SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 654
B. Name of Depositor: FIRST TRUST PORTFOLIOS L.P.
C. Complete Address of Depositor's 1001 Warrenville Road
Principal Executive Offices: Lisle, Illinois 60532
D. Name and Complete Address of
Agents for Service: FIRST TRUST PORTFOLIOS L.P.
Attention: James A. Bowen
Suite 300
1001 Warrenville Road
Lisle, Illinois 60532
CHAPMAN & CUTLER
Attention: Eric F. Fess
111 West Monroe Street
Chicago, Illinois 60603
E. Title 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 the Public: ____ Check if it is
proposed that this filing
will become effective on
_____ at ____ p.m.
pursuant to Rule 487.
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION DATED JULY 2, 2002
Financial Services Select Portfolio, Series 13
The Key 3 Select Portfolio, Series 3
Pharmaceutical Select Portfolio, Series 14
Technology Select Portfolio, Series 17
Communications Portfolio, Series 11
Energy Portfolio, Series 12
Financial Services Portfolio, Series 13
The Key 3 Portfolio, Series 3
Leading Brands Portfolio, Series 12
Life Sciences Portfolio, Series 5
Market Leaders Portfolio, Series 6
Pharmaceutical Portfolio, Series 14
REIT Growth & Income Portfolio, Series 6
Technology Portfolio, Series 17
FT 654
FT 654 is a series of a unit investment trust, the FT Series. FT 654
consists of 14 separate portfolios listed above (each, a "Trust," and
collectively, the "Trusts"). Each Trust invests in a diversified
portfolio of common stocks ("Securities") issued by companies in the
industry sector or investment focus for which each Trust is named. The
objective of each Trust is to provide the potential for above-average
capital appreciation. Each Select Portfolio Series has an expected
maturity of approximately 18 months. Each Portfolio Series has an
expected maturity of approximately five and one-half years.
THE SECURITIES AND EXCHANGE COMMISSION 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.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
FIRST TRUST (R)
1-800-621-9533
The date of this prospectus is July __, 2002
Page 1
Table of Contents
Summary of Essential Information 3
Fee Table 7
Report of Independent Auditors 8
Statements of Net Assets 9
Schedules of Investments 13
The FT Series 28
Portfolios 29
Risk Factors 35
Public Offering 37
Distribution of Units 40
The Sponsor's Profits 41
The Secondary Market 41
How We Purchase Units 42
Expenses and Charges 42
Tax Status 43
Retirement Plans 45
Rights of Unit Holders 45
Income and Capital Distributions 46
Redeeming Your Units 46
Removing Securities from a Trust 47
Amending or Terminating the Indenture 48
Information on the Sponsor, Trustee and Evaluator 49
Other Information 50
Page 2
Summary of Essential Information
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Sponsor: First Trust Portfolios L.P.
Trustee: JPMorgan Chase Bank
Evaluator: First Trust Advisors L.P.
Financial
Services The Key 3 Pharmaceutical Technology
Select Portfolio Select Portfolio Select Portfolio Select Portfolio
Series 13 Series 3 Series 14 Series 17
_________ _________ __________ __________
Initial Number of Units (1)
Fractional Undivided Interest in the Trust per Unit (1) 1/ 1/ 1/ 1/
Public Offering Price:
Aggregate Offering Price Evaluation of Securities $ 9.900 $ 9.900 $ 9.900 $ 9.900
per Unit (2)
Maximum Sales Charge of 3.35% of the Public
Offering Price per Unit (3.384% of the net amount
invested, exclusive of the deferred sales charge
and creation and development fee) (3) $ .335 $ .335 $ .335 $ .335
Less Deferred Sales Charge per Unit $ (.185) $ (.185) $ (.185) $ (.185)
Less Creation and Development Fee per Unit $ (.050) $ (.050) $ (.050) $ (.050)
Public Offering Price per Unit (4) $ 10.000 $ 10.000 $ 10.000 $ 10.000
Sponsor's Initial Repurchase Price per Unit (5) $ 9.715 $ 9.715 $ 9.715 $ 9.715
Redemption Price per Unit
(based on aggregate underlying value of Securities
less
deferred sales charge) (5) $ 9.715 $ 9.715 $ 9.715 $ 9.715
Cash CUSIP Number 33733P 141 30267A 102 33733P 182 33733P 224
Reinvestment CUSIP Number 33733P 158 30267A 110 33733P 190 33733P 232
Fee Accounts Cash CUSIP Number 33733P 166 30267A 128 33733P 208 33733P 240
Fee Accounts Reinvestment CUSIP Number 33733P 174 30267A 136 33733P 216 33733P 257
Security Code
Ticker Symbol
First Settlement Date July __, 2002
Mandatory Termination Date (6) January 16, 2004
Income Distribution Record Date Fifteenth day of each June and December, commencing December 15, 2002.
Income Distribution Date (7) Last day of each June and December, commencing December 31, 2002.
_____________
<FN>
See "Notes to Summary of Essential Information" on page 6.
</FN>
Page 3
Summary of Essential Information
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Sponsor: First Trust Portfolios L.P.
Trustee: JPMorgan Chase Bank
Evaluator: First Trust Advisors L.P.
Financial
Communications Energy Services The Key 3
Portfolio Portfolio Portfolio Portfolio
Series 11 Series 12 Series 13 Series 3
_________ __________ __________ _________
Initial Number of Units (1)
Fractional Undivided Interest in the Trust per Unit (1) 1/ 1/ 1/ 1/
Public Offering Price:
Aggregate Offering Price Evaluation of Securities
per Unit (2) $ 9.900 $ 9.900 $ 9.900 $ 9.900
Maximum Sales Charge of 4.85% of the Public
Offering Price per Unit (4.899% of the net
amount invested, exclusive of the deferred
sales charge and creation and development
fee) (3) $ .485 $ .485 $ .485 $ .485
Less Deferred Sales Charge per Unit $ (.335) $ (.335) $ (.335) $ (.335)
Less Creation and Development Fee per Unit $ (.050) $ (.050) $ (.050) $ (.050)
Public Offering Price per Unit (4) $ 10.000 $ 10.000 $ 10.000 $ 10.000
Sponsor's Initial Repurchase Price per Unit (5) $ 9.565 $ 9.565 $ 9.565 $ 9.565
Redemption Price per Unit
(based on aggregate underlying value of Securities
less
deferred sales charge) (5) $ 9.565 $ 9.565 $ 9.565 $ 9.565
Cash CUSIP Number 33733P 265 33733P 307 33733P 349 33733P 380
Reinvestment CUSIP Number 33733P 273 33733P 315 33733P 356 33733P 398
Fee Accounts Cash CUSIP Number 33733P 281 33733P 323 33733P 364 33733P 406
Fee Accounts Reinvestment CUSIP Number 33733P 299 33733P 331 33733P 372 33733P 414
Security Code
Ticker Symbol
First Settlement Date July __, 2002
Mandatory Termination Date (6) January 16, 2008
Income Distribution Record Date Fifteenth day of each June and December, commencing December 15, 2002.
Income Distribution Date (7) Last day of each June and December, commencing December 31, 2002.
_____________
<FN>
See "Notes to Summary of Essential Information" on page 6.
</FN>
Page 4
Summary of Essential Information
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Sponsor: First Trust Portfolios L.P.
Trustee: JPMorgan Chase Bank
Evaluator: First Trust Advisors L.P.
Leading Brands Life Sciences Market Leaders Pharmaceutical
Portfolio Portfolio Portfolio Portfolio
Series 12 Series 5 Series 6 Series 14
_________ __________ __________ __________
Initial Number of Units (1)
Fractional Undivided Interest in the Trust per Unit (1) 1/ 1/ 1/ 1/
Public Offering Price:
Aggregate Offering Price Evaluation of Securities
per Unit (2) $ 9.900 $ 9.900 $ 9.900 $ 9.900
Maximum Sales Charge of 4.85% of the Public
Offering Price per Unit (4.899% of the net
amount invested, exclusive of the deferred sales
charge and creation and development fee) (3) $ .485 $ .485 $ .485 $ .485
Less Deferred Sales Charge per Unit $ (.335) $ (.335) $ (.335) $ (.335)
Less Creation and Development Fee per Unit $ (.050) $ (.050) $ (.050) $ (.050)
Public Offering Price per Unit (4) $ 10.000 $ 10.000 $ 10.000 $ 10.000
Sponsor's Initial Repurchase Price per Unit (5) $ 9.565 $ 9.565 $ 9.565 $ 9.565
Redemption Price per Unit
(based on aggregate underlying value of Securities
less deferred sales charge) (5) $ 9.565 $ 9.565 $ 9.565 $ 9.565
Cash CUSIP Number 33733P 422 33733P 463 33733P 505 33733P 547
Reinvestment CUSIP Number 33733P 430 33733P 471 33733P 513 33733P 554
Fee Accounts Cash CUSIP Number 33733P 448 33733P 489 33733P 521 33733P 562
Fee Accounts Reinvestment CUSIP Number 33733P 455 33733P 497 33733P 539 33733P 570
Security Code
Ticker Symbol
First Settlement Date July __, 2002
Mandatory Termination Date (6) January 16, 2008
Income Distribution Record Date Fifteenth day of each June and December, commencing December 15, 2002.
Income Distribution Date (7) Last day of each June and December, commencing December 31, 2002.
_____________
<FN>
See "Notes to Summary of Essential Information" on page 6.
</FN>
Page 5
Summary of Essential Information
FT 654
At the Opening of Business on the Initial Date of Deposit-July __, 2002
Sponsor: First Trust Portfolios L.P.
Trustee: JPMorgan Chase Bank
Evaluator: First Trust Advisors L.P.
REIT Growth
& Income Technology
Portfolio Portfolio
Series 6 Series 17
__________ __________
Initial Number of Units (1)
Fractional Undivided Interest in the Trust per Unit (1) 1/ 1/
Public Offering Price:
Aggregate Offering Price Evaluation of Securities per Unit (2) $ 9.900 $ 9.900
Maximum Sales Charge of 4.85% of the Public Offering Price per Unit (4.899% of the net
amount invested, exclusive of the deferred sales charge and creation and development
fee) (3) $ .485 $ .485
Less Deferred Sales Charge per Unit $ (.335) $ (.335)
Less Creation and Development Fee per Unit $ (.050) $ (.050)
Public Offering Price per Unit (4) $ 10.000 $ 10.000
Sponsor's Initial Repurchase Price per Unit (5) $ 9.565 $ 9.565
Redemption Price per Unit
(based on aggregate underlying value of Securities less deferred sales charge) (5) $ 9.565 $ 9.565
Cash CUSIP Number 33733P 620 33733P 588
Reinvestment CUSIP Number 33733P 638 33733P 596
Fee Accounts Cash CUSIP Number 33733P 646 33733P 604
Fee Accounts Reinvestment CUSIP Number 33733P 653 33733P 612
Security Code
Ticker Symbol
First Settlement Date July __, 2002
Mandatory Termination Date (6) January 16, 2008
Income Distribution Record Date Fifteenth day of each June and December, commencing December 15, 2002 for all
portfolios except REIT Growth & Income Portfolio, Series 6; and the fifteenth
day of each month for REIT Growth & Income Portfolio, Series 6, commencing
August 15, 2002.
Income Distribution Date (7) (8) Last day of each June and December, commencing December 31, 2002 for all
portfolios except REIT Growth & Income Portfolio, Series 6; and the last day of
each month for REIT Growth & Income Portfolio, Series 6, commencing August 31,
2002.
_____________
<FN>
NOTES TO SUMMARY OF ESSENTIAL INFORMATION
(1) As of the close of business on the Initial Date of Deposit, we may
adjust the number of Units of a 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 amounts
indicated above.
(2) Each listed Security is valued at its last closing sale price. If a
Security is not listed, or if no closing sale price exists, it is valued
at its closing ask price. 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").
(3) The maximum sales charge consists of an initial sales charge, a
deferred sales charge and the creation and development fee. See "Fee
Table" and "Public Offering."
(4) 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.
(5) Until the earlier of six months after the Initial Date of Deposit or
the end of the initial offering period, the Sponsor's Initial Repurchase
Price per Unit and the Redemption Price per Unit will include the
creation and development fee and estimated organization costs per Unit
set forth under "Fee Table." After such date, the Sponsor's Repurchase
Price and Redemption Price per Unit will not include such creation and
development fee and estimated organization costs. See "Redeeming Your
Units."
(6) See "Amending or Terminating the Indenture."
(7) Distributions from the Capital Account will be made monthly on the
last day of the month to Unit holders of record on the fifteenth day of
such 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.
(8)For REIT Growth & Income Portfolio, Series 6, the estimated net
annual distribution per Unit is estimated to be $ for the first year.
The estimated net annual distribution per Unit for subsequent years,
$_____, is expected to be less than the amount for the first year
because a portion of the Securities included in REIT Growth & Income
Portfolio, Series 6 will be sold during the first year to pay for
organization costs, the deferred sales charge and the creation and
development fee.
</FN>
Page 6
Fee Table
This Fee Table describes the fees and expenses that you may, directly or
indirectly, pay if you buy and hold Units of a Trust. See "Public
Offering" and "Expenses and Charges." Although each Select Portfolio
Series has a term of approximately 18 months, each Portfolio Series has
a term of approximately five and one-half years, and each is a unit
investment trust rather than a mutual fund, this information allows you
to compare fees.
Select
Portfolio Series Portfolio Series
_______________ ______________
Amount Amount
per Unit per Unit
_____ _____
Unit Holder Sales Fees (as a percentage of public offering price)
Maximum Sales Charge
Initial sales charge 1.00%(a) $.100 1.00%(a) $.100
Deferred sales charge 1.85%(b) $.185 3.35%(b) $.335
Creation and development fee 0.50%(c) $.050 0.50%(c) $.050
_______ _______ _______ _______
Maximum Sales Charge (including creation and development fee) 3.35% $.335 4.85% $.485
======= ======= ======= =======
Organization Costs (as a percentage of public offering price)
Estimated organization costs .290%(d) $.0290 .290%(d) $.0290
======= ======= ======= =======
Estimated Annual Trust Operating Expenses(e)
(as a percentage of average net assets)
Portfolio supervision, bookkeeping, administrative and evaluation fees % $ % $
Trustee's fee and other operating expenses %(f) $ %(f)(g) $
_______ _______ _______ _______
Total % $ % $
======= ======= ======= =======
Example
This example is intended to help you compare the cost of investing in a
Trust with the cost of investing in other investment products. The
example assumes that you invest $10,000 in a Trust for the periods shown
and sell your Units at the end of those periods. The example also
assumes a 5% return on your investment each year and that a 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 would be:
1 Year 18 Months(h) 3 Years 5 Years 5 1/2 Years
______ ____________ _______ _______ ___________
Select Portfolio Series $ $ N.A. N.A. N.A.
Portfolio Series (except REIT Growth & Income Portfolio, Series 6) N.A.
REIT Growth & Income Portfolio, Series 6 N.A.
The example will not differ if you hold rather than sell your Units at
the end of each period.
_____________
<FN>
(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 (3.35% for each Select Portfolio Series and 4.85% for each
Portfolio Series) and the sum of any remaining deferred sales charge and
creation and development fee.
(b) The deferred sales charge is a fixed dollar amount equal to $.185
per Unit for each Select Portfolio Series and $.335 per Unit for each
Portfolio Series 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 January 17, 2003.
(c) The creation and development fee compensates the Sponsor for creating
and developing the Trusts. 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 six 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%.
(d) Estimated organization costs will be deducted from the assets of a
Trust at the earlier of six months after the Initial Date of Deposit or
the end of the initial offering period.
(e) 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) For each Portfolio Series, other operating expenses includes the
costs incurred by each Portfolio Series for annually updating such
Trust's registration statement. Other operating expenses, however, do
not include brokerage costs and other portfolio transaction fees for any
of the Trusts. In certain circumstances the Trusts may incur additional
expenses not set forth above. See "Expenses and Charges."
(g) Due to its monthly distributions of income, the Trustee's fee and
other operating expenses for REIT Growth & Income Portfolio, Series 6
are estimated to be ____%, or $_____ per Unit. This increases total
estimated annual operating expenses for this Trust to ____%, or $_____
per Unit.
(h) For each Select Portfolio Series, the example represents the
estimated costs incurred through each Trust's approximate 18-month life.
</FN>
Page 7
Report of Independent Auditors
The Sponsor, First Trust Portfolios L.P., and Unit Holders
FT 654
We have audited the accompanying statements of net assets, including the
schedules of investments, of FT 654, comprising the Financial Services
Select Portfolio, Series 13; The Key 3 Select Portfolio, Series 3;
Pharmaceutical Select Portfolio, Series 14; Technology Select Portfolio,
Series 17; Communications Portfolio, Series 11; Energy Portfolio, Series
12; Financial Services Portfolio, Series 13; The Key 3 Portfolio, Series
3; Leading Brands Portfolio, Series 12; Life Sciences Portfolio, Series
5; Market Leaders Portfolio, Series 6; Pharmaceutical Portfolio, Series
14; REIT Growth & Income Portfolio, Series 6; and Technology Portfolio,
Series 17 (collectively, the "Trusts") as of the opening of business on
July __, 2002 (Initial Date of Deposit). These statements of net assets
are the responsibility of the Trusts' Sponsor. Our responsibility is to
express an opinion on these statements of net assets based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the statements of net assets are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the statements of net assets. Our procedures
included confirmation of the irrevocable letter of credit held by
JPMorgan Chase Bank, the Trustee, and allocated among the Trusts for the
purchase of Securities, as shown in the statements of net assets, as of
the opening of business on July __, 2002, by correspondence with the
Trustee. An audit also includes assessing the accounting principles used
and significant estimates made by the Trusts' Sponsor, as well as
evaluating the overall presentation of the statements of net assets. We
believe that our audits of the statements of net assets provide a
reasonable basis for our opinion.
In our opinion, the statements of net assets referred to above present
fairly, in all material respects, the financial position of FT 654,
comprising the Financial Services Select Portfolio, Series 13; The Key 3
Select Portfolio, Series 3; Pharmaceutical Select Portfolio, Series 14;
Technology Select Portfolio, Series 17; Communications Portfolio, Series
11; Energy Portfolio, Series 12; Financial Services Portfolio, Series
13; The Key 3 Portfolio, Series 3; Leading Brands Portfolio, Series 12;
Life Sciences Portfolio, Series 5; Market Leaders Portfolio, Series 6;
Pharmaceutical Portfolio, Series 14; REIT Growth & Income Portfolio,
Series 6; and Technology Portfolio, Series 17 at the opening of business
on July __, 2002 (Initial Date of Deposit) in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
July __, 2002
Page 8
Statements of Net Assets
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Financial Services The Key 3 Pharmaceutical Technology
Select Portfolio Select Portfolio Select Portfolio Select Portfolio
Series 13 Series 3 Series 14 Series 17
__________ __________ __________ __________
NET ASSETS
Investment in Securities represented by
purchase contracts (1) (2) $ $ $ $
Less liability for reimbursement
to Sponsor for organization costs (3) ( ) ( ) ( ) ( )
Less liability for deferred sales charge (4) ( ) ( ) ( ) ( )
Less liability for creation and development fee (5) ( ) ( ) ( ) ( )
__________ __________ __________ __________
Net assets $ $ $ $
======== ======== ======== ========
Units outstanding
ANALYSIS OF NET ASSETS
Cost to investors (6) $ $ $ $
Less maximum sales charge (6) ( ) ( ) ( ) ( )
Less estimated reimbursement to Sponsor
for organization costs (3) ( ) ( ) ( ) ( )
__________ __________ __________ __________
Net assets $ $ $ $
======== ======== ======== ========
_____________
<FN>
See "Notes to Statements of Net Assets" on page 12.
</FN>
Page 9
Statements of Net Assets
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Financial
Communications Energy Services The Key 3
Portfolio Portfolio Portfolio Portfolio
Series 11 Series 12 Series 13 Series 3
__________ __________ __________ __________
NET ASSETS
Investment in Securities represented by
purchase contracts (1) (2) $ $ $ $
Less liability for reimbursement
to Sponsor for organization costs (3) ( ) ( ) ( ) ( )
Less liability for deferred sales charge (4) ( ) ( ) ( ) ( )
Less liability for creation and development fee (5) ( ) ( ) ( ) ( )
__________ __________ __________ __________
Net assets $ $ $ $
======== ======== ======== ========
Units outstanding
ANALYSIS OF NET ASSETS
Cost to investors (6) $ $ $ $
Less maximum sales charge (6) ( ) ( ) ( ) ( )
Less estimated reimbursement to Sponsor
for organization costs (3) ( ) ( ) ( ) ( )
__________ __________ __________ __________
Net assets $ $ $ $
======== ======== ======== ========
_____________
<FN>
See "Notes to Statements of Net Assets" on page 12.
</FN>
Page 10
Statements of Net Assets
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Leading Brands Life Sciences Market Leaders Pharmaceutical
Portfolio Portfolio Portfolio Portfolio
Series 12 Series 5 Series 6 Series 14
__________ __________ __________ __________
NET ASSETS
Investment in Securities represented
by purchase contracts (1) (2) $ $ $ $
Less liability for reimbursement
to Sponsor for organization costs (3) ( ) ( ) ( ) ( )
Less liability for deferred sales charge (4) ( ) ( ) ( ) ( )
Less liability for creation and development fee (5) ( ) ( ) ( ) ( )
__________ __________ __________ __________
Net assets $ $ $ $
======== ======== ======== ========
Units outstanding
ANALYSIS OF NET ASSETS
Cost to investors (6) $ $ $ $
Less maximum sales charge (6) ( ) ( ) ( ) ( )
Less estimated reimbursement to
Sponsor for organization costs (3) ( ) ( ) ( ) ( )
__________ _________ __________ __________
Net assets $ $ $ $
======== ======== ======== ========
_____________
<FN>
See "Notes to Statements of Net Assets" on page 12.
</FN>
Page 11
Statements of Net Assets
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
REIT Growth
& Income Technology
Portfolio Portfolio
Series 6 Series 17
__________ __________
NET ASSETS
Investment in Securities represented by purchase contracts (1) (2) $ $
Less liability for reimbursement to Sponsor for organization costs (3) ( ) ( )
Less liability for deferred sales charge (4) ( ) ( )
Less liability for creation and development fee (5) ( ) ( )
__________ __________
Net assets $ $
======== ========
Units outstanding
ANALYSIS OF NET ASSETS
Cost to investors (6) $ $
Less maximum sales charge (6) ( ) ( )
Less estimated reimbursement to Sponsor for organization costs (3) ( ) ( )
__________ __________
Net assets $ $
======== ========
_____________
<FN>
NOTES TO STATEMENTS OF NET ASSETS
(1) Aggregate cost of the Securities listed under "Schedule of
Investments" for each Trust is based on their aggregate underlying value.
(2) An irrevocable letter of credit issued by JPMorgan Chase Bank, of
which $2,800,000 will be allocated among the 14 Trusts in FT 654, 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 Trusts. These costs have been estimated at $.0290 per
Unit for each Select Portfolio Series and $.0290 per Unit for each
Portfolio Series. 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 a 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 such Trust.
(4) Represents the amount of mandatory deferred sales charge
distributions of $.185 per Unit for each Select Portfolio Series, or
$.335 per Unit for each Portfolio Series, payable to the Sponsor in
three approximately equal monthly installments beginning on January 17,
2003 and on the twentieth day of each month thereafter (or if such date
is not a business day, on the preceding business day) through March 20,
2003. If Unit holders redeem their Units before March 20, 2003 they will
have to pay the remaining amount of the deferred sales charge applicable
to such Units when they redeem them.
(5) The creation and development fee ($.050 per Unit for each Trust) is
payable by a Trust on behalf of Unit holders out of assets of a 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) The aggregate cost to investors includes a maximum sales charge
(comprised of an initial sales charge, a deferred sales charge and the
creation and development fee) computed at the rate of 3.35% of the
Public Offering Price per Unit for each Select Portfolio Series
(equivalent to 3.384% of the net amount invested, exclusive of the
deferred sales charge and the creation and development fee) or 4.85% of
the Public Offering Price per Unit for each Portfolio Series (equivalent
to 4.899% 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."
</FN>
Page 12
Schedule of Investments
Financial Services Select Portfolio, Series 13
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 13
Schedule of Investments
The Key 3 Select Portfolio, Series 3
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 14
Schedule of Investments
Pharmaceutical Select Portfolio, Series 14
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 15
Schedule of Investments
Technology Select Portfolio, Series 17
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 16
Schedule of Investments
Communications Portfolio, Series 11
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 17
Schedule of Investments
Energy Portfolio, Series 12
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 18
Schedule of Investments
Financial Services Portfolio, Series 13
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 19
Schedule of Investments
The Key 3 Portfolio, Series 3
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 20
Schedule of Investments
Leading Brands Portfolio, Series 12
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
_________ _____________________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ ______
Total Investments 100% $
====== ======
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 21
Schedule of Investments
Life Sciences Portfolio, Series 5
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
_________ _____________________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ ______
Total Investments 100% $
====== ======
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 22
Schedule of Investments
Market Leaders Portfolio, Series 6
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
_________ _____________________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ ______
Total Investments 100% $
====== ======
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 23
Schedule of Investments
Pharmaceutical Portfolio, Series 14
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 24
Schedule of Investments
REIT Growth & Income Portfolio, Series 6
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
_________ _____________________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ ______
Total Investments 100% $
====== ======
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
</FN>
Page 25
Schedule of Investments
Technology Portfolio, Series 17
FT 654
At the Opening of Business on the
Initial Date of Deposit-July __, 2002
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value per Securities to
of Shares Name of Issuer of Securities (1) Offering Price Share the Trust (2)
______ _____________________________ _________ ______ _________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
See "Notes to Schedules of Investments" on page 27.
Page 26
NOTES TO SCHEDULES OF INVESTMENTS
(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 July __, 2002. Each Select Portfolio Series has a
Mandatory Termination Date of January 16, 2004. Each Portfolio Series has
a Mandatory Termination Date of January 16, 2008.
(2) The cost of the Securities to a 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 the over-the-counter traded Securities at the Evaluation
Time on the business day preceding the Initial Date of Deposit). The
valuation of the Securities has been determined by the Evaluator, an
affiliate of the Sponsor. The cost of the Securities to the Sponsor and
the Sponsor's profit or loss (which is the difference between the cost
of the Securities to the Sponsor and the cost of the Securities to a
Trust) are set forth below:
Cost of
Securities Profit
to Sponsor (Loss)
_________ _______
Financial Services Select Portfolio, Series 13 $ $
The Key 3 Select Portfolio, Series 3
Pharmaceutical Select Portfolio, Series 14
Technology Select Portfolio, Series 17
Communications Portfolio, Series 11
Energy Portfolio, Series 12
Financial Services Portfolio, Series 13
The Key 3 Portfolio, Series 3
Leading Brands Portfolio, Series 12
Life Sciences Portfolio, Series 5
Market Leaders Portfolio, Series 6
Pharmaceutical Portfolio, Series 14
REIT Growth & Income Portfolio, Series 6
Technology Portfolio, Series 17
</FN>
Page 27
The FT Series
The FT Series Defined.
We, First Trust Portfolios L.P. (formerly known as Nike Securities 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 654, consists of 14 separate
portfolios set forth below:
- - Financial Services Select Portfolio, Series 13
- - The Key 3 Select Portfolio, Series 3
- - Pharmaceutical Select Portfolio, Series 14
- - Technology Select Portfolio, Series 17
- - Communications Portfolio, Series 11
- - Energy Portfolio, Series 12
- - Financial Services Portfolio, Series 13
- - The Key 3 Portfolio, Series 3
- - Leading Brands Portfolio, Series 12
- - Life Sciences Portfolio, Series 5
- - Market Leaders Portfolio, Series 6
- - Pharmaceutical Portfolio, Series 14
- - REIT Growth & Income Portfolio, Series 6
- - Technology Portfolio, Series 17
Each 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, JPMorgan Chase Bank as Trustee and First Trust Advisors L.P. as
Portfolio Supervisor and Evaluator, governs the operation of the Trusts.
YOU MAY GET MORE SPECIFIC DETAILS CONCERNING THE NATURE, STRUCTURE AND
RISKS OF THIS PRODUCT IN AN "INFORMATION SUPPLEMENT" BY CALLING THE
TRUSTEE AT 1-800-682-7520.
How We Created the Trusts.
On the Initial Date of Deposit, we deposited portfolios of common stocks
with the Trustee and in turn, the Trustee delivered documents to us
representing our ownership of the Trusts in the form of units ("Units").
After the Initial Date of Deposit, we may deposit additional Securities
in the Trusts, or cash (including a letter of credit) with instructions
to buy more Securities, 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 in "Schedule of Investments"
for each Trust), and not the percentage relationship existing on the day
we are creating new Units, since the two may differ. This difference may
be due to the sale, redemption or liquidation of any of the Securities.
Since the prices of the Securities will fluctuate daily, the ratio of
Securities in the Trusts, 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 a
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 Trusts pay the associated brokerage fees. To
reduce this dilution, the Trusts 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 Trusts pay 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
Trusts to buy Securities. If we or an affiliate of ours act as agent to
the Trusts, we will be subject to the restrictions under the Investment
Company Act of 1940, as amended.
We cannot guarantee that a Trust will keep its present size and
composition for any length of time. Securities may periodically be sold
under certain circumstances, and the proceeds from these sales 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 Trusts. As the holder of the Securities, the
Trustee will vote all of the Securities and will do so based on our
instructions.
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 a 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 a Trust acquires will be identical to those
from the failed contract.
Page 28
Portfolios
Objectives.
The objective of each Trust is to provide investors with the potential
for above-average capital appreciation through an investment in a
diversified portfolio of common stocks of companies in the sector or
investment focus for which each Trust is named. A diversified portfolio
helps to offset the risks normally associated with such an investment,
although it does not eliminate them entirely. The companies selected for
the Trusts have been researched and evaluated using database screening
techniques, fundamental analysis, and the judgment of the Sponsor's
research analysts. Each Select Portfolio Series has an expected maturity
of approximately 18 months whereas each Portfolio Series has an expected
maturity of approximately five and one-half years.
Communications Portfolio, Series 11 consists of a portfolio of common
stocks of communications companies.
The focus of the communications industry is constantly being reshaped.
It is due in large part to increasing competition, consolidation and
technology. Technology has been playing a particularly crucial role. So
much so that many communications companies are concentrating on more
high-tech and high-growth areas such as wireless communications, the
Internet and digital technology. With Internet usage and wireless
subscribers continuing to increase, we believe the potential opportunity
for growth in these areas is becoming more evident.
Because of increasing competition, communications companies are
realizing that the quality of their offerings may ultimately determine
their level of success. Many companies have already turned to mergers
and acquisitions as a means of attaining new technologies in an effort
to reach more consumers. Others have forged strategic alliances with
companies outside the industry to broaden their exposure.
Regardless of the avenue they choose, the dream of converging services
is becoming reality. Consumers can now get multiple services such as
Internet access, wireless and traditional telephone service, and cable
from one company, on one bill.
While most users currently rely on a dial-up service to access the
Internet, Jupiter Media Metrix predicts that broadband will garner more
of the market share in the near future. They forecast that U.S.
households with broadband service will grow from current levels of
roughly 16% of online households to over 40% by 2006.
Consider the following factors:
- - Due to a faltering worldwide economy, the shipments of wireless
handsets declined in 2001 but are anticipated to rebound by about 13% to
some 430 million units in 2002. [Standard & Poor's Industry Surveys]
- - The number of worldwide mobile subscribers is forecasted to grow to
1.6 billion by year-end 2005, up from 900 million in 2001 and about 700
million in 2000. [Standard & Poor's Industry Surveys]
- - An underlying growth driver for the communications equipment industry
is the continued demand for bandwidth. According to the U.S. Government,
Internet use in the U.S. is growing at a rate of 2 million new Internet
users each month.
- - Total digital subscriber line customers in the United States exceeded
3.8 million in the third quarter of 2001. During the first quarter of
2001, the DSL subscriber base in the United States totaled 2.9 million
subscribers, up 20% from fourth-quarter 2000. [Standard & Poor's
Industry Surveys]
- - According to International Data Corp. (IDC), only 13% of Internet
users connected to the Internet via mobile phones in 2000; IDC forecasts
that by 2005 that number has the potential to increase to approximately
60%.
Based on the composition of the portfolio on the Initial Date of
Deposit, the Communications Portfolio is considered a _________ Trust.
Energy Portfolio, Series 12 consists of a portfolio of common stocks of
companies engaged in the energy industry.
The United States consumes approximately 25% of the world's supply of
oil; however, we anticipate that emerging countries, along with Asia,
may experience the highest rate of growth in demand in the not too
distant future. According to Standard & Poor's, emerging countries are
expected to account for more than 50% of world demand by the year 2015.
In the 1990s, the companies in the oil and gas industries began
consolidating and cutting costs to position themselves to benefit from
upward cycles. The technologies that are presently being employed in the
field of oil and gas exploration are helping reduce the cost of
extracting oil and natural gas by saving detection time and allowing
companies to capture a higher percentage of tapped reserves.
3-D Seismic Imaging. This is a relatively new technology that utilizes
the vibration from sound waves to construct a three-dimensional,
computer generated picture of a geological formation. This process has
the potential to greatly improve the odds of locating oil and gas.
Page 29
Horizontal Drilling. New instrumentation can now be attached to a drill
bit to generate real time geological information, without impeding the
drilling process. It is estimated that horizontal drilling has the
potential to out-produce a vertical well by as much as sevenfold.
[Standard & Poor's Industry Surveys] This technique has been especially
cost-effective in offshore drilling.
By the year 2020, the Energy Information Administration projects that
the world will consume approximately three times as much energy as it
did in 1970.
Consider the following factors:
- - The total number of oil refineries in the United States peaked at 324
in 1981. In 2001, less than half were still in operation due to
consolidation and greater efficiencies. Refineries are currently running
at about 93.6% capacity. [Standard & Poor's Industry Surveys]
- - With more consolidation expected in the next several years, we are
likely to see a single energy industry that comprises fewer, larger,
more diversified companies competing to sell gas, electricity, and
nonregulated energy products and services. We believe this will
encourage gas marketers to provide more innovative services to their
customers along with lower prices. [Standard & Poor's Industry Surveys]
- - The global demand for natural gas is anticipated to grow faster than
any other fossil fuel over the next 20 years, with the potential to
reach an approximate 24% share of the world's primary energy consumption
by 2020. [Standard & Poor's Industry Surveys]
- - The oil industry has responded well to the call for technological
advances. Numerous advances have allowed many projects to be undertaken
that previously would not have been economically feasible. This lowers
the costs of operation and in turn may provide increased returns on
investors' capital. [Standard & Poor's Industry Surveys]
Based on the composition of the portfolio on the Initial Date of
Deposit, the Energy Portfolio is considered a ________ Trust.
Financial Services Select Portfolio, Series 13 and Financial Services
Portfolio, Series 13 each consist of a portfolio of common stocks of
companies that provide a wide variety of financial services.
The financial industry has undergone several significant changes during
its storied history. Perhaps none have been more noteworthy than the
overturn of the Glass-Steagall Act. Firms can now create "financial
supermarkets" that offer services including traditional banking,
insurance underwriting, securities underwriting, investment brokerage
and merchant banking.
Consolidation. We believe that there are a few major trends that should
continue pushing the financial industry. The first, and the one that has
had a notable impact in recent years, is industry consolidation. Due to
this consolidation, U.S. banks have achieved remarkable growth in assets
since 1989. In that year, the 12,709 reporting FDIC-insured commercial
banks had aggregate assets of $3.3 trillion; as of March 31, 2002, the
number of reporting banks had fallen to 8,005 while total assets
increased to $6.5 trillion, a 97% gain in assets. [Standard & Poor's
Industry Surveys & FDIC Historical Statistics on Banking] Although a
large number of mergers are not expected in the near term, Standard &
Poor's expects a pickup in mergers between banks and non-banks,
reflecting bank managers' awareness of the slow growth in mature lending
businesses and the need to look externally for revenue growth
opportunities.
Aging Population. Nearly three out of ten people in the United States
are baby boomers. Scores of them have already started, or soon will
start, planning for their retirement just as they are entering their
peak earning years.
Technology. Another driving factor behind the industry is technological
innovation. Improved technology has enabled financial services companies
to increase their volume and reduce transaction costs in order to
attract consumers.
Based on the composition of the portfolios on the Initial Date of
Deposit, the Financial Services Portfolios are considered ________ Trusts.
The Key 3 Select Portfolio, Series 3 and The Key 3 Portfolio, Series 3
each consist of a portfolio of common stocks of companies in the
financial services, healthcare and technology industries.
The Key 3 Portfolio invests in three sectors that have become important
parts of the prosperity and growth that we have seen in the United
States over the last several years-financial services, healthcare and
technology. We believe that each of the three industries will remain at
the forefront as the principal drivers behind the economy in the future.
Many significant trends have had positive influences on these industries
including:
- - Industry Consolidation
- - The Baby Boom Generation
- - An Aging Population
- - Technological Innovation
We believe that the complete impact of these trends has yet to fully
take shape within each industry. In eight of the last ten years, either
financial services, healthcare or technology have been the best
performing S&P 500 sector. In each of those instances, the sector
Page 30
outperformed the S&P 500 Index. Healthcare outperformed the S&P 500
Index in 1995 by a margin of 20%. Financial services did the same in
1992 and 1997 by 16% and 15%, respectively, as did technology in 1993,
1994, 1996, 1998 and 1999 by 12%, 15%, 18%, 45% and 54%, respectively.
The S&P 500 Index and the S&P 500 Sectors are unmanaged, statistical
composites created by Standard & Poor's that cannot be purchased
directly by investors. The historical performance of the indexes above
is not intended to imply or guarantee the future performance of The Key
3 Portfolios. [Standard & Poor's]
Financial Services. The financial services industry has seen several
significant changes during its storied history. Perhaps none have been
more noteworthy than the modernization of the industry through the
overturn of the Glass-Steagall Act.
- - The Baby Boom Generation: Nearly three out of ten people in the United
States are baby boomers. Scores of them have already started, or soon
will start, planning for their retirement just as they are entering
their peak earning years.
- - Deregulation & Consolidation: With the Glass-Steagall Act no longer a
barrier, companies throughout the industry are now better able to create
"financial supermarkets" that offer services including traditional
banking, insurance underwriting, securities underwriting, investment
brokerage and merchant banking. The number of FDIC Insured Commercial
Banks and Savings Institutions has declined from almost 14,000 in 1992
to approximately 9,700 in 2001. [FDIC Historical Statistics on Banking]
Healthcare. The healthcare industry has been responsible for several
discoveries that have led to new treatments that have resulted in
individuals leading longer, healthier lives. More recent research
relating to areas such as genomics is providing avenues of growth never
before imagined. Previously untreatable diseases are now often
manageable or even curable. Additionally, the average life expectancy at
birth in 1965 was approximately 70 years, whereas in 2000 it was
approximately 77 years. [U.S. National Center for Health Statistics 2000
and the U.S. Census Bureau]
- - The Graying of America: U.S. citizens who are 65 and older represent
around 16% of the nation's total population, but account for roughly 40%
of healthcare costs. [Standard & Poor's Industry Surveys]
- - The Human Genome Project: By mapping the genes in the human body as a
result of the Human Genome Project, new doors have been opened to
breakthrough research. It is now estimated that the number of targets
for new drug interventions has grown from 500 to over 3000. [Standard &
Poor's Industry Surveys]
Technology. If you are looking to invest in cutting-edge technology, you
may not need to look any further than the Internet. Though still
considered to be in its infancy, the Internet has already had an impact
on business, consumers and nearly every aspect of today's society. In
addition, new technology acceptance time is declining. While it took the
telephone 35 years, the television 26 years, the cell phone 16 years and
the personal computer 13 years to reach one-quarter of U.S. households,
it took only seven years for the Internet to do the same. [Red Herring]
- - Convergence: Integration of the telephone, televison and PC into a
seamless information delivery system is a testament to the power of
today's technology companies. With only about 16% of U.S. homes
currently accessing the Internet via broadband connectivity, it seems
that we have only just begun. [Cyberatlas]
- - The Internet Explosion: Internet use in the United States is growing
at a rate of 2 million new Internet users each month, according to a
study by the U.S. Government. [Cyberatlas]
Based on the composition of the portfolios on the Initial Date of
Deposit, The Key 3 Portfolios are considered ________ Trusts.
Leading Brands Portfolio, Series 12 consists of a portfolio of common
stocks of companies in the consumer products industry.
Almost every American is familiar with brand name companies. Many have
become household names and their products can be found in almost every
home across the country. This is also increasingly becoming the case
overseas as more markets open in developing countries.
Typically, leading brands companies have large advertising budgets and
strong research and development enabling them to further expand into new
markets. Today's consumer environment is becoming increasingly
competitive, placing a stronger emphasis on establishing a powerful
global brand. In any given year, thousands of new products in categories
from toothpaste to bleach inundate the marketplace. By marketing
aggressively both domestically and internationally, these blue-chip
companies are able to establish a widely recognized brand name in an
effort to attain market dominance.
Considering that the United States and Canada together make up
approximately 5% of the world's population and some 80% of the world's
Page 31
population is in developing countries, it is evident that there are
abundant opportunities for consumer products overseas. [Standard &
Poor's Industry Surveys] Realizing this, leading companies have been
expanding into many untapped foreign markets where the growth rates in
per capita income and spending are generally forecasted to outpace those
of developed countries over the next decade.
If history is any guide, we believe that the lower interest rate
environment that we are currently in today could serve to boost consumer
confidence and increase demand for consumer goods. However, consumer
goods companies must also focus their efforts on overseas involvement.
In the near term, we believe Latin America is appealing for consumer
goods companies. They have a young population distribution and the
number of people reaching working age is expected to rise. Once more
people enter the work force, we expect the demand for consumer products
to increase. [Standard & Poor's Industry Surveys]
In our opinion, Asian markets also remain appealing in the long term,
principally because they comprise more than 60% of the world's
population. The largest and most promising markets are in China, whose
1.3 billion people represent nearly 21% of the world's population, and
India with over one billion residents. [Standard & Poor's Industry
Surveys]
The companies in the Leading Brands Portfolio have been chosen for their
perceived financial strength and market dominance, competitive
advantages, skilled management and essential products and services.
Based on the composition of the portfolio on the Initial Date of
Deposit, the Leading Brands Portfolio is considered a ________ Trust.
Life Sciences Portfolio, Series 5 consists of a portfolio of common
stocks of companies in the healthcare industry.
The healthcare industry has been responsible for several discoveries
that have led to new drugs and products designed to better serve the
masses, especially the aging population. These discoveries have improved
the quality of life, and also the life expectancy of millions. More
recent research relating to areas such as genomics, is providing avenues
of growth never before imagined. Debilitating diseases, previously
untreatable, are now often manageable or even curable.
Medical Products & Supplies. According to the American Hospital
Association, over half of all surgeries performed in U.S. community
hospitals are done on an outpatient basis. Technological advances made
to medical devices have helped fuel this trend. New devices have been
developed that are less invasive, often eliminating the need for
extensive inpatient hospital stays. We believe that further advances may
also serve to keep costs down and create demand for medical products,
devices and supplies.
Pharmaceuticals. In the past year alone, pharmaceutical companies have
brought more than 30 new treatments to the nation's medicine chest.
[Pharmaceutical Research and Manufacturers of America] Managed care
providers encourage the use of pharmaceuticals because they are a
relatively inexpensive form of treatment and are less invasive.
Biotechnology. We believe the essence of biotechnology lies in research
and development. Since the first biotech breakthrough in 1982, involving
genetically engineered human insulin, nearly 100 products have come to
market. [Biotechnology Industry Organization] Recent advances in
computer science technology have the potential to expedite the process
of moving medicines through the pipeline.
According to the Health Care Financing Administration, national health
spending will increase from approximately $250 billion in 1980s to over
an estimated $1.5 trillion in 2002.
Consider the following factors:
- - U.S. citizens who are 65 and older represent around 16% of the
nation's total population, but account for approximately 40% of total
healthcare costs. [Standard & Poor's Industry Surveys] In light of the
aging baby boomer population, which makes up approximately 23% of the
total population, we believe demand for healthcare products has the
potential to remain strong in coming years.
- - An estimated 50,000 scientists employed by U.S. pharmaceutical
companies are currently researching thousands of new compounds to treat
cancer, heart disease, Alzheimer's disease, mental illness and other
diseases. [Standard & Poor's Industry Surveys]
- - The United States is the recognized global leader in medical devices,
especially in the market's advanced, high-tech sector. U.S. products
account for close to half of the world's medical equipment market.
[Standard & Poor's Industry Surveys]
- - A faster FDA approval process coupled with an increase in the length
of patent protection, from 17 to 20 years, are two positive changes
instituted to help pharmaceutical and biotechnology companies grow their
businesses. [Standard & Poor's Industry Surveys]
Based on the composition of the portfolio on the Initial Date of
Page 32
Deposit, the Life Sciences Portfolio is considered a __________ Trust.
Market Leaders Portfolio, Series 6 consists of a portfolio of common
stocks of well-known blue-chip companies that are widely regarded as
front-runners in their respective industries.
One important advantage that blue-chip companies enjoy over most
companies is that they are usually very well capitalized, which has the
potential to provide their stockholders with a greater degree of
stability and consistent performance over time.
The companies in the portfolio market essential products and services,
have skilled management, possess strong balance sheets, and have
demonstrated the ability to generate earnings growth. Their products and
services often remain in demand, even during periods of slow economic
growth.
The following factors support our positive outlook for market leading
companies:
- - If history is any guide, we believe that the lower interest rate
environment that we are currently in today could serve to boost consumer
confidence and increase demand for consumer products and services.
- - Considering that some 80% of the world's population is in developing
countries, we believe that there are abundant opportunities for market
leading companies overseas. [Standard & Poor's Industry Surveys]
Based on the composition of the portfolio on the Initial Date of
Deposit, the Market Leaders portfolio is considered a _________ Trust.
Pharmaceutical Select Portfolio, Series 14 and Pharmaceutical Portfolio,
Series 14 each consist of a portfolio of common stocks of companies
engaged in the pharmaceutical industry.
Driven by strong demand for new and innovative therapies, the value of
the U.S. pharmaceutical market is expected to reach $330 billion by 2006
based upon data provided by IMS Health, a Connecticut-based market
research firm specializing in pharmaceuticals.
Research & Development. The industry is highly competitive and extremely
capital intensive. Drugmakers spend billions of dollars on researching
and developing new products. In fact, according to data from the
Pharmaceutical Research and Manufacturers of America ("PhRMA"), the
amount of capital invested in R&D has nearly doubled every five years
since 1970. In 2001, PhRMA reports that an estimated $30.3 billion was
invested in R&D, representing a 16.6% increase over R&D expenditures in
2000 and more than triple the dollar investment in 1990.
The Food & Drug Administration. In 1997, the Food and Drug
Administration ("FDA") relaxed its restrictions on pharmaceutical
companies advertising drugs directly to the public. A study by
Prevention Magazine found that 76% of adults think that direct-to-
consumer advertising helps them be more involved in their own healthcare
decisions and that 72% think direct-to-consumer advertising educates
people about the risks and benefits of prescription medicines.
Demand Driven By Need. In our opinion, the demand for prescription and
over-the-counter drugs is driven more by need than price. The World
Health Organization reports that, globally, the over-60 crowd is
forecast to rise from about 606 million people to close to two billion
by 2050. In the United States, the over-65 segment is expected to expand
by about 53% from mid-2001 through 2020, versus a 17% increase in all
Americans over the same period. We believe that as average life
expectancies increase, the number of people at risk for disease will
increase, and as a result, the demand for prescription and over-the-
counter drugs will increase as well.
Consider the following factors:
- - In the United States alone, an estimated 50,000 pharmaceutical company
scientists are currently researching more than 1,000 new medicines for
cancer, heart disease, AIDS, Alzheimer's and many other diseases.
[Pharmaceutical Research and Manufacturers of America]
- - In 1997, 23 blockbuster drugs accounted for roughly 28% of total U.S.
prescription drug sales. Today, 69 drugs are considered blockbusters and
their sales constitute more than 50% of the $161 billion U.S.
pharmaceutical market. The top five U.S. pharmaceutical companies
forecast that by 2003 there could be up to 16 new drugs on the market
with blockbuster potential. [Pharmaceutical Research and Manufacturers
of America]
- - The increased cost of replacing an older drug with a newer drug is $18
on average, but the corresponding savings in hospitalization and total
non-drug medical costs are $56 and $71 respectively. [Pharmaceutical
Research and Manufacturers of America]
Based on the composition of the portfolios on the Initial Date of
Deposit, the Pharmaceutical Portfolios are considered ________ Trusts.
Page 33
REIT Growth & Income Portfolio, Series 6 consists of a portfolio of
common stocks of real estate investment trusts ("REITs").
A REIT is a company that buys, develops, and/or manages income-producing
real estate such as apartments, shopping centers, offices and
warehouses. In short, a REIT is a corporation that pools the capital of
many investors to purchase one or more forms of real estate.
The Trust invests in a number of these REITs, offering diversification
among different types of properties as well as regional diversification.
This type of diversification may help to reduce some of the fluctuations
in the real estate market as a result of economic downturns or changes
in supply and demand in a specific region or type of property.
REITs are currently required to distribute a majority of their income
annually as dividends to shareholders. Historically, this has made REITs
a great source of steady income for investors who do not wish to manage
the properties themselves.
Compared to traditional privately held real estate, which may be
difficult to sell, REITs are traded on major stock exchanges making them
highly liquid. REIT investors also gain the advantage of skilled
management since REIT management teams tend to be experts within their
specific type of property or geographic niches.
REITs allow investors to participate in the growth of the real estate
industry. The market capitalization of REITs has grown from roughly
$15.9 billion in 1992 to approximately $154.9 billion by the end of
2001. [National Association of Real Estate Investment Trusts]
Consider the following factors:
- - The REIT Modernization Act, passed in 2001, allows REITs to own
taxable REIT subsidiaries. This enables REITs to grow non-rental income
through various initiatives such as offering their tenants telephone or
energy services.
- - The REIT Modernization Act reduced the income distribution requirement
from 95% to 90%, allowing REIT management teams more flexibility with
available cash, including the ability to initiate stock repurchase
programs.
- - Because the correlation of REIT returns with the returns of other
equity market sectors is generally relatively low, REITs may provide an
added diversification benefit to your overall portfolio.
- - According to AMG Data, 50% to 75% of a REIT's total return has
historically come from its dividends.
Based on the composition of the portfolio on the Initial Date of
Deposit, the REIT Growth & Income Portfolio is considered a ________
Trust.
Technology Select Portfolio, Series 17 and Technology Portfolio, Series
17 each consist of a portfolio of common stocks of technology companies
involved in the manufacturing, sales or servicing of computers and
peripherals, computer software and services, networking products,
communications equipment, semiconductor equipment and semiconductors.
If you are looking to invest in cutting-edge technology, you may not
need to look any further than the Internet. It is now estimated that
over 500 million people have access to the Web worldwide and that number
is expected to reach one billion by 2005. [Standard & Poor's Industry
Surveys] The technology that makes it all possible is developed by
computer, software, networking and communications companies.
Business Networking. As e-commerce evolves, we believe that the need for
businesses to network with suppliers and customers should create strong
demand for those companies that provide equipment and data networking
services.
Home Networking. The growth of Internet use, the build-out of a
substantial network infrastructure and the creation of digital services
have set the stage for a new era of "digital home" services. Soon, homes
will be wired for technological innovation, with hardware and software
that enables household devices to share voice, video and data. According
to market research firm Cahners In-Stat Group, the sales of just two
components of the U.S. high-tech house-smart home controllers and nodes-
are projected to reach $1.7 billion by 2005, up from a mere $180 million
in 2000.
Software Solutions. E-commerce and business-to-business commerce are
creating demand and opportunity for software products in many areas
including supply-chain management (SCM) and database software. These
software systems can navigate massive amounts of data to help streamline
manufacturing and distribution, monitor inventories, and perform
transaction management.
Convergence. Huge amounts of capital continue to be wagered on the
integration of the telephone, television and PC. The idea that three of
the most powerful devices of the last century can be merged into a
seamless information delivery system is a testament to the power of
today's technology companies. With only about 16% of U.S. homes
currently accessing the Internet via broadband connectivity, it seems
that we have only just begun. [Cyberatlas]
Page 34
Consider the following factors:
- - The market for "connected home" equipment-home networking equipment
and software, residential gateways and home control and automation
products-is predicted to grow from approximately $1.4 billion in 2001 to
roughly $9.2 billion worldwide by 2006, according to a report by Cahners
In-Stat Group.
- - Industry forecasts suggest that by 2005 more than $32 billion in
revenue in North America alone may be generated by interactive-TV
services, PC gaming and other consumer applications. [Cyberatlas]
- - According to a report by Jupiter Media Metrix, 41% of online
households in the United States will subscribe to a broadband Internet
connection service by 2006, up from approximately 16% in 2001. Jupiter
analysts forecast that the number of households accessing the Internet
via broadband connectivity (cable modem, DSL, satellite or fixed
wireless) will increase to over 35 million in 2006, with cable modems
leading the way. [Cyberatlas]
Based on the composition of the portfolios on the Initial Date of
Deposit, the Technology Portfolios are considered ________ Trusts.
The style and capitalization characteristics used to describe each Trust
are designed to help you better understand how a Trust fits into your
overall investment plan. These characteristics are determined by the
Sponsor as of the Initial Date of Deposit and, due to changes in the
value of the Securities, may vary thereafter. In addition, from time to
time, analysts and research professionals may apply different criteria
to determine a Security's style and capitalization characteristics,
which may result in designations which differ from those arrived at by
the Sponsor. In general, growth portfolios include stocks with high
relative price-to-book ratios while value portfolios include stocks with
low relative price-to-book ratios. At least 65% of the stocks in a Trust
on the Initial Date of Deposit must fall into either the growth or value
category to receive the designation. Trusts that do not meet this
criteria are designated as blend Trusts. Both the weighted average
market capitalization of a Trust and at least half of the Securities in
the Trust must fall into the following ranges to determine its market
capitalization designation: Small-Cap-less than $1.5 billion; Mid-Cap-
$1.5 billion to $8 billion; Large-Cap-over $8 billion. A Trust, however,
may contain individual stocks that do not fall into its stated style or
market capitalization designation.
You should be aware that predictions stated herein for the above
industries or sectors may not be realized. In addition, the Securities
contained in each Trust are not intended to be representative of the
selected industry or sector as a whole and the performance of each Trust
is expected to differ from that of its comparative industry or sector.
Of course, as with any similar investments, there can be no guarantee
that the objective of the Trusts will be achieved. See "Risk Factors"
for a discussion of the risks of investing in the Trusts.
Risk Factors
Price Volatility. The Trusts invest in common stocks. The value of a
Trust's Units will fluctuate with changes in the value of these common
stocks. 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, or when
political or economic events affecting the issuers occur. In addition,
common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase.
Because the Trusts are not managed, the Trustee will not sell stocks 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 any Trust will be positive over any period of time,
especially the relatively short 18-month life of each Select Portfolio
Series, or that you won't lose money. Units of the Trusts are not
deposits of any bank and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Dividends. There is no guarantee that the issuers of the Securities will
declare dividends in the future or that if declared they will either
remain at current levels or increase over time.
Biotechnology/Pharmaceutical Industries. Because more than 25% of the
Life Sciences and Pharmaceutical Portfolios are invested in
biotechnology and pharmaceutical companies, these Trusts are considered
to be concentrated in the biotechnology and pharmaceutical industries. A
portfolio concentrated in a single industry may present more risks than
a portfolio which is broadly diversified over several industries.
Biotechnology and pharmaceutical companies are subject to changing
government regulation, including price controls, national health
insurance, managed care regulation and tax incentives or penalties
related to medical insurance premiums, which could have a negative
effect on the price and availability of their products and services. In
addition, such companies face increasing competition from generic drug
Page 35
sales, the termination of their patent protection for certain drugs and
technological advances which render their products or services obsolete.
The research and development costs required to bring a drug to market
are substantial and may include a lengthy review by the government, with
no guarantee that the product will ever go to market or show a profit.
In addition, the potential for an increased amount of required
disclosure of proprietary scientific information could negatively impact
the competitive position of these companies. Many of these companies may
not offer certain drugs or products for several years, and as a result,
may have significant losses of revenue and earnings.
Communications Industry. The Communications Portfolio is considered to
be concentrated in the communications industry. The market for high
technology communications products and services is characterized by
rapidly changing technology, rapid product obsolescence or loss of
patent protection, cyclical market patterns, evolving industry standards
and frequent new product introductions. Certain communications/bandwidth
companies are subject to substantial governmental regulation, which
among other things, regulates permitted rates of return and the kinds of
services that a company may offer. The communications industry has
experienced substantial deregulation in recent years. Deregulation may
lead to fierce competition for market share and can have a negative
impact on certain companies. Competitive pressures are intense and
communications stocks can experience rapid volatility.
Consumer Products Industry. The Leading Brands Portfolio is considered
to be concentrated in the consumer products industry. General risks of
these companies include cyclicality of revenues and earnings, economic
recession, currency fluctuations, changing consumer tastes, extensive
competition, product liability litigation and increased governmental
regulation. Generally, spending on consumer products is affected by the
economic health of consumers. A weak economy and its effect on consumer
spending would adversely affect consumer products companies.
Energy Industry. The Energy Portfolio is considered to be concentrated
in companies that explore for, produce, refine, distribute or sell
petroleum or gas products, or provide parts or services to petroleum or
gas companies. General problems of the petroleum and gas products
industry include volatile fluctuations in price and supply of energy
fuels, international politics, reduced demand as a result of increases
in energy efficiency and energy conservation, the success of exploration
projects, clean-up and litigation costs relating to oil spills and
environmental damage, and tax and other regulatory policies of various
governments. Oil production and refining companies are subject to
extensive federal, state and local environmental laws and regulations
regarding air emissions and the disposal of hazardous materials. In
addition, declines in U.S. and Russian crude oil production will likely
lead to a greater world dependence on oil from OPEC nations which may
result in more volatile oil prices.
Financial Services Industry. The Financial Services Portfolios and The
Key 3 Portfolios are considered to be concentrated in the financial
services industry, which includes banks and thrifts, financial services
and insurance companies, and investment firms. Banks, thrifts and their
holding companies are especially subject to the adverse effects of
economic recession; volatile interest rates; portfolio concentrations in
geographic markets and in commercial and residential real estate loans;
and competition from new entrants in their fields of business. Although
recently-enacted legislation repealed most of the barriers which
separated the banking, insurance and securities industries, these
industries are still extensively regulated at both the federal and state
level and may be adversely affected by increased regulations.
Banks and thrifts face increased competition from nontraditional lending
sources as regulatory changes, such as the recently enacted financial-
services overhaul legislation, permit new entrants to offer various
financial products. Technological advances such as the Internet allow
these nontraditional lending sources to cut overhead and permit the more
efficient use of customer data.
Brokerage firms, broker/dealers, investment banks, finance companies and
mutual fund companies are also financial services providers. These
companies compete with banks and thrifts to provide traditional
financial service products, in addition to their traditional services,
such as brokerage and investment advice. In addition, all financial
service companies face shrinking profit margins due to new competitors,
the cost of new technology and the pressure to compete globally.
Companies involved in the insurance industry are engaged in
underwriting, selling, distributing or placing of property and casualty,
life or health insurance. Insurance company profits are affected by many
factors, including interest rate movements, the imposition of premium
rate caps, competition and pressure to compete globally. Property and
casualty insurance profits may also be affected by weather catastrophes
and other disasters. Life and health insurance profits may be affected
by mortality rates. Already extensively regulated, insurance companies'
profits may also be adversely affected by increased government
regulations or tax law changes.
Page 36
Healthcare Industry. The Key 3 Portfolios are also considered to be
concentrated in healthcare stocks. General risks of such companies
involve extensive competition, generic drug sales or the loss of patent
protection, product liability litigation and increased government
regulation. Research and development costs of bringing new drugs to
market are substantial, and there is no guarantee that the product will
ever come to market. Healthcare facility operators may be affected by
the demand for services, efforts by government or insurers to limit
rates, restriction of government financial assistance and competition
from other providers.
REITs. The REIT Growth & Income Portfolio is concentrated 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 and office buildings. The value of the
REITs and the ability of the REITs to distribute income may be adversely
affected by several factors, including rising interest rates, changes in
the national, state and local economic climate and real estate
conditions, perceptions of prospective tenants 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 the
REITs.
Technology Industry. The Key 3 Portfolios and the Technology Portfolios
are considered to be concentrated in the technology industry. Technology
companies are generally subject to the risks of rapidly changing
technologies; short product life cycles; fierce competition; aggressive
pricing and reduced profit margins; the loss of patent, copyright and
trademark protections; cyclical market patterns; evolving industry
standards and frequent new product introductions. Technology companies
may be smaller and less experienced companies, with limited product
lines, markets or financial resources and fewer experienced management
or marketing personnel. Technology company stocks, especially those
which are Internet-related, have experienced extreme price and volume
fluctuations that are often unrelated to their operating performance.
Also, the stocks of many Internet companies have exceptionally high
price-to-earnings ratios with little or no earnings histories.
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 companies represented in the Trusts.
In addition, litigation regarding any of the issuers of the Securities,
or of the industries represented by such issuers, may negatively impact
the share prices of these Securities. We cannot predict what impact any
pending or proposed legislation or pending or threatened litigation will
have on the share prices of the Securities.
Foreign Stocks. Certain of the Securities in the Trusts are issued by
foreign companies, which makes the Trusts subject to more risks than if
they invested solely in domestic common stocks. These Securities are
either directly listed on a U.S. securities exchange or are in the form
of American Depositary Receipts ("ADRs") which are listed on a U.S.
securities exchange. Risks of foreign common stocks 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; and lack of liquidity of certain foreign markets.
Public Offering
The Public Offering Price.
You may buy Units at the Public Offering Price, the per Unit price 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 three 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 the date of settlement, we may use your payment during this time
Page 37
and it may be considered a benefit to us, subject to the limitations of
the Securities Exchange Act of 1934.
Organization Costs. Securities purchased with the portion of the Public
Offering Price intended to be used to reimburse the Sponsor for a
Trust's organization costs (including costs of preparing the
registration statement, the Indenture and other closing documents,
registering Units with the Securities and Exchange Commission ("SEC")
and states, the initial audit of each Trust portfolio, 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 a
Trust. Securities will be sold to reimburse the Sponsor for a 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 Trusts). 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
a Trust to fully reimburse the Sponsor. In that event, the net asset
value per Unit of a 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 a Trust in "Notes to Statements 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 be deducted from the assets of a 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 a Trust as
existed prior to such sale.
Minimum Purchase.
The minimum amount you can purchase of a Trust is $1,000 worth of Units
($500 if you are purchasing Units for your Individual Retirement Account
or any other qualified retirement plan).
Transactional Sales Charge.
The transactional sales charge you will pay has both an initial and a
deferred component. The initial sales charge, which you will pay at the
time of purchase, is equal to the difference between the maximum sales
charge (3.35% of the Public Offering Price for each Select Portfolio
Series and 4.85% of the Public Offering Price for each Portfolio Series)
and the sum of the maximum remaining deferred sales charge and the
creation and development fee (initially equal to $.235 per Unit for each
Select Portfolio Series and $.385 per Unit for each Portfolio Series).
This initial sales charge is initially equal to approximately 1.00% of
the Public Offering Price of a Unit, but will vary from 1.00% depending
on the purchase price of your Units and as deferred sales charge and the
creation and development fee payments are made. When the Public Offering
Price exceeds $10.00 per Unit, the initial sales charge will exceed
1.00% of the Public Offering Price. After the initial offering period,
the initial sales charge will be reduced by the amount of the creation
and development fee.
Monthly Deferred Sales Charge. In addition, three monthly deferred sales
charge payments of approximately $.0617 per Unit for each Select Portfolio
Series or $.1117 per Unit for each Portfolio Series will be deducted
from a Trust's assets on approximately the 20th day of each month from
January 17, 2003 through March 20, 2003. 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 1.85% of the Public Offering Price for each
Select Portfolio Series or more than 3.35% of the Public Offering Price
for each Portfolio Series.
If you purchase Units after the last deferred sales charge payment has
been assessed, your sales charge will consist of a one-time initial
sales charge of 2.85% of the Public Offering Price per Unit (equivalent
to 2.934% of the net amount invested) for each Select Portfolio Series and
4.35% of the Public Offering Price per Unit (equivalent to 4.548% of the
net amount invested) for each Portfolio Series. For each Portfolio
Series, the sales charge will be reduced by 1/2 of 1% on each subsequent
July 31, commencing July 31, 2003, to a minimum sales charge of 3.00%.
Discounts for Certain Persons.
If you invest at least $50,000 (except if you are purchasing for "Fee
Accounts" as described below), the maximum sales charge is reduced as
described below.
For each Select Portfolio Series:
Your maximum
If you invest sales charge
(in thousands):* will be:
_________________ _____________
$50 but less than $100 3.10%
$100 but less than $250 2.85%
$250 but less than $500 2.50%
$500 but less than $1,000 2.35%
$1,000 or more 1.85%
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For each Portfolio Series:
Your maximum
If you invest sales charge
(in thousands):* will be:
_________________ _____________
$50 but less than $100 4.60%
$100 but less than $250 4.35%
$250 but less than $500 3.85%
$500 but less than $1,000 2.85%
$1,000 or more 1.95%
* Breakpoint sales charges are also applied on a Unit basis utilizing a
breakpoint equivalent in the above table of $10 per Unit and will be
applied on whichever basis is more favorable to the investor. The
breakpoints will be adjusted to take into consideration purchase orders
stated in dollars which cannot be completely fulfilled due to the
requirement that only whole Units be issued.
The reduced sales charge for quantity purchases will apply only to
purchases made by the same person on any one day from any one dealer. To
help you reach the above levels, you can combine the Units you purchase
of the Trusts in this prospectus with any other same day purchases of
other trusts for which we are Principal Underwriter and are currently in
the initial offering period. In addition, we will also consider Units
you purchase in the name of your spouse or child under 21 years of age
to be purchases by you. The reduced sales charge will also apply to a
trustee or other fiduciary purchasing Units for a single trust estate or
single fiduciary account. You must inform your dealer of any combined
purchases before the sale in order to be eligible for the reduced sales
charge. Broker/dealers will receive a concession of .70% of the Public
Offering Price on Portfolio Series' Units sold subject to the sales
charge reduction for purchases of $1,000,000 or more. In all other
instances, any reduced sales charge is the responsibility of the party
making the sale.
You may use termination proceeds from other unit investment trusts with
a similar strategy as the Trusts or redemption or termination proceeds
from any unit investment trust we sponsor to purchase Units of the
Trusts during the initial offering period at the Public Offering Price
less 1.00%. However, if you invest redemption or termination proceeds of
$1,000,000 or more in Units of a Select Portfolio Series or $500,000 or
more in Units of a Portfolio Series, the maximum sales charge on your
Units will be limited to the maximum sales charge for the applicable
amount invested in the respective tables set forth above. Please note
that if you purchase Units of a Trust in this manner using redemption
proceeds from trusts which assess the amount of any remaining deferred
sales charge at redemption, you should be aware that any deferred sales
charge remaining on these units will be deducted from those redemption
proceeds.
Investors purchasing Units through registered broker/dealers who charge
periodic fees in lieu of commissions or who charge for financial
planning, investment advisory or asset management services or provide
these or comparable services as part of an investment account where a
comprehensive "wrap fee" or similar charge is imposed ("Fee Accounts")
will not be assessed the transactional sales charge described in this
section on the purchase of Units. Certain Fee Accounts Unit holders may
be assessed transaction or other account fees on the purchase and/or
redemption of such Units by their broker/dealer or other processing
organizations for providing certain transaction or account activities.
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 Trusts.
Employees, officers and directors (and immediate family members) of the
Sponsor, our related companies, dealers and their affiliates, and
vendors providing services to us may purchase Units at the Public
Offering Price less the applicable dealer concession. Immediate family
members include spouses, children, grandchildren, parents, grandparents,
siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law,
brothers-in-law and sisters-in-law, and trustees, custodians or
fiduciaries for the benefit of such persons.
The Sponsor and certain dealers may establish a schedule where
employees, officers and directors of such dealers can purchase Units of
a Trust at the Public Offering Price less the established schedule
amount, which is designed to compensate such dealers for activities
relating to the sale of Units (the "Employee Dealer Concession").
You will be charged the deferred sales charge per Unit regardless of any
discounts. However, 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 Accounts Units, you will be
credited 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 your
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 to be collected on such reinvestment Units. The dollar
value of these additional credited Units (as with all Units) will
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fluctuate over time, and may be less on the dates deferred sales charges
are collected than their value at the time they were issued.
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 Value of the Securities.
The Evaluator will determine the aggregate underlying value of the
Securities in a 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 will exclude Saturdays, Sundays and certain national holidays
on which the NYSE is closed.
The aggregate underlying value of the Securities in a Trust will be
determined as follows: if the Securities are listed on a securities
exchange or The Nasdaq Stock Market, their value is generally based on
the closing sale prices on that exchange or system (unless it is
determined that these prices are not appropriate as a basis for
valuation). However, if there is no closing sale price on that exchange
or system, they are valued based on the closing ask prices. If the
Securities are not so listed, or, if so listed and the principal market
for them is other than on that exchange or system, their value will
generally be based on the current ask prices on the over-the-counter
market (unless it is determined that these prices are not appropriate as
a basis for valuation). If current ask prices are unavailable, the
valuation 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) By any combination of the above.
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 Trusts for sale in a number of states.
All Units will be sold at the then current Public Offering Price.
Dealer Concessions.
For each Select Portfolio Series, dealers and other selling agents can
purchase Units at prices which reflect a concession or agency commission
of 2.50% of the Public Offering Price per Unit. However, for Units
subject to a transactional sales charge which are purchased using
redemption or termination proceeds, this amount will be reduced to 1.50%
of the sales price of these Units (1.00% for purchases of $1,000,000 or
more).
For each Portfolio Series, dealers and other selling agents can purchase
Units at prices which reflect a concession or agency commission of 3.30%
of the Public Offering Price per Unit (or 65% of the maximum sales
charge after July 31, 2003). However, for Units subject to a
transactional sales charge which are purchased using redemption or
termination proceeds, this amount will be reduced to 2.30% of the sales
price of these Units (1.30% for purchases of $500,000 but less than
$1,000,000 and .70% for purchases of $1,000,000 or more). Dealers and
other selling agents will receive an additional volume concession or
agency commission on all Portfolio Series Units they sell equal to .30%
of the Public Offering Price if they purchase at least $100,000 worth of
Units of the Trusts on the Initial Date of Deposit or $250,000 on any
day thereafter or if they were eligible to receive a similar concession
in connection with sales of similarly structured trusts sponsored by us
which are currently in the initial offering period.
Eligible dealer firms and other selling agents who sell Units of a Trust
during the initial offering period in the dollar amounts shown below
will be entitled to the following additional sales concessions as a
percentage of the Public Offering Price:
Total Sales per Trust Additional
(in millions): Concession:
_________________ ___________
$1 but less than $5 .10%
$5 but less than $10 .15%
$10 or more .20%
Dealers and other selling agents can combine Units of a Select Portfolio
Series and its related Portfolio Series they sell for purposes of
reaching the additional concessions levels set forth in the above table.
In addition, 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 entities that are providing marketing support for
Page 40
First Trust unit investment trusts by distributing or permitting the
distribution of marketing materials and other product information.
Eligible dealer firms and other selling agents will not include firms
that solely provide clearing services to other broker/dealer firms. For
all Trusts, dealers and other selling agents who, during any consecutive
12-month period, sell at least $250 million or $500 million worth of
primary market units of unit investment trusts sponsored by us will
receive a concession of $2,500 or $5,000, respectively, in the month
following the achievement of this level. 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 Trusts 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.
Award Programs.
From time to time we may sponsor programs which provide awards to a
dealer's registered representatives who have sold a minimum number of
Units during a specified time period. We may also pay fees to qualifying
dealers for services or activities which are meant to result in sales of
Units of the Trusts. In addition, we will pay to dealers who sponsor
sales contests or recognition programs that conform to our criteria, or
participate in our sales programs, amounts equal to no more than the
total applicable transactional sales charge on Units sold by such
persons during such programs. We make these payments out of our own
assets and not out of Trust assets. These programs will not change the
price you pay for your Units.
Advertising and Investment Comparisons.
Advertising materials regarding a 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 a 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 each 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 Trusts
(which may show performance net of the expenses and charges the Trusts
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 Publications, Inc. or (3) information from publications such
as Money, The New York Times, U.S. News and World Report, BusinessWeek,
Forbes or Fortune. The investment characteristics of each Trust differ
from other comparative investments. You should not assume that these
performance comparisons will be representative of a Trust's future
performance. We may also, from time to time, use advertising which
classifies trusts 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 a 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 a
Trust is considered a profit or loss (see Note 2 of "Notes to Schedules
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 intend to 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, Trustee costs to transfer and record the ownership of
Units and in the case of each Portfolio Series, costs incurred in
annually updating each Portfolio Series' registration statement. We may
discontinue purchases of Units at any time. IF YOU WISH TO DISPOSE OF
Page 41
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
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 each Trust are listed under "Fee
Table." If actual expenses of a Trust exceed the estimate, that Trust
will bear the excess. The Trustee will pay operating expenses of a Trust
from the Income Account of such Trust if funds are available, and then
from the Capital Account. The Income and Capital Accounts are
noninterest-bearing to Unit holders, so the Trustee may earn interest on
these funds, thus benefiting from their use.
First Trust Advisors L.P., an affiliate of ours, will be compensated for
providing bookkeeping and other administrative services to the Trusts
and, as Sponsor, we will receive brokerage fees when a Trust uses us (or
an affiliate of ours) as agent in buying or selling Securities. For each
Portfolio Series, legal, typesetting, electronic filing and regulatory
filing fees and expenses associated with updating that Trust's
registration statement yearly are also chargeable to such Trusts. There
are no such fees and expenses that will be charged to each Select
Portfolio Series. In addition, First Trust Advisors L.P. acts as both
Portfolio Supervisor and Evaluator to the Trusts and will receive the
fees set forth under "Fee Table" for providing portfolio supervisory and
evaluation services to the Trusts. 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
Trusts.
The fees payable to First Trust Advisors L.P. and the Trustee are based
on the largest aggregate number of Units of a 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 fee 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 each Trust for creating and
developing the Trusts, including determining each 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 a 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 a Trust's operating expenses and those fees described
above, each Trust may also incur the following charges:
- - All legal and annual auditing expenses of the Trustee according to its
responsibilities under the Indenture;
- - The expenses and costs incurred by the Trustee to protect a 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 a Trust;
- - Payment for any loss, liability or expenses we incurred without
negligence, bad faith or willful misconduct in acting as Depositor of a
Trust; and/or
- - All taxes and other government charges imposed upon the Securities or
any part of a Trust.
The above expenses and the Trustee's annual fee are secured by a lien on
the Trusts. Since the Securities are all common stocks and dividend
income is unpredictable, we cannot guarantee that dividends will be
sufficient to meet any or all expenses of the Trusts. If there is not
enough cash in the Income or Capital Account, the Trustee has the power
to sell Securities in a Trust to make cash available to pay these
charges which may result in capital gains or losses to you. See "Tax
Status."
Page 42
Each Portfolio Series will be audited annually. So long as we are making
a secondary market for Units, we will bear the cost of these annual
audits to the extent the costs exceed $0.0050 per Unit. Otherwise, each
Portfolio Series will pay for the audit. You can request a copy of the
audited financial statements from the Trustee.
Tax Status
This section summarizes some of the main U.S. federal income tax
consequences of owning Units of the Trusts. This section is current as
of the date of this prospectus. Tax laws and interpretations change
frequently, and these summaries do not describe all of the tax
consequences to all taxpayers. For example, these summaries generally do
not describe your situation if you are a corporation, a non-U.S. person,
a broker/dealer, or other investor with special circumstances. In
addition, this section does not describe your state or foreign taxes. As
with any investment, you should consult your own tax professional about
your particular consequences. In addition, the Internal Revenue Service
issued new withholding and reporting regulations effective January 1,
2001. Foreign investors should consult their own tax advisors regarding
the tax consequences of these regulations.
GRANTOR TRUSTS
The following discussion applies to each Trust except the REIT Growth &
Income Portfolio, Series 6.
Trust Status.
The Trusts will not be taxed as corporations for federal income tax
purposes. As a Unit owner, you will be treated as the owner of a pro
rata portion of the Securities and other assets held by your Trust, and
as such you will be considered to have received a pro rata share of
income (e.g., dividends and capital gains, if any) from each Security
when such income would be considered to be received by you if you
directly owned a Trust's assets. This is true even if you elect to have
your distributions automatically reinvested into additional Units. In
addition, the income from a Trust which you must take into account for
federal income tax purposes is not reduced by amounts used to pay Trust
expenses (including the deferred sales charge, if any).
Your Tax Basis and Income or Loss upon Disposition.
If your Trust disposes of Securities, you will generally recognize gain
or loss. If you dispose of your Units or redeem your Units for cash, you
will also generally recognize gain or loss. To determine the amount of
this gain or loss, you must subtract your tax basis in the related
Securities from your share of the total amount received in the
transaction. You can generally determine your initial tax basis in each
Security or other Trust asset by apportioning the cost of your Units,
generally including sales charges, among each Security or other Trust
asset ratably according to their value on the date you purchase your
Units. In certain circumstances, however, you may have to adjust your
tax basis after you purchase your Units (for example, in the case of
certain dividends that exceed a corporation's accumulated earnings and
profits).
If you are an individual, the maximum marginal federal tax rate for net
capital gain is generally 20% (10% for certain taxpayers in the 10% and
15% brackets). The 20% rate is reduced to 18% and the 10% rate is
reduced to 8% for long-term gains from most property acquired after
December 31, 2000, with a holding period of more than five years.
Because each Select Portfolio Series has a maturity of less than five
years, the reduction in the capital gains rate for property held for
more than five years could only possibly apply to your interest in those
securities if you are eligible for and elect to receive an in-kind
distribution at redemption or termination.
Net capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if
the holding period for the asset is more than one year and is short-term
if the holding period for the asset is one year or less. You must
exclude the date you purchase your Units to determine your holding
period. The tax rates for capital gains realized from assets held for
one year or less are generally the same as for ordinary income. The
Internal Revenue Code, however, treats certain capital gains as ordinary
income in special situations.
In-Kind Distributions.
Under certain circumstances, as described in this prospectus, you may
request a distribution of Securities (an "In-Kind Distribution") when
you redeem your Units or at a Trust's termination. By electing to
receive an In-Kind Distribution, you will receive whole shares of stock
plus, possibly, cash.
You will not recognize gain or loss if you only receive Securities in
exchange for your pro rata portion of the Securities held by a Trust.
However, if you also receive cash in exchange for a Trust asset or
fractional share of a Security held by a Trust, you will generally
recognize gain or loss based on the difference between the amount of
cash you receive and your tax basis in such Trust asset or fractional
share.
Page 43
Limitations on the Deductibility of Trust Expenses.
Generally, for federal income tax purposes, you must take into account
your full pro rata share of a Trust's income, even if some of that
income is used to pay Trust expenses. You may deduct your pro rata share
of each expense paid by a Trust to the same extent as if you directly
paid the expense. You may, however, be required to treat some or all of
the expenses of the Trusts as miscellaneous itemized deductions.
Individuals may only deduct certain miscellaneous itemized deductions to
the extent they exceed 2% of adjusted gross income.
Foreign, State and Local Taxes.
Some distributions by a Trust may be subject to foreign withholding
taxes. Any dividends withheld will nevertheless be treated as income to
you. However, because you are deemed to have paid directly your share of
foreign taxes that have been paid or accrued by a Trust, you may be
entitled to a foreign tax credit or deduction for U.S. tax purposes with
respect to such taxes.
Under the existing income tax laws of the State and City of New York,
the Trusts will not be taxed as corporations, and the income of the
Trusts will be treated as the income of the Unit holders in the same
manner as for federal income tax purposes.
REGULATED INVESTMENT COMPANY.
The following discussion applies only to the REIT Growth & Income
Portfolio, Series 6.
Trust Status.
The Trust intends to qualify as a "regulated investment company" under
the federal tax laws. If the Trust qualifies as a regulated investment
company and distributes its income as required by the tax law, the Trust
generally will not pay federal income taxes on income.
Distributions.
Trust distributions are generally taxable. At the end of each year, you
will receive a tax statement that separates your Trust's distributions
into two categories, ordinary income distributions and capital gains
dividends. Ordinary income distributions are generally taxed at your
ordinary tax rate. Generally, you will treat all capital gains dividends
as long-term capital gains regardless of how long you have owned your
Units. To determine your actual tax liability for your capital gains
dividends, you must calculate your total net capital gain or loss for
the tax year after considering all of your other taxable transactions,
as described below. In addition, the Trust may make distributions that
represent a return of capital for tax purposes and thus will generally
not be taxable to you. The tax status of your distributions from your
Trust is not affected by whether you reinvest your distributions in
additional Units or receive them in cash. The income from the Trust that
you must take into account for federal income tax purposes is not
reduced by amounts used to pay a deferred sales fee, if any. 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.
Dividends Received Deduction.
A corporation that owns Units generally will not be entitled to the
dividends received deduction with respect to many dividends received
from the Trust, because the dividends received deduction is generally
not available for distributions from regulated investment companies.
If You Sell or Redeem Units.
If you sell or redeem your Units, you will generally recognize a taxable
gain or loss. To determine the amount of this gain or loss, you must
subtract your tax basis in your Units from the amount you receive in the
transaction. Your tax basis in your Units is generally equal to the cost
of your Units, generally including sales charges. In some cases,
however, you may have to adjust your tax basis after you purchase your
Units.
Taxation of Capital Gains and Losses.
If you are an individual, the maximum marginal federal tax rate for net
capital gain is generally 20% (10% for certain taxpayers in the 10% and
15% tax brackets). The 20% rate is reduced to 18% and the 10% rate is
reduced to 8% for long-term gains from most property acquired after
December 31, 2000 with a holding period of more than five years. Net
capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if
the holding period for the asset is more than one year and is short-term
if the holding period for the asset is one year or less. You must
exclude the date you purchase your Units to determine your holding
period. However, if you receive a capital gain dividend from your Trust
and sell your Unit at a loss after holding it for six months or less,
the loss will be recharacterized as long-term capital loss to the extent
of the capital gain dividend received. In the case of capital gain
dividends, the determination of which portion of the capital gain
dividend, if any, that may be treated as long-term gain from property
held for more than five years eligible for the 18% (or 8%) tax rate will
be made based on regulations prescribed by the United States Treasury.
In addition, the Trust may designate some capital gains dividends as
"unrecaptured Section 1250 gain distributions," in which case the
dividend would be subject to a maximum tax rate of 25%. The tax rates
Page 44
for capital gains realized from assets held for one year or less are
generally the same as for ordinary income. In addition, the Internal
Revenue Code treats certain capital gains as ordinary income in special
situations.
In-Kind Distributions.
Under certain circumstances, as described in this prospectus, you may
receive an in-kind distribution of Trust securities when you redeem
Units or when your Trust terminates. This distribution is subject to
taxation and you will recognize gain or loss, generally based on the
value at that time of the securities and the amount of cash received.
Deductibility 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. In
these cases you may be able to take a deduction for these expenses.
However, certain miscellaneous itemized deductions, such as investment
expenses, may be deducted by individuals only to the extent that all of
these deductions exceed 2% of the individual's adjusted gross income.
Foreign Investors.
If you are a foreign investor, subject to applicable tax treaties,
distributions from the Trust which constitute dividends for U.S. federal
income tax purposes (other than dividends designated by the Trust as
capital gain dividends) will be subject to U.S. income taxes, including
withholding taxes. Distributions designated as capital gain dividends
should not be subject to U.S. federal income taxes, including
withholding taxes, provided certain conditions are met. You should
consult your tax advisor with respect to the conditions you must meet in
order to be exempt for U.S. tax purposes.
Retirement Plans
You may purchase Units of the Trusts 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.
The Trustee will treat as Record Owner of Units persons registered as
such on its books. It is your responsibility to notify the Trustee when
you become Record Owner, but normally your broker/dealer provides this
notice. You may elect to hold your Units in either certificated or
uncertificated form. All Fee Accounts Units, however, will be held in
uncertificated form.
Certificated Units. When you purchase your Units you can request that
they be evidenced by certificates, which will be delivered shortly after
your order. Certificates will be issued in fully registered form,
transferable only on the books of the Trustee in denominations of one
Unit or any multiple thereof. You can transfer or redeem your
certificated Units by endorsing and surrendering the certificate to the
Trustee, along with a written instrument of transfer. You must sign your
name exactly as it appears on the face of the certificate with your
signature guaranteed by an eligible institution. In certain cases the
Trustee may require additional documentation before they will transfer
or redeem your Units.
You may be required to pay a nominal fee to the Trustee for each
certificate reissued or transferred, and to pay any government charge
that may be imposed for each transfer or exchange. If a certificate gets
lost, stolen or destroyed, you may be required to furnish indemnity to
the Trustee to receive replacement certificates. You must surrender
mutilated certificates to the Trustee for replacement.
Uncertificated Units. You may also choose to hold your Units in
uncertificated form. If you choose this option, the Trustee will
establish an account for you and credit your account with the number of
Units you purchase. Within two business days of the issuance or transfer
of Units held in uncertificated form, the Trustee will send you:
- - A written initial transaction statement containing a description of
the Trust;
- - A list of the number of Units issued or transferred;
- - Your name, address and Taxpayer Identification Number ("TIN");
- - A notation of any liens or restrictions of the issuer and any adverse
claims; and
- - The date the transfer was registered.
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Uncertificated Units may be transferred the same way as certificated
Units, except that no certificate needs to be presented to the Trustee.
Also, no certificate will be issued when the transfer takes place unless
you request it. You may at any time request that the Trustee issue
certificates for your Units.
Unit Holder Reports.
In connection with each distribution, the Trustee will provide you with
a statement detailing the per Unit amount of income (if any)
distributed. After the end of each calendar year, the Trustee will
provide you with the following information:
- - A summary of transactions in your Trust for the year;
- - A list of any Securities sold during the year and the Securities held
at the end of that year by your 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.
You may request from the Trustee copies of the evaluations of the
Securities as prepared by the Evaluator to enable you to comply with
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 a
Trust's Securities to the Income Account of such Trust. All other
receipts, such as return of capital, are credited to the Capital Account
of such Trust.
The Trustee will distribute any net income in the Income Account on or
near the Income Distribution Dates to Unit holders of record on the
preceding Income Distribution Record Date. See "Summary of Essential
Information." No income distribution will be paid if accrued expenses of
a Trust exceed amounts in the Income Account on the Income Distribution
Dates. Distribution amounts will vary with changes in a 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 or pay
expenses on the last day of each month to Unit holders of record on the
fifteenth day of each month provided the amount equals at least $1.00
per 100 Units. If the Trustee does not have your TIN, it is required to
withhold a certain percentage of your distribution and deliver such
amount to the Internal Revenue Service ("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."
We anticipate that there will be enough money in the Capital Account of
a Trust to pay the deferred sales charge. If not, the Trustee may sell
Securities to meet the shortfall.
Within a reasonable time after a Trust is terminated, you will receive
the pro rata share of the money from the sale of the Securities.
However, if you are eligible, you may elect to receive an In-Kind
Distribution as described under "Amending or Terminating the Indenture."
You will receive a pro rata share of any other assets remaining in your
Trust after deducting any unpaid expenses.
The Trustee may establish reserves (the "Reserve Account") within a
Trust to cover anticipated state and local taxes or any governmental
charges to be paid out of such Trust.
Distribution Reinvestment Option. You may elect to have each
distribution of income and/or capital reinvested into additional Units
of your Trust by notifying the Trustee 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 your
Trust. There is no transactional sales charge on Units acquired through
the Distribution Reinvestment Option, as discussed under "Public
Offering." This option may not be available in all states.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 the
certificates representing the Units you want to redeem to the Trustee at
its unit investment trust office. If your Units are uncertificated, you
need only deliver a request for redemption to the Trustee. In either
case, the certificates or the redemption request must be properly
endorsed with proper instruments of transfer and signature guarantees as
explained in "Rights of Unit Holders-Unit Ownership" (or by providing
satisfactory indemnity if the certificates were lost, stolen, or
destroyed). 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. Units
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redeemed directly through the Trustee are not subject to such
transaction fees. Three 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 the Trustee
receives your certificates or redemption request (if such day is a day
the NYSE is open for trading). However, if your certificates or
redemption request are 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 it does not have your TIN, as
generally discussed under "Income and Capital Distributions."
If you tender 2,500 Units, or such other amount as required by your
broker/dealer, for redemption, 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 in writing to the Trustee at the
time of tender. However, to be eligible to participate in the In-Kind
Distribution option at redemption, Fee Accounts Unit holders must hold
their Units through the end of the initial offering period. No In-Kind
Distribution requests submitted during the nine business days prior to a
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 or broker/dealer account at
the Depository Trust Company. The Trustee will subtract any customary
transfer and registration charges from your In-Kind Distribution. As a
tendering Unit holder, you will receive your pro rata number of whole
shares of the Securities that make up the portfolio, and cash from the
Capital Account equal to the fractional shares to which you are entitled.
The Trustee may sell Securities to make funds available for redemption.
If Securities are sold, the size and diversification of a 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 a Trust not designated to
purchase Securities;
2. the aggregate value of the Securities held in a 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 a Trust;
2. any amounts owed to the Trustee for its advances;
3. estimated accrued expenses of a Trust, if any;
4. cash held for distribution to Unit holders of record of a 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 a Trust; and
dividing
1. the result by the number of outstanding Units of a Trust.
Any remaining deferred sales charge on the Units when you redeem them
will be deducted from your redemption proceeds. In addition, until the
earlier of six months after the Initial Date of Deposit or the end of
the initial offering period, the Redemption Price per Unit will include
estimated organization costs as set forth under "Fee Table."
Removing Securities from a Trust
The portfolios of the Trusts are 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;
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- - 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; or
- - 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 a Trust.
Except in the limited instance in which a Trust acquires Replacement
Securities, as described in "The FT Series," a Trust may not acquire any
securities or other property other than the Securities. The Trustee, on
behalf of the Trusts, will reject 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 nevertheless acquired by a Trust, at our instruction,
they will either be sold or held in such Trust. In making the
determination as to whether to sell or hold the exchanged securities or
property we may get advice from each Portfolio Supervisor. Any proceeds
received from the sale of Securities, exchanged securities or property
will be credited to the Capital Account 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 a Trust to facilitate selling
Securities, exchanged securities or property from the Trusts. If we or
our affiliate act in this capacity, we will be held subject to the
restrictions under the Investment Company Act of 1940, as amended.
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 a Trust may be
changed. To get the best price for a Trust we may specify minimum
amounts (generally 100 shares) in which blocks of Securities are to be
sold. We may consider sales of units of unit investment trusts which we
sponsor when we make recommendations to the Trustee as to which
broker/dealers they select to execute a Trust's portfolio transactions,
or when acting as agent for a Trust in acquiring or selling Securities
on behalf of the Trusts.
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 materially adverse to your
best interests (as determined by us and the Trustee).
Termination. As provided by the Indenture, the Trusts will terminate on
the Mandatory Termination Date as stated in the "Summary of Essential
Information" for each Trust. The Trusts may be terminated earlier:
- - Upon the consent of 100% of the Unit holders of a Trust;
- - If the value of the Securities owned by a 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 such Trust during the initial offering
period ("Discretionary Liquidation Amount"); or
- - In the event that Units of a Trust not yet sold aggregating more than
60% of the Units of such Trust are tendered for redemption by
underwriters, including the Sponsor.
Prior to termination, the Trustee will send written notice to registered
account holders which will specify how certificates, if any, should be
tendered to the Trustee. If a Trust is terminated due to this last
reason, we will refund your entire transactional sales charge; however,
termination of a 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, a 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 a 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
Page 48
termination process may result in a lower sales price than might
otherwise be realized if such sale were not required at this time.
If you own at least 2,500 Units of a Trust, or such other amount as
required by your broker/dealer, the Trustee will send the registered
account holders a form at least 30 days prior to the Mandatory
Termination Date which will enable you to receive an In-Kind
Distribution (reduced by customary transfer and registration charges and
subject to any additional restrictions imposed on Fee Accounts Units by
"wrap fee" plans) rather than the typical cash distribution. See "Tax
Status" for additional information. You must notify the Trustee at least
ten business days prior to the Mandatory Termination Date if you elect
this In-Kind Distribution option. If you do not elect to participate in
the In-Kind Distribution option, 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 such
Trust is terminated. Regardless of the distribution involved, the
Trustee will deduct from the Trusts 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. (formerly known as Nike Securities
L.P.), specialize in the underwriting, trading and wholesale
distribution of unit investment trusts under the "First Trust" brand
name and other securities. An Illinois limited partnership formed in
1991, we 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
First Trust introduced the first insured unit investment trust in 1974.
To date we have deposited more than $40 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 the National Association of Securities Dealers, Inc.
and Securities Investor Protection Corporation. Our principal offices
are at 1001 Warrenville Road, Lisle, Illinois 60532; telephone number
(630) 241-4141. As of December 31, 2001, the total partners' capital of
First Trust Portfolios L.P. was $17,560,001 (audited).
This information refers only to us and not to the Trusts or to any
series of the Trusts 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 Trusts 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 Trusts.
The Trustee.
The Trustee is JPMorgan Chase Bank, with its principal executive office
located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 Chase MetroTech Center, 3rd Floor,
Brooklyn, New York 11245. If you have questions regarding the Trusts,
you may call the Customer Service Help Line at 1-800-682-7520. The
Trustee is supervised by the Superintendent of Banks of the State of New
York, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
The Trustee has not participated in selecting the Securities for the
Trusts; 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.
Page 49
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 Trusts; 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 1001 Warrenville Road, Lisle, Illinois 60532.
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, 111 W. Monroe St., Chicago, Illinois,
60603. They have passed upon the legality of the Units offered hereby
and certain matters relating to federal tax law. Carter, Ledyard &
Milburn acts as the Trustee's counsel, as well as special New York tax
counsel for the Trusts.
Experts.
The Trusts' statements of net assets, including the schedules of
investments, as of the opening of business on the Initial Date of
Deposit included in this prospectus and elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in
the registration statement, and are 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 Trustee, 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.
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Page 51
First Trust(R)
Financial Services Select Portfolio, Series 13
The Key 3 Select Portfolio, Series 3
Pharmaceutical Select Portfolio, Series 14
Technology Select Portfolio, Series 17
Communications Portfolio, Series 11
Energy Portfolio, Series 12
Financial Services Portfolio, Series 13
The Key 3 Portfolio, Series 3
Leading Brands Portfolio, Series 12
Life Sciences Portfolio, Series 5
Market Leaders Portfolio, Series 6
Pharmaceutical Portfolio, Series 14
REIT Growth & Income Portfolio, Series 6
Technology Portfolio, Series 17
FT 654
Sponsor:
FIRST TRUST PORTFOLIOS L.P.
Formerly known as Nike Securities L.P.
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
JPMorgan Chase Bank
4 Chase MetroTech Center, 3rd floor
Brooklyn, New York 11245
1-800-682-7520
24-Hour Pricing Line: 1-800-446-0132
This prospectus contains information relating to the above-mentioned
unit investment trusts, but does not contain all of the information
about this investment company as filed with the Securities and Exchange
Commission in Washington, D.C. under the:
- - Securities Act of 1933 (file no. 333-_____) and
- - Investment Company Act of 1940 (file no. 811-05903)
Information about the Trusts, including their Codes of Ethics, can be
reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington D.C. Information regarding the operation of
the Commission's Public Reference Room may be obtained by calling the
Commission at 1-202-942-8090.
Information about the Trusts is available on the EDGAR Database on the
Commission's Internet site at
http://www.sec.gov.
To obtain copies at prescribed rates -
Write: Public Reference Section of the Commission
450 Fifth Street, N.W.;
Washington, D.C. 20549-0102
e-mail address: publicinfo@sec.gov
July __, 2002
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
Page 52
First Trust(R)
The FT Series
Information Supplement
This Information Supplement provides additional information concerning
the structure, operations and risks of unit investment trusts ("Trusts")
contained in FT 654 not found in the prospectus for the Trusts. This
Information Supplement is not a prospectus and does not include all of
the information that a prospective investor should consider before
investing in a Trust. This Information Supplement should be read in
conjunction with the prospectus for the Trust in which an investor is
considering investing.
This Information Supplement is dated July __, 2002. Capitalized terms
have been defined in the prospectus.
Table of Contents
Risk Factors
Securities 1
Dividends 1
Foreign Issuers 2
Concentrations
Biotechnology/Pharmaceutical 2
Communications 3
Consumer Products 3
Energy 3
Financial Services 5
Healthcare 7
REITs 8
Technology 9
Portfolios
Communications 10
Energy 11
Financial Services 11
The Key 3 12
Leading Brands 12
Life Sciences 13
Market Leaders 13
Pharmaceutical 14
REIT 14
Technology 15
Risk Factors
Securities. An investment in Units should be made with an understanding
of the risks which an investment in common stocks entails, including the
risk that the financial condition of the issuers of the Securities or
the general condition of the relevant stock market may worsen, and the
value of the Securities 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. Both U.S. and foreign
markets have experienced substantial volatility and significant declines
recently as a result of certain or all of these factors.
Dividends. 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. Common stocks do not represent an obligation of
the issuer and, therefore, do not offer any assurance of income or
Page 1
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.
Foreign Issuers. Since certain of the Securities included in certain
Trusts consist of securities of foreign issuers, an investment in the
Trusts involves certain investment risks that are different in some
respects from an investment in a trust which invests entirely in the
securities of domestic issuers. 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, 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 Trusts, the
Sponsor believes that adequate information will be available to allow
the Supervisor to provide portfolio surveillance for the Trusts.
Securities issued by non-U.S. issuers generally pay dividends in foreign
currencies and are principally traded in foreign currencies. Therefore,
there is a risk that the U.S. dollar value of these securities will vary
with fluctuations in the U.S. dollar foreign exchange rates for the
various Securities.
On the basis of the best information available to the Sponsor at the
present time, none of the Securities in the Trusts are subject to
exchange control restrictions under existing law which would materially
interfere with payment to the Trusts 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 Trusts. The adoption of
exchange control regulations and other legal restrictions could have an
adverse impact on the marketability of international securities in the
Trusts and on the ability of the Trusts 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 Trusts 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 a Trust in
the United States securities markets are subject to severe restrictions
and may not be practicable. Accordingly, sales of these Securities by
the Trusts will generally be effected only in foreign securities
markets. Although the Sponsor does not believe that the Trusts 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.
Concentrations
Biotechnology/Pharmaceutical. An investment in Units of the Life
Sciences Portfolio and the Pharmaceutical Portfolios should be made with
an understanding of the problems and risks such an investment may
entail. Companies involved in advanced medical devices and instruments,
drugs and biotech have potential risks unique to their sector of the
healthcare field. These companies are subject to governmental regulation
of their products and services, a factor which could have a significant
and possibly unfavorable effect on the price and availability of such
products or services. Furthermore, such companies face the risk of
increasing competition from new products or services, generic drug
sales, the termination of patent protection for drug or medical supply
products and the risk that technological advances will render their
Page 2
products obsolete. The research and development costs of bringing a drug
to market are substantial, and include lengthy governmental review
processes with no guarantee that the product will ever come to market.
Many of these companies may have losses and may not offer certain
products for several years. Such companies may also have persistent
losses during a new product's transition from development to production,
and revenue patterns may be erratic.
As the population of the United States ages, the companies involved in
the healthcare field will continue to search for and develop new drugs,
medical products and medical services through advanced technologies and
diagnostics. On a worldwide basis, such companies are involved in the
development and distributions of drugs, vaccines, medical products and
medical services. These activities may make the
biotechnology/pharmaceuticals sector very attractive for investors
seeking the potential for growth in their investment portfolio. However,
there are no assurances that the Trusts' objectives will be met.
Legislative proposals concerning healthcare are proposed in Congress
from time to time. These proposals span a wide range of topics,
including cost and price controls (which might include a freeze on the
prices of prescription drugs). The Sponsor is unable to predict the
effect of any of these proposals, if enacted, on the issuers of
Securities in the Trusts.
Communications. An investment in Units of the Communications Portfolio
should be made with an understanding of the problems and risks inherent
in the communications sector in general.
The market for high-technology communications products and services is
characterized by rapidly changing technology, rapid product
obsolescence, cyclical market patterns, evolving industry standards and
frequent new product introductions. The success of the issuers of the
Securities depends in substantial part on the timely and successful
introduction of new products and services. An unexpected change in one
or more of the technologies affecting an issuer's products or in the
market for products based on a particular technology could have a
material adverse affect on an issuer's operating results. Furthermore,
there can be no assurance that the issuers of the Securities will be
able to respond in a timely manner to compete in the rapidly developing
marketplace.
The communications industry is subject to governmental regulation.
However, as market forces develop, the government will continue to
deregulate the communications industry, promoting vigorous economic
competition and resulting in the rapid development of new communications
technologies. The products and services of communications companies may
be subject to rapid obsolescence. These factors could affect the value
of the Trusts' Units. For example, while telephone companies in the
United States are subject to both state and federal regulations
affecting permitted rates of returns and the kinds of services that may
be offered, the prohibition against phone companies delivering video
services has been lifted. This creates competition between phone
companies and cable operators and encourages phone companies to
modernize their communications infrastructure. Certain types of
companies represented in the Trust's portfolio are engaged in fierce
competition for a share of the market for their products. As a result,
competitive pressures are intense and the stocks are subject to rapid
price volatility.
Many communications companies rely on a combination of patents,
copyrights, trademarks and trade secret laws to establish and protect
their proprietary rights in their products and technologies. There can
be no assurance that the steps taken by the issuers of the Securities to
protect their proprietary rights will be adequate to prevent
misappropriation of their technology or that competitors will not
independently develop technologies that are substantially equivalent or
superior to such issuers' technology.
Consumer Products. An investment in Units of the Leading Brands
Portfolio should be made with an understanding of the problems and risks
inherent in an investment in the consumer products industry in general.
These include the cyclicality of revenues and earnings, changing
consumer demands, regulatory restrictions, product liability litigation
and other litigation resulting from accidents, extensive competition
(including that of low-cost foreign competition), unfunded pension fund
liabilities and employee and retiree benefit costs and financial
deterioration resulting from leveraged buy-outs, takeovers or
acquisitions. In general, expenditures on consumer products will be
affected by the economic health of consumers. A weak economy with its
consequent effect on consumer spending would have an adverse effect on
consumer products companies. Other factors of particular relevance to
the profitability of the industry are the effects of increasing
environmental regulation on packaging and on waste disposal, the
continuing need to conform with foreign regulations governing packaging
and the environment, the outcome of trade negotiations and the effect on
foreign subsidies and tariffs, foreign exchange rates, the price of oil
and its effect on energy costs, inventory cutbacks by retailers,
transportation and distribution costs, health concerns relating to the
consumption of certain products, the effect of demographics on consumer
demand, the availability and cost of raw materials and the ongoing need
to develop new products and to improve productivity.
Energy. An investment in Units of the Energy Portfolio should be made
with an understanding of the problems and risks an investment in
Page 3
Securities of companies involved in the energy industry may entail. The
business activities of companies held in the Energy Portfolio may
include: production, generation, transmission, marketing, control, or
measurement of gas and oil; the provision of component parts or services
to companies engaged in the above activities; energy research or
experimentation; and environmental activities related to the solution of
energy problems, such as energy conservation and pollution control.
The securities of companies in the energy field are subject to changes
in value and dividend yield which depend, to a large extent, on the
price and supply of energy fuels. Swift price and supply fluctuations
may be caused by events relating to international politics, energy
conservation, the success of exploration projects, and tax and other
regulatory policies of various governments. As a result of the
foregoing, the Securities in the Energy Portfolios may be subject to
rapid price volatility. The Sponsor is unable to predict what impact the
foregoing factors will have on the Securities during the life of the
Energy Portfolio.
According to the U.S. Department of Commerce, the factors which will
most likely shape the energy industry include the price and availability
of oil from the Middle East, changes in U.S. environmental policies and
the continued decline in U.S. production of crude oil. Possible effects
of these factors may be increased U.S. and world dependence on oil from
the Organization of Petroleum Exporting Countries ("OPEC") and highly
uncertain and potentially more volatile oil prices. Factors which the
Sponsor believes may increase the profitability of oil and petroleum
operations include increasing demand for oil and petroleum products as a
result of the continued increases in annual miles driven and the
improvement in refinery operating margins caused by increases in average
domestic refinery utilization rates. The existence of surplus crude oil
production capacity and the willingness to adjust production levels are
the two principal requirements for stable crude oil markets. Without
excess capacity, supply disruptions in some countries cannot be
compensated for by others. Surplus capacity in Saudi Arabia and a few
other countries and the utilization of that capacity prevented, during
the Persian Gulf crisis, and continues to prevent, severe market
disruption. Although unused capacity contributed to market stability in
1990 and 1991, it ordinarily creates pressure to overproduce and
contributes to market uncertainty. The restoration of a large portion of
Kuwait and Iraq's production and export capacity could lead to such a
development in the absence of substantial growth in world oil demand.
Formerly, OPEC members attempted to exercise control over production
levels in each country through a system of mandatory production quotas.
Because of the 1990-1991 crisis in the Middle East, the mandatory system
has since been replaced with a voluntary system. Production under the
new system has had to be curtailed on at least one occasion as a result
of weak prices, even in the absence of supplies from Kuwait and Iraq.
The pressure to deviate from mandatory quotas, if they are reimposed, is
likely to be substantial and could lead to a weakening of prices. In the
longer term, additional capacity and production will be required to
accommodate the expected large increases in world oil demand and to
compensate for expected sharp drops in U.S. crude oil production and
exports from the Soviet Union. Only a few OPEC countries, particularly
Saudi Arabia, have the petroleum reserves that will allow the required
increase in production capacity to be attained. Given the large-scale
financing that is required, the prospect that such expansion will occur
soon enough to meet the increased demand is uncertain.
Declining U.S. crude oil production will likely lead to increased
dependence on OPEC oil, putting refiners at risk of continued and
unpredictable supply disruptions. Increasing sensitivity to
environmental concerns will also pose serious challenges to the industry
over the coming decade. Refiners are likely to be required to make heavy
capital investments and make major production adjustments in order to
comply with increasingly stringent environmental legislation, such as
the 1990 amendments to the Clean Air Act. If the cost of these changes
is substantial enough to cut deeply into profits, smaller refiners may
be forced out of the industry entirely. Moreover, lower consumer demand
due to increases in energy efficiency and conservation, gasoline
reformulations that call for less crude oil, warmer winters or a general
slowdown in economic growth in this country and abroad could negatively
affect the price of oil and the profitability of oil companies. No
assurance can be given that the demand for or prices of oil will
increase or that any increases will not be marked by great volatility.
Some oil companies may incur large cleanup and litigation costs relating
to oil spills and other environmental damage. Oil production and
refining operations are subject to extensive federal, state and local
environmental laws and regulations governing air emissions and the
disposal of hazardous materials. Increasingly stringent environmental
laws and regulations are expected to require companies with oil
production and refining operations to devote significant financial and
managerial resources to pollution control. General problems of the oil
and petroleum products industry include the ability of a few influential
producers to significantly affect production, the concomitant volatility
of crude oil prices, increasing public and governmental concern over air
emissions, waste product disposal, fuel quality and the environmental
effects of fossil-fuel use in general.
Page 4
In addition, any future scientific advances concerning new sources of
energy and fuels or legislative changes relating to the energy industry
or the environment could have a negative impact on the petroleum
products industry. While legislation has been enacted to deregulate
certain aspects of the oil industry, no assurances can be given that new
or additional regulations will not be adopted. Each of the problems
referred to could adversely affect the financial stability of the
issuers of any petroleum industry stocks in the Energy Portfolio.
Financial Services. An investment in Units of The Key 3 Portfolios and
the Financial Services Portfolios should be made with an understanding
of the problems and risks inherent in the bank and financial services
sector in general.
Banks, thrifts and their holding companies are especially subject to the
adverse effects of economic recession, volatile interest rates,
portfolio concentrations in geographic markets and in commercial and
residential real estate loans, and competition from new entrants in
their fields of business. Banks and thrifts are highly dependent on net
interest margin. Recently, bank profits have come under pressure as net
interest margins have contracted, but volume gains have been strong in
both commercial and consumer products. There is no certainty that such
conditions will continue. Bank and thrift institutions had received
significant consumer mortgage fee income as a result of activity in
mortgage and refinance markets. As initial home purchasing and
refinancing activity subsided, this income diminished. Economic
conditions in the real estate markets, which have been weak in the past,
can have a substantial effect upon banks and thrifts because they
generally have a portion of their assets invested in loans secured by
real estate. Banks, thrifts and their holding companies are subject to
extensive federal regulation and, when such institutions are state-
chartered, to state regulation as well. Such regulations impose strict
capital requirements and limitations on the nature and extent of
business activities that banks and thrifts may pursue. Furthermore, bank
regulators have a wide range of discretion in connection with their
supervisory and enforcement authority and may substantially restrict the
permissible activities of a particular institution if deemed to pose
significant risks to the soundness of such institution or the safety of
the federal deposit insurance fund. Regulatory actions, such as
increases in the minimum capital requirements applicable to banks and
thrifts and increases in deposit insurance premiums required to be paid
by banks and thrifts to the Federal Deposit Insurance Corporation
("FDIC"), can negatively impact earnings and the ability of a company to
pay dividends. Neither federal insurance of deposits nor governmental
regulations, however, insures the solvency or profitability of banks or
their holding companies, or insures against any risk of investment in
the securities issued by such institutions.
The statutory requirements applicable to and regulatory supervision of
banks, thrifts and their holding companies have increased significantly
and have undergone substantial change in recent years. To a great
extent, these changes are embodied in the Financial Institutions Reform,
Recovery and Enforcement Act; enacted in August 1989, the Federal
Deposit Insurance Corporation Improvement Act of 1991, the Resolution
Trust Corporation Refinancing, Restructuring, and Improvement Act of
1991 and the regulations promulgated under these laws. Many of the
regulations promulgated pursuant to these laws have only recently been
finalized and their impact on the business, financial condition and
prospects of the Securities in a Trust's portfolio cannot be predicted
with certainty. The recently enacted Gramm-Leach-Bliley Act repealed
most of the barriers set up by the 1933 Glass-Steagall Act which
separated the banking, insurance and securities industries. Now banks,
insurance companies and securities firms can merge to form one-stop
financial conglomerates marketing a wide range of financial service
products to investors. This legislation will likely result in increased
merger activity and heightened competition among existing and new
participants in the field. Efforts to expand the ability of federal
thrifts to branch on an interstate basis have been initially successful
through promulgation of regulations, and legislation to liberalize
interstate banking has recently been signed into law. Under the
legislation, banks will be able to purchase or establish subsidiary
banks in any state, one year after the legislation's enactment. Since
mid-1997, banks have been allowed to turn existing banks into branches.
Consolidation is likely to continue. The Securities and Exchange
Commission and the Financial Accounting Standards Board require the
expanded use of market value accounting by banks and have imposed rules
requiring market accounting for investment securities held in trading
accounts or available for sale. Adoption of additional such rules may
result in increased volatility in the reported health of the industry,
and mandated regulatory intervention to correct such problems.
Additional legislative and regulatory changes may be forthcoming. For
example, the bank regulatory authorities have proposed substantial
changes to the Community Reinvestment Act and fair lending laws, rules
and regulations, and there can be no certainty as to the effect, if any,
that such changes would have on the Securities in a Trust's portfolio.
In addition, from time to time the deposit insurance system is reviewed
by Congress and federal regulators, and proposed reforms of that system
could, among other things, further restrict the ways in which deposited
moneys can be used by banks or reduce the dollar amount or number of
deposits insured for any depositor. Such reforms could reduce
profitability as investment opportunities available to bank institutions
become more limited and as consumers look for savings vehicles other
than bank deposits. Banks and thrifts face significant competition from
Page 5
other financial institutions such as mutual funds, credit unions,
mortgage banking companies and insurance companies, and increased
competition may result from legislative broadening of regional and
national interstate banking powers as has been recently enacted. Among
other benefits, the legislation allows banks and bank holding companies
to acquire across previously prohibited state lines and to consolidate
their various bank subsidiaries into one unit. The Sponsor makes no
prediction as to what, if any, manner of bank and thrift regulatory
actions might ultimately be adopted or what ultimate effect such actions
might have on a Trust's portfolio.
The Federal Bank Holding Company Act of 1956 generally prohibits a bank
holding company from (1) acquiring, directly or indirectly, more than 5%
of the outstanding shares of any class of voting securities of a bank or
bank holding company, (2) acquiring control of a bank or another bank
holding company, (3) acquiring all or substantially all the assets of a
bank, or (4) merging or consolidating with another bank holding company,
without first obtaining Federal Reserve Board ("FRB") approval. In
considering an application with respect to any such transaction, the FRB
is required to consider a variety of factors, including the potential
anti-competitive effects of the transaction, the financial condition and
future prospects of the combining and resulting institutions, the
managerial resources of the resulting institution, the convenience and
needs of the communities the combined organization would serve, the
record of performance of each combining organization under the Community
Reinvestment Act and the Equal Credit Opportunity Act, and the
prospective availability to the FRB of information appropriate to
determine ongoing regulatory compliance with applicable banking laws. In
addition, the federal Change In Bank Control Act and various state laws
impose limitations on the ability of one or more individuals or other
entities to acquire control of banks or bank holding companies.
The FRB has issued a policy statement on the payment of cash dividends
by bank holding companies. In the policy statement, the FRB expressed
its view that a bank holding company experiencing earnings weaknesses
should not pay cash dividends which exceed its net income or which could
only be funded in ways that would weaken its financial health, such as
by borrowing. The FRB also may impose limitations on the payment of
dividends as a condition to its approval of certain applications,
including applications for approval of mergers and acquisitions. The
Sponsor makes no prediction as to the effect, if any, such laws will
have on the Securities or whether such approvals, if necessary, will be
obtained.
Companies involved in the insurance industry are engaged in
underwriting, reinsuring, selling, distributing or placing of property
and casualty, life or health insurance. Other growth areas within the
insurance industry include brokerage, reciprocals, claims processors and
multiline insurance companies. Insurance company profits are affected by
interest rate levels, general economic conditions, and price and
marketing competition. Property and casualty insurance profits may also
be affected by weather catastrophes and other disasters. Life and health
insurance profits may be affected by mortality and morbidity rates.
Individual companies may be exposed to material risks including reserve
inadequacy and the inability to collect from reinsurance carriers.
Insurance companies are subject to extensive governmental regulation,
including the imposition of maximum rate levels, which may not be
adequate for some lines of business. Proposed or potential tax law
changes may also adversely affect insurance companies' policy sales, tax
obligations, and profitability. In addition to the foregoing, profit
margins of these companies continue to shrink due to the commoditization
of traditional businesses, new competitors, capital expenditures on new
technology and the pressures to compete globally.
In addition to the normal risks of business, companies involved in the
insurance industry are subject to significant risk factors, including
those applicable to regulated insurance companies, such as: (i) the
inherent uncertainty in the process of establishing property-liability
loss reserves, particularly reserves for the cost of environmental,
asbestos and mass tort claims, and the fact that ultimate losses could
materially exceed established loss reserves which could have a material
adverse effect on results of operations and financial condition; (ii)
the fact that insurance companies have experienced, and can be expected
in the future to experience, catastrophe losses which could have a
material adverse impact on their financial condition, results of
operations and cash flow; (iii) the inherent uncertainty in the process
of establishing property-liability loss reserves due to changes in loss
payment patterns caused by new claims settlement practices; (iv) the
need for insurance companies and their subsidiaries to maintain
appropriate levels of statutory capital and surplus, particularly in
light of continuing scrutiny by rating organizations and state insurance
regulatory authorities, and in order to maintain acceptable financial
strength or claims-paying ability rating; (v) the extensive regulation
and supervision to which insurance companies' subsidiaries are subject,
various regulatory initiatives that may affect insurance companies, and
regulatory and other legal actions; (vi) the adverse impact that
increases in interest rates could have on the value of an insurance
company's investment portfolio and on the attractiveness of certain of
Page 6
its products; (vii) the need to adjust the effective duration of the
assets and liabilities of life insurance operations in order to meet the
anticipated cash flow requirements of its policyholder obligations; and
(viii) the uncertainty involved in estimating the availability of
reinsurance and the collectibility of reinsurance recoverables.
The state insurance regulatory framework has, during recent years, come
under increased federal scrutiny, and certain state legislatures have
considered or enacted laws that alter and, in many cases, increase state
authority to regulate insurance companies and insurance holding company
systems. Further, the National Association of Insurance Commissioners
("NAIC") and state insurance regulators are re-examining existing laws
and regulations, specifically focusing on insurance companies,
interpretations of existing laws and the development of new laws. In
addition, Congress and certain federal agencies have investigated the
condition of the insurance industry in the United States to determine
whether to promulgate additional federal regulation. The Sponsor is
unable to predict whether any state or federal legislation will be
enacted to change the nature or scope of regulation of the insurance
industry, or what effect, if any, such legislation would have on the
industry.
All insurance companies are subject to state laws and regulations that
require diversification of their investment portfolios and limit the
amount of investments in certain investment categories. Failure to
comply with these laws and regulations would cause non-conforming
investments to be treated as non-admitted assets for purposes of
measuring statutory surplus and, in some instances, would require
divestiture.
Environmental pollution clean-up is the subject of both federal and
state regulation. By some estimates, there are thousands of potential
waste sites subject to clean up. The insurance industry is involved in
extensive litigation regarding coverage issues. The Comprehensive
Environmental Response Compensation and Liability Act of 1980
("Superfund") and comparable state statutes ("mini-Superfund") govern
the clean-up and restoration by "Potentially Responsible Parties"
("PRP's"). Superfund and the mini-Superfunds ("Environmental Clean-up
Laws or "ECLs") establish a mechanism to pay for clean-up of waste sites
if PRP's fail to do so, and to assign liability to PRP's. The extent of
liability to be allocated to a PRP is dependent on a variety of factors.
The extent of clean-up necessary and the assignment of liability has not
been fully established. The insurance industry is disputing many such
claims. Key coverage issues include whether Superfund response costs are
considered damages under the policies, when and how coverage is
triggered, applicability of pollution exclusions, the potential for
joint and several liability and definition of an occurrence. Similar
coverage issues exist for clean up and waste sites not covered under
Superfund. To date, courts have been inconsistent in their rulings on
these issues. An insurer's exposure to liability with regard to its
insureds which have been, or may be, named as PRPs is uncertain.
Superfund reform proposals have been introduced in Congress, but none
have been enacted. There can be no assurance that any Superfund reform
legislation will be enacted or that any such legislation will provide
for a fair, effective and cost-efficient system for settlement of
Superfund related claims.
While current federal income tax law permits the tax-deferred
accumulation of earnings on the premiums paid by an annuity owner and
holders of certain savings-oriented life insurance products, no
assurance can be given that future tax law will continue to allow such
tax deferrals. If such deferrals were not allowed, consumer demand for
the affected products would be substantially reduced. In addition,
proposals to lower the federal income tax rates through a form of flat
tax or otherwise could have, if enacted, a negative impact on the demand
for such products.
Companies engaged in investment banking/brokerage and investment
management include brokerage firms, broker/dealers, investment banks,
finance companies and mutual fund companies. Earnings and share prices
of companies in this industry are quite volatile, and often exceed the
volatility levels of the market as a whole. Recently, ongoing
consolidation in the industry and the strong stock market has benefited
stocks which investors believe will benefit from greater investor and
issuer activity. Major determinants of future earnings of these
companies are the direction of the stock market, investor confidence,
equity transaction volume, the level and direction of long-term and
short-term interest rates, and the outlook for emerging markets.
Negative trends in any of these earnings determinants could have a
serious adverse effect on the financial stability, as well as the stock
prices, of these companies. Furthermore, there can be no assurance that
the issuers of the Securities included in the Trusts will be able to
respond in a timely manner to compete in the rapidly developing
marketplace. In addition to the foregoing, profit margins of these
companies continue to shrink due to the commoditization of traditional
businesses, new competitors, capital expenditures on new technology and
the pressures to compete globally.
Healthcare. An investment in Units of The Key 3 Portfolios should be
made with an understanding of the problems and risks inherent in the
healthcare sector in general.
Companies involved in advanced medical devices and instruments, drugs
and biotech, healthcare/managed care, hospital management/health
services and medical supplies have potential risks unique to their
sector of the healthcare field. These companies are subject to
governmental regulation of their products and services, a factor which
Page 7
could have a significant and possibly unfavorable effect on the price
and availability of such products or services. Furthermore, such
companies face the risk of increasing competition from new products or
services, generic drug sales, the termination of patent protection for
drug or medical supply products and the risk that technological advances
will render their products obsolete. The research and development costs
of bringing a drug to market are substantial, and include lengthy
governmental review processes with no guarantee that the product will
ever come to market. Many of these companies may have losses and may not
offer certain products for several years. Such companies may also have
persistent losses during a new product's transition from development to
production, and revenue patterns may be erratic. In addition, healthcare
facility operators may be affected by events and conditions including
among other things, demand for services, the ability of the facility to
provide the services required, physicians' confidence in the facility,
management capabilities, competition with other hospitals, efforts by
insurers and governmental agencies to limit rates, legislation
establishing state rate-setting agencies, expenses, government
regulation, the cost and possible unavailability of malpractice
insurance and the termination or restriction of governmental financial
assistance, including that associated with Medicare, Medicaid and other
similar third party payor programs.
As the population of the United States ages, the companies involved in
the healthcare field will continue to search for and develop new drugs,
medical products and medical services through advanced technologies and
diagnostics. On a worldwide basis, such companies are involved in the
development and distributions of drugs, vaccines, medical products and
medical services. These activities may make the healthcare and medical
services sector very attractive for investors seeking the potential for
growth in their investment portfolio. However, there are no assurances
that the Trusts' objectives will be met.
Legislative proposals concerning healthcare are proposed in Congress
from time to time. These proposals span a wide range of topics,
including cost and price controls (which might include a freeze on the
prices of prescription drugs), national health insurance, incentives for
competition in the provision of healthcare services, tax incentives and
penalties related to healthcare insurance premiums and promotion of pre-
paid healthcare plans. The Sponsor is unable to predict the effect of
any of these proposals, if enacted, on the issuers of Securities in the
Trusts.
REITs. An investment in Units of the REIT Growth & Income Portfolio
should be made with an understanding of risks inherent in an investment
in REITs specifically and real estate generally (in addition to
securities market risks). 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 the REITs in which the Trust invests
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 any REIT in the Trust's portfolio should fail
to qualify for such tax status, the related shareholders (including the
Trust) could be adversely affected by the resulting tax consequences.
Page 8
The underlying value of the Securities and the Trust's ability to make
distributions to Unit holders 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 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 the REITs
in a Trust. The value of the 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 and office buildings. The impact of economic conditions on
REITs can also be expected to vary with geographic location and property
type. Investors should be aware the 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 the 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, the REITs in the Trust may
be adversely affected by increases or decreases in property tax rates
and assessments or reassessments of the properties underlying the REITs
by taxing authorities. 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.
The issuer of REITs generally maintains 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 one or more of
the REITs in the Trust may not be presently liable or potentially liable
for any such costs in connection with real estate assets they presently
own or subsequently acquire while such REITs are held in the Trust.
Technology. An investment in Units of The Key 3 Portfolios and the
Technology Portfolios should be made with an understanding of the
characteristics of the problems and risks such an investment may entail.
Technology companies generally include companies involved in the
development, design, manufacture and sale of computers and peripherals,
software and services, data networking/communications equipment,
internet access/information providers, semiconductors and semiconductor
equipment and other related products, systems and services. The market
for these products, especially those specifically related to the
Internet, is characterized by rapidly changing technology, rapid product
obsolescence, cyclical market patterns, evolving industry standards and
frequent new product introductions. The success of the issuers of the
Securities depends in substantial part on the timely and successful
introduction of new products. An unexpected change in one or more of the
technologies affecting an issuer's products or in the market for
products based on a particular technology could have a material adverse
affect on an issuer's operating results. Furthermore, there can be no
assurance that the issuers of the Securities will be able to respond in
a timely manner to compete in the rapidly developing marketplace.
Based on trading history of common stock, factors such as announcements
of new products or development of new technologies and general
conditions of the industry have caused and are likely to cause the
market price of high-technology common stocks to fluctuate
substantially. In addition, technology company stocks have experienced
Page 9
extreme price and volume fluctuations that often have been unrelated to
the operating performance of such companies. This market volatility may
adversely affect the market price of the Securities and therefore the
ability of a Unit holder to redeem Units at a price equal to or greater
than the original price paid for such Units.
Some key components of certain products of technology issuers are
currently available only from single sources. There can be no assurance
that in the future suppliers will be able to meet the demand for
components in a timely and cost effective manner. Accordingly, an
issuer's operating results and customer relationships could be adversely
affected by either an increase in price for, or an interruption or
reduction in supply of, any key components. Additionally, many
technology issuers are characterized by a highly concentrated customer
base consisting of a limited number of large customers who may require
product vendors to comply with rigorous industry standards. Any failure
to comply with such standards may result in a significant loss or
reduction of sales. Because many products and technologies of technology
companies are incorporated into other related products, such companies
are often highly dependent on the performance of the personal computer,
electronics and telecommunications industries. There can be no assurance
that these customers will place additional orders, or that an issuer of
Securities will obtain orders of similar magnitude as past orders from
other customers. Similarly, the success of certain technology companies
is tied to a relatively small concentration of products or technologies.
Accordingly, a decline in demand of such products, technologies or from
such customers could have a material adverse impact on issuers of the
Securities.
Many technology companies rely on a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect their
proprietary rights in their products and technologies. There can be no
assurance that the steps taken by the issuers of the Securities to
protect their proprietary rights will be adequate to prevent
misappropriation of their technology or that competitors will not
independently develop technologies that are substantially equivalent or
superior to such issuers' technology. In addition, due to the increasing
public use of the Internet, it is possible that other laws and
regulations may be adopted to address issues such as privacy, pricing,
characteristics, and quality of Internet products and services. The
adoption of any such laws could have a material adverse impact on the
Securities in the Trusts.
Portfolios
Equity Securities Selected for Communications Portfolio, Series 11
The Communications Portfolio, Series 11 contains common stocks of the
following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Page 10
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for Energy Portfolio, Series 12
The Energy Portfolio, Series 12 contains common stocks of the following
companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for Financial Services Select Portfolio,
Series 13
and Financial Services Portfolio, Series 13
Both the Financial Services Select Portfolio, Series 13 and the
Financial Services Portfolio, Series 13 contain common stocks of the
following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Page 11
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for The Key 3 Select Portfolio, Series 3
and The Key 3 Portfolio, Series 3
Both The Key 3 Select Portfolio, Series 3 and The Key 3 Portfolio,
Series 3 contain common stocks of the following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for Leading Brands Portfolio, Series 12
The Leading Brands Portfolio, Series 12 contains common stocks of the
following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Page 12
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for Life Sciences Portfolio, Series 5
The Life Sciences Portfolio, Series 5 contains common stocks of the
following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for Market Leaders Portfolio, Series 6
The Market Leaders Portfolio, Series 6 contains common stocks of the
following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Page 13
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for Pharmaceutical Select Portfolio, Series 14
and Pharmaceutical Portfolio, Series 14
Both the Pharmaceutical Select Portfolio, Series 14 and the
Pharmaceutical Portfolio, Series 14 contain common stocks of the
following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for REIT Growth & Income Portfolio, Series 6
The REIT Growth & Income Portfolio, Series 6 contains common stocks of
the following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Page 14
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Equity Securities Selected for Technology Select Portfolio, Series 17 and
Technology Portfolio, Series 17
Both the Technology Select Portfolio, Series 17 and the Technology
Portfolio, Series 17 contain common stocks of the following companies:
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
We have obtained the foregoing descriptions from sources we deem
reliable. We have not independently verified the provided information
either in terms of accuracy or completeness.
Page 15
MEMORANDUM
Re: FT 654
The only difference of consequence (except as described
below) between FT 627, which is the current fund, and FT 654, the
filing of which this memorandum accompanies, is the change in the
series number. The list of securities comprising the Fund, the
evaluation, record and distribution dates and other changes
pertaining specifically to the new series, such as size and
number of Units in the Fund and the statement of condition of the
new Fund, will be filed by amendment.
1940 ACT
FORMS N-8A AND N-8B-2
These forms were not filed, as the Form N-8A and Form N-8B-2
filed in respect of Templeton Growth and Treasury Trust, Series 1
and subsequent series (File No. 811-05903) related also to the
subsequent series of the Fund.
1933 ACT
PROSPECTUS
The only significant changes in the Prospectus from the
Series 627 Prospectus relate to the series number and size and
the date and various items of information which will be derived
from and apply specifically to the securities deposited in the
Fund.
CONTENTS OF REGISTRATION STATEMENT
ITEM A Bonding Arrangements of Depositor:
First Trust Portfolios, L.P. is covered by a Broker's
Fidelity Bond, in the total amount of $2,000,000, the
insurer being National Union Fire Insurance Company of
Pittsburgh.
ITEM 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 654 has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Village of Lisle and State of
Illinois on July 2, 2002.
FT 654
(Registrant)
By: FIRST TRUST PORTFOLIOS, L.P.
(Depositor)
By Robert M. Porcellino
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
David J. Allen Director )
of The Charger )
Corporation, the ) July 2, 2002
General Partner of )
First Trust )
Portfolios, L.P. )
Judith M. Van Kampen Director )
of The Charger ) Robert M. Porcellino
Corporation, the ) Attorney-in-Fact**
General Partner of )
First Trust )
Portfolios, L.P. )
Karla M. Van Kampen-Pierre Director )
of The Charger )
Corporation, the )
General Partner of )
First Trust )
Portfolios, L.P. )
David G. Wisen Director )
of The Charger )
Corporation, the )
General Partner 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., Depositor.
** An executed copy of the related power of attorney
was filed with the Securities and Exchange Commission in
connection with the Amendment No. 1 to Form S-6 of FT 597
(File No. 333-76518) and the same is hereby incorporated
herein by this reference.
S-3
CONSENTS OF COUNSEL
The consents of counsel to the use of their names in the
Prospectus included in this Registration Statement will be
contained in their respective opinions to be filed as Exhibits
3.1, 3.2, 3.3 and 3.4 of the Registration Statement.
CONSENT OF DELOITTE & TOUCHE LLP
The consent of Deloitte & Touche LLP to the use of its name
and to the reference to such firm in the Prospectus included in
this Registration Statement will be filed by amendment.
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 is
filed as Exhibit 4.1 to the Registration Statement.
S-4
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Special Situations Trust, Series 22 and
certain subsequent Series, effective November 20, 1991
among Nike Securities L.P., as Depositor, United States
Trust Company of New York as Trustee, Securities Evaluation
Service, Inc., as Evaluator, and Nike Financial Advisory
Services L.P. as Portfolio Supervisor (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-43693]
filed on behalf of The First Trust Special Situations Trust,
Series 22).
1.1.1* Form of Trust Agreement for FT 654 among First Trust
Portfolios, L.P., as Depositor, JPMorgan Chase Bank, as
Trustee and First Trust Advisors L.P., as Evaluator and
Portfolio Supervisor.
1.2 Copy of Certificate of Limited Partnership of First Trust
Portfolios, L.P. (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-42683] filed on behalf of
The First Trust Special Situations Trust, Series 18).
1.3 Copy of Amended and Restated Limited Partnership
Agreement of First Trust Portfolios, L.P. (incorporated
by reference to Amendment No. 1 to Form S-6 [File No.
33-42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
1.4 Copy of Articles of Incorporation of 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. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
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. 1 to Form S-6
[File No. 33-42683] filed on behalf of The First Trust
Special Situations Trust, Series 18).
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
filed herewith on page 2 and incorporated herein by reference).
2.2 Copy of Code of Ethics (incorporated by reference to
Amendment No. 1 to form S-6 [File No. 333-31176] filed on behalf
of FT 415).
3.1* Opinion of counsel as to legality of Securities being
registered.
S-5
3.2* Opinion of counsel as to Federal income tax status of
Securities being registered.
3.3* Opinion of counsel as to New York income tax status of
Securities being registered.
3.4* Opinion of counsel as to advancement of funds by Trustee.
4.1* Consent of First Trust Advisors L.P.
6.1 List of Directors and Officers of Depositor and other
related information (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
7.1 Power of Attorney executed by the Directors listed on
page S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File No.
333-76518] filed on behalf of FT 597).
___________________________________
* To be filed by amendment.
S-6