1933 ACT FILE NO.: 333-116015
1940 ACT FILE NO.: 811-21056
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: ADVISOR'S DISCIPLINED TRUST, SERIES 11
B. Name of depositor: FIXED INCOME SECURITIES, L.P.
C. Complete address of depositor's principal executive offices:
18925 Base Camp Road
Monument, Colorado 80132
D. Name and complete address of agent for service:
WITH A COPY TO:
CRAIG FIDLER
General Counsel MARK J. KNEEDY
Fixed Income Securities, L.P. Chapman and Cutler LLP
18925 Base Camp Road 111 West Monroe Street
Monument, Colorado 80132 Chicago, Illinois 60603-4080
E. Title of securities being registered: Units of undivided beneficial
interest in the trust
F. Approximate date of proposed public offering:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT
[ ] Check box if it is proposed that this filing will become effective
on _______, 2004 at _____ pursuant to Rule 487.
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GNMA ADVANTAGE INCOME PORTFOLIO, SERIES 2
(ADVISOR'S DISCIPLINED TRUST, SERIES 11)
A portfolio of mortgage-backed
securities seeking current income
PROSPECTUS
AUGUST 5, 2004
[LOGO]
As with any investment, the Securities
ADVISOR'S and Exchange Commission has not approved
ASSET MANAGEMENT or disapproved of these securities or
passed upon the adequacy or accuracy of
A DIVISION OF FIXED this prospectus. Any contrary
INCOME SECURITIES, L.P. representation is a criminal offense.
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INVESTMENT SUMMARY
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INVESTMENT OBJECTIVE
The trust seeks to provide high current interest income.
PRINCIPAL INVESTMENT STRATEGY
The trust seeks to provide monthly distributions of interest income by
investing in a portfolio consisting of mortgage-backed securities representing
pools of mortgages guaranteed by the Government National Mortgage Association
(known as "Ginnie Mae"). This means that interest and principal payments on the
portfolio securities are backed by the full faith and credit of the U.S.
government.
In an effort to minimize the effect of principal payments and prepayments,
we<FN1>* will direct the trustee to reinvest all principal paid on the portfolio
securities into additional Ginnie Mae securities for as long as we believe it
practical to do so (this is called the "reinvestment period"). We currently
anticipate that the reinvestment period will last approximately five years. The
trust will purchase Ginnie Mae securities that will have similar maturities and
interest rates as the portfolio securities upon which the principal was
received. There may, however, be times during the reinvestment period when
reinvestment is not feasible because additional securities are not available,
the trust does not have sufficient funds to purchase additional securities
without incurring disproportionate expenses or for various other reasons. In
those instances the trust will generally hold funds in cash until additional
purchases are feasible or distribute the cash if we determine that additional
reinvestments are not practical. The trust will not attempt to time or delay
reinvestments to take advantage of market movements.
PRINCIPAL RISKS
As with all investments, you can lose money by investing in this trust. The
trust also might not perform as well as you expect. This can happen for reasons
such as these:
* SECURITY PRICES WILL FLUCTUATE. The value of your investment may fall over
time.
* THE VALUE OF THE SECURITIES WILL GENERALLY FALL IF INTEREST RATES, IN
GENERAL, RISE. No one can predict whether interest rates will rise or fall in
the future.
* THE TRUST CONCENTRATES ITS INVESTMENTS IN MORTGAGE-BACKED SECURITIES. As the
underlying loans are paid off, investors receive principal and interest
payments. Any negative impact on these securities will have a greater impact
on the value of units than on a portfolio diversified among various types of
securities. You should understand the section titled "Ginnie Mae Securities"
before you invest.
* Since mortgage-backed securities represent an interest in mortgage loans made
to finance purchases of homes, THE TRUST WILL RECEIVE SCHEDULED PRINCIPAL
PAYMENTS EACH MONTH AND IT IS ALSO LIKELY THAT THE TRUST WILL RECEIVE
UNSCHEDULED PREPAYMENTS OF PRINCIPAL PRIOR TO A SECURITY'S SCHEDULED MATURITY
DATE. As a result, you might not be able to reinvest these principal
payments and prepayments in investments with the same return as the trust.
In addition, the trust will not retain its present size and composition.
* IT MIGHT NOT BE FEASIBLE TO REINVEST PRINCIPAL PAYMENTS AND PREPAYMENTS INTO
ADDITIONAL SECURITIES DURING THE REINVESTMENT PERIOD. This could reduce
interest distributions.
* REINVESTMENTS DURING PERIODS WHEN INTEREST RATES ARE LOWER THAN THOSE
PREVAILING ON THE TRUST'S INCEPTION DATE WILL GENERALLY CAUSE INTEREST
DISTRIBUTIONS TO FALL.
* THE TRUST COULD TERMINATE EARLIER THAN ANTICIPATED DUE TO UNSCHEDULED
PRINCIPAL PREPAYMENTS ON THE UNDERLYING LOANS AFTER THE REINVESTMENT PERIOD
OR DURING THE REINVESTMENT PERIOD IF PRINCIPAL CANNOT BE REINVESTED.
* While the interest and principal payments are backed by the full faith and
credit of the U.S. government, NEITHER THE UNITS IN THE TRUST NOR THE MARKET
VALUE OF THE SECURITIES ARE GUARANTEED.
* WE DO NOT ACTIVELY MANAGE THE PORTFOLIO. Except in limited circumstances,
the trust will hold, and may continue to buy, the securities even if the
market value declines.
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<FN1>* "FIS," "we" and related terms mean Fixed Income Securities, L.P., the
trust sponsor, unless the context clearly suggests otherwise.
2 Investment Summary
WHO SHOULD INVEST
You should consider this investment if you want:
* to own securities representing interests in pools of mortgage loans in a
single investment.
* the potential to receive monthly distributions of income.
You should not consider this investment if you:
* are uncomfortable with the risks of an unmanaged investment in mortgage-
backed securities.
* want capital appreciation.
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ESSENTIAL INFORMATION
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PRINCIPAL AMOUNT OF
SECURITIES PER UNIT AT INCEPTION $10.000
INCEPTION DATE August 5, 2004
ESTIMATED CURRENT RETURN* 5.39%
ESTIMATED LONG-TERM RETURN* 3.73%
TYPE OF GINNIE MAE SECURITIES Long Term
ESTIMATED AVERAGE LIFE
OF SECURITIES* 5.48 years
DISTRIBUTION DATES Last day of each month
RECORD DATES First day of each month
CUSIP NUMBERS
Cash distributions 007582208
Reinvested distributions 007582216
TICKER SYMBOL ADTGNX
MINIMUM INVESTMENT $1,000/100 units
* as of August 4, 2004.
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FEES AND EXPENSES
The amounts below are estimates of the direct and indirect expenses that you
may incur based on the initial unit price. Actual expenses may vary.
AS A % OF AMOUNT
OF $1,000 PER 100
SALES FEE INVESTED UNITS
------------------------
Initial sales fee 1.14% $11.78
Deferred sales fee 3.81 39.50
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Maximum sales fee 4.95% $51.28
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ORGANIZATION COSTS 0.193% $2.00
======= =======
AS A % OF AMOUNT
ANNUAL TRUST PER 100
OPERATING EXPENSES ASSETS UNITS
------------------------
Trustee fee & expenses 0.146% $1.50
Supervisory, evaluation
and administration fees 0.06 80.70
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Total 0.214% $2.20
======= =======
The initial sales fee is the difference between the total sales fee (4.95% of
the unit offering price) and the remaining deferred sales fee. The deferred
sales fee is fixed at $0.395 per unit and is paid in three monthly installments
beginning February 20, 2005.
EXAMPLE
This example helps you compare the cost of this trust with other unit trusts
and mutual funds. In the example we assume that the expenses do not change and
that the trust's annual return is 5%. Your actual returns and expenses will
vary. Based on these assumptions, you would pay these expenses for every $10,000
you invest in the trust:
1 year $536
3 year $579
5 year $627
10 years $767
These amounts are the same regardless of whether you sell your investment at
the end of a period or continue to hold your investment.
Investment Summary 3
GNMA ADVANTAGE INCOME PORTFOLIO, SERIES 2
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT, JULY __, 2004
PRINCIPAL INTEREST RANGE OF STATED COST OF SECURITIES
AMOUNT SECURITY COUPON MATURITIES(1) TO TRUST(2)(3)
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$100,000 Government National Mortgage 5% 2034 to 2036 $98,424
Association Modified Pass-Through
Mortgage-Backed Securities
100,000 Government National Mortgage 7% 2034 to 2036 106,415
Association Modified Pass-Through
Mortgage-Backed Securities
- -------- --------
$200,000 $204,839
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Notes to Portfolio
(1) The principal amount of securities listed as having the range of maturities
shown is an aggregate of individual securities having varying ranges of
maturities within that shown. They are listed as one category of securities
with a single range of maturities because current market conditions accord
no difference in price among the securities grouped together on the basis
of the difference in their maturity ranges. At some time in the future,
however, the difference in maturity ranges could affect the market value of
the individual securities.
(2) Some securities may be represented by contracts to purchase such securities.
The cost of each security is based on the current offering side evaluation
as of the close of the New York Stock Exchange on the business day prior to
the trust's inception date. During the initial offering period, evaluations
of securities are made on the basis of current offering side evaluations of
the securities. The aggregate offering price is greater than the aggregate
bid price of the securities, which is the basis on which redemption prices
will be determined for purposes of redemption of units after the initial
offering period.
(3) 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 the trust) are $204,892 and $(53),
respectively.
4 Investment Summary
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UNDERSTANDING YOUR INVESTMENT
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HOW TO BUY UNITS
You can buy units of the trust on any business day the New York Stock
Exchange is open by contacting your financial professional. Unit prices are
available daily on the Internet at WWW.AAMUNITTRUST.COM. The public offering
price of units includes:
* the net asset value per unit plus
* the sales fee plus
* accrued interest, if any.
The "net asset value per unit" is the value of the securities, cash and other
assets in the trust reduced by the liabilities of the trust divided by the total
units outstanding. We often refer to the public offering price of units as the
"offer price" or "purchase price." We must receive your order to buy units
prior to the close of regular trading on the New York Stock Exchange (normally
4:00Ep.m. Eastern time) to give you the price for that day. If we receive your
order after this time, you will receive the price computed on the next business
day.
Accrued interest represents unpaid interest on a security from the last day
it paid interest. Interest on the securities is paid monthly, although the
trust accrues such interest daily. Because the trust always has an amount of
interest earned but not yet collected, the public offering price of units will
have added to it the proportionate share of accrued interest to the date of
settlement. You will receive the amount, if any, of accrued interest you paid
for on the next distribution date. In addition, if you sell or redeem your
units you will be entitled to receive your proportionate share of the accrued
interest from the purchaser of your units.
RETIREMENT ACCOUNTS. The portfolio may be suitable for purchase in tax-
advantaged retirement accounts. You should contact your financial professional
about the accounts offered and any additional fees imposed.
VALUE OF THE SECURITIES. We determine the value of the securities as of the
close of regular trading on the New York Stock Exchange on each day that
exchange is open.
Pricing the Securities. We generally determine the value of securities
during the initial offering period based on the aggregate offering side
evaluations of the securities determined (a)Eon the basis of current offering
prices of the securities, (b)Eif offering prices are not available for any
particular security, on the basis of current offering prices for comparable
securities, (c)Eby determining the value of securities on the offer side of the
market by appraisal, or (d)Eby any combination of the above. After the initial
offering period ends, we generally determine the value of the securities as
described in the preceding sentence based on the bid side evaluations rather
than the offering side evaluations. The offering side price generally
represents the price at which investors in the market are willing to sell a
security and the bid side evaluation generally represents the price that
investors in the market are willing to pay to buy a security. The bid side
evaluation is lower than the offering side evaluation. As a result of this
pricing method, unitholders should expect a decrease in the net asset value per
unit on the day following the end of the initial offering period equal to the
difference between the current offering side evaluation and bid side evaluation
of the securities.
Understanding Your Investment 5
We determined the initial prices of the securities shown under "Portfolio" in
this prospectus as described above at the close of regular trading on the
New York Stock Exchange on the business day before the date of this prospectus.
On the first day we sell units we will compute the unit price as of the close of
regular trading on the New York Stock Exchange or the time the registration
statement filed with the Securities and Exchange Commission becomes effective,
if later.
Organization Costs. During the initial offering period, part of the value of
the units represents an amount that will pay the costs of creating your trust.
These costs include the costs of preparing the registration statement and legal
documents, federal and state registration fees, the initial fees and expenses of
the trustee and the initial audit. Your trust will sell securities to reimburse
us for these costs at the end of the initial offering period or after six
months, if earlier. The net asset value per unit will decline when the trust
pays these costs.
SALES FEE. You pay a fee in connection with purchasing units. We refer to
this fee as the "sales fee." The total sales fee equals 4.95% of the public
offering price per unit at the time of purchase. This is equivalent to 5.208%
of the net amount invested. You pay the initial sales fee at the time you buy
units. The initial sales fee is the difference between the total sales fee
(4.95% of the public offering price per unit) and the remaining fixed dollar
deferred sales fee. The initial sales fee will be approximately 1.00% of the
public offering price per unit depending on the public offering price per unit.
The deferred sales fee is fixed at $0.395 per unit. Your trust pays the
deferred sales fee in equal monthly installments as described on page 3. If you
redeem or sell your units prior to collection of the total deferred sales fee,
you will pay any remaining deferred sales fee upon redemption or sale of your
units.
Investors should be aware that in order to impose a deferred sales fee the
sponsor and trust are required to receive an exemptive order from certain
provisions of the Investment Company Act of 1940 from the Securities and
Exchange Commission (the "SEC"). The sponsor has applied for an exemptive order
that would permit the deferred sales fee, but no assurance can be given that the
SEC will issue an order. Notwithstanding anything to the contrary in this
prospectus, the sponsor will not collect the deferred sales fee unless and until
it receives such an order.
If you purchase units after the last deferred sales fee payment has been
assessed, your sales fee will consist of a one-time initial sales fee of 4.95%
of the public offering price (equivalent to 5.208% of the net amount invested).
The sales fee will be reduced by 1/2 of 1% on each subsequent August 5,
commencing August 5, 2005 to a minimum sales fee of 3.00%.
REDUCING YOUR SALES FEE. We offer a variety of ways for you to reduce the
fee you pay. It is your financial professional's responsibility to alert us of
any discount when you order units. Since the deferred sales fee is a fixed
dollar amount per unit, your trust must charge this fee per unit regardless of
any discounts. However, if you are eligible to receive a discount such that
your total sales fee is less than the fixed dollar amount of the deferred sales
fee, we will credit you the difference between your total sales fee and this
fixed dollar fee at the time you buy units.
6 Understanding Your Investment
Large Purchases. You can reduce your sales fee by increasing the size of
your investment:
IF YOU PURCHASE:YOUR FEE WILL BE:
IF YOU PURCHASE: YOUR FEE WILL BE:
------------------------------------------
Less than $50,000 4.95%
$50,000 - $99,999 4.70
$100,000 - $249,999 4.45
$250,000 - $499,999 3.95
$500,000 or more 2.95
We apply these fees as a percent of the public offering price per unit at the
time of purchase. We also apply the different purchase levels on a unit basis
using a $10 unit equivalent. For example, if you purchase between 10,000 and
24,999 units, your fee is 4.45% of your public offering price per unit.
You may AGGREGATE unit purchases by the same person on any single day from
any one broker-dealer to qualify for a purchase level. You can also include
these purchases as your own for purposes of this aggregation:
* purchases by your spouse or minor children and
* purchases by your trust estate or fiduciary accounts.
The discounts described above apply during the initial offering period and in
the secondary market.
Fee Accounts. We waive a portion of the sales fee for purchases made through
registered investment advisers, certified financial planners or registered
broker-dealers who charge periodic fees in lieu of commissions or who charge for
financial planning or for investment advisory or asset management services or
provide these services as part of an investment account where a comprehensive
"wrap fee" is imposed. Investors may purchase units of the trust in these
accounts at the public offering price less the applicable regular dealer
concession.
This discount applies during the initial offering period and in the secondary
market. We reserve the right to limit or deny purchases of units in fee
accounts by investors or selling firms whose frequent trading activity is
determined to be detrimental to the trust.
Employees. We waive a portion of the sales fee for purchases made by
officers, directors and employees of the sponsor and its affiliates. We also
waive a portion of the sales fee for purchases made by registered
representatives of selling firms and their family members (spouses, children and
parents). These purchases may be made at the public offering price per unit
less the applicable regular dealer concession. This discount applies during the
initial offering period and in the secondary market.
Exchange Option. We waive a portion of the sales fee on units of the trust
offered in this prospectus if you buy your units with redemption or termination
proceeds from any of our other unit trusts. You may also purchase units of the
trust offered in this prospectus at this reduced fee if you purchase your units
with termination proceeds from an unaffiliated unit trust. The discounted public
offering price per unit for these transactions is equal to the regular public
offering price per unit less 1.00%. However, if you invest redemption or
termination proceeds of $500,000 or more in units of the trust, the maximum
sales fee on your units will be limited to the maximum sales fee for the
applicable amount invested in the table under "Large Purchases" above. Please
note that if you purchase units of the trust in this manner using redemption
proceeds from trusts which assess the amount of any remaining deferred sales
Understanding Your Investment 7
fee at redemption, you should be aware that any deferred sales fee remaining on
these units will be deducted from those redemption proceeds. In order to
qualify for this discount, your unit redemption or trust termination must occur
on the same day that you purchase units of the trust offered in this prospectus.
These discounts apply only during the initial offering period.
Investors should be aware that the staff of the Division of Investment
Management of the SEC is of the view that the exchange option sales fee discount
for exchanges from affiliated unit trusts constitutes an "exchange offer" for
the purposes of Section 11(c) of the Investment Company Act of 1940 and would
therefore be prohibited absent an exemptive order. The sponsor applied for an
exemptive order under Section 11(c) which would permit it to offer the exchange
option, but no assurance can be given that the SEC will issue such an order.
Notwithstanding anything to the contrary in this prospectus, the exchange
options sales fee discount does not apply to exchanges from other FIS unit
trusts unless and until it receives such an order.
Distribution Reinvestment Plan. We do not charge any sales fee when you
reinvest distributions from your trust into additional units of the trust. This
sales fee discount applies during the initial offering period and in the
secondary market. Since the deferred sales fee is a fixed dollar amount per
unit, your trust must charge this fee per unit regardless of this discount. If
you elect the distribution reinvestment plan, we will credit you with additional
units with a dollar value sufficient to cover the amount of any remaining fee
that will be collected on such units at the time of reinvestment. The dollar
value of these units will fluctuate over time.
HOW TO SELL YOUR UNITS
You can sell or redeem your units on any business day the New York Stock
Exchange is open by contacting your financial professional. Unit prices are
available daily on the internet at WWW.AAMUNITTRUST.COM or through your
financial professional. The sale and redemption price of units is equal to the
net asset value per unit and is sometimes referred to as the "liquidation
price". You pay any remaining deferred sales fee when you sell or redeem your
units. Certain broker-dealers may charge a transaction fee for processing unit
redemption or sale requests.
SELLING UNITS. We may maintain a secondary market for units. This means
that if you want to sell your units, we may buy them at the current net asset
value. We may then resell the units to other investors at the public offering
price or redeem them for the redemption price. Our secondary market repurchase
price is the same as the redemption price. Certain broker-dealers might also
maintain a secondary market in units. You should contact your financial
professional for current repurchase prices to determine the best price
available. We may discontinue our secondary market at any time without notice.
Even if we do not make a market, you will be able to redeem your units with the
trustee on any business day for the current net asset value.
REDEEMING UNITS. You may also redeem your units directly with the trustee,
The Bank of New York, on any day the New York Stock Exchange is open. The
redemption price that you will receive for units is equal to the net asset value
per unit. You will pay any remaining deferred sales fee when you redeem units.
The trustee must receive your completed redemption request prior to the close of
regular trading on the New York Stock Exchange for you to receive the net asset
value for
8 Understanding Your Investment
a particular day. If your request is received after that time or is incomplete
in any way, you will receive the next net asset value computed after the trustee
receives your completed request.
If you redeem your units, the trustee will generally send you a payment for
your units no later than seven days after it receives all necessary
documentation (this will usually only take three business days). The only time
the trustee can delay your payment is if the New York Stock Exchange is closed
(other than weekends or holidays), the Securities and Exchange Commission
determines that trading on that exchange is restricted or an emergency exists
making sale or evaluation of the securities not reasonably practicable, and for
any other period that the Securities and Exchange Commission permits.
To redeem your units, you must send the trustee any certificates for your
units. You must properly endorse your certificates or sign a written transfer
instrument with a signature guarantee. The trustee may require additional
documents such as a certificate of corporate authority, trust documents, a death
certificate, or an appointment as executor, administrator or guardian. The
trustee cannot complete your redemption or send your payment to you until it
receives all of these documents in complete form.
EXCHANGE OPTION. You may be able to exchange your units for units of our
other unit trusts at a reduced sales fee. You can contact your financial
professional for more information about trusts currently available for
exchanges. Before you exchange units, you should read the prospectus carefully
and understand the risks and fees. You should then discuss this option with
your financial professional to determine whether your investment goals have
changed, whether current trusts suit you and to discuss tax consequences. We
may discontinue this option upon sixty days notice.
DISTRIBUTIONS
MONTHLY DISTRIBUTIONS. Your trust generally pays interest from its net
investment income along with any available principal paid or prepaid on the
securities on each monthly distribution date to unitholders of record on the
preceding record date. The record and distribution dates are shown under
"Essential Information" in the "Investment Summary" section of this prospectus.
In some cases, your trust might pay a special distribution if it holds an
excessive amount of cash pending distribution. The amount of your distributions
will vary from time to time as interest and principal payments change or trust
expenses change. During the reinvestment period, the trustee will generally
reinvest principal payments and prepayments into additional securities. Amounts
the trustee is currently unable to reinvest will be held in the trust until such
time as reinvestment is possible or distributed to unitholders if we determine
that reinvestment is not feasible. After the reinvestment period, the trust will
not reinvest principal payments and prepayments on the securities but will
instead distribute these amounts to unitholders as described above.
REPORTS. The trustee or your financial professional will make available to
you a statement showing income and other receipts of your trust for each
distribution. Each year the trustee or your financial professional will also
provide an annual report on your trust's activity and certain tax information.
You can request copies of security evaluations to enable you to complete your
tax forms and audited financial statements for your trust, if available.
Understanding Your Investment 9
INVESTMENT RISKS
All investments involve risk. This section describes the main risks that can
impact the value of the securities in your portfolio. You should understand
these risks before you invest. If the value of the securities falls, the value
of your units will also fall. We cannot guarantee that your trust will achieve
its objective or that your investment return will be positive over any period.
MARKET RISK is the risk that the value of the securities in your trust will
fluctuate. This could cause the value of your units to fall below your original
purchase price or below the principal value. Market value fluctuates in
response to various factors. These can include changes in interest rates,
inflation, the financial condition of a security's issuer, perceptions of the
issuer, or ratings on a security. Even though we supervise your portfolio, you
should remember that we do not manage your portfolio. Your trust will not sell
a security solely because the market value falls as is possible in a managed
fund.
INTEREST RATE RISK is the risk that the value of securities will fall if
interest rates increase. The securities in your trust typically fall in value
when interest rates rise and rise in value when interest rates fall. Securities
with longer periods before maturity are often more sensitive to interest rate
changes.
CREDIT RISK is the risk that a security's issuer is unable to meet its
obligation to pay principal or interest on the security. While interest and
principal payments on Ginnie Mae securities are backed by the full faith and
credit of the U.S. government, the trust and the units are not guaranteed or
insured by the U.S. government or any government agency. In addition, neither
the U.S. government nor Ginnie Mae guarantees the market value or yield on
Ginnie Mae securities.
PREPAYMENT RISK is the chance that borrowers prepay their mortgage loans
earlier than expected. This reduces the trust's life and future interest
income. Any payment of mortgage debt before it is due is called "prepayment".
Most mortgage loans may be prepaid at any time by the borrower without penalty.
Each mortgage-backed security payment includes a return of principal as well as
interest. Prepayments of the entire mortgage occur when borrowers refinance or
sell their homes. They may refinance to consolidate debts or take advantage of
lower interest rate mortgages. Extra monthly principal payments made near the
trust's inception that cannot be reinvested into additional portfolio securities
may significantly reduce the interest amount paid by the borrower to the lender
and, therefore, the future amount received by the trust.
After the reinvestment period, your trust will distribute prepayments of
principal to you and your future interest distributions will fall as a result of
the prepaid principal. You also might not be able to reinvest this principal at
as high a yield. This means that you could receive less than the amount you
paid for your units. If enough principal is prepaid on the securities in your
trust, your trust could terminate earlier than expected.
REINVESTMENT RISK. As described earlier in this prospectus, we intend to
instruct the trustee to reinvest principal payments and prepayments into
additional securities during the reinvestment period. Reinvestment during
periods when interest rates are lower than those prevailing on the trust's
inception date will have the effect of decreasing monthly interest distributions
from the trust. In addition, there may be times during the reinvestment period
when reinvestment is not feasible
10 Understanding Your Investment
because the trust does not have sufficient funds to purchase additional Ginnie
Mae securities without incurring disproportionate expenses, additional
securities are not available or for various other reasons. After the
reinvestment period, or during the reinvestment period if the trustee is unable
to reinvest principal, the trust will receive less interest income and
effectively lose a portion of its principal investment represented by any
premium above par value the trust may have paid for the securities. The number
and dollar amount of mortgage prepayments generally increase with falling
interest rates and decrease with rising interest rates. If you receive
principal payments earlier than you expect you may not be able to reinvest these
proceeds into an instrument which provides a rate of return equal to or greater
than the trust.
CONCENTRATION RISK is the risk that your trust is less diversified because it
concentrates in a particular type of security. When a certain type of security
makes up 25% or more of a trust, the trust is considered to be "concentrated" in
that security type. Your portfolio concentrates in mortgage-backed securities.
You should understand these securities before you invest.
* These securities represent an ownership interest in mortgage loans made by
banks and other financial institutions to finance purchases of homes.
Individual loans are "pooled" together for sale to investors. As the
underlying loans are paid off, investors receive principal and interest
payments.
* The securities represent a pool of loans that pay a fixed rate of interest
over the life of the loan.
* The value of fixed-rate securities generally falls when interest rates
rise.
* Individual loans may be paid off early for various reasons, such as a sale
of the home, foreclosure on the mortgage, or a home owner's desire to pay
off the loan early to reduce debt. This involves "prepayment risk"
discussed above.
We describe these securities in more detail in the next section titled
"Ginnie Mae Securities."
REDUCED DIVERSIFICATION RISK is the risk that your trust will become smaller
and less diversified as securities or their underlying mortgage loans are sold,
are prepaid or mature. This could increase your risk of loss and increase your
share of trust expenses.
LIQUIDITY RISK is the risk that the value of a security will fall if trading
in the security is limited or absent. No one can guarantee that a liquid
trading market will exist for any security because these securities generally
trade in the over-the-counter market (they are not listed on a securities
exchange).
LITIGATION AND LEGISLATION RISK is the risk that future litigation or
legislation could affect the value of your trust. Litigation could challenge an
issuer's authority to issue or make payments on securities.
GINNIE MAE SECURITIES
The trust primarily invests in Ginnie Mae securities. These securities are
securities backed by mortgage loans. These securities represent an ownership
interest in mortgage loans made by banks and other financial institutions to
finance purchases of homes. Individual loans are pooled together by Ginnie Mae-
approved issuers for sale to investors. Commonly referred to as "pass-through"
certificates, these securities entitle an
Understanding Your Investment 11
investor to an undivided interest in the underlying mortgage loan pool. The
investor receives a proportionate share of the interest (reduced by servicing
and guaranty fees) and principal on the underlying mortgage loans.
Payments on Ginnie Mae securities to investors occur monthly. These payments
are called "modified pass-through" payments because, through Ginnie Mae's MBS
program, money is passed from the borrower through to the investors in the
Ginnie Mae securities. It is "modified" because if the amount collected from
the borrowers is less than the amount due, the issuer modifies the pass-through
to add on an amount from its corporate funds to make the payment complete.
Each group of Ginnie Mae securities shown in the "Portfolio" under a
specified range of maturities includes individual mortgage-backed securities
which have varying ranges of maturities within each range. We show each group
of securities as one category of securities because current market conditions
accord no difference in price among the individual Ginnie Mae securities within
each group on the basis of the difference in the maturity dates of each
security. As long as this market condition prevails, a purchase of Ginnie Mae
securities with the same coupon rate and a maturity date within the related
range will be considered an acquisition of the same security. In the future,
however, the difference in maturity ranges could affect the market value of the
individual Ginnie Mae securities. If this happens, any additional purchases by
your trust will take into account the maturities of the individual securities.
The Government National Mortgage Association, known as Ginnie Mae, was
created in 1968 as a wholly owned corporation within the Department of Housing
and Urban Development. Through its mortgage-backed securities program, Ginnie
Mae seeks to increase the liquidity and efficiency of mortgage loan funding,
making more capital available to low and moderate-income homeowners at
competitive interest rates.
The primary function of Ginnie Mae is to operate its mortgage-backed
securities (MBS) program. Ginnie Mae helps to ensure mortgage funds are
available throughout the United States including in rural and urban areas in
which it has been harder to borrow money to buy a home. Ginnie Mae securities
are issued by Ginnie Mae-approved private institutions. The mortgages are
insured by the Federal Housing Administration, or by the Rural Housing Service,
or they are guaranteed by the Department of Veterans Affairs.
Because of the Ginnie Mae guaranty, investors in Ginnie Mae securities are
assured timely payments of scheduled principal and interest due on the pooled
mortgages that back their securities. The payments also include any prepayments
and early recoveries of principal on the pooled mortgages. These payments are
guaranteed even if borrowers or issuers default on their obligation. If the
issuer fails to make the payment, Ginnie Mae will make the payment to the
investor. Neither Ginnie Mae nor the U.S. government guarantees or insures (1)
the market value or yields of Ginnie Mae securities, (2) the trust or (3) the
units of the trust in any way.
HOW THE TRUST WORKS
YOUR TRUST. Your trust is a unit investment trust registered under the
Investment Company Act of 1940. We created the trust under a trust agreement
between Fixed Income Securities, L.P. (as depositor/sponsor, evaluator and
supervisor)
12 Understanding Your Investment
and The Bank of New York (as trustee). We provide services to unit trusts
through our Advisor's Asset Management division. To create your trust, we
deposited securities with the trustee (or contracts to purchase securities along
with an irrevocable letter of credit or other consideration to pay for the
securities). In exchange, the trustee delivered units of your trust to us.
Each unit represents an undivided interest in the assets of your trust. These
units remain outstanding until redeemed or until your trust terminates.
CHANGING YOUR PORTFOLIO. Your trust is not a managed fund. Unlike a managed
fund, we designed your portfolio to remain relatively fixed. Your trust will
generally buy and sell securities:
* to pay expenses,
* to issue additional units or redeem units,
* to reinvest principal payments and prepayments during the reinvestment
period,
* in limited circumstances to protect the trust,
* to make required distributions or avoid imposition of taxes on the trust,
or
* as permitted by the trust agreement.
Your trust will generally reject any offer
for securities or other property in exchange for the securities in its
portfolio. If your trust receives securities or other property, it will either
hold the securities or property in the portfolio or sell the securities or
property and distribute the proceeds.
We will increase the size of your trust as we sell units. When we create
additional units, we will seek to maintain a portfolio that replicates the
maturity ranges of the securities in the portfolio. When your trust buys
securities, it may pay brokerage or other acquisition fees. You could
experience a dilution of your investment because of these fees and fluctuations
in security prices between the time we create units and the time your trust buys
the securities. Because the trust pays the brokerage fees associated with the
creation of new units and with the sale of securities to meet redemption and
exchange requests, frequent redemption and exchange activity will likely result
in higher brokerage expenses. In addition, the costs of acquiring additional
securities in connection with principal reinvestments during the reinvestment
period will be borne by the trust. When your trust buys or sells securities, we
may direct that it place orders with and pay brokerage commissions to brokers
that sell units or are affiliated with your trust or the trustee. We may
consider whether a firm sells units of our trusts or conducts other business
with us when we select firms to handle these transactions.
ESTIMATED CURRENT AND LONG-TERM RETURNS AND ESTIMATED AVERAGE LIFE.
Estimated current return shows the estimated cash you are anticipated to receive
each year divided by the unit price. Estimated long-term return shows the
estimated return over the estimated life of your trust. We base this estimate on
an average of the security yields over their estimated life. This estimate also
reflects the sales charge and estimated expenses. We derive the average yield
for your portfolio by weighting each security's yield by its value and estimated
life. Unlike estimated current return, estimated long term return attempts to
account for maturities, discounts and premiums of the securities and the
estimated reinvestment period for principal reinvestments. These estimates show
a comparison rather than a prediction of returns. No return calculation can
predict your actual return. Your actual return
Understanding Your Investment 13
will vary from these estimates. This will especially be the case if a sizable
amount of principal on the underlying mortgage loans is paid early and not
reinvested into additional securities. We will provide you with estimated cash
flows for the trust at no charge upon your request.
In order to calculate the estimated average life of securities and estimated
returns, we take into consideration the current composition of the trust and our
estimates of (1) the reinvestment period, (2) the prices of the reinvestment
securities and (3) the average life characteristics of the reinvestment
securities, which includes an estimated prepayment rate for the remaining term
of the trust's mortgage loan pool. Each of the primary market makers in Ginnie
Mae securities uses sophisticated computer models to determine the estimated
prepayment rate. These models take into account a number of factors and
assumptions including actual prepayment data reported by Ginnie Mae for recent
periods on a particular pool, the impact of aging on the prepayment of mortgage
pools, the current interest rate environment, the coupon, the housing
environment, historical trends on Ginnie Mae securities as a group, geographical
factors and general economic trends. In determining the estimated life of the
securities in the trust, we have relied on estimates of prepayment rates
determined by primary market makers. No one can be certain that these estimates
will prove accurate or whether prepayment rates determined by other market
makers would have provided a better estimate. Any difference between the
estimate we use and the actual prepayment rate will affect the estimated average
life of securities and estimated long-term return of the trust.
AMENDING THE TRUST AGREEMENT. The sponsor and the trustee can change the
trust agreement without your consent to correct any provision that may be
defective or to make other provisions that will not adversely affect your
interest (as determined by the sponsor and the trustee). We cannot change this
agreement to reduce your interest in your trust without your consent. Investors
owning two-thirds of the units in your trust may vote to change this agreement.
TERMINATION OF YOUR TRUST. Your trust will terminate upon the maturity,
payment, prepayment, sale or other liquidation of all of the securities in the
portfolio. The trustee may terminate your trust early if the value of the trust
is less than 40% of the original value of the securities in the trust at the
time of deposit. At this size, the expenses of your trust may create an undue
burden on your investment. Investors owning two-thirds of the units in your
trust may also vote to terminate the trust early. The trustee will liquidate
the trust in the event that a sufficient number of units not yet sold to the
public are tendered for redemption so that the net worth of the trust would be
reduced to less than 40% of the value of the securities at the time they were
deposited in the trust. If this happens, we will refund any sales charge that
you paid.
The trustee will notify you of any termination and sell any remaining
securities. The trustee will send your final distribution to you within a
reasonable time following liquidation of all the securities after deducting
final expenses. Your termination distribution may be less than the price you
originally paid for your units.
THE SPONSOR. The sponsor of the trust is Fixed Income Securities, L.P.
acting through its Advisor's Asset Management division. We are a broker-dealer
specializing in providing trading and support services to broker-dealers,
registered representatives, investment advisers and other financial
professionals. Our headquarters are located at 18925 Base Camp Road, Monument,
Colorado 80132. You
14 Understanding Your Investment
can contact our Advisor's Asset Management division at 8100 East 22nd Street
North, Suite 900B, Wichita, Kansas 67226-2309 or by using the contacts listed on
the back cover of this prospectus. We are a registered broker-dealer and
investment adviser and a member of the National Association of Securities
Dealers, Inc. (NASD), the Municipal Securities Rulemaking Board (MSRB), and the
Securities Investor Protection Corporation (SIPC). If we fail to or cannot
perform our duties as sponsor or become bankrupt, the trustee may replace us,
continue to operate your trust without a sponsor, or terminate your trust.
We and your trust have adopted a code of ethics requiring our 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 your
trust.
THE TRUSTEE. The Bank of New York is the trustee of your trust with its
principal unit investment trust division offices located at 2 Hanson Place, 12th
Floor, Brooklyn, New York 11217. You can contact the trustee by calling the
telephone number on the back cover of this prospectus or by writing to its unit
investment trust office. We may remove and replace the trustee in some cases
without your consent. The trustee may also resign by notifying us and
investors.
HOW WE DISTRIBUTE UNITS. We sell units to the public through broker-dealers
and other firms. We pay part of the sales fee to these distribution firms when
they sell units. The distribution fee (the broker-dealer concession or agency
commission) for broker-dealers and other firms is 3.60% of the public offering
price per unit (or 65% of the sales fee for secondary market sales). For
transactions involving unitholders of other unit investment trusts who use their
redemption or termination proceeds to purchase units of the trust, the
distribution fee is 2.60% of the public offering price per unit. Any sales fee
discount is borne by the broker-dealer or selling firm out of the distribution
fee. We reserve the right to change the amount of concessions or agency
commissions from time to time.
We generally register units for sale in various states in the U.S. We do not
register units for sale in any foreign country. This prospectus does not
constitute an offer of units in any state or country where units cannot be
offered or sold lawfully. We may reject any order for units in whole or in
part.
We may gain or lose money when we hold units in the primary or secondary
market due to fluctuations in unit prices. The gain or loss is equal to the
difference between the price we pay for units and the price at which we sell or
redeem them. We may also gain or lose money when we deposit securities to
create units.
TAXES
This section discusses some of the main U.S. federal income tax consequences
of owning units of the trust. This section is current as of the date of this
prospectus. Tax laws and interpretations change frequently, and this summary
does not describe all of the tax consequences to all taxpayers. For example,
this summary generally does not describe your situation if 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, local 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
JanuaryE1, 2001. Foreign investors
Understanding Your Investment 15
should consult their own tax advisors regarding the tax consequences of these
regulations.
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 tax.
DISTRIBUTIONS. Trust distributions are generally taxable. After the end of
each year, you will receive a tax statement that separates trust distributions
into two categories, ordinary income distributions and capital gains dividends.
Ordinary income distributions are generally taxed at your ordinary tax rate.
Such distributions will generally not be eligible for the reduced tax rate for
certain dividends, under the "Jobs and Growth Tax Relief Reconciliation Act of
2003" (the "Tax Act"). Generally, you will treat all capital gains dividends as
long-term capital gain 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. The tax status of
distributions from the trust is not affected by whether you reinvest your
distributions in additional units or receive them in cash. The tax laws may
require you to treat distributions made to you in January as if you had received
them on DecemberE31 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. Under the Tax Act, if you are an
individual, the maximum marginal federal tax rate for net capital gain is
generally 15% (generally 5% for certain taxpayers in the 10% and 15% tax
brackets). These new capital gains rates are generally effective for taxable
years ending on or after May 6, 2003 and beginning before January 1, 2009.
However, special effective date provisions are set forth in the Tax Act. For
example, there are special transition rules provided with respect to gain
properly taken into account for the portion of the taxable year before May 6,
2003. For periods not covered by the reduced rates under the Tax Act, 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
16 Understanding Your Investment
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. The tax rates 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.
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
the individual's 2% of adjusted gross income.
FOREIGN INVESTORS. If you are a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership, estate or
trust), you should be aware that, generally, subject to applicable tax treaties,
distributions from the trust will be characterized as dividends for federal
income tax purposes (other than dividends which the trust designates as capital
gain dividends) and will be subject to U.S. income taxes, including withholding
taxes. However, distributions received by a foreign investor from the trust that
are designated by the trust as capital gain dividends may not be subject to U.S.
federal income taxes, including withholding taxes, provided that the trust makes
certain elections and certain other conditions are met. Foreign investors should
consult their tax advisors with respect to U.S. tax consequences of ownership of
units.
EXPENSES
Your trust will pay various expenses to conduct its operations. The "Fees
and Expenses" section of the "Investment Summary" in this prospectus shows the
estimated amount of these expenses.
Your trust will pay a fee to the trustee for its services. The trustee also
benefits when it holds cash for your trust in non-interest bearing accounts.
Your trust will reimburse us as supervisor, evaluator and sponsor for providing
portfolio supervisory services, for evaluating your portfolio and for providing
bookkeeping and administrative services. Our reimbursements may exceed the
costs of the services we provide to your trust but will not exceed the costs of
services provided to all of our unit investment trusts in any calendar year.
All of these fees may adjust for inflation without your approval.
Your trust will also pay its general operating expenses. Your trust may pay
expenses such as trustee expenses (including legal and auditing expenses),
various governmental charges, fees for extraordinary trustee services, costs of
taking action to protect your trust, costs of indemnifying the trustee and the
sponsor, legal fees and expenses, expenses incurred in contacting you and costs
incurred to reimburse the trustee for advancing funds to meet distributions.
Your trust may pay the costs of updating its registration statement each year.
The trustee will generally pay trust expenses from interest income and principal
payments received on the securities but in some cases may sell securities to pay
trust expenses.
Understanding Your Investment 17
EXPERTS
LEGAL MATTERS. Chapman and Cutler LLP, 111 West Monroe Street, Chicago,
Illinois 60603 (www.chapman.com), acts as counsel for the trust and has given an
opinion that the units are validly issued. Emmet, Marvin & Martin, LLP acts as
counsel for the trustee.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Grant Thornton LLP,
independent registered public accounting firm, audited the statement of
financial condition and the portfolio in this prospectus.
ADDITIONAL INFORMATION
This prospectus does not contain all the information in the registration
statement that your trust filed with the Securities and Exchange Commission.
The Information Supplement, which was filed with the Securities and Exchange
Commission, includes more detailed information about the securities in your
portfolio, investment risks and general information about your trust. You can
obtain the Information Supplement by contacting us or the Securities and
Exchange Commission as indicated on the back cover of this prospectus. This
prospectus incorporates the Information Supplement by reference (it is legally
considered part of this prospectus).
18 Understanding Your Investment
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UNITHOLDERS
ADVISOR'S DISCIPLINED TRUST, SERIES 11
We have audited the accompanying statement of financial condition, including the
trust portfolio on page 4, of Advisor's Disciplined Trust, Series 11, as of
August 5, 2004, the initial date of deposit. The statement of financial
condition is the responsibility of the trust's sponsor. Our responsibility is
to express an opinion on this statement of financial condition based on our
audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the statement of financial condition is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of financial condition. Our procedures included
confirmation with The Bank of New York, trustee, of cash or an irrevocable
letter of credit deposited for the purchase of securities as shown in the
statement of financial condition as of August 5, 2004. An audit also includes
assessing the accounting principles used and significant estimates made by the
sponsor, as well as evaluating the overall statement of financial condition
presentation. We believe that our audit of the statement of financial condition
provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to above presents
fairly, in all material respects, the financial position of Advisor's
Disciplined Trust, Series 11 as of August 5, 2004, in conformity with accounting
principles generally accepted in the United States of America.
GRANT THORNTON LLP
Chicago, Illinois
August 5, 2004
ADVISOR'S DISCIPLINED TRUST, SERIES 11
STATEMENT OF FINANCIAL CONDITION
AS OF AUGUST 5, 2004
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES
Contracts to purchase underlying securities (1)(2) . . . . . . . . . . . . $ 204,839
Accrued interest to first settlement date (1) . . . . . . . . . . . . . . 333
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 205,172
LIABILITIES AND INTEREST OF INVESTORS
Liabilities:
Accrued interest payable to sponsor (1) . . . . . . . . . . . . . . . . $ 333
Organization costs (3) . . . . . . . . . . . . . . . . . . . . . . . . . 400
Deferred sales fee (4) . . . . . . . . . . . . . . . . . . . . . . . . . 7,900
$ 8,633
Interest of investors:
Cost to investors (5) . . . . . . . . . . . . . . . . . . . . . . . . . 207,196
Less: gross underwriting commission and organization costs (3)(4)(5) . . 10,657
Net interest of investors . . . . . . . . . . . . . . . . . . . . . . . 196,539
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 205,172
Number of units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Net asset value per unit . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.847
(1) Aggregate cost of the securities is based on the closing sale price
evaluations as determined by the evaluator. The trustee will advance the
amount of net interest accrued to the first settlement date to the trust for
distribution to the sponsor as unitholder of record as of such date.
(2) Cash or an irrevocable letter of credit has been deposited with the trustee
covering the funds (aggregating $250,000) necessary for the purchase of
securities in the trust represented by purchase contracts.
(3) A portion of the public offering price represents an amount sufficient to
pay for all or a portion of the costs incurred in establishing and offering
the trust. These costs have been estimated at $0.02 per unit for the trust.
A distribution will be made as of the earlier of the close of the initial
offering period or six months following the trust's inception date to an
account maintained by the trustee from which this obligation of the
investors will be satisfied. To the extent the actual organization costs
are greater than the estimated amount, only the estimated organization costs
added to the public offering price will be reimbursed to the sponsor and
deducted from the assets of the trust.
(4) The total sales fee consists of an initial sales fee and a deferred sales
fee. The initial sales fee is equal to the difference between the maximum
sales fee and the remaining deferred sales fee. On the inception date, the
total sales fee is 4.95% (equivalent to 5.208% of the net amount invested).
The deferred sales fee is equal to $0.395 per unit.
(5) The aggregate cost to investors includes the applicable sales fee assuming
no reduction of sales fees for quantity purchases.
Understanding Your Investment 19
CONTENTS
INVESTMENT SUMMARY
- -----------------------------------------------------------------
A concise description 2 Investment Objective
of essential information 2 Principal Investment Strategy
about the portfolio 2 Principal Risks
3 Who Should Invest
3 Essential Information
3 Fees and Expenses
4 Portfolio
UNDERSTANDING YOUR INVESTMENT
- -----------------------------------------------------------------
Detailed information to 5 How to Buy Units
help you understand 8 How to Sell Your Units
your investment 9 Distributions
10 Investment Risks
11 Ginnie Mae Securities
12 How the Trust Works
15 Taxes
17 Expenses
18 Experts
18 Additional Information
19 Report of Independent Registered
Public Accounting Firm
19 Statement of Financial Condition
WHERE TO LEARN MORE
- -----------------------------------------------------------------
You can contact us for VISIT US ON THE INTERNET
free information about http://www.AAMunittrust.com
this and other investments, BY E-MAIL
including the Information info@AAMunittrust.com
Supplement CALL ADVISOR'S ASSET
MANAGEMENT (FIS)
(877) 858-1773
CALL THE BANK OF NEW YORK
(800) 221-7668
ADDITIONAL INFORMATION
- -----------------------------------------------------------------
This prospectus does not contain all information filed with the
Securities and Exchange Commission. To obtain or copy this
information including the Information Supplement (a duplication
fee may be required):
E-MAIL: publicinfo@sec.gov
WRITE: Public Reference Section
Washington, D.C. 20549-0102
VISIT: http://www.sec.gov
(EDGAR Database)
CALL: 1-202-942-8090
(only for information on the operation of the
Public Reference Section)
REFER TO:
ADVISOR'S DISCIPLINED TRUST, SERIES 11
Securities Act file number: 333-116015
Investment Company Act file number: 811-21056
GNMA ADVANTAGE INCOME PORTFOLIO,
SERIES 2
PROSPECTUS
AUGUST 5, 2004
[LOGO]
ADVISOR'S
ASSET MANAGEMENT
A DIVISION OF FIXED INCOME SECURITIES, L.P.
ADVISOR'S DISCIPLINED TRUST, SERIES 11
GNMA ADVANTAGE INCOME PORTFOLIO, SERIES 2
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning
each trust described in the prospectus for the Advisor's Disciplined Trust
series identified above. This Information Supplement should be read in
conjunction with the prospectus. It is not a prospectus. It does not include
all of the information that an investor should consider before investing in a
trust. It may not be used to offer or sell units of a trust without the
prospectus. This Information Supplement is incorporated into the prospectus by
reference and has been filed as part of the registration statement with the
Securities and Exchange Commission. Investors should obtain and read the
prospectus prior to purchasing units of a trust. You can obtain the prospectus
without charge by contacting your financial professional or by contacting the
Advisor's Asset Management division of Fixed Income Securities, L.P. at 18925
Base Camp Road, Suite 203, Monument, Colorado 80132, at 8100 East 22nd Street
North, Suite 900B, Wichita, Kansas 67226-2309 or by calling (877) 858-1773.
This Information Supplement is dated as of the date of the prospectus.
CONTENTS
General Information 2
Investment Objective and Policies 3
Ginnie Mae Securities 7
Risk Factors 10
Administration of the Trust 11
Portfolio Transactions and Brokerage Allocation 18
Purchase, Redemption and Pricing of Units 19
Performance Information 25
GENERAL INFORMATION
Each trust is one of a series of separate unit investment trusts created
under the name Advisor's Disciplined Trust and registered under the Investment
Company Act of 1940. Each trust was created as a common law trust on the
inception date described in the prospectus under the laws of the state of
New York. Each trust was created under a trust agreement among Fixed Income
Securities, L.P. (as sponsor, evaluator and supervisor) and The Bank of New York
(as trustee). The sponsor provides services to unit investment trusts through
its Advisor's Asset Management division.
When your trust was created, the sponsor delivered to the trustee
securities or contracts for the purchase thereof for deposit in the trust and
the trustee delivered to the sponsor documentation evidencing the ownership of
units of the trust. Additional units of each trust may be issued from time to
time by depositing in the trust additional securities (or contracts for the
purchase thereof together with cash or irrevocable letters of credit) or cash
(including a letter of credit or the equivalent) with instructions to purchase
additional securities. As additional units are issued by a trust as a result of
the deposit of additional securities by the sponsor, the aggregate value of the
securities in the trust will be increased and the fractional undivided interest
in the trust represented by each unit will be decreased. The sponsor may
continue to make additional deposits of securities into a trust, provided that
such additional deposits will be in principal amounts which will generally
maintain the same original percentage relationship among the principal amounts
of the securities in such trust established by the initial deposit of the
securities. Thus, although additional units will be issued, each unit will
generally continue to represent the same principal amount of each security, and
the percentage relationship among the principal amount of each security in the
related trust will generally remain the same. If the sponsor deposits cash to
purchase additional securities, existing and new investors may experience a
dilution of their investments and a reduction in their anticipated income
because of fluctuations in the prices of the securities between the time of the
cash deposit and the purchase of the securities and because the trust will pay
any associated brokerage fees.
Each unit initially offered represents an undivided interest in the related
trust. To the extent that any units are redeemed by the trustee or additional
units are issued as a result of additional securities being deposited by the
sponsor, the fractional undivided interest in a trust represented by each
unredeemed unit will increase or decrease accordingly, although the actual
interest in such trust represented by such fraction will remain unchanged.
Units will remain outstanding until redeemed upon tender to the trustee by
unitholders, which may include the sponsor, or until the termination of the
trust agreement.
A trust consists of (a) the securities listed under "Portfolio" in the
prospectus as may continue to be held from time to time in the trust, (b) any
additional securities acquired and held by the trust pursuant to the provisions
of the trust agreement and (c) any cash held in the accounts of the trust.
Neither the sponsor nor the trustee shall be liable in any way for any failure
in any of the securities. However, should any contract for the purchase of any
of the securities initially deposited in a trust fail, the sponsor will, unless
substantially all of the moneys held in the trust to cover such purchase are
reinvested in substitute securities in accordance with the trust agreement,
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refund the cash and sales charge attributable to such failed contract to all
unitholders on the next distribution date.
INVESTMENT OBJECTIVE AND POLICIES
The GNMA Advantage Income Portfolio was formed for the purpose of obtaining
current monthly distributions of interest and principal through investment in a
portfolio primarily consisting of mortgage-backed securities of the modified
pass-through type on which all payments of principal and interest are fully
guaranteed by the Government National Mortgage Association. The full faith and
credit of the United States is pledged to the payment of the securities in the
GNMA Advantage Income Portfolio but the units themselves are not backed by such
full faith and credit.
There is, of course, no guarantee that the trust's objectives will be
achieved.
In selecting securities for deposit in the GNMA Advantage Income Portfolio,
the sponsor considered the following factors, among others: (i) the types of
such obligations available; (ii) the prices and yields of such obligations
relative to other comparable obligations, including the extent to which such
obligations are traded at a premium or at a discount from par; and (iii) the
maturities of such obligations.
Because regular payments of principal are to be received and certain of the
securities from time to time may be redeemed or will mature in accordance with
their terms or may be sold under certain circumstances described herein, the
trust might not retain its present size and composition.
The trust is a unit investment trust and is not an "actively managed" fund.
Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analysis. The portfolio of a trust, however, will not be
actively managed and therefore the adverse financial condition of an issuer will
not necessarily require the sale of its securities from a portfolio.
The sponsor may not alter the portfolio of a trust by the purchase, sale or
substitution of securities, except in the special circumstances discussed herein
regarding the substitution of replacement securities for any failed securities.
Thus, with the exception of the redemption or maturity of securities in
accordance with their terms, the assets of a trust will remain unchanged under
normal circumstances.
The sponsor may direct the trustee to dispose of securities the value of
which has been affected by certain adverse events including institution of
certain legal proceedings or decline in price or the occurrence of other market
factors, including advance refunding, so that in the opinion of the sponsor the
retention of such securities in a trust would be detrimental to the interest of
the unitholders. The proceeds from any such sales, exclusive of any portion
which represents accrued interest, will be credited to the Principal Account of
such trust for distribution to the unitholders.
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The sponsor is required to instruct the trustee to reject any offer made by
an issuer of securities to issue new securities, or to exchange securities, for
trust securities, the trustee shall reject such offer. However, should any
issuance, exchange or substitution be effected notwithstanding such rejection or
without an initial offer, any securities or property received shall be deposited
in the trust and shall be promptly sold by the trustee unless the sponsor
advises the trustee to keep such securities or properties. The excess cash
proceeds of any such sales will be distributed to unitholders.
The trustee may sell securities, designated by the sponsor, from a trust
for the purpose of redeeming units of such trust tendered for redemption and the
payment of expenses.
In addition, the trustee may dispose of certain securities and take such
further action as may be needed from time to time to ensure that a trust
continues to satisfy the qualifications of a regulated investment company,
including the requirements with respect to diversification under Section 851 of
the Internal Revenue Code, and as may be needed from time to time to avoid the
imposition of any excise tax on a trust as a regulated investment company.
Proceeds from the sale of securities (or any securities or other property
received by a trust in exchange for securities) are credited to the Principal
Account of a trust for distribution to unitholders or to meet redemptions.
Except for failed securities and as provided herein, in the prospectus or in the
trust agreement, the acquisition by a trust of any securities other than the
portfolio securities is prohibited.
Because certain of the securities in certain of the trusts may from time to
time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to unitholders and will not be reinvested, no assurance can be given
that a trust will retain for any length of time its present size and
composition. Neither the sponsor nor the trustee shall be liable in any way for
any default, failure or defect in any security. In the event of a failure to
deliver any security that has been purchased for a trust under a contract,
including those securities purchased on a "when, as and if issued" basis
("Failed Securities"), the sponsor is authorized under the trust agreement to
direct the trustee to acquire other securities ("Replacement Securities") to
make up the original corpus of such trust.
Securities in certain of the trusts may have been purchased on a "when, as
and if issued" or delayed delivery basis with delivery expected to take place
after the first settlement date. Accordingly, the delivery of such securities
may be delayed or may not occur. Interest on these securities begins accruing
to the benefit of unitholders on their respective dates of delivery.
Unitholders of all trusts will be "at risk" with respect to any "when, as and if
issued" or "delayed delivery" securities included in their respective trust
(i.e., may derive either gain or loss from fluctuations in the evaluation of
such securities) from the date they commit for units.
The Replacement Securities must be purchased within 20 days after delivery
of the notice that a contract to deliver a security will not be honored and the
purchase price may not exceed the amount of funds reserved for the purchase of
the Failed Securities. The Replacement Securities (i) must be payable in United
States currency, (ii) must be purchased at a price that results in a yield to
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maturity and a current return at least equal to that of the Failed Securities as
of the trust's inception date, (iii) shall not be "when, as and if issued" or
restricted securities, (iv) must satisfy any rating criteria for securities
originally included in such trust, (v) not cause the units of such trust to
cease to be rated AAA by Standard & Poor's if the units were so rated on the
trust's inception date and (vi) in the case of insured trust must be insured
prior to acquisition by a trust. Whenever a Replacement Security is acquired
for a trust, the trustee shall, within five days thereafter, notify all
unitholders of the trust of the acquisition of the Replacement Security and
shall, on the next monthly distribution date which is more than 30 days
thereafter, make a pro rata distribution of the amount, if any, by which the
cost to the trust of the Failed Security exceeded the cost of the Replacement
Security. Once all of the securities in a trust are acquired, the trustee will
have no power to vary the investments of the trust, i.e., the trustee will have
no managerial power to take advantage of market variations to improve a
unitholder's investment.
If the right of limited substitution described in the preceding paragraphs
is not utilized to acquire Replacement Securities in the event of a failed
contract, the sponsor will refund the sales charge attributable to such Failed
Securities to all unitholders of the trust and the trustee will distribute the
principal and accrued interest attributable to such Failed Securities not more
than 30 days after the date on which the trustee would have been required to
purchase a Replacement Security. In addition, unitholders should be aware that,
at the time of receipt of such principal, they may not be able to reinvest such
proceeds in other securities at a yield equal to or in excess of the yield which
such proceeds would have earned for unitholders of such trust.
Whether or not a Replacement Security is acquired, an amount equal to the
accrued interest (at the coupon rate of the Failed Securities) will be paid to
unitholders of the trust to the date the sponsor removes the Failed Securities
from the trust if the sponsor determines not to purchase a Replacement Security
or to the date of substitution if a Replacement Security is purchased. All such
interest paid to unitholders which accrued after the date of settlement for a
purchase of units will be paid by the sponsor. In the event a Replacement
Security could not be acquired by a trust, the net annual interest income per
unit for such trust would be reduced and the estimated current return and
estimated long-term return might be lowered.
Subsequent to the trust's inception, a security may cease to be rated or
its rating may be reduced below any minimum required as of the trust's
inception. Neither event requires the elimination of such investment from a
trust, but may be considered in the sponsor's determination to direct the
trustee to dispose of such investment.
The sponsor may not alter the portfolio of a trust except upon the
happening of certain extraordinary circumstances. Certain of the securities may
be subject to optional call or mandatory redemption pursuant to sinking fund
provisions, in each case prior to their stated maturity. A bond subject to
optional call is one which is subject to redemption or refunding prior to
maturity at the option of the issuer, often at a premium over par. A refunding
is a method by which a bond issue is redeemed, at or before maturity, by the
proceeds of a new bond issue. A bond subject to sinking fund redemption is one
which is subject to partial call from time to time at par with proceeds from a
fund accumulated for the scheduled retirement of a portion of an issue to
maturity. Special or extraordinary redemption provisions may provide for
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redemption at par of all or a portion of an issue upon the occurrence of certain
circumstances. Redemption pursuant to optional call provisions is more likely
to occur, and redemption pursuant to special or extraordinary redemption
provisions may occur, when the securities have an offering side evaluation which
represents a premium over par, that is, when they are able to be refinanced at a
lower cost. The proceeds from any such call or redemption pursuant to sinking
fund provisions, as well as proceeds from the sale of securities and from
securities which mature in accordance with their terms from a trust, unless
utilized to pay for units tendered for redemption, will be distributed to
unitholders of such trust and will not be used to purchase additional securities
for such trust. Accordingly, any such call, redemption, sale or maturity will
reduce the size and diversity of a trust and the net annual interest income of
such trust and may reduce the estimated current return and the estimated long-
term return. The call, redemption, sale or maturity of securities also may have
tax consequences to a unitholder.
Certain of the securities in certain of the trusts may have been acquired
at a market discount from par value at maturity. The coupon interest rates on
the discount securities at the time they were purchased and deposited in the
trusts were lower than the current market interest rates for newly issued bonds
of comparable rating and type. If such interest rates for newly issued
comparable securities increase, the market discount of previously issued
securities will become greater, and if such interest rates for newly issued
comparable securities decline, the market discount of previously issued
securities will be reduced, other things being equal. Investors should also
note that the value of securities purchased at a market discount will increase
in value faster than securities purchased at a market premium if interest rates
decrease. Conversely, if interest rates increase, the value of securities
purchased at a market discount will decrease faster than securities purchased at
a market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium securities and the prepayment benefit for lower
yielding, discount securities will be reduced. A discount security held to
maturity will have a larger portion of its total return in the form of taxable
income and capital gain and loss in the form of tax-exempt interest income than
a comparable security newly issued at current market rates. Market discount
attributable to interest changes does not indicate a lack of market confidence
in the issue. Neither the sponsor nor the trustee shall be liable in any way
for any default, failure or defect in any of the securities.
Certain of the securities in the trust may be "zero coupon" bonds, i.e., an
original issue discount bond that does not provide for the payment of current
interest. Zero coupon bonds are purchased at a deep discount because the buyer
receives only the right to receive a final payment at the maturity of the bond
and does not receive any periodic interest payments. The effect of owning deep
discount bonds which do not make current interest payments (such as the zero
coupon bonds) is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount earned during the life of such
obligation. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest the income on such obligation at a rate as
high as the implicit yield on the discount obligation, but at the same time
eliminates the holder's ability to reinvest at higher rates in the future. For
this reason, zero coupon bonds are subject to substantially greater price
fluctuations during periods of changing market interest rates than are
securities of comparable quality which pay interest currently.
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To the best of the sponsor's knowledge, there is no litigation pending as
of the trust's inception in respect of any security which might reasonably be
expected to have a material adverse effect on the trust. At any time after the
trust's inception, litigation may be instituted on a variety of grounds with
respect to the securities. The sponsor is unable to predict whether any such
litigation may be instituted, or if instituted, whether such litigation might
have a material adverse effect on the trust. The sponsor and the trustee shall
not be liable in any way for any default, failure or defect in any security.
GINNIE MAE SECURITIES
The Ginnie Mae securities included in the trust are backed by the
indebtedness secured by underlying mortgage pools of up to 30 year mortgages on
1- to 4-family dwellings. The securities are often referred to simply as
"Ginnie Maes." The pool of mortgages which is to underlie a particular new
issue of Ginnie Mae securities is assembled by the proposed issuer of such
Ginnie Mae securities. The issuer is typically a mortgage banking firm, and in
every instance must be a mortgagee approved by and in good standing with the
Federal Housing Administration ("FHA"). In addition, Ginnie Mae imposes its own
criteria on the eligibility of issuers, including a net worth requirement.
The mortgages which are to comprise a new Ginnie Mae pool may have been
originated by the issuer itself in its capacity as a mortgage lender or may be
acquired by the issuer from a third party, such as another mortgage banker, a
banking institution, the Veterans Administration ("VA") (which in certain
instances acts as a direct lender and thus originates its own mortgages) or one
of several other governmental agencies. All mortgages in any given pool will be
insured under the National Housing Act, as amended ("FHA-insured"), or Title V
of the Housing Act of 1949 ("FMHA Insured") or guaranteed under the Servicemen's
Readjustment Act of 1944, as amended, or Chapter 37 of Title 38, U.S.C.
("VA-guaranteed"). Such mortgages will have a date for the first scheduled
monthly payment of principal that is not more than one year prior to the date on
which Ginnie Mae issues its guaranty commitment as described below, will have
comparable interest rates and maturity dates, and will meet additional criteria
of Ginnie Mae. All mortgages in the pools backing the Ginnie Mae securities
contained in the trust are mortgages on 1- to 4-family dwellings (having a
stated maturity of up to 30 years for securities in the trust but an estimated
average life of considerably less as set forth in "Special Information"). In
general, the mortgages in these pools provide for equal monthly payments over
the life of the mortgage (aside from prepayments) designed to repay the
principal of the mortgage over such period, together with interest at the fixed
rate on the unpaid balance.
To obtain Ginnie Mae approval of a new pool of mortgages, the issuer will
file with Ginnie Mae an application containing information concerning itself,
describing generally the pooled mortgages, and requesting that Ginnie Mae
approve the issue and issue its commitment (subject to Ginnie Mae's satisfaction
with the mortgage documents and other relevant documentation) to guarantee the
timely payment of principal of and interest on the Ginnie Mae securities to be
issued by the issuer. If the application is in order, Ginnie Mae will issue its
commitment and will assign a Ginnie Mae pool number to the pool. Upon
completion of the required documentation (including detailed information as to
the underlying mortgages, a custodial agreement with a Federal or state
regulated financial institution satisfactory to Ginnie Mae pursuant to which the
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underlying mortgages will be held in safekeeping, and a detailed guaranty
agreement between Ginnie Mae and the issuer), the issuance of the Ginnie Mae
securities is permitted. When the Ginnie Mae securities are issued, Ginnie Mae
will endorse its guarantee thereon. The aggregate principal amount of Ginnie
Mae securities issued will be equal to the then aggregate unpaid principal
balances of the pooled mortgages. The interest rate borne by the Ginnie Mae
securities is currently fixed at 1/2 of 1% below the interest rate of the pooled
1- to 4-family mortgages, the differential being applied to the payment of
servicing and custodial charges as well as Ginnie Mae's guaranty fee.
Ginnie Mae IIs consist of jumbo pools of mortgages from more than one
issuer. By allowing pools to consist of multiple issuers, it allows for larger
and more geographically diverse pools. Unlike Ginnie Mae Is, which have a
minimum pool size of $1 million, Ginnie Mae IIs have a minimum pool size of $7
million. In addition, the interest rates on the mortgages within the Ginnie
Mae II pools will vary unlike the mortgages within pools in Ginnie Mae Is which
all have the same rate. The rates on the mortgages will vary from 1/2 of 1% to
1.50% above the coupon rate on the Ginnie Mae bond, which is allowed for
servicing and custodial fees as well as the Ginnie Mae's guaranty fee. The
major advantage of Ginnie Mae IIs lies in the fact that a central paying agent
sends one check to the holder on the required payment date. This greatly
simplifies the current procedure of collecting distributions from each issuer of
a Ginnie Mae, since such distributions are often received late.
All of the Ginnie Mae securities in the trust, including the Ginnie
Mae IIs, are of the "fully modified pass-through" type, i.e., they provide for
timely monthly payments to the registered holders thereof (including the trust)
of their pro rata share of the scheduled principal payments on the underlying
mortgages, whether or not collected by the issuers, including, on a pro rata
basis, any prepayments of principal of such mortgages received and interest (net
of the servicing and other charges described above) on the aggregate unpaid
principal balance of such Ginnie Mae securities, whether or not the interest on
the underlying mortgages has been collected by the issuers.
The Ginnie Mae securities in the trust are guaranteed as to timely payment
of principal and interest by Ginnie Mae. Funds received by the issuers on
account of the mortgages backing the Ginnie Mae securities in the trust are
intended to be sufficient to make the required payments of principal of and
interest on such Ginnie Mae securities but, if such funds are insufficient for
that purpose, the guaranty agreements between the issuers and Ginnie Mae require
the issuers to make advances sufficient for such payments. If the issuers fail
to make such payments, Ginnie Mae will do so.
Ginnie Mae is authorized by Section 306(g) of Title III of the National
Housing Act to guarantee the timely payment of and interest on securities which
are based on or backed by a trust or pool composed of mortgages insured by FHA,
the Farmers' Home Administration ("FMHA") or guaranteed by the VA.
Section 306(g) provides further that the full faith and credit of the United
States is pledged to the payment of all amounts which may be required to be paid
under any guaranty under such subsection. An opinion of an Assistant Attorney
General of the United States, dated December 9, 1969, states that such
guaranties "constitute general obligations of the United States backed by its
full faith and credit." ANY STATEMENT THAT A PARTICULAR SECURITY IS BACKED BY
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THE FULL FAITH AND CREDIT OF THE UNITED STATES IS BASED UPON THE OPINION OF AN
ASSISTANT ATTORNEY GENERAL OF THE UNITED STATES AND SHOULD BE SO CONSTRUED.
Ginnie Mae is empowered to borrow from the United States Treasury to the extent
necessary to make any payments of principal and interest required under such
guaranties.
Ginnie Mae securities are backed by the aggregate indebtedness secured by
the underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages and, except
to the extent of funds received by the issuers on account of such mortgages,
Ginnie Mae securities do not constitute a liability of nor evidence any recourse
against such issuers, but recourse thereon is solely against Ginnie Mae.
Holders of Ginnie Mae securities (such as the trust) have no security interest
in or lien on the underlying mortgages.
The Ginnie Mae guaranties referred to herein relate only to payment of
principal of and interest on the Ginnie Mae securities in the trust and not to
the units offered hereby.
Monthly payments of principal will be made, and additional prepayments of
principal may be made, to each trust in respect of the mortgages underlying the
Ginnie Mae securities in the trust. All of the mortgages in the pools relating
to the Ginnie Mae securities in the trust are subject to prepayment without any
significant premium or penalty at the option of the mortgagors. While the
mortgages on 1- to 4-family dwellings underlying the Ginnie Mae securities have
a stated maturity of up to 30 years for the trust, it has been the experience of
the mortgage industry that the average life of comparable mortgages, owing to
prepayments, refinancings and payments from foreclosures, is considerably less.
In the mid-1970's, published yield tables for Ginnie Mae securities
utilized a 12- year average life assumption for Ginnie Mae pools of 26-30 year
mortgages on 1- to 4-family dwellings. This assumption was derived from the FHA
experience relating to prepayments on such mortgages during the period from the
mid-1950's to the mid-1970s. This 12-year average life assumption was
calculated in respect of a period during which mortgage lending rates were
fairly stable. THE ASSUMPTION IS NO LONGER AN ACCURATE MEASURE OF THE AVERAGE
LIFE OF GINNIE MAE SECURITIES OR THEIR UNDERLYING SINGLE FAMILY MORTGAGE POOLS.
RECENTLY IT HAS BEEN OBSERVED THAT MORTGAGES ISSUED AT HIGH INTEREST RATES HAVE
EXPERIENCED ACCELERATED PREPAYMENT RATES WHICH WOULD INDICATE A SIGNIFICANTLY
SHORTER AVERAGE LIFE THAN 12 YEARS. TODAY, RESEARCH ANALYSTS USE COMPLEX
FORMULAE TO SCRUTINIZE THE PREPAYMENTS OF MORTGAGE POOLS IN AN ATTEMPT TO
PREDICT MORE ACCURATELY THE AVERAGE LIFE OF GINNIE MAE SECURITIES.
A number of factors, including homeowner's mobility, change in family size
and mortgage market interest rates will affect the average life of the Ginnie
Mae securities in the trust. For example, Ginnie Mae securities issued during a
period of high interest rates will be backed by a pool of mortgage loans bearing
similarly high rates. In general, during a period of declining interest rates,
new mortgage loans with interest rates lower than those charged during periods
of high rates will become available. To the extent a homeowner has an
outstanding mortgage with a high rate, he may refinance his mortgage at a lower
interest rate or he may rapidly repay his old mortgage. Should this happen, a
Ginnie Mae issued with a high interest rate may experience a rapid prepayment of
principal as the underlying mortgage loans prepay in whole or in part.
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Accordingly, there can be no assurance that the prepayment levels which will be
actually realized will conform to the estimates or experience of the FHA, other
mortgage lenders, dealers or market makers or other Ginnie Mae investors. It is
not possible to meaningfully predict prepayment levels regarding the Ginnie Mae
securities in the trust. The termination of the trust might be accelerated as a
result of prepayments made as described herein.
RISK FACTORS
An investment in units of the trust should be made with an understanding of
the risks which an investment in fixed rate long-term debt obligations may
entail, including the risk that the value of the underlying securities and hence
of the units will decline with increases in interest rates. The value of the
underlying securities will fluctuate inversely with changes in interest rates.
In addition, the potential for appreciation of the underlying securities, which
might otherwise be expected to occur as a result of a decline in interest rates,
may be limited or negated by increased principal prepayments in respect of the
underlying mortgages. For example, the high inflation during certain periods,
together with the fiscal measures adopted to attempt to deal with it, has
resulted in wide fluctuations in interest rates and, thus, in the value of fixed
rate long-term debt obligations generally. The sponsor cannot predict whether
such fluctuations will continue in the future.
The portfolio of the trust consists of Ginnie Mae securities (or contracts
to purchase Ginnie Mae securities) fully guaranteed as to payments of principal
and interest by Ginnie Mae. Each group of Ginnie Mae securities described
herein as having a specified range of maturities includes individual mortgage-
backed securities which have varying ranges of maturities within each range set
forth in "Portfolio" in the prospectus. Current market conditions accord little
or no difference in price among individual Ginnie Mae securities with the same
coupon within certain ranges of stated maturity dates on the basis of the
difference in the maturity dates of each Ginnie Mae security. A purchase of
Ginnie Mae securities with the same coupon rate and maturity date within such
range will be considered an acquisition of the same security for both additional
deposits. In the future, however, the difference in maturity ranges could
affect market value of the individual Ginnie Mae securities. At such time, any
additional purchases by the trust will take into account the maturities of the
individual securities. The mortgages underlying the Ginnie Mae securities in
the trust have an original stated maturity of up to 30 years.
The trust may contain securities which were acquired at a market discount.
Such securities trade at less than par value because the interest coupons
thereon are lower than interest coupons on comparable debt securities being
issued at currently prevailing interest rates. If such interest rates for newly
issued and otherwise comparable securities increase, the market discount of
previously issued securities will become greater, and if such interest rates for
newly issued comparable securities decline, the market discount of previously
issued securities will be reduced, other things being equal. Investors should
also note that the value of Ginnie Mae securities purchased at a market discount
will increase in value faster than Ginnie Mae securities purchased at a market
premium if interest rates decrease. Conversely, if interest rates increase, the
value of Ginnie Mae securities purchased at a market discount will decrease
faster than Ginnie Mae securities purchased at a premium. In addition, if
interest rates rise, the prepayment risk of higher yielding, premium Ginnie Mae
securities and the prepayment benefit for lower yielding, discount Ginnie Mae
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securities will be reduced. Market discount attributable to interest changes
does not indicate a lack of market confidence in the issue. Neither the sponsor
nor the trustee shall be liable in any way for any default, failure or defect in
any of the securities. The trust may contain securities which were acquired at
a market premium. Such securities trade at more than par value because the
interest coupons thereon are higher than interest coupons on comparable debt
securities being issued at currently prevailing interest rates. If such
interest rates for newly issued and otherwise comparable securities decrease,
the market premium of previously issued securities will be increased, and if
such interest rates for newly issued comparable securities increase, the market
premium of previously issued securities will be reduced, other things being
equal. The current returns of securities trading at a market premium are
initially higher than the current returns of comparably rated debt securities of
a similar type issued at currently prevailing interest rates because premium
securities tend to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price is thus
returned not at maturity but through current income payments, early redemption
of a premium security at par or early prepayments of principal will result in a
reduction in yield. Prepayments of principal on securities purchased at a
market premium are more likely than prepayments on securities purchased at par
or at a market discount and the level of prepayments will generally increase if
interest rates decline. Market premium attributable to interest changes does
not indicate market confidence in the issue.
The mortgages underlying a Ginnie Mae security may be prepaid at any time
without penalty. A lower or higher current return on units may occur depending
on a variety of factors such as whether the price at which the respective Ginnie
Mae securities were acquired by the trust is lower or higher than par. During
periods of declining interest rates, prepayments of Ginnie Mae securities may
occur with increasing frequency because, among other reasons, mortgagors may be
able to refinance their outstanding mortgages at lower interest rates. In such
a case, principal will be distributed to unitholders who cannot reinvest such
principal distributions in other securities at an attractive yield.
ADDITIONAL DEPOSITS. The trust agreement authorizes the sponsor to
increase the size of a trust and the number of units thereof by the deposit of
additional securities, or cash (including a letter of credit) with instructions
to purchase additional securities, in such trust and the issuance of a
corresponding number of additional units. If the sponsor deposits cash,
existing and new investors may experience a dilution of their investments and a
reduction in their anticipated income because of fluctuations in the prices of
the securities between the time of the cash deposit and the purchase of the
securities and because a trust will pay the associated brokerage fees.
ADMINISTRATION OF THE TRUST
DISTRIBUTIONS TO UNITHOLDERS. Interest received by a trust, including any
portion of the proceeds from a disposition of securities which represents
accrued interest, is credited by the trustee to the Interest Account for the
trust. All other receipts are credited by the trustee to a separate Principal
Account for the trust. The trustee normally has no cash for distribution to
unitholders until it receives interest payments on the securities in the trust.
On the dates set forth under "Essential Information" in the prospectus, the
trustee will commence distributions, in part from funds advanced by the trustee.
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Thereafter, assuming the trust retains its original size and composition,
after deduction of the fees and expenses and reimbursements (without interest)
to the trustee for any amounts advanced to a trust, the trustee will normally
distribute any income and principal received by the trust on each distribution
date or shortly thereafter to unitholders of record on the preceding Record
Date. Unitholders will receive an amount substantially equal to their pro rata
share of the balance of the Interest Account. However, interest earned at any
point in time will generally be greater than the amount actually received by the
trustee. Therefore, there will generally remain an item of accrued interest
that is added to the daily value of the units. If unitholders sell or redeem
all or a portion of their units, they will be paid their proportionate share of
the accrued interest to, but not including, the third business day after the
date of a sale or to the date of tender in the case of a redemption.
Unitholders of record on the first record date will receive an interest
distribution on the first distribution date. Because the period of time between
the first distribution date and the regular distribution dates may not be a full
period, the first regular distributions may be partial distributions.
Unitholders of a trust which contains U.S. Treasury STRIPS should note that
these securities are sold at a deep discount because the buyer of those
securities obtains only the right to receive a future fixed payment on the
security and not any rights to periodic interest payments thereon. Purchasers
of these securities acquire, in effect, discount obligations that are
economically identical to the "zero-coupon bonds" that have been issued by
corporations. Zero coupon bonds are debt obligations which do not make any
periodic payments of interest prior to maturity and accordingly are issued at a
deep discount. Under generally accepted accounting principles, a holder of a
security purchased at a discount normally must report as an item of income for
financial accounting purposes the portion of the discount attributable to the
applicable reporting period. The calculation of this attributable income would
be made on the "interest" method which generally will result in a lesser amount
of includible income in earlier periods and a correspondingly larger amount in
later periods. For Federal income tax purposes, the inclusion will be on a
basis that reflects the effective compounding of accrued but unpaid interest
effectively represented by the discount. Although this treatment is similar to
the "interest" method described above, the "interest" method may differ to the
extent that generally accepted accounting principles permit or require the
inclusion of interest on the basis of a compounding period other than the semi-
annual period.
Persons who purchase units between a record date and a distribution date
will receive their first distribution on the second distribution date following
their purchase of units. Since interest on securities in the trust is payable
at varying intervals and distributions are made to unitholders at different
intervals from receipt of interest, the interest accruing to a trust may not be
equal to the amount of money received and available for distribution from the
Interest Account. Therefore, on each distribution date the amount of interest
actually deposited in the Interest Account and available for distribution may be
slightly more or less than the interest distribution made. In order to
eliminate fluctuations in interest distributions resulting from such variances,
the trustee is authorized by the trust agreement to advance such amounts as may
be necessary to provide interest distributions of approximately equal amounts.
The trustee will be reimbursed, without interest, for any such advances from
funds available in the Interest Account.
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The trustee will distribute on each distribution date or shortly
thereafter, to each unitholder of record on the preceding record date, an amount
substantially equal to such holder's pro rata share of the available cash
balance, if any, in the Principal Account computed as of the close of business
on the preceding record date. However, no distribution will be required if the
balance in the Principal Account is less than $.01 per unit.
In connection with GNMA Advantage Income Portfolios only, the terms of the
Ginnie Mae securities provide for payment to the holders thereof (including a
GNMA Advantage Income Portfolio) on the fifteenth or twentieth day of each month
(depending on the type of Ginnie Mae securities) of amounts collected by or due
to the issuers thereof with respect to the underlying mortgages during the
preceding month. The trustee will collect the interest due a GNMA Advantage
Income Portfolio on the securities therein as it becomes payable and credit such
interest to a separate Interest Account for such GNMA Advantage Income Portfolio
created by the trust agreement. Distributions will be made to each unitholder
of record of a GNMA Advantage Income Portfolio on the appropriate distribution
date and will consist of an amount substantially equal to such unitholder's pro
rata share of the cash balances, if any, in the Interest Account and the
Principal Account of such GNMA Advantage Income Portfolio, computed as of the
close of business on the preceding record date.
STATEMENTS TO UNITHOLDERS. With each distribution, the trustee will
furnish to each unitholder a statement of the amount of income and the amount of
other receipts, if any, which are being distributed, expressed in each case as a
dollar amount per unit.
The accounts of a trust are required to be audited annually, at the related
trust's expense, by independent public accountants designated by the sponsor,
unless the sponsor determines that such an audit would not be in the best
interest of the unitholders of the trust. The accountants' report will be
furnished by the trustee to any unitholder upon written request. Within a
reasonable period of time after the end of each calendar year, the trustee shall
furnish to each person who at any time during the calendar year was a unitholder
of a trust a statement, covering the calendar year, setting forth for the trust:
(A) As to the Interest Account:
(1) Income received;
(2) Deductions for applicable taxes and for fees and expenses of the trust
and for redemptions of units, if any; and
(3) The balance remaining after such distributions and deductions,
expressed in each case both as a total dollar amount and as a dollar
amount representing the pro rata share of each unit outstanding on the
last business day of such calendar year; and
(B) As to the Principal Account:
(1) The dates of disposition of any securities and the net proceeds
received therefrom;
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(2) Deductions for payment of applicable taxes and fees and expenses of
the trust and for redemptions of units, if any; and
(3) The balance remaining after such distributions and deductions
expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each unit outstanding on the last
business day of such calendar year; and
(C) The following information:
(1) A list of the securities as of the last business day of such calendar
year;
(2) The number of units outstanding on the last business day of such
calendar year;
(3) The redemption price based on the last evaluation made during such
calendar year;
(4) The amount actually distributed during such calendar year from the
Interest and Principal Accounts separately stated, expressed both as
total dollar amounts and as dollar amounts per unit outstanding on the
record dates for each such distribution.
RIGHTS OF UNITHOLDERS. A unitholder may at any time tender units to the
trustee for redemption. The death or incapacity of any unitholder will not
operate to terminate a trust nor entitle legal representatives or heirs to claim
an accounting or to bring any action or proceeding in any court for partition or
winding up of a trust. No unitholder shall have the right to control the
operation and management of a trust in any manner, except to vote with respect
to the amendment of the trust agreement or termination of a trust.
AMENDMENT AND TERMINATION. The trust agreement may be amended by the
trustee and the sponsor without the consent of any of the unitholders: (1) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor governmental
agency; or (3) to make such provisions as shall not adversely affect the
interests of the unitholders. The trust agreement with respect to any trust may
also be amended in any respect by the sponsor and the trustee, or any of the
provisions thereof may be waived, with the consent of the holders of units
representing 66 2/3% of the units then outstanding of the trust, provided that
no such amendment or waiver will reduce the interest of any unitholder thereof
without the consent of such unitholder or reduce the percentage of units
required to consent to any such amendment or waiver without the consent of all
unitholders of the trust. In no event shall the trust agreement be amended to
increase the number of units of a trust issuable thereunder or to permit the
acquisition of any securities in addition to or in substitution for those
initially deposited in the trust, except in accordance with the provisions of
the trust agreement. The trustee shall promptly notify unitholders of the
substance of any such amendment.
The trust agreement provides that a trust shall terminate upon the
maturity, liquidation, redemption or other disposition of the last of the
securities held in the trust but in no event is it to continue beyond the
mandatory termination date. If the value of a trust shall be less than the
applicable minimum value stated in the prospectus (generally 40% of the total
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value of securities deposited in the trust during the initial offering period),
the trustee may, in its discretion, and shall, when so directed by the sponsor,
terminate the trust. A trust may be terminated at any time by the holders of
units representing 66 2/3% of the units thereof then outstanding. A trust
will be liquidated by the trustee in the event that a sufficient number of units
of the trust not yet sold are tendered for redemption by the sponsor, so that
the net worth of the trust would be reduced to less than 40% of the value of the
securities at the time they were deposited in the trust. If a trust is
liquidated because of the redemption of unsold units by the sponsor, the sponsor
will refund to each purchaser of units the entire sales charge paid by such
purchaser.
Within a reasonable period after termination, the trustee will sell any
securities remaining in a trust and, after paying all expenses and charges
incurred by the trust, will distribute to unitholders thereof (upon surrender
for cancellation of certificates for units, if issued) their pro rata share of
the balances remaining in the Interest and Principal Accounts of the trust.
THE TRUSTEE. The trustee is The Bank of New York, a trust company
organized under the laws of New York. The Bank of New York has its unit
investment trust division offices at 2 Hanson Place, Brooklyn, New York 11217,
(800) 221-7668. The Bank of New York is subject to supervision and examination
by the Superintendent of Banks of the State of New York and the Board of
Governors of the Federal Reserve System, and its deposits are insured by the
Federal Deposit Insurance Corporation to the extent permitted by law.
The trustee, whose duties are ministerial in nature, has not participated
in selecting the portfolio of any trust. In accordance with the trust
agreement, the trustee shall keep records of all transactions at its office.
Such records shall include the name and address of, and the number of units held
by, every unitholder of a trust. Such books and records shall be open to
inspection by any unitholder at all reasonable times during usual business
hours. The trustee shall make such annual or other reports as may from time to
time be required under any applicable state or federal statute, rule or
regulation. The trustee shall keep a certified copy or duplicate original of
the trust agreement on file in its office available for inspection at all
reasonable times during usual business hours by any unitholder, together with a
current list of the securities held in each trust. Pursuant to the trust
agreement, the trustee may employ one or more agents for the purpose of custody
and safeguarding of securities comprising a trust.
Under the trust agreement, the trustee or any successor trustee may resign
and be discharged of a trust created by the trust agreement by executing an
instrument in writing and filing the same with the sponsor.
The trustee or successor trustee must mail a copy of the notice of
resignation to all unitholders then of record, not less than sixty days before
the date specified in such notice when such resignation is to take effect. The
sponsor upon receiving notice of such resignation is obligated to appoint a
successor trustee promptly. If, upon such resignation, no successor trustee has
been appointed and has accepted the appointment within thirty days after
notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. In case at any time the
trustee shall not meet the requirements set forth in the trust agreement, or
shall become incapable of acting, or if a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of the trustee in
an involuntary case, or the trustee shall commence a voluntary case, under any
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applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or any receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) for the trustee or for any substantial part of its
property shall be appointed, or the trustee shall generally fail to pay its
debts as they become due, or shall fail to meet such written standards for the
trustee's performance as shall be established from time to time by the sponsor,
or if the sponsor determines in good faith that there has occurred either (1) a
material deterioration in the creditworthiness of the trustee or (2) one or more
grossly negligent acts on the part of the trustee with respect to a trust, the
sponsor, upon sixty days' prior written notice, may remove the trustee and
appoint a successor trustee, as hereinafter provided, by written instrument, in
duplicate, one copy of which shall be delivered to the trustee so removed and
one copy to the successor trustee. Notice of such removal and appointment shall
be mailed to each unitholder by the sponsor. Upon execution of a written
acceptance of such appointment by such successor trustee, all the rights,
powers, duties and obligations of the original trustee shall vest in the
successor. The trustee must be a corporation organized under the laws of the
United States, or any state thereof, be authorized under such laws to exercise
trust powers and have at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
THE SPONSOR. The sponsor of the trust is Fixed Income Securities, L.P.
acting through its Advisor's Asset Management division. The sponsor is a
broker-dealer specializing in providing services to broker-dealers, registered
representatives, investment advisers and other financial professionals. The
sponsor's headquarters are located at 18925 Base Camp Road, Monument, Colorado
80132. You can contact the Advisor's Asset Management division at 8100 East 22nd
Street North, Suite 900B, Wichita, Kansas 67226-2309 or by using the contacts
listed on the back cover of the prospectus. The sponsor is a registered broker-
dealer and investment adviser and a member of the National Association of
Securities Dealers, Inc. (NASD), the Municipal Securities Rulemaking Board
(MSRB), and the Securities Investor Protection Corporation (SIPC).
If at any time the sponsor shall fail to perform any of its duties under
the trust agreement or shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, (b) terminate the trust agreement and liquidate any trust as
provided therein, or (c) continue to act as trustee without terminating the
trust agreement.
THE EVALUATOR AND SUPERVISOR. Fixed Income Securities, L.P., the sponsor,
also serves as evaluator and supervisor. The evaluator and supervisor may
resign or be removed by the trustee in which event the trustee is to use its
best efforts to appoint a satisfactory successor. Such resignation or removal
shall become effective upon acceptance of appointment by the successor
evaluator. If upon resignation of the evaluator no successor has accepted
appointment within thirty days after notice of resignation, the evaluator may
apply to a court of competent jurisdiction for the appointment of a successor.
Notice of such resignation or removal and appointment shall be mailed by the
trustee to each unitholder.
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LIMITATIONS ON LIABILITY. The sponsor, evaluator, and supervisor are
liable for the performance of their obligations arising from their
responsibilities under the trust agreement but will be under no liability to the
unitholders for taking any action or refraining from any action in good faith
pursuant to the trust agreement or for errors in judgment, except in cases of
its own gross negligence, bad faith or willful misconduct or its reckless
disregard for its duties thereunder. The sponsor shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any securities.
The trust agreement provides that the trustee shall be under no liability
for any action taken in good faith in reliance upon prima facie properly
executed documents or for the disposition of moneys, securities or certificates
except by reason of its own gross negligence, bad faith or willful misconduct,
or its reckless disregard for its duties under the trust agreement, nor shall
the trustee be liable or responsible in any way for depreciation or loss
incurred by reason of the sale by the trustee of any securities. In the event
that the sponsor shall fail to act, the trustee may act and shall not be liable
for any such action taken by it in good faith. The trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the securities or upon the interest thereof. In addition, the trust
agreement contains other customary provisions limiting the liability of the
trustee.
The trustee and unitholders may rely on any evaluation furnished by the
evaluator and shall have no responsibility for the accuracy thereof. The trust
agreement provides that the determinations made by the evaluator shall be made
in good faith upon the basis of the best information available to it, provided,
however, that the evaluator shall be under no liability to the trustee or
unitholders for errors in judgment, but shall be liable for its gross
negligence, bad faith or willful misconduct or its reckless disregard for its
obligations under the trust agreement.
EXPENSES OF THE TRUST. The sponsor will not charge a trust any fees for
services performed as sponsor. The sponsor will receive a portion of the sale
commissions paid in connection with the purchase of units and will share in
profits, if any, related to the deposit of securities in the trust.
The trustee receives for its services that fee set forth in the prospectus.
The trustee's fee which is calculated and paid monthly is based on the largest
number of units in a trust during the calendar year except during the initial
offering period when it is based on the largest number of units outstanding
during the month preceding payment. The trustee benefits to the extent there
are funds for future distributions, payment of expenses and redemptions in the
Principal and Interest Accounts since these Accounts are non-interest bearing
and the amounts earned by the trustee are retained by the trustee. Part of the
trustee's compensation for its services to a trust is expected to result from
the use of these funds.
The supervisor will charge a trust a surveillance fee for services
performed for the trust in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation received from other unit investment trusts for which the sponsor
both acts as sponsor and provides portfolio surveillance, exceed the aggregate
cost to the sponsor for providing such services. Such fee shall be based on the
total number of units of the related trust outstanding as of the January record
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date for any annual period, except during the initial offering period the fee
will be based on the units outstanding at the end of each month.
For evaluation of the securities in a trust, the evaluator shall receive an
evaluation fee in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation from other unit investment trusts for which the sponsor acts as
sponsor and provides evaluation services, exceed the aggregate cost for
providing such services.
For providing bookkeeping and administrative services to a trust, the
sponsor shall receive an administration fee in an amount not to exceed that
amount set forth in the prospectus but in no event will such compensation, when
combined with all compensation from other unit investment trusts for which the
sponsor acts as sponsor and provides evaluation services, exceed the aggregate
cost for providing such services.
The trustee's fee, sponsor's fee, supervisor's fee and evaluator's fee are
deducted from the Interest Account of the related trust to the extent funds are
available and then from the Principal Account. Each such fee may be increased
without approval of unitholders by amounts not exceeding a proportionate
increase in the Consumer Price Index or any equivalent index substituted
therefor.
The following additional charges are or may be incurred by the trust:
(a) fees for the trustee's extraordinary services; (b) expenses of the trustee
(including legal and auditing expenses and reimbursement of the cost of advances
to the trust for payment of expenses and distributions, but not including any
fees and expenses charged by an agent for custody and safeguarding of
securities) and of counsel, if any; (c) various governmental charges;
(d) expenses and costs of any action taken by the trustee to protect the trust
or the rights and interests of the unitholders; (e) indemnification of the
trustee for any loss, liability or expense incurred by it in the administration
of the trust not resulting from negligence, bad faith or willful misconduct on
its part or its reckless disregard for its obligations under the trust
agreement; (f) indemnification of the sponsor for any loss, liability or expense
incurred in acting in that capacity without gross negligence, bad faith or
willful misconduct or its reckless disregard for its obligations under the trust
agreement; (g) any offering costs incurred after the end of the initial offering
period; and (h) expenditures incurred in contacting unitholders upon termination
of the trust. The fees and expenses set forth herein are payable out of a trust
and, when owing to the trustee, are secured by a lien on the trust. If the
balances in the Interest and Principal Accounts are insufficient to provide for
amounts payable by the trust, the trustee has the power to sell securities to
pay such amounts. These sales may result in capital gains or losses to
unitholders. A trust may pay the costs of updating its registration statement
each year.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
When a trust sells securities, the composition and diversity of the
securities in the trust may be altered. In order to obtain the best price for a
trust, it may be necessary for the sponsor to specify minimum amounts in which
blocks of securities are to be sold. In effecting purchases and sales of a
trust's portfolio securities, the sponsor may direct that orders be placed with
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and brokerage commissions be paid to brokers, including brokers which may be
affiliated with the trust, the sponsor or dealers participating in the offering
of units.
PURCHASE, REDEMPTION AND PRICING OF UNITS
PUBLIC OFFERING PRICE. Units of a trust are offered at the public offering
price thereof. During the initial offering period, the public offering price
per unit is equal to the net asset value per unit (generally based on the
offering side evaluations of the securities) plus the applicable sales fee
referred to in the prospectus. The public offering price for secondary market
transactions, on the other hand, is based on the net asset value per unit
(generally based on the bid side evaluations of the securities) plus a sales
fee. The initial sales fee is equal to the difference between the maximum sales
fee and the remaining deferred sales fee. The sales fee as a percentage of the
public offering price and the net amount invested is set forth in the
prospectus. The deferred sales fee is a fixed dollar amount and will be
collected in installments as described in the prospectus. Units purchased after
the initial deferred sales fee payment will be subject to the remaining deferred
sales fee payments. Units sold or redeemed prior to such time as the entire
applicable deferred sales fee has been collected will be assessed the remaining
deferred sales fee at the time of such sale or redemption. During the initial
offering period, a portion of the public offering price includes an amount of
securities to pay for all or a portion of the costs incurred in establishing a
trust. These costs include the cost of preparing the registration statement,
the trust indenture and other closing documents, registering units with the
Securities and Exchange Commission and states, the initial audit of the trust
portfolio, legal fees and the initial fees and expenses of the trustee. These
costs will be deducted from a trust as of the end of the initial offering period
or after six months, if earlier.
Had units of a trust been available for sale at the opening of business on
the inception date of the trust, the public offering price would have been as
shown under "Essential Information" in the prospectus. The public offering
price per unit of a trust on the date of the prospectus or on any subsequent
date will vary from the amount stated under "Essential Information" in the
prospectus in accordance with fluctuations in the prices of the underlying
securities and the amount of accrued interest on the units. Net asset value per
unit is determined by dividing the value of a trust's portfolio securities
(including any accrued interest), cash and other assets, less all liabilities
(including accrued expenses), by the total number of units outstanding. The
portfolio securities are valued at their current market value or their fair
value as determined in good faith by the Evaluator. The aggregate bid and
offering side evaluations of the securities shall be determined (a) on the basis
of current bid or offering prices of the securities, (b) if bid or offering
prices are not available for any particular security, on the basis of current
bid or offering prices for comparable securities, (c) by determining the value
of securities on the bid or offer side of the market by appraisal, or (d) by any
combination of the above.
The foregoing evaluations and computations shall be made as of the close of
regular trading on the New York Stock Exchange, on each business day commencing
with the trust's inception date of the securities, effective for all sales made
during the preceding 24-hour period.
The interest on the securities deposited in a trust, less the related
estimated fees and expenses, will accrue daily for trusts other than GNMA
Advantage Income Portfolios. The amount of net interest income which accrues
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per unit may change as securities mature or are redeemed, exchanged or sold, or
as the expenses of a trust change or the number of outstanding units of a trust
changes.
Although payment is normally made three business days following the order
for purchase, payments may be made prior thereto. A person will become the
owner of units on the date of settlement provided payment has been received.
Cash, if any, made available to the sponsor prior to the date of settlement for
the purchase of units may be used in the sponsor's business and may be deemed to
be a benefit to the sponsor, subject to the limitations of the Securities
Exchange Act of 1934. If a unitholder desires to have certificates representing
units purchased, such certificates will be delivered as soon as possible
following his written request therefor.
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest
on a security from the last day on which interest thereon was paid. Interest on
securities generally is paid monthly or semi-annually although a trust accrues
such interest daily. Because of this, a trust always has an amount of interest
earned but not yet collected by the trustee. For this reason, with respect to
sales settling subsequent to the first settlement date, the public offering
price of units of a trust will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of a trust the amount, if any, of accrued interest paid
on their units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the public offering price in the sale of units to
the public, the trustee will advance the amount of accrued interest as of the
first settlement date and the same will be distributed to the sponsor as the
unitholder of record as of the first settlement date. Consequently, the amount
of accrued interest to be added to the public offering price of units will
include only accrued interest from the first settlement date to the date of
settlement, less any distributions from the Interest Account subsequent to the
first settlement date.
Because of the varying interest payment dates of securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the applicable trusts and distributed to unitholders.
Therefore, there will always remain an item of accrued interest that is added to
the value of the units. If a unitholder sells or redeems all or a portion of
his units, he will be entitled to receive his proportionate share of the accrued
interest from the purchaser of his units. Since the trustee has the use of the
funds held in the Interest Account for distributions to unitholders and since
such account is non-interest-bearing to unitholders, the trustee benefits
thereby.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. While the net
asset value of units during the initial offering period will generally be
determined on the basis of the current offering prices of the securities in a
trust, after the initial offering period the net asset value of units will
generally be determined on the basis of the current bid prices of the
securities. As of the opening of business on the trust's inception date, the
public offering price per unit exceeded the redemption price at which units
could have been redeemed by the amount of the sales charge. The bid prices for
on securities similar to those in the trust are lower than the offering prices
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thereof. For this reason, among others (including fluctuations in the market
prices of the securities and the fact that the public offering price includes a
sales charge), the amount realized by a unitholder upon any redemption of units
may be less than the price paid for such units.
PUBLIC DISTRIBUTION OF UNITS. The sponsor intends to qualify the units for
sale in a number of states. Units will be sold through dealers who are members
of the National Association of Securities Dealers, Inc. and through others.
Sales may be made to or through dealers at prices which represent discounts from
the public offering price as set forth in the prospectus. Certain commercial
banks may be making units available to their customers on an agency basis. The
sponsor reserves the right to change the discounts from time to time. In
addition to such discounts, the sponsor may, from time to time, pay or allow an
additional discount, in the form of cash or other compensation, to dealers
employing registered representatives who sell, during a specified time period, a
minimum dollar amount of units of a trust and other unit investment trusts
created by the sponsor. The difference between the discount and the sales
charge will be retained by the sponsor.
The sponsor reserves the right to reject, in whole or in part, any order
for the purchase of units.
PROFITS OF SPONSOR. The sponsor will receive gross sales charges equal to
the percentage of the offering price of the units of such trusts stated in the
prospectus and will pay a fixed portion of such sales charges to dealers and
agents. In addition, the sponsor may realize a profit or a loss resulting from
the difference between the purchase prices of the securities to the sponsor and
the cost of such securities to a trust, which is based on the offering side
evaluation of the securities. The sponsor may also realize profits or losses
with respect to securities deposited in a trust which were acquired from
underwriting syndicates of which the sponsor was a member. An underwriter or
underwriting syndicate purchases securities from the issuer on a negotiated or
competitive bid basis, as principal, with the motive of marketing such
securities to investors at a profit. The sponsor may realize additional profits
or losses during the initial offering period on unsold units as a result of
changes in the daily evaluation of the securities in a trust.
MARKET FOR UNITS. After the initial offering period, while not obligated
to do so, the sponsor may, subject to change at any time, maintain a market for
units of the trust offered hereby and to continuously offer to purchase said
units at the net asset value, determined by the evaluator based on the aggregate
bid prices of the underlying securities in the trust, together with any accrued
interest to the expected dates of settlement. To the extent that a market is
maintained during the initial offering period, the prices at which units will be
repurchased will be based upon the aggregate offering side evaluation of the
securities in the trust. The aggregate bid prices of the underlying securities
in each trust are expected to be less than the related aggregate offering prices
(which is generally the evaluation method used during the initial public
offering period). Accordingly, unitholders who wish to dispose of their units
should inquire of their bank or broker as to current market prices in order to
determine whether there is in existence any price in excess of the redemption
price and, if so, the amount thereof.
The offering price of any units resold by the sponsor will be in accord
with that described in the currently effective prospectus describing such units.
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Any profit or loss resulting from the resale of such units will belong to the
sponsor. The sponsor may suspend or discontinue purchases of units of any trust
if the supply of units exceeds demand, or for other business reasons.
REDEMPTION. A unitholder who does not dispose of units in the secondary
market described above may cause units to be redeemed by the trustee by making a
written request to the trustee at its unit investment trust division office and,
in the case of units evidenced by a certificate, by tendering such certificate
to the trustee properly endorsed or accompanied by a written instrument or
instruments of transfer in form satisfactory to the trustee. Unitholders must
sign the request, and such certificate or transfer instrument, exactly as their
names appear on the records of the trustee and on any certificate representing
the units to be redeemed. If the amount of the redemption is $500 or less and
the proceeds are payable to the unitholder(s) of record at the address of
record, no signature guarantee is necessary for redemptions by individual
account owners (including joint owners). Additional documentation may be
requested, and a signature guarantee is always required, from corporations,
executors, administrators, trustees, guardians or associations. The signatures
must be guaranteed by a participant in the Securities Transfer Agents Medallion
Program ("STAMP") or such other signature guaranty program in addition to, or in
substitution for, STAMP, as may be accepted by the trustee. A certificate
should only be sent by registered or certified mail for the protection of the
unitholder. Since tender of the certificate is required for redemption when one
has been issued, units represented by a certificate cannot be redeemed until the
certificate representing such units has been received by the purchasers.
Redemption shall be made by the trustee no later than the seventh day
following the day on which a tender for redemption is received (the "Redemption
Date") by payment of cash equivalent to the redemption price, determined as set
forth below under "Computation of Redemption Price," as of the close of regular
trading on the New York Stock Exchange next following such tender, multiplied by
the number of units being redeemed. Any units redeemed shall be canceled and
any undivided fractional interest in the related trust extinguished. The price
received upon redemption might be more or less than the amount paid by the
unitholder depending on the value of the securities in the trust at the time of
redemption.
Under regulations issued by the Internal Revenue Service, the trustee is
required to withhold a specified percentage of the principal amount of a unit
redemption if the trustee has not been furnished the redeeming unitholder's tax
identification number in the manner required by such regulations. Any amount so
withheld is transmitted to the Internal Revenue Service and may be recovered by
the unitholder only when filing a tax return. Under normal circumstances the
trustee obtains the unitholder's tax identification number from the selling
broker. However, any time a unitholder elects to tender units for redemption,
such unitholder should make sure that the trustee has been provided a certified
tax identification number in order to avoid this possible "back-up withholding."
In the event the trustee has not been previously provided such number, one must
be provided at the time redemption is requested. Any amounts paid on redemption
representing interest shall be withdrawn from the Interest Account of a trust to
the extent that funds are available for such purpose. All other amounts paid on
redemption shall be withdrawn from the Principal Account for a trust.
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The trustee is empowered to sell securities in order to make funds
available for the redemption of units. To the extent that securities are sold
or redeemed in kind, the size of a trust will be, and the diversity of a trust
may be, reduced but each remaining unit will continue to represent approximately
the same proportional interest in each security. Sales may be required at a
time when securities would not otherwise be sold and may result in lower prices
than might otherwise be realized. The price received upon redemption may be
more or less than the amount paid by the unitholder depending on the value of
the securities in the portfolio at the time of redemption.
In the case of a U.S. Treasury Portfolio or a GNMA Advantage Income
Portfolio, securities will generally be sold by the trustee so as to maintain,
as closely as practicable, the original percentage relationship between the
principal amounts of the securities in such trusts. The securities to be sold
for purposes of redeeming units will be selected from a list supplied by the
sponsor. The securities will be chosen for this list by the sponsor on the
basis of such market and credit factors as it may determine are in the best
interests of such trusts. Provision is made under the related trust agreements
for the sponsor to specify minimum face amounts in which blocks of securities
are to be sold in order to obtain the best price available. While such minimum
amounts may vary from time to time in accordance with market conditions, it is
anticipated that the minimum face amounts which would be specified would range
from $25,000 to $100,000. Sales may be required at a time when the securities
would not otherwise be sold and might result in lower prices than might
otherwise be realized. Moreover, due to the minimum principal amount in which
U.S. Treasury obligations and Ginnie Mae securities may be required to be sold,
the proceeds of such sales may exceed the amount necessary for payment of units
redeemed. To the extent not used to meet other redemption requests in such
trusts, such excess proceeds will be distributed pro rata to all remaining
unitholders of record of such trusts, unless reinvested in substitute
securities.
The trustee is irrevocably authorized in its discretion, if the sponsor
does not elect to purchase any unit tendered for redemption, in lieu of
redeeming such units, to sell such units in the over-the-counter market for the
account of tendering unitholders at prices which will return to the unitholders
amounts in cash, net after brokerage commissions, transfer taxes and other
charges, equal to or in excess of the redemption price for such units. In the
event of any such sale, the trustee shall pay the net proceeds thereof to the
unitholders on the day they would otherwise be entitled to receive payment of
the redemption price.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or during which (as determined by the Securities
and Exchange Commission) trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of which
disposal by the trustee of securities is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the underlying
securities in accordance with the trust agreement; or (3) for such other period
as the Securities and Exchange Commission may by order permit. The trustee is
not liable to any person in any way for any loss or damage which may result from
any such suspension or postponement.
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COMPUTATION OF REDEMPTION PRICE. The redemption price for units (the net
asset value) of each trust is computed by the evaluator as of the evaluation
time stated in the prospectus next occurring after the tendering of a unit for
redemption and on any other business day desired by it, by:
A. adding: (1) the cash on hand in the trust other than cash deposited in the
trust to purchase securities not applied to the purchase of such
securities; (2) the aggregate value of each issue of the securities
(including "when issued" contracts, if any) held in the trust as determined
by the evaluator on the basis of bid prices therefor; and (3) interest
accrued and unpaid on the securities in the trust as of the date of
computation;
B. deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the trust and for which no deductions
have been previously made for the purpose of additions to the Reserve
Account; (2) an amount representing estimated accrued expenses of the
trust, including but not limited to fees and expenses of the trustee
(including legal and auditing fees and any insurance costs), the evaluator,
the sponsor and bond counsel, if any; (3) cash held for distribution to
unitholders of record as of the business day prior to the evaluation being
made; and (4) other liabilities incurred by the trust; and
C. finally dividing the results of such computation by the number of units of
the trust outstanding as of the date thereof.
RETIREMENT PLANS. A trust may be suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other qualified retirement
plans. Generally, capital gains and income received under each of the foregoing
plans are deferred from Federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax-deferred rollover treatment. Investors
considering participation in any such plan should review specific tax laws
related thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan. Such plans are offered
by brokerage firms and other financial institutions. The trust will lower the
minimum investment requirement for IRA accounts. Fees and charges with respect
to such plans may vary.
OWNERSHIP OF UNITS. Ownership of units will not be evidenced by
certificates unless a unitholder, the unitholder's registered broker/dealer or
the clearing agent for such broker/dealer makes a written request to the
trustee. Units are transferable by making a written request to the trustee and,
in the case of units evidenced by a certificate, by presenting and surrendering
such certificate to the trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent by registered or
certified mail for the protection of the unitholder. Unitholders must sign such
written request, and such certificate or transfer instrument, exactly as their
names appear on the records of the trustee and on any certificate representing
the units to be transferred. Such signatures must be guaranteed as described
above.
Units may be purchased and certificates, if requested, will be issued in
denominations of one unit or any multiple thereof, subject to the minimum
investment requirement. Fractions of units, if any, will be computed to three
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decimal places. Any certificate issued will be numbered serially for
identification, issued in fully registered form and will be transferable only on
the books of the trustee. The trustee may require a unitholder to pay a
reasonable fee, to be determined in the sole discretion of the trustee, for each
certificate re-issued or transferred and to pay any governmental charge that may
be imposed in connection with each such transfer or interchange. The trustee at
the present time does not intend to charge for the normal transfer or
interchange of certificates. Destroyed, stolen, mutilated or lost certificates
will be replaced upon delivery to the trustee of satisfactory indemnity
(generally amounting to 3% of the market value of the units), affidavit of loss,
evidence of ownership and payment of expenses incurred.
PERFORMANCE INFORMATION
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN. As of
the opening of business on the trust's inception date, the estimated long-term
return and the estimated current return, if applicable, for each trust were as
set forth in the "Essential Information" for each trust in the prospectus.
Estimated current return is calculated by dividing the estimated net annual
interest income per unit by the public offering price. The estimated net annual
interest income per unit will vary with changes in fees and expenses of the
trustee, the sponsor and the evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of the securities while the public
offering price will vary with changes in the offering price of the underlying
securities and accrued interest; therefore, there is no assurance that the
present estimated current return will be realized in the future. Estimated
long-term return is calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements or average life of
all of the securities in a trust and (2) takes into account the expenses and
sales charge associated with each trust unit. Since the market values and
estimated retirements of the securities and the expenses of a trust will
change, there is no assurance that the present estimated long-term return will
be realized in the future. Estimated current return and estimated long-term
return are expected to differ because the calculation of estimated long-term
return reflects the estimated date and amount of principal returned while
estimated current return calculations include only net annual interest income
and public offering price.
GENERAL. Information contained in this Information Supplement or in the
prospectus, as it currently exists or as further updated, may also be included
from time to time in other prospectuses or in advertising material. Information
on the performance of a trust strategy or the actual performance of a trust may
be included from time to time in other prospectuses or advertising material and
may reflect sales charges and expenses of a trust. The performance of a trust
may also be compared to the performance of money managers as reported in SEI
Fund Evaluation Survey or of mutual funds as reported by Lipper Analytical
Services Inc. (which calculates total return using actual dividends on ex-dates
accumulated for the quarter and reinvested at quarter end), Money Magazine Fund
Watch (which rates fund performance over a specified time period after sales
charge and assuming all dividends reinvested) or Wiesenberger Investment
Companies Service (which states fund performance annually on a total return
basis) or of the New York Stock Exchange Composite Index, the American Stock
Exchange Index (unmanaged indices of stocks traded on the New York and American
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Stock Exchanges, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks) or the Standard & Poor's 500 Index (an
unmanaged diversified index of 500 stocks) or similar measurement standards
during the same period of time.
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CONTENTS OF REGISTRATION STATEMENT
This Amendment to the Registration Statement comprises the following:
The facing sheet
The prospectus and information supplement
The signatures
The consents of evaluator, independent auditors and legal counsel
The following exhibits:
1.1 Trust Agreement.
1.1.1 Standard Terms and Conditions of Trust.
1.2 Certificate of Limited Partnership of Fixed Income Securities, L.P.
Reference is made to Exhibit 1.2 to the Registration Statement on
Form S-6 for Advisor's Disciplined Trust, Series 10 (File No. 333-115977)
as filed on May 28, 2004.
1.3 Agreement of Limited Partnership of Fixed Income Securities, L.P.
Reference is made to Exhibit 1.3 to the Registration Statement on
Form S-6 for Advisor's Disciplined Trust, Series 10 (File No. 333-115977)
as filed on May 28, 2004.
1.4 Articles of Incorporation of Sterling Resources, Inc., general partner of
Fixed Income Securities, L.P. Reference is made to Exhibit 1.4 to the
Registration Statement on Form S-6 for Advisor's Disciplined Trust, 10
(File No. 333-115977) as filed on May 28, 2004.
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1.1 filed
herewith and incorporated herein by reference).
2.2 Form of Code of Ethics. Reference is made to Exhibit 2.2 to the
Registration Statement on Form S-6 for Advisor's Disciplined Trust, 10
(File No. 333-115977) as filed on May 28, 2004.
3.1 Opinion of counsel as to legality of securities being registered.
3.4 Opinion of counsel as to the Trustee and the Trust.
4.1 Consent of evaluator.
4.2 Consent of independent registered public accounting firm.
6.1 List of Officers of Fixed Income Securities, L.P. Reference is made to
Exhibit 6.1 to the Registration Statement on Form S-6 for Advisor's
Disciplined Trust, 10 (File No. 333-115977) as filed on May 28, 2004.
7.1 Power of Attorney. Reference is made to Exhibit 7.1 to the Registration
Statement on Form S-6 for Advisor's Disciplined Trust, 10 (File No. 333-
115977) as filed on May 28, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Advisor's Disciplined Trust, Series 11 has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wichita and State of Kansas on the 5th day of
August, 2004.
ADVISOR'S DISCIPLINED TRUST, SERIES 11
By FIXED INCOME SECURITIES, L.P., DEPOSITOR
By /s/ ALEX R MEITZNER
-----------------------------
Alex R. Meitzner
Managing Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below on August 5, 2004 by the
following persons in the capacities indicated.
SIGNATURE TITLE
Scott Colyer Director of Sterling )
Resources, Inc., the General )
Partner of Fixed Income )
Securities, L.P. )
Jack Simkin Director of Sterling )
Resources, Inc., the General )
Partner of Fixed Income )
Securities, L.P. )
Jim Dillahunty Director of Sterling )
Resources, Inc., the General )
Partner of Fixed Income )
Securities, L.P. )
Joe Cotton Director of Sterling )
Resources, Inc., the General )
Partner of Fixed Income )
Securities, L.P. )
Dennis Marlin Director of Sterling )
Resources, Inc., the General )
Partner of Fixed Income )
Securities, L.P. )
S-2
Randy Pegg Director of Sterling )
Resources, Inc., the General )
Partner of Fixed Income )
Securities, L.P. )
Lisa Colyer Director of Sterling )
Resources, Inc., the General )
Partner of Fixed Income )
Securities, L.P. )
By /s/ ALEX R MEITZNER
-----------------------------
Alex R. Meitzner
Attorney-in-Fact*
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*An executed copy of each of the related powers of attorney is filed
herewith or incorporated herein by reference as Exhibit 7.1.
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