accept the market risks of both bonds and
common stocks. However, because convertible securities have
characteristics of both common stocks and bonds, they tend to be less
sensitive to interest rate changes than bonds of comparable maturity and
quality, and less sensitive to stock market changes than common stocks.
Because of these factors and the hybrid nature of convertible securities,
Unit holders should recognize that convertible securities are likely to
perform quite differently than broadly-based measures of the stock and
bond markets.
While all markets are prone to change over time, the generally high rate
at which convertible securities are retired (through conversion or
redemption) and replaced with newly issued convertible securities causes
the convertible securities market to change more rapidly than other
markets. Due to the smaller, less liquid market for convertible
securities, the bid-offer spread on such securities is generally greater
than it is for investment grade bonds, and the purchase or sale of such
securities may take longer to complete. Moreover, convertible securities
with innovative structures, such as mandatory conversion securities and
equity-linked securities, have increased the sensitivity of this market to
the volatility of the equity markets and to the special risks of those
innovations. No one can guarantee that a liquid trading market will exist
for any convertible security because these securities generally trade in
the over-the-counter market (they are not listed on a securities exchange).
Derivative Instruments. Certain of the Funds held by the Trust invest in
derivative instruments, the performance of which is derived from the
performance of a reference security, index, currency, or interest rate.
Derivative instruments, including options, swaps, caps, floors, collars,
futures and forwards, can be used to hedge a Fund's investment in other
securities or for investment purposes. The use of derivatives can lead to
losses because of adverse movements in the price or value of the
underlying asset, index, currency or rate, which may be magnified by
certain features of the derivatives. The ability to successfully use
derivatives depends on a Fund investment advisor's ability to predict
pertinent market movements, which cannot be assured, and may result in
losses greater than if they had not been used. Derivatives are also
subject to counterparty risk. If a counterparty becomes bankrupt or
otherwise fails to perform its obligations due to financial difficulties,
the value of the Funds held by the Trust may decline. The derivatives
markets are a focus of recent legislation. The extent and impact of such
regulation is not yet known. Recent legislation may make derivatives more
costly, may limit the availability of derivatives and may affect the value
or performance of derivatives.
Emerging Markets. Certain of the Funds held by the Trust invest in
companies headquartered or incorporated in countries considered to be
emerging markets. Risks of investing in developing or emerging countries
are even greater than the risks associated with foreign investments in
general. These increased risks include, among other risks, the possibility
of investment and trading limitations, greater liquidity concerns, higher
price volatility, greater delays and disruptions in settlement
transactions, greater political uncertainties and greater dependence on
international trade or development assistance. In addition, emerging
market countries may be subject to overburdened infrastructures, obsolete
financial systems and environmental problems. For these reasons,
investments in emerging markets are often considered speculative.
Money Market Securities. Certain of the Funds held by the Trust invest in
money market or similar securities as a defensive measure when the Fund's
investment advisor anticipates unusual market or other conditions. If
market conditions improve while a Fund has temporarily invested some or
all of its assets in high quality money market securities, the potential
gain from the market upswing may be reduced, thus limiting the Fund's
opportunity to achieve its investment objective.
Preferred Securities. Certain of the Funds held by the Trust invest in
preferred stocks. Preferred stocks are unique securities that combine some
of the characteristics of both common stocks and bonds. Preferred stocks
generally pay a fixed rate of return and are sold on the basis of current
yield, like bonds. However, because they are equity securities, preferred
stocks provide equity ownership of a company and the income is paid in the
form of dividends. Preferred stocks typically have a yield advantage over
common stocks as well as comparably-rated fixed income investments.
Preferred stocks 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.
Real Estate Investment Trusts ("REITs"). Certain of the Funds held by the
Trust invest in REITs. REITs are financial vehicles that pool investors'
capital to purchase or finance real estate. REITs may concentrate their
investments in specific geographic areas or in specific property types,
i.e., hotels, shopping malls, residential complexes, office buildings and
timberlands. The value of REITs and the ability of REITs to distribute
income may be adversely affected by several factors, including rising
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interest rates, changes in the national, state 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, 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,
and other factors beyond the control of the issuers of REITs.
Short Sales Risk. A Fund may engage in "short sale" transactions. A Fund
will lose value if the security or instrument that is the subject of a
short sale increases in value. A Fund also may enter into a short
derivative position through a futures contract. If the price of the
security or derivative that is the subject of a short sale increases, then
the Fund will incur a loss equal to the increase in price from the time
that the short sale was entered into plus any premiums and interest paid
to a third party in connection with the short sale. Therefore, short sales
involve the risk that losses may be exaggerated, potentially losing more
money than the actual cost of the investment. Also, there is the risk that
the third party to the short sale may fail to honor its contract terms,
causing a loss to the Fund.
Small and/or Mid Capitalization Companies. Certain of the Funds held by
the Trust invest in small and/or mid capitalization companies. Investing
in stocks of such companies may involve greater risk than investing in
larger companies. For example, such companies may have limited product
lines, as well as shorter operating histories, less experienced management
and more limited financial resources than larger companies. Securities of
such companies generally trade in lower volumes and are generally subject
to greater and less predictable changes in price than securities of larger
companies. In addition, small and mid-cap stocks may not be widely
followed by the investment community, which may result in low demand.
Subprime Residential Mortgage Loans. Certain of the Funds held by the
Trust invest in subprime residential mortgage loans. "Subprime" mortgage
loans refer to mortgage loans that have been originated using underwriting
standards that are less restrictive than the underwriting requirements
used as standards for other first and junior lien mortgage loan purchase
programs, such as the programs of Fannie Mae and Freddie Mac. These lower
standards include mortgage loans made to borrowers having imperfect or
impaired credit histories (including outstanding judgments or prior
bankruptcies), mortgage loans where the amount of the loan at origination
is 80% or more of the value of the mortgaged property, mortgage loans made
to borrowers with low credit scores, mortgage loans made to borrowers who
have other debt that represents a large portion of their income and
mortgage loans made to borrowers whose income is not required to be
disclosed or verified.
Due to current economic conditions, including fluctuating interest rates
and declining home values, as well as aggressive lending practices,
subprime mortgage loans have in recent periods experienced increased rates
of delinquency, foreclosure, bankruptcy and loss, and they are likely to
continue to experience rates that are higher, and that may be
substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. Thus, because of the higher
delinquency rates and losses associated with subprime mortgage loans,
risks of investing in subprime mortgage loans are similar to those which
affect high-yield securities or "junk" bonds, which include less
liquidity, greater volatility and an increased risk of default as compared
to higher rated securities.
Public Offering
The Public Offering Price.
Units will be purchased at the Public Offering Price, the price per Unit
of which is comprised of the following:
- The aggregate underlying value of the Securities;
- The amount of any cash in the Income and Capital Accounts;
- Dividends receivable on Securities; and
- The maximum sales charge (which combines an initial upfront sales
charge, a deferred sales charge and the creation and development fee).
The price you pay for your Units will differ from the amount stated under
"Summary of Essential Information" due to various factors, including
fluctuations in the prices of the Securities and changes in the value of
the Income and/or Capital Accounts.
Although you are not required to pay for your Units until two business
days following your order (the "date of settlement"), you may pay before
then. You will become the owner of Units ("Record Owner") on the date of
settlement if payment has been received. If you pay for your Units before
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the date of settlement, we may use your payment during this time and it
may be considered a benefit to us, subject to the limitations of the
Securities Exchange Act of 1934, as amended.
Organization Costs. Securities purchased with the portion of the Public
Offering Price intended to be used to reimburse the Sponsor for the
Trust's organization costs (including costs of preparing the registration
statement, the Indenture and other closing documents, registering Units
with the SEC and states, the initial audit of the Trust's statement of net
assets, legal fees and the initial fees and expenses of the Trustee) will
be purchased in the same proportionate relationship as all the Securities
contained in the Trust. Securities will be sold to reimburse the Sponsor
for the Trust's organization costs at the earlier of six months after the
Initial Date of Deposit or the end of the initial offering period (a
significantly shorter time period than the life of the Trust). During the
period ending with the earlier of six months after the Initial Date of
Deposit or the end of the initial offering period, there may be a decrease
in the value of the Securities. To the extent the proceeds from the sale
of these Securities are insufficient to repay the Sponsor for Trust
organization costs, the Trustee will sell additional Securities to allow
the Trust to fully reimburse the Sponsor. In that event, the net asset
value per Unit of the Trust will be reduced by the amount of additional
Securities sold. Although the dollar amount of the reimbursement due to
the Sponsor will remain fixed and will never exceed the per Unit amount
set forth for the Trust in "Notes to Statement of Net Assets," this will
result in a greater effective cost per Unit to Unit holders for the
reimbursement to the Sponsor. To the extent actual organization costs are
less than the estimated amount, only the actual organization costs will
ultimately be charged to the Trust. When Securities are sold to reimburse
the Sponsor for organization costs, the Trustee will sell Securities, to
the extent practicable, which will maintain the same proportionate
relationship among the Securities contained in the Trust as existed prior
to such sale.
Minimum Purchase.
The minimum amount per account you can purchase of the Trust is generally
$1,000 worth of Units ($500 if you are purchasing Units for your
Individual Retirement Account or any other qualified retirement plan), but
such amounts may vary depending on your selling firm.
Maximum Sales Charge.
The maximum sales charge is comprised of a transactional sales charge and
a creation and development fee. After the initial offering period the
maximum sales charge will be reduced by 0.50%, to reflect the amount of
the previously charged creation and development fee.
Transactional Sales Charge.
The transactional sales charge you will pay has both an initial and a
deferred component.
Initial Sales Charge. The initial sales charge, which you will pay at the
time of purchase, is equal to the difference between the maximum sales
charge of 2.75% of the Public Offering Price and the sum of the maximum
remaining deferred sales charge and creation and development fee
(initially $.275 per Unit). On the Initial Date of Deposit, and any other
day the Public Offering Price per Unit equals $10.00, there is no initial
sales charge. Thereafter, you will pay an initial sales charge when the
Public Offering Price per Unit exceeds $10.00 and as deferred sales charge
and creation and development fee payments are made.
Monthly Deferred Sales Charge. In addition, three monthly deferred sales
charge payments of $.075 per Unit will be deducted from the Trust's assets
on approximately the twentieth day of each month from August 20, 2020
through October 20, 2020. If you buy Units at a price of less than $10.00
per Unit, the dollar amount of the deferred sales charge will not change,
but the deferred sales charge on a percentage basis will be more than
2.25% of the Public Offering Price.
If you purchase Units after the last deferred sales charge payment has
been assessed, your transactional sales charge will consist of a one-time
initial sales charge of 2.25% of the Public Offering Price (equivalent to
2.302% of the net amount invested).
Creation and Development Fee.
As Sponsor, we will also receive, and the Unit holders will pay, a
creation and development fee. See "Expenses and Charges" for a description
of the services provided for this fee. The creation and development fee is
a charge of $.050 per Unit collected at the end of the initial offering
period. If you buy Units at a price of less than $10.00 per Unit, the
dollar amount of the creation and development fee will not change, but the
creation and development fee on a percentage basis will be more than 0.50%
of the Public Offering Price.
Discounts for Certain Persons.
The maximum sales charge is 2.75% per Unit and the maximum dealer
concession is 2.00% per Unit.
If you are purchasing Units for an investment account, the terms of which
provide that your registered investment advisor or registered
broker/dealer (a) charges periodic fees in lieu of commissions; (b)
charges for financial planning, investment advisory or asset management
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services; or (c) charges a comprehensive "wrap fee" or similar fee for
these or comparable services ("Fee Accounts"), you will not be assessed
the transactional sales charge described above on such purchases. These
Units will be designated as Fee Account Units and, depending upon the
purchase instructions we receive, assigned either a Fee Account Cash CUSIP
Number, if you elect to have distributions paid to you, or a Fee Account
Reinvestment CUSIP Number, if you elect to have distributions reinvested
into additional Units of the Trust. Certain Fee Account Unit holders may
be assessed transaction or other account fees on the purchase and/or
redemption of such Units by their registered investment advisor,
broker/dealer or other processing organizations for providing certain
transaction or account activities. Fee Account Units are not available for
purchase in the secondary market. We reserve the right to limit or deny
purchases of Units not subject to the transactional sales charge by
investors whose frequent trading activity we determine to be detrimental
to the Trust.
Employees, officers and directors (and immediate family members) of the
Sponsor, our related companies, and dealers and their affiliates will
purchase Units at the Public Offering Price less the applicable dealer
concession, subject to the policies of the related selling firm. Immediate
family members include spouses, or the equivalent if recognized under
local law, children or step-children under the age of 21 living in the
same household, parents or step-parents and trustees, custodians or
fiduciaries for the benefit of such persons. Only employees, officers and
directors of companies that allow their employees to participate in this
employee discount program are eligible for the discounts.
You will be charged the deferred sales charge per Unit regardless of the
price you pay for your Units or whether you are eligible to receive any
discounts. However, if the purchase price of your Units was less than
$10.00 per Unit or if you are eligible to receive a discount such that the
maximum sales charge you must pay is less than the applicable maximum
deferred sales charge, including Fee Account Units, you will be credited
additional Units with a dollar value equal to the difference between your
maximum sales charge and the maximum deferred sales charge at the time you
buy your Units. If you elect to have distributions reinvested into
additional Units of the Trust, in addition to the reinvestment Units you
receive you will also be credited additional Units with a dollar value at
the time of reinvestment sufficient to cover the amount of any remaining
deferred sales charge and creation and development fee to be collected on
such reinvestment Units. The dollar value of these additional credited
Units (as with all Units) will fluctuate over time, and may be less on the
dates deferred sales charges or the creation and development fee are
collected than their value at the time they were issued.
The Value of the Securities.
The Evaluator will determine the aggregate underlying value of the
Securities in the Trust as of the Evaluation Time on each business day and
will adjust the Public Offering Price of the Units according to this
valuation. This Public Offering Price will be effective for all orders
received before the Evaluation Time on each such day. If we or the Trustee
receive orders for purchases, sales or redemptions after that time, or on
a day which is not a business day, they will be held until the next
determination of price. The term "business day" as used in this prospectus
shall mean any day on which the NYSE is open. For purposes of Securities
and Unit settlement, the term business day does not include days on which
U.S. financial institutions are closed.
The aggregate underlying value of the Securities in the Trust will be
determined as follows: if the Securities are listed on a national or
foreign securities exchange or The NASDAQ Stock Market, LLC(R), their
value shall generally be based on the closing sale price on the exchange
or system which is the principal market therefore ("Primary Exchange"),
which shall be deemed to be the NYSE if the Securities are listed thereon
(unless the Evaluator deems such price inappropriate as the basis for
evaluation). In the event a closing sale price on the Primary Exchange is
not published, the Securities will be valued based on the last trade price
on the Primary Exchange. If no trades occur on the Primary Exchange for a
specific trade date, the value will be based on the closing sale price
from, in the opinion of the Evaluator, an appropriate secondary exchange,
if any. If no trades occur on the Primary Exchange or any appropriate
secondary exchange on a specific trade date, the Evaluator will determine
the value of the Securities using the best information available to the
Evaluator, which may include the prior day's evaluated price. If the
Security is an American Depositary Receipt/ADR, Global Depositary
Receipt/GDR or other similar security in which no trade occurs on the
Primary Exchange or any appropriate secondary exchange on a specific trade
date, the value will be based on the evaluated price of the underlying
security, determined as set forth above, after applying the appropriate
ADR/GDR ratio, the exchange rate and such other information which the
Evaluator deems appropriate. For purposes of valuing Securities traded on
The NASDAQ Stock Market, LLC(R), closing sale price shall mean the
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Nasdaq(R) Official Closing Price as determined by The NASDAQ Stock Market,
LLC(R). If the Securities are not so listed or, if so listed and the
principal market therefore is other than on the Primary Exchange or any
appropriate secondary exchange, the value shall generally be based on the
current ask price on the over-the-counter market (unless the Evaluator
deems such price inappropriate as a basis for evaluation). If current ask
prices are unavailable, the value is generally determined (a) on the basis
of current ask prices for comparable securities, (b) by appraising the
value of the Securities on the ask side of the market, or (c) any
combination of the above. If such prices are in a currency other than U.S.
dollars, the value of such Security shall be converted to U.S. dollars
based on current exchange rates (unless the Evaluator deems such prices
inappropriate as a basis for evaluation). If the Evaluator deems a price
determined as set forth above to be inappropriate as the basis for
evaluation, the Evaluator shall use such other information available to
the Evaluator which it deems appropriate as the basis for determining the
value of a Security.
After the initial offering period is over, the aggregate underlying value
of the Securities will be determined as set forth above, except that bid
prices are used instead of ask prices when necessary.
Distribution of Units
We intend to qualify Units of the Trust for sale in a number of states.
All Units will be sold at the then current Public Offering Price.
The Sponsor compensates intermediaries, such as broker/dealers and banks,
for their activities that are intended to result in sales of Units of the
Trust. This compensation includes dealer concessions described in the
following section and may include additional concessions and other
compensation and benefits to broker/dealers and other intermediaries.
Dealer Concessions.
Dealers and other selling agents can purchase Units at prices which
represent a concession or agency commission of 2.00% of the Public
Offering Price per Unit, subject to reductions set forth in "Public
Offering-Discounts for Certain Persons."
Eligible dealer firms and other selling agents who, during the previous
consecutive 12-month period through the end of the most recent month, sold
primary market units of unit investment trusts sponsored by us in the
dollar amounts shown below will be entitled to up to the following
additional sales concession on primary market sales of units during the
current month of unit investment trusts sponsored by us:
Total sales Additional
(in millions) Concession
______________________________________________________
$25 but less than $100 0.035%
$100 but less than $150 0.050%
$150 but less than $250 0.075%
$250 but less than $1,000 0.100%
$1,000 but less than $5,000 0.125%
$5,000 but less than $7,500 0.150%
$7,500 or more 0.175%
Dealers and other selling agents will not receive a concession on the sale
of Units which are not subject to a transactional sales charge, but such
Units will be included in determining whether the above volume sales
levels are met. Eligible dealer firms and other selling agents include
clearing firms that place orders with First Trust and provide First Trust
with information with respect to the representatives who initiated such
transactions. Eligible dealer firms and other selling agents will not
include firms that solely provide clearing services to other broker/dealer
firms or firms who place orders through clearing firms that are eligible
dealers. We reserve the right to change the amount of concessions or
agency commissions from time to time. Certain commercial banks may be
making Units of the Trust available to their customers on an agency basis.
A portion of the transactional sales charge paid by these customers is
kept by or given to the banks in the amounts shown above.
Other Compensation and Benefits to Broker/Dealers.
The Sponsor, at its own expense and out of its own profits, currently
provides additional compensation and benefits to broker/dealers who sell
Units of this Trust and other First Trust products. This compensation is
intended to result in additional sales of First Trust products and/or
compensate broker/dealers and financial advisors for past sales. A number
of factors are considered in determining whether to pay these additional
amounts. Such factors may include, but are not limited to, the level or
type of services provided by the intermediary, the level or expected level
of sales of First Trust products by the intermediary or its agents, the
placing of First Trust products on a preferred or recommended product
list, access to an intermediary's personnel, and other factors. The
Sponsor makes these payments for marketing, promotional or related
expenses, including, but not limited to, expenses of entertaining retail
customers and financial advisers, advertising, sponsorship of events or
Page 20
seminars, obtaining information about the breakdown of unit sales among an
intermediary's representatives or offices, obtaining shelf space in
broker/dealer firms and similar activities designed to promote the sale of
the Sponsor's products. The Sponsor makes such payments to a substantial
majority of intermediaries that sell First Trust products. The Sponsor may
also make certain payments to, or on behalf of, intermediaries to defray a
portion of their costs incurred for the purpose of facilitating Unit
sales, such as the costs of developing or purchasing trading systems to
process Unit trades. Payments of such additional compensation described in
this and the preceding paragraph, some of which may be characterized as
"revenue sharing," create a conflict of interest by influencing financial
intermediaries and their agents to sell or recommend a First Trust
product, including the Trust, over products offered by other sponsors or
fund companies. These arrangements will not change the price you pay for
your Units.
Advertising and Investment Comparisons.
Advertising materials regarding the Trust may discuss several topics,
including: developing a long-term financial plan; working with your
financial professional; the nature and risks of various investment
strategies and unit investment trusts that could help you reach your
financial goals; the importance of discipline; how the Trust operates; how
securities are selected; various unit investment trust features such as
convenience and costs; and options available for certain types of unit
investment trusts. These materials may include descriptions of the
principal businesses of the companies represented in the Trust, research
analysis of why they were selected and information relating to the
qualifications of the persons or entities providing the research analysis.
In addition, they may include research opinions on the economy and
industry sectors included and a list of investment products generally
appropriate for pursuing those recommendations.
From time to time we may compare the estimated returns of the Trust (which
may show performance net of the expenses and charges the Trust would have
incurred) and returns over specified periods of other similar trusts we
sponsor in our advertising and sales materials, with (1) returns on other
taxable investments such as the common stocks comprising various market
indexes, corporate or U.S. Government bonds, bank CDs and money market
accounts or funds, (2) performance data from Morningstar, Inc. or (3)
information from publications such as Money, The New York Times, U.S. News
and World Report, Bloomberg Businessweek, Forbes or Fortune. The
investment characteristics of the Trust differ from other comparative
investments. You should not assume that these performance comparisons will
be representative of the Trust's future performance. We may also, from
time to time, use advertising which classifies trusts or portfolio
securities according to capitalization and/or investment style.
The Sponsor's Profits
We will receive a gross sales commission equal to the maximum
transactional sales charge per Unit of the Trust less any reduction as
stated in "Public Offering." We will also receive the amount of any
collected creation and development fee. Also, any difference between our
cost to purchase the Securities and the price at which we sell them to the
Trust is considered a profit or loss (see Note 2 of "Schedule of
Investments"). During the initial offering period, dealers and others may
also realize profits or sustain losses as a result of fluctuations in the
Public Offering Price they receive when they sell the Units.
In maintaining a market for the Units, any difference between the price at
which we purchase Units and the price at which we sell or redeem them will
be a profit or loss to us.
The Secondary Market
Although not obligated, we may maintain a market for the Units after the
initial offering period and continuously offer to purchase Units at prices
based on the Redemption Price per Unit.
We will pay all expenses to maintain a secondary market, except the
Evaluator fees and Trustee costs to transfer and record the ownership of
Units. We may discontinue purchases of Units at any time. IF YOU WISH TO
DISPOSE OF YOUR UNITS, YOU SHOULD ASK US FOR THE CURRENT MARKET PRICES
BEFORE MAKING A TENDER FOR REDEMPTION TO THE TRUSTEE. If you sell or
redeem your Units before you have paid the total deferred sales charge on
your Units, you will have to pay the remainder at that time.
How We Purchase Units
The Trustee will notify us of any tender of Units for redemption. If our
bid at that time is equal to or greater than the Redemption Price per
Unit, we may purchase the Units. You will receive your proceeds from the
sale no later than if they were redeemed by the Trustee. We may tender
Page 21
Units that we hold to the Trustee for redemption as any other Units. If we
elect not to purchase Units, the Trustee may sell tendered Units in the
over-the-counter market, if any. However, the amount you will receive is
the same as you would have received on redemption of the Units.
Expenses and Charges
The estimated annual expenses of the Trust are listed under "Fee Table."
If actual expenses of the Trust exceed the estimate, the Trust will bear
the excess. The Trustee will pay operating expenses of the Trust from the
Income Account if funds are available, and then from the Capital Account.
The Income and Capital Accounts are non-interest-bearing to Unit holders,
so the Trustee may earn interest on these funds, thus benefiting from
their use. In addition, investors will also indirectly pay a portion of
the expenses of the underlying Funds. The Bank of New York Mellon may act
as custodian, fund accountant and/or transfer agent for the underlying
Funds and may receive compensation for such services.
First Trust Advisors L.P., an affiliate of ours, acts as Portfolio
Supervisor and Evaluator and will be compensated for providing portfolio
supervisory services and evaluation services as well as bookkeeping and
other administrative services to the Trust. In providing portfolio
supervisory services, the Portfolio Supervisor may purchase research
services from a number of sources, which may include underwriters or
dealers of the Trust. As Sponsor, we will receive brokerage fees when the
Trust uses us (or an affiliate of ours) as agent in buying or selling
Securities. As authorized by the Indenture, the Trustee may employ a
subsidiary or affiliate of the Trustee to act as broker to execute certain
transactions for the Trust. The Trust will pay for such services at
standard commission rates.
The fees payable to First Trust Advisors L.P. and the Trustee are based on
the largest aggregate number of Units of the Trust outstanding at any time
during the calendar year, except during the initial offering period, in
which case these fees are calculated based on the largest number of Units
outstanding during the period for which compensation is paid. These fees
may be adjusted for inflation without Unit holders' approval, but in no
case will the annual fees paid to us or our affiliates for providing
services to all unit investment trusts be more than the actual cost of
providing such services in such year.
As Sponsor, we will receive a fee from the Trust for creating and
developing the Trust, including determining the Trust's objectives,
policies, composition and size, selecting service providers and
information services and for providing other similar administrative and
ministerial functions. The "creation and development fee" is a charge of
$.050 per Unit outstanding at the end of the initial offering period. The
Trustee will deduct this amount from the Trust's assets as of the close of
the initial offering period. We do not use this fee to pay distribution
expenses or as compensation for sales efforts. This fee will not be
deducted from your proceeds if you sell or redeem your Units before the
end of the initial offering period.
In addition to the Trust's operating expenses and those fees described
above, the Trust may also incur the following charges:
- All legal expenses of the Trustee according to its responsibilities
under the Indenture;
- The expenses and costs incurred by the Trustee to protect the Trust and
your rights and interests;
- Fees for any extraordinary services the Trustee performed under the
Indenture;
- Payment for any loss, liability or expense the Trustee incurred without
negligence, bad faith or willful misconduct on its part, in connection
with its acceptance or administration of the Trust;
- Payment for any loss, liability or expenses we incurred without
negligence, bad faith or willful misconduct in acting as Sponsor of the
Trust;
- Foreign custodial and transaction fees (which may include compensation
paid to the Trustee or its subsidiaries or affiliates), if any; and/or
- All taxes and other government charges imposed upon the Securities or
any part of the Trust.
The above expenses and the Trustee's annual fee are secured by a lien on
the Trust. In addition, if there is not enough cash in the Income or
Capital Account, the Trustee has the power to sell Securities to make cash
available to pay these charges which may result in capital gains or losses
to you. See "Tax Status."
Tax Status
Federal Tax Matters.
This section discusses some of the main U.S. federal income tax
consequences of owning Units of the Trust as of the date of this
prospectus. Tax laws and interpretations change frequently, and this
summary does not describe all of the tax consequences to all taxpayers.
For example, this summary generally does not describe your situation if
Page 22
you are a broker/dealer or other investor with special circumstances. In
addition, this section may not describe your state, local or non-U.S. tax
consequences.
This federal income tax summary is based in part on the advice of counsel
to the Sponsor. The Internal Revenue Service ("IRS") could disagree with
any conclusions set forth in this section. In addition, our counsel may
not have been asked to review, and may not have reached a conclusion with
respect to the federal income tax treatment of the assets to be deposited
in the Trust. This summary may not be sufficient for you to use for the
purpose of avoiding penalties under federal tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.
Trust Status.
Unit investment trusts maintain both Income and Capital Accounts,
regardless of tax structure. Please refer to the "Income and Capital
Distributions" section of the prospectus for more information.
The Trust intends to qualify as a "regulated investment company," commonly
known as a "RIC," under the federal tax laws. If the Trust qualifies as a
RIC and distributes its income as required by the tax law, the Trust
generally will not pay federal income taxes. For federal income tax
purposes, you are treated as the owner of the Trust Units and not of the
assets held by the Trust.
Income from the Trust.
Trust distributions are generally taxable. After the end of each year, you
will receive a tax statement that separates the Trust's distributions into
ordinary income dividends, capital gain dividends, exempt-interest
dividends and return of capital. Income reported is generally net of
expenses (but see "Treatment of Trust Expenses" below). Ordinary income
dividends are generally taxed at your ordinary income tax rate, however,
certain dividends received from the Trust may be taxed at the capital
gains tax rates. Generally, all capital gain dividends are treated as long-
term capital gains regardless of how long you have owned your Units.
Exempt-interest dividends generally are excluded from your gross income
for federal income tax purposes. Some or all of the exempt-interest
dividends may be taken into account for alternative minimum tax purposes
and may have other tax consequences. In addition, the Trust may make
distributions that represent a return of capital for tax purposes and will
generally not be currently taxable to you, although they generally reduce
your tax basis in your Units and thus increase your taxable gain or
decrease your loss when you dispose of your Units. The tax laws may
require you to treat distributions made to you in January as if you had
received them on December 31 of the previous year.
Some distributions from the Trust may qualify as long-term capital gains,
which, if you are an individual, is generally taxed at a lower rate than
your ordinary income and short-term capital gain income. The distributions
from the Trust that you must take into account for federal income tax
purposes are not reduced by the amount used to pay a deferred sales
charge, if any. Distributions from the Trust, including capital gains but
not exempt-interest dividends, may also be subject to a "Medicare tax" if
your adjusted gross income exceeds certain threshold amounts.
Certain Stock Dividends.
Ordinary income dividends received by an individual Unit holder from a RIC
such as the Trust are generally taxed at the same rates that apply to long-
term capital gains, provided certain holding period requirements are
satisfied and provided the dividends are attributable to qualifying
dividend income ("QDI") received by the Trust itself. Dividends that do
not meet these requirements will generally be taxed at ordinary income tax
rates. After the end of the tax year, the Trust will provide a tax
statement to its Unit holders reporting the amount of any distribution
which may be taken into account as a dividend which is eligible for the
capital gains tax rates.
Unit holders that are corporations may be eligible for the dividends
received deduction with respect to certain ordinary income dividends on
Units that are attributable to qualifying dividends received by the Trust
from certain corporations.
Sale of Units.
If you sell your Units (whether to a third party or to the Trust), you
will generally recognize a taxable gain or loss. To determine the amount
of this gain or loss, you must subtract your (adjusted) tax basis in your
Units from the amount you receive from the sale. Your original tax basis
in your Units is generally equal to the cost of your Units, including
sales charges. In some cases, however, you may have to adjust your tax
basis after you purchase your Units, in which case your gain would be
calculated using your adjusted basis.
The tax statement you receive in regard to the sale or redemption of your
Units may contain information about your basis in the Units and whether
any gain or loss recognized by you should be considered long-term or short-
term capital gain. The information reported to you is based upon rules
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that do not take into consideration all of the facts that may be known to
you or to your advisors. You should consult with your tax advisor about
any adjustments that may need to be made to the information reported to
you in determining the amount of your gain or loss.
Distribution Reinvestment Option.
If you elect to reinvest your distributions into additional Units, you
will be treated as if you have received your distribution in an amount
equal to the distribution you are entitled to. Your tax liability will be
the same as if you received the distribution in cash. Also, the
reinvestment would generally be considered a purchase of new Units for
federal income tax purposes.
Treatment of Trust Expenses.
Expenses incurred and deducted by the Trust will generally not be treated
as income taxable to you. In some cases, however, you may be required to
treat your portion of these Trust expenses as income. You may not be able
to take a deduction for some or all of these expenses even if the cash you
receive is reduced by such expenses.
Investments in Certain Non-U.S. Corporations.
A foreign corporation will generally be treated as a passive foreign
investment company ("PFIC") if 75% or more of its income is passive income
or if 50% or more of its assets are held to produce passive income. If
the Trust holds an equity interest in PFICs, the Trust could be subject to
U.S. federal income tax and additional interest charges on gains and
certain distributions from the PFICs, even if all the income or gain is
distributed in a timely fashion to the Trust Unit holders. Similarly, if
the Trust invests in a fund (a "Portfolio Fund") that invests in PFICs,
the Portfolio Fund may be subject to such taxes. The Trust will not be
able to pass through to its Unit holders any credit or deduction for such
taxes if the taxes are imposed at the Trust level or on a Portfolio Fund.
The Trust (or the Portfolio Fund) may be able to make an election that
could limit the tax imposed on the Trust (or the Portfolio Fund). In this
case, the Trust (or the Portfolio Fund) would recognize as ordinary income
any increase in the value of such PFIC shares, and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases
included in income.
Under this election, the Trust (or the Portfolio Fund) might be required
to recognize income in excess of its distributions from the PFICs and its
proceeds from dispositions of PFIC stock during that year, and such income
would nevertheless be subject to the distribution requirement and would be
taken into account for purposes of determining the application of the 4%
excise tax imposed on RICs that do not meet certain distribution
thresholds. Dividends paid by PFICs are not treated as QDI to shareholders
of the PFICs.
Non-U.S. Investors.
If you are a non-U.S. investor, distributions from the Trust treated as
dividends will generally be subject to a U.S. withholding tax of 30% of
the distribution. Certain dividends, such as capital gains dividends,
short-term capital gains dividends, and distributions that are
attributable to exempt-interest income or certain other interest income,
may not be subject to U.S. withholding taxes. In addition, some non-U.S.
investors may be eligible for a reduction or elimination of U.S.
withholding taxes under a treaty. However, the qualification for those
exclusions may not be known at the time of the distribution.
Separately, the United States, pursuant to the Foreign Account Tax
Compliance Act ("FATCA") imposes a 30% tax on certain non-U.S. entities
that receive U.S. source interest or dividends if the non-U.S. entity does
not comply with certain U.S. disclosure and reporting requirements. This
FATCA tax also applies to the gross proceeds from the disposition of
securities that produce U.S. source interest or dividends after December
31, 2018. However, proposed regulations may eliminate the requirement to
withhold on payments of gross proceeds from dispositions.
It is the responsibility of the entity through which you hold your Units
to determine the applicable withholding.
Foreign Tax Credit.
If the Trust directly or indirectly invests in non-U.S. stocks, the tax
statement that you receive may include an item showing foreign taxes the
Trust paid to other countries. You may be able to deduct or receive a tax
credit for your share of these taxes. The Trust would have to meet certain
IRS requirements in order to pass through credits to you.
In-Kind Distributions.
If permitted by this prospectus, as described in "Redeeming Your Units,"
you may request an In-Kind Distribution of Trust assets when you redeem
your Units. This distribution is subject to tax, and you will generally
recognize gain or loss, generally based on the value at that time of the
securities and the amount of cash received.
You should consult your tax advisor regarding potential foreign, state or
local taxation with respect to your Units.
Page 24
Retirement Plans
You may purchase Units of the Trust for:
- Individual Retirement Accounts;
- Keogh Plans;
- Pension funds; and
- Other tax-deferred retirement plans.
Generally, the federal income tax on capital gains and income received in
each of the above plans is deferred until you receive distributions. These
distributions are generally treated as ordinary income but may, in some
cases, be eligible for special averaging or tax-deferred rollover
treatment. Before participating in a plan like this, you should review the
tax laws regarding these plans and consult your attorney or tax advisor.
Brokerage firms and other financial institutions offer these plans with
varying fees and charges.
Rights of Unit Holders
Unit Ownership.
Ownership of Units will not be evidenced by certificates. If you purchase
or hold Units through a broker/dealer or bank, your ownership of Units
will be recorded in book-entry form at the Depository Trust Company
("DTC") and credited on its records to your broker/dealer's or bank's DTC
account. Transfer of Units will be accomplished by book entries made by
DTC and its participants if the Units are registered to DTC or its
nominee, Cede & Co. DTC will forward all notices and credit all payments
received in respect of the Units held by the DTC participants. You will
receive written confirmation of your purchases and sales of Units from the
broker/dealer or bank through which you made the transaction. You may
transfer your Units by contacting the broker/dealer or bank through which
you hold your Units.
Unit Holder Reports.
The Trustee will prepare a statement detailing the per Unit amounts (if
any) distributed from the Income Account and Capital Account in connection
with each distribution. In addition, at the end of each calendar year, the
Trustee will prepare a statement which contains the following information:
- A summary of transactions in the Trust for the year;
- A list of any Securities sold during the year and the Securities held at
the end of that year by the Trust;
- The Redemption Price per Unit, computed on the 31st day of December of
such year (or the last business day before); and
- Amounts of income and capital distributed during the year.
It is the responsibility of the entity through which you hold your Units
to distribute these statements to you. In addition, you may also request
from the Trustee copies of the evaluations of the Securities as prepared
by the Evaluator to enable you to comply with applicable federal and state
tax reporting requirements.
Income and Capital Distributions
You will begin receiving distributions on your Units only after you become
a Record Owner. The Trustee will credit dividends received on the Trust's
Securities to the Income Account of the Trust. All other receipts, such as
return of capital or capital gain dividends, are credited to the Capital
Account of the Trust. Dividends received on foreign Securities, if any,
are converted into U.S. dollars at the applicable exchange rate.
The Trustee will make distributions on or near the Income Distribution
Dates to Unit holders of record on the preceding Income Distribution
Record Date. Distributions will consist of an amount substantially equal
to the Unit holder's pro rata share of the balance of the Income Account
calculated on the basis of one-twelfth of the estimated annual dividend
distributions (reset on a quarterly basis) in the Income Account after
deducting estimated expenses. See "Summary of Essential Information." The
amount of the initial distribution from the Income Account will be
prorated based on the number of days in the first payment period. No
income distribution will be paid if accrued expenses of the Trust exceed
amounts in the Income Account on the Distribution Dates. Distribution
amounts will vary with changes in the Trust's fees and expenses, in
dividends received and with the sale of Securities. The Trustee will
distribute amounts in the Capital Account, net of amounts designated to
meet redemptions, pay the deferred sales charge and creation and
development fee or pay expenses on the twenty-fifth day of each month to
Unit holders of record on the tenth day of each month provided the amount
equals at least $1.00 per 100 Units. In any case, the Trustee will
distribute any funds in the Capital Account in December of each year and
as part of the final liquidation distribution. If the Trustee does not
have your taxpayer identification number ("TIN"), it is required to
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withhold a certain percentage of your distribution and deliver such amount
to the IRS. You may recover this amount by giving your TIN to the Trustee,
or when you file a tax return. However, you should check your statements
to make sure the Trustee has your TIN to avoid this "back-up withholding."
If an Income or Capital Account distribution date is a day on which the
NYSE is closed, the distribution will be made on the next day the stock
exchange is open. Distributions are paid to Unit holders of record
determined as of the close of business on the Record Date for that
distribution or, if the Record Date is a day on which the NYSE is closed,
the first preceding day on which the exchange is open.
We anticipate that there will be enough money in the Capital Account of
the Trust to pay the deferred sales charge. If not, the Trustee may sell
Securities to meet the shortfall.
Within a reasonable time after the Trust is terminated, you will receive
the pro rata share of the money from the sale of the Securities and
amounts in the Income and Capital Accounts. All Unit holders will receive
a pro rata share of any other assets remaining in the Trust, after
deducting any unpaid expenses.
The Trustee may establish reserves (the "Reserve Account") within the
Trust to cover anticipated state and local taxes or any governmental
charges to be paid out of the Trust.
Distribution Reinvestment Option. You may elect to have each distribution
of income and/or capital reinvested into additional Units of the Trust by
notifying your broker/dealer or bank within the time period required by
such entities so that they can notify the Trustee of your election at
least 10 days before any Record Date. Each later distribution of income
and/or capital on your Units will be reinvested by the Trustee into
additional Units of such Trust. There is no sales charge on Units acquired
through the Distribution Reinvestment Option, as discussed under "Public
Offering." This option may not be available in all states. Each
reinvestment plan is subject to availability or limitation by the Sponsor
and each broker/dealer or selling firm. The Sponsor or broker/dealers may
suspend or terminate the offering of a reinvestment plan at any time.
Because the Trust may begin selling Securities nine business days prior to
the Mandatory Termination Date, reinvestment is not available during this
period. Please contact your financial professional for additional
information. PLEASE NOTE THAT EVEN IF YOU REINVEST DISTRIBUTIONS, THEY ARE
STILL CONSIDERED DISTRIBUTIONS FOR INCOME TAX PURPOSES.
Redeeming Your Units
You may redeem all or a portion of your Units at any time by sending a
request for redemption to your broker/dealer or bank through which you
hold your Units. No redemption fee will be charged, but you are
responsible for any governmental charges that apply. Certain
broker/dealers may charge a transaction fee for processing redemption
requests. Two business days after the day you tender your Units (the "Date
of Tender") you will receive cash in an amount for each Unit equal to the
Redemption Price per Unit calculated at the Evaluation Time on the Date of
Tender.
The Date of Tender is considered to be the date on which your redemption
request is received by the Trustee from the broker/dealer or bank through
which you hold your Units (if such day is a day the NYSE is open for
trading). However, if the redemption request is received after 4:00 p.m.
Eastern time (or after any earlier closing time on a day on which the NYSE
is scheduled in advance to close at such earlier time), the Date of Tender
is the next day the NYSE is open for trading.
Any amounts paid on redemption representing income will be withdrawn from
the Income Account if funds are available for that purpose, or from the
Capital Account. All other amounts paid on redemption will be taken from
the Capital Account. The IRS will require the Trustee to withhold a
portion of your redemption proceeds if the Trustee does not have your TIN
as generally discussed under "Income and Capital Distributions."
If you tender for redemption at least 2,500 Units, or such larger amount
as required by your broker/dealer or bank, rather than receiving cash, you
may elect to receive an In-Kind Distribution in an amount equal to the
Redemption Price per Unit by making this request to your broker/dealer or
bank at the time of tender. However, to be eligible to participate in the
In-Kind Distribution option at redemption, Unit holders must hold their
Units through the end of the initial offering period. No In-Kind
Distribution requests submitted during the 10 business days prior to the
Trust's Mandatory Termination Date will be honored. Where possible, the
Trustee will make an In-Kind Distribution by distributing each of the
Securities in book-entry form to your bank's or broker/dealer's account at
DTC. The Trustee will subtract any customary transfer and registration
charges from your In-Kind Distribution. As a tendering Unit holder, you
Page 26
will receive your pro rata number of whole shares of Securities that make
up the portfolio, and cash from the Capital Account equal to the
fractional shares to which you are entitled.
If you elect to receive an In-Kind Distribution of Securities, you should
be aware that it will be considered a taxable event at the time you
receive the Securities. See "Tax Status" for additional information.
The Trustee may sell Securities to make funds available for redemption. If
Securities are sold, the size and diversification of the Trust will be
reduced. These sales may result in lower prices than if the Securities
were sold at a different time.
Your right to redeem Units (and therefore, your right to receive payment)
may be delayed:
- If the NYSE is closed (other than customary weekend and holiday closings);
- If the SEC determines that trading on the NYSE is restricted or that an
emergency exists making sale or evaluation of the Securities not
reasonably practical; or
- For any other period permitted by SEC order.
The Trustee is not liable to any person for any loss or damage which may
result from such a suspension or postponement.
The Redemption Price.
The Redemption Price per Unit is determined by the Trustee by:
adding
1. cash in the Income and Capital Accounts of the Trust not designated to
purchase Securities;
2. the aggregate underlying value of the Securities held in the Trust; and
3. dividends receivable on the Securities trading ex-dividend as of the
date of computation; and
deducting
1. any applicable taxes or governmental charges that need to be paid out
of the Trust;
2. any amounts owed to the Trustee for its advances;
3. estimated accrued expenses of the Trust, if any;
4. cash held for distribution to Unit holders of record of the Trust as of
the business day before the evaluation being made;
5. liquidation costs for foreign Securities, if any; and
6. other liabilities incurred by the Trust; and
dividing
1. the result by the number of outstanding Units of the Trust.
Any remaining deferred sales charge on the Units when you redeem them will
be deducted from your redemption proceeds. In addition, until they are
collected, the Redemption Price per Unit will include estimated
organization costs as set forth under "Fee Table."
Removing Securities from the Trust
The portfolio of the Trust is not managed. However, we may, but are not
required to, direct the Trustee to dispose of a Security in certain
limited circumstances, including situations in which:
- The issuer of the Security defaults in the payment of a declared dividend;
- Any action or proceeding prevents the payment of dividends;
- There is any legal question or impediment affecting the Security;
- The issuer of the Security has breached a covenant which would affect
the payment of dividends, the issuer's credit standing, or otherwise
damage the sound investment character of the Security;
- The issuer has defaulted on the payment of any other of its outstanding
obligations;
- There has been a public tender offer made for a Security or a merger or
acquisition is announced affecting a Security, and that in our opinion the
sale or tender of the Security is in the best interest of Unit holders;
- The sale of Securities is necessary or advisable (i) in order to
maintain the qualification of the Trust as a "regulated investment
company" in the case of the Trust which has elected to qualify as such or
(ii) to provide funds to make any distribution for a taxable year in order
to avoid imposition of any income or excise taxes on undistributed income
in the Trust which is a "regulated investment company";
- The price of the Security has declined to such an extent, or such other
credit factors exist, that in our opinion keeping the Security would be
harmful to the Trust;
- As a result of the ownership of the Security, the Trust or its Unit
holders would be a direct or indirect shareholder of a passive foreign
investment company; or
- The sale of the Security is necessary for the Trust to comply with such
federal and/or state securities laws, regulations and/or regulatory
actions and interpretations which may be in effect from time to time.
Except for instances in which the Trust acquires Replacement Securities,
as described in "The FT Series," the Trust will generally not acquire any
securities or other property other than the Securities. The Trustee, on
Page 27
behalf of the Trust and at the direction of the Sponsor, will vote for or
against any offer for new or exchanged securities or property in exchange
for a Security, such as those acquired in a merger or other transaction.
If such exchanged securities or property are acquired by the Trust, at our
instruction, they will either be sold or held in the Trust. In making the
determination as to whether to sell or hold the exchanged securities or
property we may get advice from the Portfolio Supervisor. Any proceeds
received from the sale of Securities, exchanged securities or property
will be credited to the Capital Account of the Trust for distribution to
Unit holders or to meet redemption requests. The Trustee may retain and
pay us or an affiliate of ours to act as agent for the Trust to facilitate
selling Securities, exchanged securities or property from the Trust. If we
or our affiliate act in this capacity, we will be held subject to the
restrictions under the 1940 Act. When acting in an agency capacity, we may
select various broker/dealers to execute securities transactions on behalf
of the Trust, which may include broker/dealers who sell Units of the
Trust. We do not consider sales of Units of the Trust or any other
products sponsored by First Trust as a factor in selecting such
broker/dealers. As authorized by the Indenture, the Trustee may also
employ a subsidiary or affiliate of the Trustee to act as broker in
selling such Securities or property. The Trust will pay for these
brokerage services at standard commission rates.
The Trustee may sell Securities designated by us or, absent our direction,
at its own discretion, in order to meet redemption requests or pay
expenses. In designating Securities to be sold, we will try to maintain
the proportionate relationship among the Securities. If this is not
possible, the composition and diversification of the Trust may be changed.
Amending or Terminating the Indenture
Amendments. The Indenture may be amended by us and the Trustee without
your consent:
- To cure ambiguities;
- To correct or supplement any defective or inconsistent provision;
- To make any amendment required by any governmental agency; or
- To make other changes determined not to be adverse to your best
interests (as determined by us and the Trustee).
Termination. As provided by the Indenture, the Trust will terminate on the
Mandatory Termination Date as stated in the "Summary of Essential
Information." The Trust may be terminated earlier:
- Upon the consent of 100% of the Unit holders of the Trust;
- If the value of the Securities owned by the Trust as shown by any
evaluation is less than the lower of $2,000,000 or 20% of the total value
of Securities deposited in the Trust during the initial offering period
("Discretionary Liquidation Amount"); or
- In the event that Units of the Trust not yet sold aggregating more than
60% of the Units of the Trust are tendered for redemption by underwriters,
including the Sponsor.
If the Trust is terminated due to this last reason, we will refund your
entire sales charge; however, termination of the Trust before the
Mandatory Termination Date for any other stated reason will result in all
remaining unpaid deferred sales charges on your Units being deducted from
your termination proceeds. For various reasons, the Trust may be reduced
below the Discretionary Liquidation Amount and could therefore be
terminated before the Mandatory Termination Date.
Unless terminated earlier, the Trustee will begin to sell Securities in
connection with the termination of the Trust during the period beginning
nine business days prior to, and no later than, the Mandatory Termination
Date. We will determine the manner and timing of the sale of Securities.
Because the Trustee must sell the Securities within a relatively short
period of time, the sale of Securities as part of the termination process
may result in a lower sales price than might otherwise be realized if such
sale were not required at this time.
You will receive a cash distribution from the sale of the remaining
Securities, along with your interest in the Income and Capital Accounts,
within a reasonable time after the Trust is terminated. The Trustee will
deduct from the Trust any accrued costs, expenses, advances or indemnities
provided for by the Indenture, including estimated compensation of the
Trustee and costs of liquidation and any amounts required as a reserve to
pay any taxes or other governmental charges.
Information on the Sponsor, Trustee and Evaluator
The Sponsor.
We, First Trust Portfolios L.P., specialize in the underwriting, trading
and wholesale distribution of unit investment trusts under the "First
Page 28
Trust" brand name and other securities. An Illinois limited partnership
formed in 1991, we took over the First Trust product line and act as
Sponsor for successive series of:
- The First Trust Combined Series
- FT Series (formerly known as The First Trust Special Situations Trust)
- The First Trust Insured Corporate Trust
- The First Trust of Insured Municipal Bonds
- The First Trust GNMA
The First Trust product line commenced with the first insured unit
investment trust in 1974. To date we have deposited more than $460 billion
in First Trust unit investment trusts. Our employees include a team of
professionals with many years of experience in the unit investment trust
industry.
We are a member of FINRA and SIPC. Our principal offices are at 120 East
Liberty Drive, Wheaton, Illinois 60187; telephone number 800-621-1675. As
of December 31, 2019, the total partners' capital of First Trust
Portfolios L.P. was $49,108,615.
This information refers only to us and not to the Trust or to any series
of the Trust or to any other dealer. We are including this information
only to inform you of our financial responsibility and our ability to
carry out our contractual obligations. We will provide more detailed
financial information on request.
Code of Ethics. The Sponsor and the Trust have adopted a code of ethics
requiring the Sponsor's employees who have access to information on Trust
transactions to report personal securities transactions. The purpose of
the code is to avoid potential conflicts of interest and to prevent fraud,
deception or misconduct with respect to the Trust.
The Trustee.
The Trustee is The Bank of New York Mellon, a trust company organized
under the laws of New York. The Bank of New York Mellon has its unit
investment trust division offices at 240 Greenwich Street, New York, New
York 10286, telephone 800-813-3074. If you have questions regarding your
account or your Trust, please contact the Trustee at its unit investment
trust division offices or your financial adviser. The Sponsor does not
have access to individual account information. The Bank of New York Mellon
is subject to supervision and examination by the Superintendent of the New
York State Department of Financial Services and the Board of Governors of
the Federal Reserve System, and its deposits are insured by the Federal
Deposit Insurance Corporation to the extent permitted by law.
The Trustee has not participated in selecting the Securities for the
Trust; it only provides administrative services.
Limitations of Liabilities of Sponsor and Trustee.
Neither we nor the Trustee will be liable for taking any action or for not
taking any action in good faith according to the Indenture. We will also
not be accountable for errors in judgment. We will only be liable for our
own willful misfeasance, bad faith, gross negligence (ordinary negligence
in the Trustee's case) or reckless disregard of our obligations and
duties. The Trustee is not liable for any loss or depreciation when the
Securities are sold. If we fail to act under the Indenture, the Trustee
may do so, and the Trustee will not be liable for any action it takes in
good faith under the Indenture.
The Trustee will not be liable for any taxes or other governmental charges
or interest on the Securities which the Trustee may be required to pay
under any present or future law of the United States or of any other
taxing authority with jurisdiction. Also, the Indenture states other
provisions regarding the liability of the Trustee.
If we do not perform any of our duties under the Indenture or are not able
to act or become bankrupt, or if our affairs are taken over by public
authorities, then the Trustee may:
- Appoint a successor sponsor, paying them a reasonable rate not more than
that stated by the SEC;
- Terminate the Indenture and liquidate the Trust; or
- Continue to act as Trustee without terminating the Indenture.
The Evaluator.
The Evaluator is First Trust Advisors L.P., an Illinois limited
partnership formed in 1991 and an affiliate of the Sponsor. The
Evaluator's address is 120 East Liberty Drive, Wheaton, Illinois 60187.
The Trustee, Sponsor and Unit holders may rely on the accuracy of any
evaluation prepared by the Evaluator. The Evaluator will make
determinations in good faith based upon the best available information,
but will not be liable to the Trustee, Sponsor or Unit holders for errors
in judgment.
Other Information
Legal Opinions.
Our counsel is Chapman and Cutler LLP, 111 W. Monroe St., Chicago,
Illinois 60603. They have passed upon the legality of the Units offered
Page 29
hereby and certain matters relating to federal tax law. Carter Ledyard &
Milburn LLP acts as the Trustee's counsel.
Experts.
The Trust's statement of net assets, including the schedule of
investments, as of the opening of business on the Initial Date of Deposit
included in this prospectus, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report
appearing herein, and is included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
Supplemental Information
If you write or call the Sponsor, you will receive free of charge
supplemental information about this Series, which has been filed with the
SEC and to which we have referred throughout. This information states more
specific details concerning the nature, structure and risks of this product.
Page 30
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Page 31
First Trust (R)
Limited Duration Fixed Income ETF Portfolio, Series 35
FT 8672
Sponsor:
First Trust Portfolios L.P.
Member SIPC o Member FINRA
120 East Liberty Drive
Wheaton, Illinois 60187
800-621-1675
Trustee:
The Bank of New York Mellon
240 Greenwich Street
New York, New York 10286
800-813-3074
24-Hour Pricing Line:
800-446-0132
Please refer to the "Summary of Essential Information" for the Product Code.
________________________
When Units of the Trust are no longer available, this prospectus may be
used as a preliminary prospectus
for a future series, in which case you should note the following:
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL, OR ACCEPT OFFERS TO BUY, SECURITIES OF A FUTURE SERIES UNTIL
THAT SERIES HAS BECOME EFFECTIVE WITH THE SEC. NO SECURITIES CAN BE SOLD
IN ANY STATE WHERE A SALE WOULD BE ILLEGAL.
________________________
This prospectus contains information relating to the above-mentioned unit
investment trust, but does not contain all of the information about this
investment company as filed with the SEC in Washington, D.C. under the:
- Securities Act of 1933 (file no. 333-237435) and
- Investment Company Act of 1940 (file no. 811-05903)
Information about the Trust, including its Codes of Ethics, can be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information regarding the operation of the SEC's Public Reference Room may
be obtained by calling the SEC at 202-942-8090.
Information about the Trust is available on the EDGAR Database on the
SEC's Internet site at www.sec.gov.
To obtain copies at prescribed rates -
Write: Public Reference Section of the SEC
100 F Street, N.E.
Washington, D.C. 20549
e-mail address: publicinfo@sec.gov
April 28, 2020
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
Page 32
First Trust (R)
The FT Series
Information Supplement
This Information Supplement provides additional information concerning the
structure, operations and risks of the unit investment trust contained in
FT 8672 not found in the prospectus for the Trust. This Information
Supplement is not a prospectus and does not include all of the information
you should consider before investing in the Trust. This Information
Supplement should be read in conjunction with the prospectus for the Trust
in which you are considering investing.
This Information Supplement is dated April 28, 2020. Capitalized terms
have been defined in the prospectus.
Table of Contents
Risk Factors
Securities 1
Common Stocks 1
Preferred Stocks 2
Trust Preferred Securities 2
REITs 3
ETFs 4
Closed-End Funds 4
Business Development Companies 5
Convertible Securities 6
Fixed-Income Securities 7
High-Yield Securities 9
Senior Loans 10
Subprime Residential Mortgage Loans 10
TIPS 10
Foreign Issuers 11
Emerging Markets 11
Small and/or Mid Capitalization Companies 12
Risk Factors
Securities. The Securities in the Trust may represent common stock
("Common Stocks"), preferred stock ("Preferred Stocks"), trust preferred
securities ("Trust Preferred Securities"), real estate investment trusts
("REITs"), exchange-traded funds ("ETFs"), closed-end funds ("Closed-End
Funds") and/or business development companies. As such, an investment in
Units of the Trust should be made with an understanding of the risks of
investing in such Securities.
Common Stocks. An investment in common stocks should be made with an
understanding of the risks which such an investment entails, including the
risk that the financial condition of the issuers of the common stocks or
the general condition of the relevant stock market may worsen, and the
value of the common stocks and therefore the value of the Units may
decline. Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value, as market
confidence in and perceptions of the issuers change. These perceptions are
based on unpredictable factors, including expectations regarding
government, economic, monetary and fiscal policies, inflation and interest
rates, economic expansion or contraction, and global or regional
political, economic or banking crises.
Shareholders of common stocks have rights to receive payments from the
issuers of those common stocks that are generally subordinate to those of
creditors of, or holders of debt obligations or preferred stocks of, such
issuers. Shareholders of common stocks have a right to receive dividends
only when and if, and in the amounts declared by the issuer's board of
directors and have a right to participate in amounts available for
distribution by the issuer only after all other claims on the issuer have
been paid or provided for. Common stocks do not represent an obligation of
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the issuer and, therefore, do not offer any assurance of income or provide
the same degree of protection of capital as do debt securities. The
issuance of additional debt securities or preferred stock will create
prior claims for payment of principal, interest and dividends which could
adversely affect the ability and inclination of the issuer to declare or
pay dividends on its common stock or the rights of holders of common stock
with respect to assets of the issuer upon liquidation or bankruptcy.
Cumulative preferred stock dividends must be paid before common stock
dividends, and any cumulative preferred stock dividend omitted is added to
future dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on
liquidation which are senior to those of common stockholders.
Preferred Stocks. An investment in preferred stocks should be made with an
understanding of the risks which such an investment entails, including the
risk that the financial condition of the issuers of the Securities or the
general condition of the preferred stock market may worsen, and the value
of the preferred stocks and therefore the value of the Units may decline.
Preferred stocks may be susceptible to general stock market movements and
to volatile increases and decreases of value as market confidence in and
perceptions of the issuers change. These perceptions are based on
unpredictable factors, including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates,
economic expansion or contraction, market liquidity, and global or
regional political, economic or banking crises. Preferred stocks are also
vulnerable to Congressional reductions in the dividends received deduction
which would adversely affect the after-tax return to the investors who can
take advantage of the deduction. Such a reduction might adversely affect
the value of preferred stocks in general. Holders of preferred stocks, as
owners of the entity, have rights to receive payments from the issuers of
those preferred stocks that are generally subordinate to those of
creditors of, or holders of debt obligations or, in some cases, other
senior preferred stocks of, such issuers. Preferred stocks do not
represent an obligation of the issuer and, therefore, do not offer any
assurance of income or provide the same degree of protection of capital as
do debt securities. The issuance of additional debt securities or senior
preferred stocks will create prior claims for payment of principal and
interest and senior dividends which could adversely affect the ability and
inclination of the issuer to declare or pay dividends on its preferred
stock or the rights of holders of preferred stock with respect to assets
of the issuer upon liquidation or bankruptcy. The value of preferred
stocks is subject to market fluctuations for as long as the preferred
stocks remain outstanding, and thus the value of the Securities may be
expected to fluctuate over the life of the Trust to values higher or lower
than those prevailing on the Initial Date of Deposit.
Trust Preferred Securities. An investment in trust preferred securities
should be made with an understanding of the risks which such an investment
entails. Holders of trust preferred securities incur risks in addition to
or slightly different than the typical risks of holding preferred stocks.
Trust preferred securities are limited-life preferred securities that are
typically issued by corporations, generally in the form of interest-
bearing notes or preferred securities, or by an affiliated business trust
of a corporation, generally in the form of beneficial interests in
subordinated debentures issued by the corporation, or similarly structured
securities. The maturity and dividend rate of the trust preferred
securities are structured to match the maturity and coupon interest rate
of the interest-bearing notes, preferred securities or subordinated
debentures. Trust preferred securities usually mature on the stated
maturity date of the interest-bearing notes, preferred securities or
subordinated debentures and may be redeemed or liquidated prior to the
stated maturity date of such instruments for any reason on or after their
stated call date or upon the occurrence of certain extraordinary
circumstances at any time. Trust preferred securities generally have a
yield advantage over traditional preferred stocks, but unlike preferred
stocks, distributions on the trust preferred securities are treated as
interest rather than dividends for Federal income tax purposes. Unlike
most preferred stocks, distributions received from trust preferred
securities are not eligible for the dividends-received deduction. Certain
of the risks unique to trust preferred securities include: (i)
distributions on trust preferred securities will be made only if interest
payments on the interest-bearing notes, preferred securities or
subordinated debentures are made; (ii) a corporation issuing the interest-
bearing notes, preferred securities or subordinated debentures may defer
interest payments on these instruments for up to 20 consecutive quarters
and if such election is made, distributions will not be made on the trust
preferred securities during the deferral period; (iii) certain tax or
regulatory events may trigger the redemption of the interest-bearing
notes, preferred securities or subordinated debentures by the issuing
corporation and result in prepayment of the trust preferred securities
prior to their stated maturity date; (iv) future legislation may be
proposed or enacted that may prohibit the corporation from deducting its
interest payments on the interest-bearing notes, preferred securities or
subordinated debentures for tax purposes, making redemption of these
instruments likely; (v) a corporation may redeem the interest-bearing
notes, preferred securities or subordinated debentures in whole at any
time or in part from time to time on or after a stated call date; (vi)
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trust preferred securities holders have very limited voting rights; and
(vii) payment of interest on the interest-bearing notes, preferred
securities or subordinated debentures, and therefore distributions on the
trust preferred securities, is dependent on the financial condition of the
issuing corporation.
REITs. An investment in REITs should be made with an understanding of the
risks which such an investment entails. Generally, these include economic
recession, the cyclical nature of real estate markets, competitive
overbuilding, unusually adverse weather conditions, changing demographics,
changes in governmental regulations (including tax laws and environmental,
building, zoning and sales regulations), increases in real estate taxes or
costs of material and labor, the inability to secure performance
guarantees or insurance as required, the unavailability of investment
capital and the inability to obtain construction financing or mortgage
loans at rates acceptable to builders and purchasers of real estate.
Additional risks include an inability to reduce expenditures associated
with a property (such as mortgage payments and property taxes) when rental
revenue declines, and possible loss upon foreclosure of mortgaged
properties if mortgage payments are not paid when due.
REITs are financial vehicles that have as their objective the pooling of
capital from a number of investors in order to participate directly in
real estate ownership or financing. REITs are generally fully integrated
operating companies that have interests in income-producing real estate.
Equity REITs emphasize direct property investment, holding their invested
assets primarily in the ownership of real estate or other equity
interests. REITs obtain capital funds for investment in underlying real
estate assets by selling debt or equity securities in the public or
institutional capital markets or by bank borrowing. Thus, the returns on
common equities of REITs will be significantly affected by changes in
costs of capital and, particularly in the case of highly "leveraged" REITs
(i.e., those with large amounts of borrowings outstanding), by changes in
the level of interest rates. The objective of an equity REIT is to
purchase income-producing real estate properties in order to generate high
levels of cash flow from rental income and a gradual asset appreciation,
and they typically invest in properties such as office, retail,
industrial, hotel and apartment buildings and healthcare facilities.
REITs are a creation of the tax law. REITs essentially operate as a
corporation or business trust with the advantage of exemption from
corporate income taxes provided the REIT satisfies the requirements of
Sections 856 through 860 of the Internal Revenue Code. The major tests for
tax-qualified status are that the REIT (i) be managed by one or more
trustees or directors, (ii) issue shares of transferable interest to its
owners, (iii) have at least 100 shareholders, (iv) have no more than 50%
of the shares held by five or fewer individuals, (v) invest substantially
all of its capital in real estate related assets and derive substantially
all of its gross income from real estate related assets and (vi)
distributed at least 95% of its taxable income to its shareholders each
year. If a REIT should fail to qualify for such tax status, the related
shareholders (including such Trust) could be adversely affected by the
resulting tax consequences.
The underlying value of REITs and their ability to pay dividends may be
adversely affected by changes in national economic conditions, changes in
local market conditions due to changes in general or local economic
conditions and neighborhood characteristics, increased competition from
other properties, obsolescence of property, changes in the availability,
cost and terms of mortgage funds, the impact of present or future
environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older properties,
changes in real estate tax rates and other operating expenses, regulatory
and economic impediments to raising rents, adverse changes in governmental
rules and fiscal policies, dependency on management skill, civil unrest,
acts of God, including earthquakes, fires and other natural disasters
(which may result in uninsured losses), acts of war, adverse changes in
zoning laws, and other factors which are beyond the control of the issuers
of REITs. The value of REITs may at times be particularly sensitive to
devaluation in the event of rising interest rates.
REITs may concentrate investments in specific geographic areas or in
specific property types, i.e., hotels, shopping malls, residential
complexes, office buildings and timberlands. The impact of economic
conditions on REITs can also be expected to vary with geographic location
and property type. Investors should be aware that REITs may not be
diversified and are subject to the risks of financing projects. REITs are
also subject to defaults by borrowers, self-liquidation, the market's
perception of the REIT industry generally, and the possibility of failing
to qualify for pass-through of income under the Internal Revenue Code, and
to maintain exemption from the Investment Company Act of 1940. A default
by a borrower or lessee may cause a REIT to experience delays in enforcing
its right as mortgagee or lessor and to incur significant costs related to
protecting its investments. In addition, because real estate generally is
subject to real property taxes, REITs may be adversely affected by
increases or decreases in property tax rates and assessments or
reassessments of the properties underlying REITs by taxing authorities.
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Furthermore, because real estate is relatively illiquid, the ability of
REITs to vary their portfolios in response to changes in economic and
other conditions may be limited and may adversely affect the value of the
Units. There can be no assurance that any REIT will be able to dispose of
its underlying real estate assets when advantageous or necessary.
Issuers of REITs generally maintain comprehensive insurance on presently
owned and subsequently acquired real property assets, including liability,
fire and extended coverage. However, certain types of losses may be
uninsurable or not be economically insurable as to which the underlying
properties are at risk in their particular locales. There can be no
assurance that insurance coverage will be sufficient to pay the full
current market value or current replacement cost of any lost investment.
Various factors might make it impracticable to use insurance proceeds to
replace a facility after it has been damaged or destroyed. Under such
circumstances, the insurance proceeds received by a REIT might not be
adequate to restore its economic position with respect to such property.
Under various environmental laws, a current or previous owner or operator
of real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under or in such property. Such laws
often impose liability whether or not the owner or operator caused or knew
of the presence of such hazardous or toxic substances and whether or not
the storage of such substances was in violation of a tenant's lease. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability
to borrow using such real property as collateral. No assurance can be
given that REITs may not be presently liable or potentially liable for any
such costs in connection with real estate assets they presently own or
subsequently acquire.
ETFs. An investment in ETFs should be made with an understanding of the
risks which such an investment entails. ETFs are investment pools that
hold other securities. ETFs are either passively-managed index funds that
seek to replicate the performance or composition of a recognized
securities index or actively-managed funds that seek to achieve a stated
investment objective. ETFs are either open-end management investment
companies or unit investment trusts registered under the Investment
Company Act of 1940, as amended. Unlike typical open-end funds or unit
investment trusts, ETFs generally do not sell or redeem their individual
shares at net asset value. ETFs generally sell and redeem shares in large
blocks (often known as "Creation Units"), however, the Sponsor does not
intend to sell or redeem ETFs in this manner. In addition, securities
exchanges list ETF shares for trading, which allow investors to purchase
and sell individual ETF shares among themselves at market prices
throughout the day. The Trust will purchase and sell ETF shares on these
securities exchanges. ETFs therefore possess characteristics of
traditional open-end funds and unit investment trusts, which issue
redeemable shares, and of corporate common stocks or closed-end funds,
which generally issue shares that trade at negotiated prices on securities
exchanges and are not redeemable.
ETFs can provide exposure to broad-based indexes, growth and value styles,
market cap segments, sectors and industries, specific countries or regions
of the world or physical commodities. The securities comprising ETFs may
be common stocks, fixed-income securities or physical commodities. ETFs
contain a number of securities, anywhere from fewer than 20 securities up
to more than 1,000 securities. As a result, investors in ETFs obtain
exposure to a much greater number of securities than an individual
investor would typically be able to obtain on their own. The performance
of index-based ETFs is generally highly correlated with the indices or
sectors which they are designed to track.
ETFs are subject to various risks, including management's ability to meet
the fund's investment objective, and to manage the fund's portfolio when
the underlying securities are redeemed or sold, during periods of market
turmoil and as investors' perceptions regarding ETFs or their underlying
investments change.
Shares of ETFs frequently trade at a discount from their net asset value
in the secondary market. This risk is separate and distinct from the risk
that the net asset value of the ETF shares may decrease. The amount of
such discount from net asset value is subject to change from time to time
in response to various factors.
Closed-End Funds. An investment in closed-end funds should be made with an
understanding of the risks which such an investment entails. Closed-end
mutual funds' portfolios are managed and their shares are generally listed
on a securities exchange. The net asset value of closed-end fund shares
will fluctuate with changes in the value of the underlying securities
which the closed-end fund owns. In addition, for various reasons closed-
end fund shares frequently trade at a discount from their net asset value
in the secondary market. The amount of such discount from net asset value
is subject to change from time to time in response to various factors.
Closed-end funds' articles of incorporation may contain certain anti-
takeover provisions that may have the effect of inhibiting a fund's
possible conversion to open-end status and limiting the ability of other
persons to acquire control of a fund. In certain circumstances, these
provisions might also inhibit the ability of stockholders (including the
Trust) to sell their shares at a premium over prevailing market prices.
Page 4
This characteristic is a risk separate and distinct from the risk that a
fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those closed-
end fund shares which were purchased by a Trust at a premium. In the
unlikely event that a closed-end fund converts to open-end status at a
time when its shares are trading at a premium there would be an immediate
loss in value to a Trust since shares of open-end funds trade at net asset
value. Certain closed-end funds may have in place or may put in place in
the future plans pursuant to which the fund may repurchase its own shares
in the marketplace. Typically, these plans are put in place in an attempt
by a fund's board of directors to reduce a discount on its share price. To
the extent such a plan was implemented and shares owned by a Trust are
repurchased by a fund, the Trust's position in that fund would be reduced
and the cash would be distributed.
A Trust is prohibited from subscribing to a rights offering for shares of
any of the closed-end funds in which they invest. In the event of a rights
offering for additional shares of a fund, Unit holders should expect that
their Trust will, at the completion of the offer, own a smaller
proportional interest in such fund that would otherwise be the case. It is
not possible to determine the extent of this dilution in share ownership
without knowing what proportion of the shares in a rights offering will be
subscribed. This may be particularly serious when the subscription price
per share for the offer is less than the fund's net asset value per share.
Assuming that all rights are exercised and there is no change in the net
asset value per share, the aggregate net asset value of each shareholder's
shares of common stock should decrease as a result of the offer. If a
fund's subscription price per share is below that fund's net asset value
per share at the expiration of the offer, shareholders would experience an
immediate dilution of the aggregate net asset value of their shares of
common stock as a result of the offer, which could be substantial.
Closed-end funds may utilize leveraging in their portfolios. Leveraging
can be expected to cause increased price volatility for those fund's
shares, and as a result, increased volatility for the price of the Units
of a Trust. There can be no assurance that a leveraging strategy will be
successful during any period in which it is employed.
Business Development Companies. An investment in business development
companies should be made with an understanding of the risks which such an
investment entails. Business development companies' portfolios are managed
and their shares are generally listed on a securities exchange. Business
development companies are closed-end funds which have elected to be
treated as business development companies. The net asset value of business
development company shares will fluctuate with changes in the value of the
underlying securities which the business development company fund owns. In
addition, for various reasons business development company shares
frequently trade at a discount from their net asset value in the secondary
market. The amount of such discount from net asset value is subject to
change from time to time in response to various factors. Business
development companies' articles of incorporation may contain certain anti-
takeover provisions that may have the effect of inhibiting a fund's
possible conversion to open-end status and limiting the ability of other
persons to acquire control of a fund. In certain circumstances, these
provisions might also inhibit the ability of stockholders (including the
Trust) to sell their shares at a premium over prevailing market prices.
This characteristic is a risk separate and distinct from the risk that a
fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those business
development company shares which were purchased by the Trust at a premium.
In the unlikely event that a business development company converts to open-
end status at a time when its shares are trading at a premium there would
be an immediate loss in value to a Trust since shares of open-end funds
trade at net asset value. Certain business development companies may have
in place or may put in place in the future plans pursuant to which the
fund may repurchase its own shares in the marketplace. Typically, these
plans are put in place in an attempt by a fund's board of directors to
reduce a discount on its share price. To the extent such a plan was
implemented and shares owned by the Trust are repurchased by a fund, the
Trust's position in that fund would be reduced and the cash would be
distributed.
A Trust is prohibited from subscribing to a rights offering for shares of
any of the business development companies in which they invest. In the
event of a rights offering for additional shares of a fund, Unit holders
should expect that their Trust will, at the completion of the offer, own a
smaller proportional interest in such fund that would otherwise be the
case. It is not possible to determine the extent of this dilution in share
ownership without knowing what proportion of the shares in a rights
offering will be subscribed. This may be particularly serious when the
subscription price per share for the offer is less than the fund's net
asset value per share. Assuming that all rights are exercised and there is
no change in the net asset value per share, the aggregate net asset value
of each shareholder's shares of common stock should decrease as a result
of the offer. If a fund's subscription price per share is below that
fund's net asset value per share at the expiration of the offer,
shareholders would experience an immediate dilution of the aggregate net
asset value of their shares of common stock as a result of the offer,
which could be substantial.
Page 5
Business development companies may utilize leveraging in their portfolios.
Leveraging can be expected to cause increased price volatility for those
fund's shares, and as a result, increased volatility for the price of the
Units of a Trust. There can be no assurance that a leveraging strategy
will be successful during any period in which it is employed.
Convertible Securities. The following section applies to individual Trusts
which contain Securities which invest in convertible securities.
Convertible securities include convertible subordinated debentures and
corporate bonds ("Convertible Bonds") and cumulative convertible preferred
stocks ("Convertible Preferred Stocks"). Convertible securities contain a
conversion privilege which, under specified circumstances, offers the
holder the right to exchange such security for common stock of the issuing
corporation. Convertible Bonds obligate the issuing company to pay a
stated annual rate of interest (or a stated dividend in the case of
Convertible Preferred Stocks) and to return the principal amount after a
specified period of time. The income offered by convertible securities is
generally higher than the dividends received from the underlying common
stock, but lower than similar quality non-convertible debt securities.
Convertible securities are usually priced at a premium to their conversion
value, i.e., the value of the common stock received if the holder were to
exchange the convertible security.
The holder of the convertible security may choose at any time to exchange
the convertible security for a specified number of shares of the common
stock of the corporation, or occasionally a subsidiary company, at a
specified price, as defined by the corporation when the security is
issued. Accordingly, the value of the convertible obligation may generally
be expected to increase (decrease) as the price of the associated common
stock increases (decreases). Also, the market value of convertible
securities tends to be influenced by the level of interest rates and tends
to decline as interest rates increase and, conversely, to increase as
interest rates decline. Convertible securities rank senior to common
stocks in an issuer's capital structure, but are junior to non-convertible
debt securities. As convertible securities are considered junior to any
non-convertible debt securities issued by the corporation, convertible
securities are typically rated by established credit ratings agencies at
one level below the rating on such corporation's non-convertible debt.
Convertible securities are hybrid securities, combining the investment
characteristics of both bonds and common stock. Like a bond (or preferred
stock), a convertible security pays interest at a fixed rate (dividend),
but may be converted into common stock at a specified price or conversion
rate.
When the conversion price of the convertible security is significantly
above the price of the issuer's common stock, a convertible security takes
on the risk characteristics of a bond. At such times, the price of a
convertible security will vary inversely with changes in the level of
interest rates. In other words, when interest rates rise, prices of
convertible securities will generally fall; conversely, when interest
rates fall, prices of convertible securities will generally rise. This
interest rate risk is in part offset by the income paid by the convertible
securities.
In contrast, when the conversion price of a convertible security and the
common stock price are close to one another, a convertible security will
behave like a common stock. In such cases, the prices of convertible
securities may exhibit the short-term price volatility characteristic of
common stocks.
For these reasons Unit holders must be willing to accept the market risks
of both bonds and common stocks. However, because convertible securities
have characteristics of both common stocks and bonds, they tend to be less
sensitive to interest rate changes than bonds of comparable maturity and
quality, and less sensitive to stock market changes than fully invested
common stock portfolios. Because of these factors and the hybrid nature of
convertible securities, Unit holders should recognize that convertible
securities are likely to perform quite differently than broadly-based
measures of the stock and bond markets.
The market for convertible securities includes a larger proportion of
small- to medium-size companies than the broad stock market (as measured
by such indices as the Standard & Poor's 500 Composite Stock Price Index).
Companies which issue convertible securities are often lower in credit
quality, typically rated below "Investment Grade." Moreover, the credit
rating of a company's convertible issuance is generally lower than the
rating of the company's conventional debt issues since the convertible
security is normally a "junior" security. Securities with such ratings are
considered speculative, and thus pose a greater risk of default than
investment grade securities.
High-risk securities may be thinly traded, which can adversely affect the
prices at which such securities can be sold and can result in high
transaction costs. Judgment plays a greater role in valuing high risk
securities than securities for which more extensive quotations and last
sale information are available. Adverse publicity and changing investor
perceptions may affect the ability of outside price services to value
securities.
Page 6
During an economic downturn or a prolonged period of rising interest
rates, the ability of issuers of debt to serve their payment obligations,
meet projected goals, or obtain additional financing may be impaired.
Convertible securities are subject to the risk that the financial
condition of the issuers of the convertible securities or the general
condition of the stock market or bond market may worsen and the value of
the convertible securities and therefore the value of the Units may
decline. Convertible securities may be susceptible to general stock market
movements and to increases and decreases of value as market confidence in
and perceptions of the issuers change. These perceptions are based on
unpredictable factors including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates,
economic expansion or contraction, and global or regional political,
economic or banking crises. Convertible Preferred Stocks are also subject
to Congressional reductions in the dividends-received deduction which
would adversely affect the after-tax return to the corporate investors who
can take advantage of the deduction. Such reductions also might adversely
affect the value of preferred stocks in general. Holders of preferred
stocks have rights to receive payments from the issuers of those preferred
stocks that are generally subordinate to those of creditors of, or holders
of debt obligations or, in some cases, senior preferred stocks of, such
issuers. Convertible Preferred Stocks do not represent an obligation of
the issuer and, therefore, do not offer any assurance of income (since
dividends on a preferred stock must be declared by the issuer's Board of
Directors) or provide the same degree of protection of capital as do debt
securities. Cumulative preferred stock dividends must be paid before
common stock dividends and any cumulative preferred stock dividend omitted
is added to future dividends payable to the holders of cumulative
preferred stock. The issuance of additional debt securities or senior
preferred stock will create prior claims for payment of principal and
interest and senior dividends which could adversely affect the ability and
inclination of the issuer to declare or pay dividends on its preferred
stock or the rights of holders of preferred stock with respect to assets
of the issuer upon liquidation or bankruptcy. The value of preferred
stocks is subject to market fluctuations for as long as the preferred
stocks remain outstanding, and thus the value of the Convertible Preferred
Stocks in the Funds may be expected to fluctuate over the life of the
Trust to values higher or lower than those prevailing on the Date of
Deposit. Holders of Convertible Preferred Stocks incur more risk than
holders of debt obligations because preferred stockholders, as owners of
the entity, have generally inferior rights to receive payments from the
issuer in comparison with the rights of creditors of or holders of debt
obligations issued by the issuer.
Convertible Bonds are typically subordinated debentures and, therefore,
the claims of senior creditors must be settled in full before any payment
will be made to holders of Convertible Bonds in the event of insolvency or
bankruptcy. Senior creditors typically include all other long-term debt
issuers and bank loans. Convertible Bonds do, however, have a priority
over common and preferred stock. Investors in Convertible Bonds pay for
the conversion privilege by accepting a significantly lower yield-to-
maturity than that concurrently offered by non-convertible bonds of
equivalent quality.
Whether or not the convertible securities are listed on a national
securities exchange, the principal trading market for the convertible
securities may be in the over-the-counter market. As a result, the
existence of a liquid trading market for the convertible securities may
depend on whether dealers will make a market in the convertible
securities. There can be no assurance that a market will be made for any
of the convertible securities, that any market for the convertible
securities will be maintained or of the liquidity of the convertible
securities in any markets made.
Issues of Convertible Bonds and Convertible Preferred Stocks generally
provide that the convertible security may be liquidated, either by a
partial scheduled redemption pursuant to a sinking fund or by a refunding
redemption pursuant to which, at the option of the issuer, all or part of
the issue can be retired from any available funds, at prices which may or
may not include a premium over the involuntary liquidation preference,
which generally is the same as the par or stated value of the convertible
security. In general, optional redemption provisions are more likely to be
exercised when the convertible security is valued at a premium over par or
stated value than when they are valued at a discount from par or stated
value. Generally, the value of the convertible security will be at a
premium over par when market interest rates fall below the coupon rate.
Fixed-Income Securities. The following section applies to individual
Trusts which contain Securities which invest in fixed-income securities.
Fixed-income securities, in many cases, do not have the benefit of
covenants which would prevent the issuer from engaging in capital
restructurings or borrowing transactions in connection with corporate
acquisitions, leveraged buyouts or restructurings which could have the
effect of reducing the ability of the issuer to meet its debt obligations
and might result in the ratings of the securities and the value of the
underlying Trust portfolio being reduced.
Page 7
Fixed-income securities may have been acquired at a market discount from
par value at maturity. The coupon interest rates on the discount
securities at the time they were purchased were lower than the current
market interest rates for newly issued securities of comparable rating and
type. If such interest rates for newly issued comparable securities
increase, the market discount of previously issued securities will become
greater, and if such interest rates for newly issued comparable securities
decline, the market discount of previously issued securities will be
reduced, other things being equal. Investors should also note that the
value of securities purchased at a market discount will increase in value
faster than securities purchased at a market premium if interest rates
decrease. Conversely, if interest rates increase, the value of securities
purchased at a market discount will decrease faster than securities
purchased at a market premium. In addition, if interest rates rise, the
prepayment risk of higher yielding, premium securities and the prepayment
benefit for lower yielding, discount securities will be reduced. A
discount security held to maturity will have a larger portion of its total
return in the form of capital gain and less in the form of interest income
than a comparable security newly issued at current market rates. Market
discount attributable to interest changes does not indicate a lack of
market confidence in the issue. Neither the Sponsor nor the Trustee shall
be liable in any way for any default, failure or defect in any of the
securities.
Fixed-income securities may be original issue discount securities or zero
coupon securities. Under current law, the original issue discount, which
is the difference between the stated redemption price at maturity and the
issue price of the securities, is deemed to accrue on a daily basis and
the accrued portion is treated as interest income for federal income tax
purposes. On sale or redemption, any gain realized that is in excess of
the earned portion of original issue discount will be taxable as capital
gain unless the gain is attributable to market discount in which case the
accretion of market discount is taxable as ordinary income. The current
value of an original discount security reflects the present value of its
stated redemption price at maturity. The market value tends to increase in
greater increments as the securities approach maturity. The effect of
owning deep discount zero coupon Securities which do not make current
interest payments is that a fixed yield is earned not only on the original
investment, but also, in effect, on all earnings during the life of the
discount obligation. This implicit reinvestment of earnings at the same
rate eliminates the risk of being unable to reinvest the income on such
obligations at a rate as high as the implicit yield on the discount
obligation, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, the zero coupon
securities are subject to substantially greater price fluctuations during
periods of changing interest rates than are securities of comparable
quality which make regular interest payments.
Fixed-income securities may have been acquired at a market premium from
par value at maturity. The coupon interest rates on the premium securities
at the time they were purchased were higher than the current market
interest rates for newly issued securities of comparable rating and type.
If such interest rates for newly issued and otherwise comparable
securities decrease, the market premium of previously issued securities
will be increased, and if such interest rates for newly issued comparable
securities increase, the market premium of previously issued securities
will be reduced, other things being equal. The current returns of
securities trading at a market premium are initially higher than the
current returns of comparable securities of a similar type issued at
currently prevailing interest rates because premium securities tend to
decrease in market value as they approach maturity when the face amount
becomes payable. Because part of the purchase price is thus returned not
at maturity but through current income payments, early redemption of a
premium security at par or early prepayments of principal will result in a
reduction in yield. Redemption pursuant to call provisions generally will,
and redemption pursuant to sinking fund provisions may, occur at times
when the redeemed securities have an offering side valuation which
represents a premium over par or for original issue discount securities a
premium over the accreted value. To the extent that the securities were
purchased at a price higher than the price at which they are redeemed,
this will represent a loss of capital.
Certain fixed-income securities may be subject to being called or redeemed
in whole or in part prior to their stated maturities pursuant to optional
redemption provisions, sinking fund provisions or otherwise. A security
subject to optional call is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is a
method by which a security issue is redeemed, at or before maturity, by
the proceeds of a new security issue. A security subject to sinking fund
redemption is one which is subject to partial call from time to time at
par or from a fund accumulated for the scheduled retirement of a portion
of an issue prior to maturity. Redemption pursuant to call provisions is
more likely to occur, and redemption pursuant to sinking fund provisions
may occur, when the securities have an offering side valuation which
represents a premium over par or for original issue discount securities a
premium over the accreted value.
Page 8
High-Yield Securities. The following section applies to individual Trusts
which contain Securities which invest in high-yield securities. An
investment in high-yield securities should be made with an understanding
of the risks that an investment in high-yield, high-risk, fixed-rate,
domestic and foreign securities or "junk" bonds may entail, including
increased credit risks and the risk that the value of high-yield
securities will decline, and may decline precipitously, with increases in
interest rates. In recent years there have been wide fluctuations in
interest rates and thus in the value of fixed-rate securities generally.
High-yield securities are, under most circumstances, subject to greater
market fluctuations and risk of loss of income and principal than are
investments in lower-yielding, higher-rated securities, and their value
may decline precipitously because of increases in interest rates, not only
because the increases in rates generally decrease values, but also because
increased rates may indicate a slowdown in the economy and a decrease in
the value of assets generally that may adversely affect the credit of
issuers of high-yield, high-risk securities resulting in a higher
incidence of defaults among high-yield, high-risk securities. A slowdown
in the economy, or a development adversely affecting an issuer's
creditworthiness, may result in the issuer being unable to maintain
earnings or sell assets at the rate and at the prices, respectively, that
are required to produce sufficient cash flow to meet its interest and
principal requirements. For an issuer that has outstanding both senior
commercial bank debt and subordinated high-yield, high-risk securities, an
increase in interest rates will increase that issuer's interest expense
insofar as the interest rate on the bank debt is fluctuating. However,
many leveraged issuers enter into interest rate protection agreements to
fix or cap the interest rate on a large portion of their bank debt. This
reduces exposure to increasing rates, but reduces the benefit to the
issuer of declining rates. The Sponsor cannot predict future economic
policies or their consequences or, therefore, the course or extent of any
similar market fluctuations in the future.
High-yield securities or "junk" bonds, the generic names for securities
rated below "BBB-" by Standard & Poor's, or below "Baa3" by Moody's, are
frequently issued by corporations in the growth stage of their
development, by established companies whose operations or industries are
depressed or by highly leveraged companies purchased in leveraged buyout
transactions. The market for high-yield securities is very specialized and
investors in it have been predominantly financial institutions. High-yield
securities are generally not listed on a national securities exchange.
Trading of high-yield securities, therefore, takes place primarily in over-
the-counter markets which consist of groups of dealer firms that are
typically major securities firms. Because the high-yield security market
is a dealer market, rather than an auction market, no single obtainable
price for a given security prevails at any given time. Prices are
determined by negotiation between traders. The existence of a liquid
trading market for the securities may depend on whether dealers will make
a market in the securities. There can be no assurance that a market will
be made for any of the securities, that any market for the securities will
be maintained or of the liquidity of the securities in any markets made.
Not all dealers maintain markets in all high-yield securities. Therefore,
since there are fewer traders in these securities than there are in
"investment grade" securities, the bid-offer spread is usually greater for
high-yield securities than it is for investment grade securities.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a fixed-income security is recharacterized as equity
by the Internal Revenue Service for federal income tax purposes, the
issuer's interest deduction with respect to the security will be
disallowed and this disallowance may adversely affect the issuer's credit
rating. Because investors generally perceive that there are greater risks
associated with lower-rated securities, the yields and prices of these
securities tend to fluctuate more than higher-rated securities with
changes in the perceived quality of the credit of their issuers. In
addition, the market value of high-yield, high-risk, fixed-income
securities may fluctuate more than the market value of higher-rated
securities since high-yield, high-risk, fixed-income securities tend to
reflect short-term credit development to a greater extent than higher-
rated securities. Lower-rated securities generally involve greater risks
of loss of income and principal than higher-rated securities. Issuers of
lower-rated securities may possess fewer creditworthiness characteristics
than issuers of higher-rated securities and, especially in the case of
issuers whose obligations or credit standing have recently been
downgraded, may be subject to claims by debtholders, owners of property
leased to the issuer or others which, if sustained, would make it more
difficult for the issuers to meet their payment obligations. High-yield,
high-risk securities are also affected by variables such as interest
rates, inflation rates and real growth in the economy. Therefore,
investors should consider carefully the relative risks associated with
investment in securities which carry lower ratings.
Should the issuer of any security default in the payment of principal or
interest, the Securities in the Trust may incur additional expenses
seeking payment on the defaulted security. Because amounts (if any)
Page 9
recovered by the Securities in the Trust in payment under the defaulted
security may not be reflected in the value of the Securities until
actually received by the Securities and depending upon when a Unit holder
purchases or sells his or her Units, it is possible that a Unit holder
would bear a portion of the cost of recovery without receiving any portion
of the payment recovered.
High-yield, high-risk securities are generally subordinated obligations.
The payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of
the issuer. Senior obligations generally include most, if not all,
significant debt obligations of an issuer, whether existing at the time of
issuance of subordinated debt or created thereafter. Upon any distribution
of the assets of an issuer with subordinated obligations upon dissolution,
total or partial liquidation or reorganization of or similar proceeding
relating to the issuer, the holders of senior indebtedness will be
entitled to receive payment in full before holders of subordinated
indebtedness will be entitled to receive any payment. Moreover, generally
no payment with respect to subordinated indebtedness may be made while
there exists a default with respect to any senior indebtedness. Thus, in
the event of insolvency, holders of senior indebtedness of an issuer
generally will recover more, ratably, than holders of subordinated
indebtedness of that issuer.
Obligations that are rated lower than "BBB-" by Standard & Poor's, or
"Baa3" by Moody's, respectively, should be considered speculative as such
ratings indicate a quality of less than investment grade. Investors should
carefully review the objective of the Trust and consider their ability to
assume the risks involved before making an investment in the Trust.
Senior Loans. The following section applies to individual Trusts which
contain Securities which invest in senior loans issued by banks, other
financial institutions, and other investors to corporations, partnerships,
limited liability companies and other entities to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases, debt
refinancings and, to a lesser extent, for general operating and other
purposes. An investment by Securities in senior loans involves risk that
the borrowers under senior loans may default on their obligations to pay
principal or interest when due. Although senior loans 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 or that such collateral could be readily liquidated. Senior loans
are typically structured as floating-rate instruments in which the
interest rate payable on the obligation fluctuates with interest rate
changes. As a result, the yield on Securities investing in senior loans
will generally decline in a falling interest rate environment and increase
in a rising interest rate environment. Senior loans are generally below
investment grade quality and may be unrated at the time of investment; are
generally not registered with the SEC or state securities commissions; and
are generally not listed on any securities exchange. In addition, the
amount of public information available on senior loans is generally less
extensive than that available for other types of assets.
Subprime Residential Mortgage Loans. The following section applies to
individual Trusts which contain Securities which invest in subprime
residential mortgage loans. An investment in subprime residential mortgage
loans should be made with an understanding of the risks which such an
investment entails, including increased credit risks and the risk that the
value of subprime residential mortgage loans will decline, and may decline
precipitously, with increases in interest rates. In a high interest rate
environment, the value of subprime residential mortgage loans may be
adversely affected when payments on the mortgages do not occur as
anticipated, resulting in the extension of the mortgage's effective
maturity and the related increase in interest rate sensitivity of a longer-
term investment. The value of subprime mortgage loans may also change due
to shifts in the market's perception of issuers and regulatory or tax
changes adversely affecting the mortgage securities markets as a whole.
Due to current economic conditions, including fluctuating interest rates
and declining home values, as well as aggressive lending practices,
subprime mortgage loans have in recent periods experienced increased rates
of delinquency, foreclosure, bankruptcy and loss, and they are likely to
continue to experience rates that are higher, and that may be
substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. Thus, because of the higher
delinquency rates and losses associated with subprime mortgage loans,
risks of investing in Securities which hold subprime mortgage loans are
similar to those which affect high-yield securities or "junk" bonds, which
include less liquidity, greater volatility and an increased risk of
default as compared to higher rated securities.
TIPS. The following section applies to individual Trusts which contain
Securities which invest in TIPS. TIPS are inflation-indexed fixed-income
securities issued by the U.S. Department of Treasury that utilize an
Page 10
inflation mechanism tied to the Consumer Price Index ("CPI"). TIPS are
backed by the full faith and credit of the United States. TIPS are offered
with coupon interest rates lower than those of nominal rate Treasury
securities. The coupon interest rate remains fixed throughout the term of
the securities. However, each day the principal value of the TIPS is
adjusted based upon a pro-rata portion of the CPI as reported three months
earlier. Future interest payments are made based upon the coupon interest
rate and the adjusted principal value. In a falling inflationary
environment, both interest payments and the value of the TIPS will decline.
Foreign Issuers. The following section applies to individual Trusts which
contain Securities issued by, or invest in securities issued by, foreign
entities. Since certain of the Securities held by the Trust consist of, or
invest in, securities issued by foreign entities, an investment in the
Trust involves certain investment risks that are different in some
respects from an investment in a trust which invests solely in the
securities of domestic entities. These investment risks include future
political or governmental restrictions which might adversely affect the
payment or receipt of payment of dividends on the relevant Securities, the
possibility that the financial condition of the issuers of the Securities
may become impaired or that the general condition of the relevant stock
market may worsen (both of which would contribute directly to a decrease
in the value of the Securities and thus in the value of the Units), the
limited liquidity and relatively small market capitalization of the
relevant securities market, expropriation or confiscatory taxation,
economic uncertainties and foreign currency devaluations and fluctuations.
In addition, for foreign issuers that are not subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, there may
be less publicly available information than is available from a domestic
issuer. Also, foreign issuers are not necessarily subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers. The
securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable domestic issuers. In addition,
fixed brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States and
there is generally less government supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the
United States. However, due to the nature of the issuers of the Securities
selected for the Trust, the Sponsor believes that adequate information
will be available to allow the Supervisor to provide portfolio
surveillance for the Trust.
Securities issued by non-U.S. issuers may pay interest and/or dividends in
foreign currencies and may be principally traded in foreign currencies.
Therefore, there is a risk that the U.S. dollar value of these interest
and/or dividend payments and/or securities will vary with fluctuations in
foreign exchange rates.
On the basis of the best information available to the Sponsor at the
present time, none of the Securities in the Trust are subject to exchange
control restrictions under existing law which would materially interfere
with payment to the Trust of dividends due on, or proceeds from the sale
of, the Securities. However, there can be no assurance that exchange
control regulations might not be adopted in the future which might
adversely affect payment to the Trust. The adoption of exchange control
regulations and other legal restrictions could have an adverse impact on
the marketability of international securities in the Trust and on the
ability of the Trust to satisfy its obligation to redeem Units tendered to
the Trustee for redemption. In addition, restrictions on the settlement of
transactions on either the purchase or sale side, or both, could cause
delays or increase the costs associated with the purchase and sale of the
foreign Securities and correspondingly could affect the price of the Units.
Investors should be aware that it may not be possible to buy all
Securities at the same time because of the unavailability of any Security,
and restrictions applicable to the Trust relating to the purchase of a
Security by reason of the federal securities laws or otherwise.
Foreign securities generally have not been registered under the Securities
Act of 1933 and may not be exempt from the registration requirements of
such Act. Sales of non-exempt Securities by the Trust in the United States
securities markets are subject to severe restrictions and may not be
practicable. Accordingly, sales of these Securities by the Trust will
generally be effected only in foreign securities markets. Although the
Sponsor does not believe that the Trust will encounter obstacles in
disposing of the Securities, investors should realize that the Securities
may be traded in foreign countries where the securities markets are not as
developed or efficient and may not be as liquid as those in the United
States. The value of the Securities will be adversely affected if trading
markets for the Securities are limited or absent.
Emerging Markets. The following section applies to individual Trusts which
contain Securities issued by, or invest in securities from certain smaller
and emerging markets. Compared to more mature markets, some emerging
markets may have a low level of regulation, enforcement of regulations and
Page 11
monitoring of investors' activities. Those activities may include
practices such as trading on material non-public information. The
securities markets of developing countries are not as large as the more
established securities markets and have substantially less trading volume,
resulting in a lack of liquidity and high price volatility. There may be a
high concentration of market capitalization and trading volume in a small
number of issuers representing a limited number of industries as well as a
high concentration of investors and financial intermediaries. These
factors may adversely affect the timing and pricing of the acquisition or
disposal of securities.
In certain emerging markets, registrars are not subject to effective
government supervision nor are they always independent from issuers. The
possibility of fraud, negligence, undue influence being exerted by the
issuer or refusal to recognize ownership exists, which, along with other
factors, could result in the registration of a shareholding being
completely lost. Investors should therefore be aware that the Trust could
suffer loss arising from these registration problems. In addition, the
legal remedies in emerging markets are often more limited than the
remedies available in the United States.
Practices pertaining to the settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in
large part because of the need to use brokers and counterparties who are
less well capitalized, and custody and registration of assets in some
countries may be unreliable. As a result, brokerage commissions and other
fees are generally higher in emerging markets and the procedures and rules
governing foreign transactions and custody may involve delays in payment,
delivery or recovery of money or investments. Delays in settlement could
result in investment opportunities being missed if the Trust is unable to
acquire or dispose of a security. Certain foreign investments may also be
less liquid and more volatile than U.S. investments, which may mean at
times that such investments are unable to be sold at desirable prices.
Political and economic structures in emerging markets often change
rapidly, which may cause instability. In adverse social and political
circumstances, governments have been involved in policies of
expropriation, confiscatory taxation, nationalization, intervention in the
securities market and trade settlement, and imposition of foreign
investment restrictions and exchange controls, and these could be repeated
in the future. In addition to withholding taxes on investment income, some
governments in emerging markets may impose different capital gains taxes
on foreign investors. Foreign investments may also be subject to the risks
of seizure by a foreign government and the imposition of restrictions on
the exchange or export of foreign currency. Additionally, some governments
exercise substantial influence over the private economic sector and the
political and social uncertainties that exist for many developing
countries are considerable.
Another risk common to most developing countries is that the economy is
heavily export oriented and, accordingly, is dependent upon international
trade. The existence of overburdened infrastructures and obsolete
financial systems also presents risks in certain countries, as do
environmental problems. Certain economies also depend, to a large degree,
upon exports of primary commodities and, therefore, are vulnerable to
changes in commodity prices which, in turn, may be affected by a variety
of factors.
Small and/or Mid Capitalization Companies. The following section applies
to individual Trusts which contain Securities issued by, or invest in
Securities that hold securities issued by, small and/or mid capitalization
companies. While historically stocks of small and mid capitalization
companies have outperformed the stocks of large companies, the former have
customarily involved more investment risk as well. Such companies may have
limited product lines, markets or financial resources; may lack management
depth or experience; and may be more vulnerable to adverse general market
or economic developments than large companies. Some of these companies may
distribute, sell or produce products which have recently been brought to
market and may be dependent on key personnel.
The prices of small and mid cap company securities are often more volatile
than prices associated with large company issues, and can display abrupt
or erratic movements at times, due to limited trading volumes and less
publicly available information. Also, because such companies normally have
fewer shares outstanding and these shares trade less frequently than large
companies, it may be more difficult for the Trusts which contain these
Securities to buy and sell significant amounts of such shares without an
unfavorable impact on prevailing market prices.
Page 12
Undertakings
| 1. | Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. |
| 2. | Insofar as indemnification for liability arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to Rule 484 under the Securities Act, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
CONTENTS OF REGISTRATION STATEMENT
| A. | Bonding Arrangements of Depositor: |
First Trust Portfolios L.P. is covered by a Brokers' Fidelity Bond, in the total amount of $2,000,000, the insurer being National Union Fire Insurance Company of Pittsburgh.
| B. | This Registration Statement on Form S-6 comprises the following papers and documents: |
The facing sheet
The Prospectus
The signatures
Exhibits
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, FT 8672, has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wheaton and State of Illinois on April 28, 2020.
FT 8672
| By: | First Trust Portfolios L.P.
Depositor |
| By: | /s/ Elizabeth H. Bull
Senior Vice President |
S-2
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following person in the capacity and on the date indicated:
| Name | Title* | Date |
| | | |
| James A. Bowen | Director of The Charger Corporation, the General Partner of First Trust Portfolios L.P., and Chief Executive Officer of First Trust Portfolios L.P. | )
)
)
)By: /s/ Elizabeth H. Bull
) Attorney-in-Fact**
) April 28, 2020 |
| James M. Dykas | Chief Financial Officer of First Trust Portfolios L.P. | )
) |
| Christina Knierim | Controller of First Trust Portfolios L.P. | )
) |
| * | The title of the person named herein represents his or her capacity in and relationship to First Trust Portfolios L.P., the Depositor. |
| ** | Executed copies of the related powers of attorney were filed with the Securities and Exchange Commission in connection with the Amendment No. 1 to Form S-6 of FT 8556 (File No. 333-236093) and the same is hereby incorporated herein by this reference. |
S-3
CONSENT OF COUNSEL
The consent of counsel to the use of its name in the Prospectus included in this Registration Statement will be contained in its opinion to be filed as Exhibit 3.1 of the Registration Statement.
CONSENT OF FIRST TRUST ADVISORS L.P.
The consent of First Trust Advisors L.P. to the use of its name in the Prospectus included in the Registration Statement will be filed as Exhibit 4.1 to the Registration Statement.
Consent of Independent Registered Public Accounting Firm
The consent of Deloitte & Touche LLP to the use of its name in the Prospectus included in the Registration Statement will be filed as Exhibit 4.2 to the Registration Statement.
S-4
EXHIBIT INDEX
| 1.1 | Form of Standard Terms and Conditions of Trust for FT 4484 and certain subsequent Series, effective November 6, 2013 among First Trust Portfolios L.P., as Depositor, The Bank of New York Mellon, as Trustee, First Trust Advisors L.P., as Evaluator, First Trust Advisors L.P., as Portfolio Supervisor and FTP Services LLC, as FTPS Unit Servicing Agent (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-191558] filed on behalf of FT 4484). |
| 1.1.1 | Form of Trust Agreement for FT 8672 and certain subsequent Series, effective April 28, 2020 among First Trust Portfolios L.P., as Depositor, The Bank of New York Mellon, as Trustee, First Trust Advisors L.P., as Evaluator, and First Trust Advisors L.P., as Portfolio Supervisor. |
| 1.2 | Copy of Certificate of Limited Partnership of Nike Securities, L.P., predecessor of First Trust Portfolios L.P. (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-230481] filed on behalf of FT 8001). |
S-6 [File No. 333-230481] filed on behalf of FT 8001).
| 1.4 | Copy of Articles of Incorporation of Nike Securities Corporation, predecessor to The Charger Corporation, the general partner of First Trust Portfolios L.P., Depositor (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-230481] filed on behalf of FT 8001). |
| 1.5 | Copy of By-Laws of The Charger Corporation, the general partner of First Trust Portfolios L.P., Depositor (incorporated by reference to Amendment No. 2 to Form S-6 [File No. 333-169625] filed on behalf of FT 2669). |
| 1.6 | Underwriter Agreement (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 33-42755] filed on behalf of The First Trust Special Situations Trust, Series 19). |
| 2.2 | Copy of Code of Ethics (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-224320] filed on behalf of FT 7359). |
S-5
| 6.1 | List of Principal Officers of the Depositor (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-236093] filed on behalf of FT 8556). |
| 7.1 | Powers of Attorney executed by the Officers listed on page S-3 of this Registration Statement (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-236093] filed on behalf of FT 8556). |
S-6
