1933 ACT FILE NO.: 333-_____
1940 ACT FILE NO.: 811-21056
CIK NO.: 1293875
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: ADVISOR'S DISCIPLINED TRUST 22
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.
- -------------------------------------------------------------------------------
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
The information in this prospectus is not complete and may be changed. No one
may sell units of the trust until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell units and is not soliciting an offer to buy units in any state where the
offer or sale is not permitted.
PRELIMINARY PROSPECTUS DATED NOVEMBER 24, 2004
SUBJECT TO COMPLETION
TAXABLE MUNICIPAL INVESTMENT GRADE INTERMEDIATE PORTFOLIO,
SERIES 1
(ADVISOR'S DISCIPLINED TRUST 22)
A portfolio of intermediate-term
municipal bonds seeking interest
income and capital preservation
PROSPECTUS
DECEMBER ___, 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.
- ------------------
INVESTMENT SUMMARY
- ------------------
INVESTMENT OBJECTIVE
The trust seeks to provide interest income and capital preservation.
PRINCIPAL INVESTMENT STRATEGY
The trust seeks to provide interest income and capital preservation by
investing in a portfolio primarily consisting of intermediate-term investment
grade municipal bonds. In selecting bonds, we<FN1>* considered the following
factors, among others:
* the Standard & Poor's rating of the bonds was not less than BBB- or the
Moody's Investor Service rating of the bonds was not less than Baa3 at trust
inception;
* the prices of the bonds relative to other bonds of comparable quality and
maturity; and
* diversification of bonds as to purpose of issue and location of issuer.
The portfolio consists of debt obligations issued by or on behalf of states
and territories of the United States, and political subdivisions and authorities
thereof. The portfolio generally may consist of bonds maturing no more than 15
years from the trust's inception date. The trust portfolio is structured to
have a dollar-weighted average maturity between 7 and 10 years as of the
inception of the trust. Interest is subject to federal, state and local income
tax.
Investment grade bonds are rated BBB/Baa or higher by major credit rating
organizations. These ratings are based upon an evaluation of the issuer's
credit history and ability to repay obligations. An investment grade rating
generally signifies that a credit rating agency considers the current quality of
a bond to be sufficient to provide reasonable assurance of the issuer's ability
to meet its obligation to bondholders.
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:
* BOND PRICES WILL FLUCTUATE. The value of your investment may fall over time.
* THE VALUE OF THE BONDS WILL GENERALLY FALL IF INTEREST RATES, IN GENERAL,
RISE. No one can predict whether interest rates will rise or fall in the
future.
* A BOND ISSUER OR INSURER MAY BE UNABLE TO MAKE INTEREST AND/OR PRINCIPAL
PAYMENT IN THE FUTURE.
* THE FINANCIAL CONDITION OF AN ISSUER MAY WORSEN OR ITS CREDIT RATINGS MAY
DROP, RESULTING IN A REDUCTION IN THE VALUE OF YOUR UNITS. This may occur at
any point in time, including during the primary offering period.
* A BOND ISSUER MIGHT PREPAY OR "CALL" A BOND BEFORE ITS STATED MATURITY. If
this happens, the trust will distribute the principal to you but future
interest distributions will fall. A bond's call price could be less than the
price the trust paid for the bond. If enough bonds are called, the trust
could terminate earlier than expected.
* THE TRUST MAY CONCENTRATE IN BONDS OF A PARTICULAR TYPE OF ISSUER. This
makes the trust less diversified and subject to greater risk than a more
diversified portfolio. The types of bond in the portfolio are listed under
"Types of Bonds" on page 5.
* WE DO NOT ACTIVELY MANAGE THE PORTFOLIO. Except in limited circumstances,
the trust will hold, and may continue to buy, the same bonds even if the
market value declines.
- --------------------
<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 a variety of municipal bonds
in a single investment.
* the potential to receive monthly distributions of income.
* capital preservation potential.
You should not consider this investment if you:
* are uncomfortable with the risks of an unmanaged investment in taxable
municipal bonds.
* want capital appreciation.
------------------------------------------------------------
ESSENTIAL INFORMATION
---------------------
PRINCIPAL AMOUNT OF
SECURITIES PER UNIT AT INCEPTION $_______
PUBLIC OFFERING PRICE PER
UNIT AT INCEPTION $_______
INCEPTION DATE December ___, 2004
ESTIMATED CURRENT RETURN* ____%
ESTIMATED LONG-TERM RETURN* ____%
ESTIMATED NET ANNUAL INTEREST
INCOME PER UNIT* $_______
ESTIMATED INITIAL DISTRIBUTION
PER UNIT* $_______
ESTIMATED NORMAL MONTHLY
DISTRIBUTION PER UNIT* $_______
WEIGHTED AVERAGE MATURITY OF
SECURITIES* _____ years
DISTRIBUTION DATES Last day of each month
RECORD DATES 15th day of each month
INITIAL DISTRIBUTION DATE January 31, 2005
INITIAL RECORD DATE January 15, 2005
CUSIP NUMBER 007582____
TICKER SYMBOL _______
MINIMUM INVESTMENT 100 units
* as of December __, 2004 and may vary thereafter.
------------------------------------------------------------
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 % AMOUNT
OF $1,000 PER 100
SALES FEE INVESTED UNITS
------------------------
Initial sales fee 1.00% $10.00
Deferred sales fee 2.95 29.50
------- -------
Maximum sales fee 3.95% $39.50
======= =======
ORGANIZATION COSTS 0.20% $2.00
======= =======
AS A % OF AMOUNT
ANNUAL NET PER 100
OPERATING EXPENSES ASSETS UNITS
------------------------
Trustee fee & expenses _.____% $_.___
Supervisory, evaluation
and administration fees _.____ 0.95
------- -------
Total _.____% $_.___
======= =======
The initial sales fee is the difference between the total sales fee (3.95% of
the unit offering price) and the remaining deferred sales fee. The deferred
sales fee is fixed at $0.295 per unit and is paid using the interest and
principal proceeds on the bond(s) designated for this purpose in the "Portfolio"
on page 4.
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 $_____
3 year $_____
5 year $_____
10 years $_____
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
TAXABLE MUNICIPAL BOND INVESTMENT GRADE INTERMEDIATE PORTFOLIO, SERIES 1
PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT, DECEMBER ___, 2004
COST OF
PRINCIPAL NAME OF ISSUER, INTEREST RATE S&P MOODY'S REDEMPTION SECURITIES
AMOUNT AND MATURITY DATE(1) RATINGS(2) RATINGS(2) FEATURE(3) TO TRUST(4)
- -----------------------------------------------------------------------------------------------------------------------------------
- ------------ ------------
$__________ $___________
============ ============
<FN>
Notes to Portfolio
(1) The securities are represented by contracts to purchase such securities.
Contracts to acquire the securities were entered into during the period
from December __, 2004 to December __, 2004 and have expected settlement
dates from __________, 2004 to ___________, 2004.
(2) "NR" indicates that the rating service did not provide a rating for that
bond. For a brief description of the ratings see "Description of
Securities Ratings" in the Information Supplement described under
"Understanding Your Investment-Additional Information".
(3) This is the year in which each bond is initially or currently callable and
the call price for that year. Each bond continues to be callable at
declining prices thereafter (but not below par value) except for original
issue discount bonds which are redeemable at prices based on the issue
price plus the amount of original issue discount accreted to redemption
date plus, if applicable, some premium, the amount of which will decline
in subsequent years. "S.F." indicates a sinking fund is established with
respect to an issue of bonds. The bonds may also be subject to redemption
without premium at any time pursuant to extraordinary optional or mandatory
redemptions if certain events occur.
(4) 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. 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 $____________ and $_________, respectively.
(5) Any bond marked with this note has been purchased on a "when, as and if
issued" or "delayed delivery" basis. Delivery of these bonds is expected
to take place at various dates after the first settlement date of the
trust, which is normally three business days following the trust's
inception date. Interest on these bonds begins accruing to the benefit of
unitholders on the related delivery dates for the bonds.
(6) Any bond marked with this note was issued at an original issue discount.
Tax issues related to these bonds are described under "Understanding Your
Investment-Taxes".
(7) The interest and principal on bonds marked with this note will be used to
pay the deferred sales fee obligation of unitholders. Interest on these
bonds is not included in the estimated current or long-term returns.
4 Investment Summary
TYPES OF BONDS
The following table shows the types of bonds include in the portfolio as of
the trust's inception. For additional information about each of these issuer
types, see "Understanding Your Investment-Investment Risks".
PERCENT OF
PRINCIPAL AMOUNT
TYPE ISSUER OF BONDS
-------------------------------------------
General Obligation __.__%
Revenue Bonds:
_________________
_________________
_________________
_________________
_________________
_________________
_________________
INSURANCE ON THE BONDS
The following table shows the insurance companies that provide insurance as
of the trust's inception, if any. For additional information about bond
insurance, see "Understanding Your Investment-Bond Insurance".
PERCENT OF
PRINCIPAL AMOUNT
INSURANCE COMPANY OF BONDS
-------------------------------------------
_________________ __.__%
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
Investment Summary 5
- -----------------------------
UNDERSTANDING YOUR INVESTMENT
- -----------------------------
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
* cash to pay organization costs 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. Certain broker-dealers may charge a transaction or other fee for
processing unit purchase orders.
Organization Costs. During the initial offering period, part of the value of
the units represents an amount of cash deposited to 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
reimburse us for these costs at the end of the initial offering period or after
six months, if earlier. The value of your units will decline when the trust
pays these costs.
Accrued Interest. Accrued interest represents unpaid interest on a security
from the last day it paid interest. Interest on the securities is generally
paid semi-annually, 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.
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) on the basis of current offering
prices of the securities, (b) if offering prices are not available for any
particular security, on the basis of current offering prices for comparable
securities, (c) by determining the value of securities on the offer side of the
market by appraisal, or (d) by 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.
6 Understanding Your Investment
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.
FT Interactive Data Corporation, an independent pricing service, 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.
SALES FEE. You pay a fee in connection with purchasing units. We refer to
this fee as the "sales fee." The maximum sales fee equals 3.95% of the public
offering price per unit at the time of purchase. This is equivalent to 4.112%
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
(3.95% 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 $0.295 per unit. Your trust pays the
deferred sales fee using the interest payments and principal proceeds on the
bond(s) designated for this purpose in the "Portfolio" on page 4. The trust
will pay these amounts to the sponsor shortly after the final maturity date of
the designated bond(s). If these amounts are not sufficient to pay the entire
deferred sales fee, the remaining deferred sales fee will be paid out of
interest or principal in the trust's accounts, which could reduce trust
distributions. Any excess amount of interest or principal not use to pay the
deferred sales fee will be used to pay other trust expenses or will be
distributed to unitholders. 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.
If you purchase units after the full deferred sales charge has been
collected, the maximum sales fee for secondary market transactions is based on
the number of years remaining to the dollar-weighted average maturity of the
securities in the trust. For purposes of this computation, securities will be
deemed to mature either on their stated maturity dates, or an earlier date if:
(a) they have been called for redemption or funds have been placed in escrow to
redeem them on an earlier call date; or (b) such securities are subject to a
"mandatory tender." The effect of this method of sales fee computation will be
that different sales fee rates will be applied in accordance with the following
schedule:
SECONDARY
AVERAGE MARKET SALES
MATURITY CHARGE
------------------------------------------
Less than 1 1.00%
1 but less than 2 1.50
2 but less than 3 2.00
3 but less than 4 2.50
4 but less than 5 3.00
5 but less than 6 3.50
6 but less than 7 4.00
7 but less than 8 4.50
8 or more 5.00
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
Understanding Your Investment 7
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.
Large Purchases. You can reduce your sales fee by increasing the size of
your investment:
IF YOU PURCHASE: YOUR FEE WILL BE:
------------------------------------------
Less than $50,000 3.95%
$50,000 - $99,999 3.70
$100,000 - $249,999 3.45
$250,000 - $499,999 2.95
$500,000 or more 1.95
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 3.45% of your public offering price per unit.
You may AGGREGATE unit orders submitted by the same person for units of any
of the trusts we sponsor 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:
* orders submitted by your spouse or minor children living in the same
household and
* orders submitted by your trust estate or fiduciary accounts.
The discounts described above apply during the initial offering period.
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 2.75%.
This discount applies during the initial offering period and in the secondary
market. Certain fee account investors may be assessed transaction or other fees
on the purchase and/or redemption of units by their broker-dealer or other
processing organizations for providing certain transaction or account
activities. We reserve the right to limit or deny purchases of units 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
8 Understanding Your Investment
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 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.
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.
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, provided that you will not pay organization costs if
you sell or redeem units during the initial offering period. The sale and
redemption price is sometimes referred to as the "liquidation price". You pay
any remaining deferred sales fee when you sell or redeem units. Certain broker-
dealers may charge a transaction or other 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, provided that you will not pay organization costs if you sell units
during the initial offering period. 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
redemption price.
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, provided that you will not pay organization costs if you redeem units
during the initial offering period. You will pay any remaining deferred sales
fee at the time your 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 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
Understanding Your Investment 9
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 (pro-rated on an annual basis) along with any available
principal paid 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.
Interest received by the trust, including that part of the proceeds of any
disposition of bonds which represents accrued interest, is credited by the
trustee to the trust's "interest account". Other receipts are credited to the
"principal account". After deduction of amounts sufficient to reimburse the
trustee, without interest, for any amounts advanced and paid to the sponsor as
the unitholder of record as of the first settlement date, interest received will
be distributed on each distribution date to unitholders of record as of the
preceding record date. All distributions will be net of estimated expenses.
Funds in the principal account will be distributed on each distribution date to
unitholders of record as of the preceding record date provided that the amount
available for distribution therein shall equal at least $0.01 per unit.
Because interest payments are not received by the trust at a constant rate
throughout the year, interest distributions may be more or less than the amount
credited to the interest account as of the record date. For the purpose of
minimizing fluctuations in interest distributions, the trustee is
10 Understanding Your Investment
authorized to advance amounts necessary to provide interest distributions of
approximately equal amounts. The trustee is reimbursed for these advances from
funds in the interest account on the next record date. Investors who purchase
units between a record date and a distribution date will receive their first
distribution on the second distribution date after the purchase.
ESTIMATED DISTRIBUTIONS. The estimated net annual interest income per unit,
estimated initial distribution per unit and estimated normal monthly
distribution per unit as of the close of business the day before the trust's
inception date are shown under "Essential Information" in the "Investment
Summary" section of this prospectus. We base these amounts on the estimated
cash flows of the bonds per unit. The actual distributions that you receive
will vary from these estimates with changes in expenses, interest rates and
maturity, call, default or sale of bonds. You may request the estimated cash
flows from the sponsor. The estimated cash flows are computed based on factors
described under "Understanding Your Investment-How the Trust Works-Estimated
Current and Long-Term Returns".
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.
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 or insurer is unable to meet
its obligation to pay principal or interest on the security.
CALL RISK is the risk that the issuer prepays or "calls" a bond before its
stated maturity. An issuer might call a bond if interest rates fall and the
bond pays a higher interest rate or if it no longer needs the money for the
original purpose. If an issuer calls a bond, your trust will distribute the
principal to you but your future interest distributions will fall. You might
not be able to reinvest this principal at as high a yield. A bond's
Understanding Your Investment 11
call price could be less than the price your trust paid for the bond and could
be below the bond's par value. This means that you could receive less than the
amount you paid for your units. If enough bonds in your trust are called, your
trust could terminate early. Some or all of the bonds may also be subject to
extraordinary optional or mandatory redemptions if certain events occur, such as
certain changes in tax laws, the substantial damage or destruction by fire or
other casualty of the project for which the proceeds of the bonds were used, and
various other events. The call provisions are described in general terms in the
"Portfolio".
BOND QUALITY RISK is the risk that a bond will fall in value if a rating
agency decreases the bond's rating.
CONCENTRATION RISK is the risk that the value of your trust is more
susceptible to fluctuations based on factors that impact a particular type of
bond because the portfolio concentrates in bonds of that type. A portfolio
"concentrates" in a type of bond when bonds in a particular category make up 25%
or more of the portfolio. A table on page 5 lists the type of bonds held by the
trust with the percentage that each type represents in the portfolio. The
following discusses various types of bonds. The information supplement contains
additional information on these types of bonds.
General Obligation Bonds. Certain of the bonds in the portfolio may be
general obligations of a governmental entity that are secured by the taxing
power of the entity. General obligation bonds are backed by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. The taxing power of any governmental entity may be limited, however,
by provisions of state constitutions or laws. An entity's credit will depend on
many factors: tax base, reliance on federal or state aid, and factors which are
beyond the entity's control.
Revenue Bonds. Certain of the bonds in the portfolio may be "revenue bonds"
that are payable only from the revenue of a specific project or authority. They
not supported by the issuer's general power to levy taxes, if any. The risk of
default in payment of interest or principal increases if the income of the
related project or authority falters because that income is the only source of
payment. The following types of bonds are "revenue bonds".
Appropriations Bonds. Certain bonds in the trust may be bonds that are, in
whole or in part, subject to and dependent upon either the governmental entity
making appropriations from time to time or the continued existence of special
temporary taxes which require legislative action for their reimposition. The
availability of any appropriation is subject to the willingness or ability of
the governmental entity to continue to make such special appropriations or to
reimpose such special taxes. The obligation to make lease payments exists only
to the extent of the monies available to the governmental entity therefor, and
no liability is incurred by the governmental entity beyond the monies so
appropriated. Once an annual appropriation is made, the governmental entity's
obligation to make lease rental payments is absolute and unconditional
regardless of any circumstances or occurrences which might arise. In the event
of non-appropriation, certificateholders' or bondowners' sole remedy (absent
credit enhancement) generally is limited to repossession of the collateral for
resale or releasing. In the event of non-appropriation, the sponsor may
instruct the trustee to sell such bonds.
Airport, Port and Highway Bonds. Certain facility revenue bonds are payable
from and
12 Understanding Your Investment
secured by the revenues from the ownership and operation of particular
facilities, such as airports, highways and port authorities. Airport operating
income may be affected by the ability of airlines to meet their obligations
under the agreements with airports. Similarly, payment on bonds related to
other facilities is dependent on revenues from the projects, such as use fees
from ports, tolls on turnpikes and bridges and rents from buildings. Payment
may be adversely affected by reduction in revenues due to such factors and
increased cost of maintenance or decreased use of a facility. The sponsor
cannot predict what effect conditions may have on revenues which are dependent
for payment on these bonds.
Capital Improvement Facility Bonds. The portfolio of a trust may contain
bonds which are in the capital improvement facilities category. Capital
improvement bonds are bonds issued to provide funds to assist political
subdivisions or agencies of a state through acquisition of the underlying debt
of a state or local political subdivision or agency. The risks of an investment
in such bonds include the risk of possible prepayment or failure of payment of
proceeds on and default of the underlying debt.
Convention Facility Bonds. The portfolio of a trust may contain bonds of
issuers in the convention facilities category. Bonds in the convention
facilities category include special limited obligation bonds issued to finance
convention and sports facilities payable from rental payments and annual
governmental appropriations. The governmental agency is not obligated to make
payments in any year in which the monies have not been appropriated to make such
payments. In addition, these facilities are limited use facilities that may not
be used for purposes other than as convention centers or sports facilities.
Correctional Facility Bonds. The portfolio of a trust may contain bonds of
issuers in the correctional facilities category. Bonds in the correctional
facilities category include special limited obligation bonds issued to
construct, rehabilitate and purchase correctional facilities payable from
governmental rental payments and/or appropriations.
Education, University and College Bonds. The ability of educational
institutions, including universities and colleges, to meet their obligations is
dependent upon various factors. Some of these factors include the size and
diversity of their sources of revenues, enrollment, reputation, management
expertise, the availability and restrictions on the use of endowments and other
funds, the quality and maintenance costs of campus facilities. Also, in the
case of public institutions, the financial condition of the relevant state or
other governmental entity and its policies with respect to education may affect
an institution's ability to make payment on its own.
Hospital and Health Care Facility Bonds. The ability of hospitals and other
health care facilities to meet their obligations with respect to revenue bonds
issued on their behalf is dependent on various factors. Some such factors are
the level of payments received from private third-party payors and government
programs and the cost of providing health care services. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will be sufficient to cover the costs associated
with their bonds. It also may be necessary for a hospital or other health care
facility to incur substantial capital expenditures or increased operating
expenses to effect changes in its facilities, equipment, personnel and services.
Hospitals and other health care facilities are additionally subject to claims
and legal actions by patients and others in the ordinary course of business.
There can be
Understanding Your Investment 13
no assurance that a claim will not exceed the insurance coverage of a health
care facility or that insurance coverage will be available to a facility.
Housing Bonds. Multi-family housing revenue bonds and single family mortgage
revenue bonds are state and local housing issues that have been issued to
provide financing for various housing projects. Multi-family housing revenue
bonds are payable primarily from mortgage loans to housing projects for low to
moderate income families. Single-family mortgage revenue bonds are issued for
the purpose of acquiring notes secured by mortgages on residences. The ability
of housing issuers to make debt service payments on their obligations may be
affected by various economic and non-economic factors. Such factors include:
occupancy levels, adequate rental income in multi-family projects, the rate of
default on mortgage loans underlying single family issues and the ability of
mortgage insurers to pay claims. All single family mortgage revenue bonds and
certain multi-family housing revenue bonds are prepayable over the life of the
underlying mortgage or mortgage pool. Therefore, the average life of housing
obligations cannot be determined. However, the average life of these
obligations will ordinarily be less than their stated maturities. Mortgage
loans are frequently partially or completely prepaid prior to their final stated
maturities. To the extent that these obligations were valued at a premium when
a unitholder purchased units, any prepayment at par would result in a loss of
capital to the unitholder and reduce the amount of income that would otherwise
have been paid to unitholders.
Industrial Development Revenue Bonds ("IDRs"). IDRs, including pollution
control revenue bonds, are tax-exempt bonds issued by states, municipalities,
public authorities or similar entities to finance the cost of acquiring,
constructing or improving various projects. These projects are usually operated
by corporate entities. IDRs are not general obligations of governmental
entities backed by their taxing power. Issuers are only obligated to pay
amounts due on the IDRs to the extent that funds are available from the
unexpended proceeds of the IDRs or receipts or revenues of the issuer. Payment
of IDRs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Such corporate operators or guarantors
that are industrial companies may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
Lease Rental Bonds. Lease rental bonds are predominantly issued by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings or the purchase of equipment that will be used
by a state or local government. Thus, the bonds are subject to the ability and
willingness of the lessee government to meet its lease rental payments which
include debt service on the bonds. Lease rental bonds are subject to the risk
that the lessee government is not legally obligated to budget and appropriate
for the rental payments beyond the current fiscal year. These bonds are also
subject to the risk of abatement in many states as rental bonds cease in the
event that damage, destruction or condemnation of the project prevents its use
by the lessee. Also, in the event of default by the lessee government, there
may be significant legal and/or practical difficulties involved in the reletting
or sale of the project.
Moral Obligation Bonds. A trust may also include "moral obligation" bonds.
If an issuer of moral obligation bonds is unable to meet its obligations, the
repayment of the bonds becomes a
14 Understanding Your Investment
moral commitment but not a legal obligation of the state or municipality in
question. Thus, such a commitment generally requires appropriation by the state
legislature and accordingly does not constitute a legally enforceable obligation
of debt of the state. The agencies or authorities generally have no taxing
power.
Power Bonds. The ability of utilities to meet their obligations with respect
to bonds they issue is dependent on various factors. These factors include the
rates they may charge their customers, the demand for a utility's services and
the cost of providing those services. Utilities may also be subject to
extensive regulations relating to the rates which they may charge customers.
Utilities can experience regulatory, political and consumer resistance to rate
increases. Utilities engaged in long-term capital projects are especially
sensitive to regulatory lags in granting rate increases. Utilities are
additionally subject to increased costs due to governmental environmental
regulation and decreased profits due to increasing competition. Any difficulty
in obtaining timely and adequate rate increases could adversely affect a
utility's results of operations. The sponsor cannot predict at this time the
ultimate effect of such factors on the ability of any issuers to meet their
obligations with respect to bonds.
Refunded Bonds. Refunded bonds are typically secured by direct obligations
of the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent party until
maturity or a predetermined redemption date. These obligations are generally
non-callable prior to maturity or the predetermined redemption date. In a few
isolated instances to date, however, bonds which were thought to be escrowed to
maturity have been called for redemption prior to maturity.
Solid Waste Disposal Bonds. Bonds issued for solid waste disposal facilities
are generally payable from tipping fees and from revenues that may be earned by
the facility on the sale of electrical energy generated in the combustion of
waste products. The ability of solid waste disposal facilities to meet their
obligations depends upon the continued use of the facility, the successful and
efficient operation of the facility and, in the case of waste-to-energy
facilities, the continued ability of the facility to generate electricity on a
commercial basis. Also, increasing environmental regulation of the federal,
state and local level has a significant impact on waste disposal facilities.
While regulation requires most waste producers to use waste disposal facilities,
it also imposes significant costs on the facilities.
Special Tax Bonds. Special tax bonds are payable for and secured by the
revenues derived by a municipality from a particular tax. Examples of special
taxes are a tax on the rental of a hotel room, on the purchase of food and
beverages, on the rental of automobiles or on the consumption of liquor.
Special tax bonds are not secured by the general tax revenues of the
municipality, and they do not represent general obligations of the municipality.
Payment on special tax bonds may be adversely affected by a reduction in
revenues realized from the underlying special tax. Also, should spending on the
particular goods or services that are subject to the special tax decline, the
municipality may be under no obligation to increase the rate of the special tax
to ensure that sufficient revenues are raised from the shrinking taxable base.
Tax Allocation Bonds. Tax allocation bonds are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds are located. Bond payments
are expected to be
Understanding Your Investment 15
made from projected increases in tax revenues derived from higher assessed
values of property resulting from development in the particular project area and
not from an increase in tax rates. Special risk considerations include:
variations in taxable values of property in the project area; successful appeals
by property owners of assessed valuations; substantial delinquencies in the
payment of property taxes; or imposition of any constitutional or legislative
property tax rate decrease.
Transit Authority Bonds. Mass transit is generally not self-supporting from
fare revenues. Additional financial resources must be made available to ensure
operation of mass transit systems as well as the timely payment of debt service.
Often such financial resources include federal and state subsidies, lease
rentals paid by funds of the state or local government or a pledge of a special
tax. If fare revenues or the additional financial resources do not increase
appropriately to pay for rising operating expenses, the ability of the issuer to
adequately service the debt may be adversely affected.
Water and Sewer Revenue Bonds. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by a number of factors. Some such
factors are the failure of municipalities to utilize fully the facilities
constructed by these authorities, declines in revenue from user charges, the
possible inability to obtain rate increases, rising construction and maintenance
costs, impact of environmental requirements, the difficulty of obtaining or
discovering new supplies of fresh water, the effect of conservation programs,
the impact of "no growth" zoning ordinances and the continued availability of
federal and state financial assistance and of municipal bond insurance for
future bond issues.
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.
"WHEN ISSUED" AND "DELAYED DELIVERY" BONDS. "When, as and if issued" bonds
are bonds that trade before they are actually issued. Bonds purchased on a
"when issued" basis have not yet been issued by the issuer on the trust's
inception date although such issuer has committed to issue such bonds. This
means that the sponsor can only deliver them to the trust "when, as and if" the
bonds are actually issued. In addition, other bonds may have been purchased by
the sponsor on a "delayed delivery" basis. These bonds are expected to be
delivered to the trust after the trust's first settlement date (normally three
business days after the trust's inception date).
Delivery of these bonds may be delayed or may not occur. Interest on these
bonds does not begin accruing to your trust until the bond is delivered to the
trust. You may have to adjust your tax basis of any bonds delivered after the
expected delivery date. Any adjustment would reflect interest that accrued
between the time you purchased your units and the delivery of the bonds to your
trust. This could lower your first year estimated current return. You may
experience gains or losses on these bonds from the time you purchase units even
though your trust has not yet received them.
16 Understanding Your Investment
ORIGINAL ISSUE DISCOUNT BONDS. Original issue discount bonds were initially
issued at a price below their face (or par) value. These bonds typically pay a
lower interest rate than comparable bonds that were issued at or above their par
value. In a stable interest rate environment, the market value of these bonds
tends to increase more slowly in early years and in greater increments as the
bonds approach maturity. The issuers of these bonds may be able to call or
redeem a bond before its stated maturity date and at a price less than the
bond's par value.
Zero coupon bonds are a type of original issue discount bond. These bonds do
not pay any current interest during their life. If an investor owns this type
of bond, the investor has the right to receive a final payment of the bond's par
value at maturity. The price of these bonds often fluctuates greatly during
periods of changing market interest rates compared to bonds that make current
interest payments. The issuers of these bonds may be able to call or redeem a
bond before its stated maturity date and at a price less than the bond's par
value.
MARKET DISCOUNT. The portfolio of the trust may consist of some bonds whose
current market values were below the principal value on the trust's inception
date or your unit purchase date. A primary reason for the market value of such
bonds being less than the principal value is that the interest rate of such
bonds is at a lower rate than the current market interest rates for comparable
bonds. Bonds selling at market discounts tend to increase in market value as
they approach maturity.
PREMIUM BONDS. The portfolio of the trust may consist of some bonds whose
current market values were above the principal value on the trust's inception
date or your unit purchase date. A primary reason for the market value of such
bonds being higher than the principal value is that the interest rate of such
bonds is at a higher rate than the current market interest rates for comparable
bonds. The current returns of bonds trading at a market premium are initially
higher than the current returns of comparable bonds issued at currently
prevailing interest rates because premium bonds tend to decrease in market value
as they approach maturity when the principal value becomes payable. Because
part of the purchase price is effectively returned not at maturity but through
current income payments, early redemption of a premium bond at par or any other
amount below the trust's purchase price will result in a reduction in yield.
Redemption pursuant to call provisions generally will, and redemption pursuant
to sinking fund provisions may, occur at times when the bonds have a market
value that represents a premium over par or for original issue discount
securities a premium over the accreted value.
BOND INSURANCE
Bonds are not required to be covered by insurance to be included in the trust
portfolio. Certain bonds may, however, be covered by insurance guaranteeing
payment of interest and principal, when due. The premium for any bond insurance
is paid by the issuer or by a prior owner of the bonds and any policy is non-
cancelable and will continue in force so long as the bonds so insured are
outstanding and the bond insurer remains in business. The bond insurers, if
any, are listed in the bond names in the "Portfolio" and a table following the
"Portfolio". Bond insurance, if any, guarantees the timely payment of principal
and interest on the bonds when they fall due. For this purpose, "when due"
generally means the stated payment or maturity date for the payment of principal
and interest. The insurance does not guarantee the market value of the bonds or
the value of the trust units. Each bond
Understanding Your Investment 17
insurer is subject to regulation by the department of insurance in the state in
which it is qualified to do business. Such regulation, however, is no guarantee
that a bond insurer will be able to perform on its contract of insurance in the
event a claim should be made.
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) 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. At the
close of the New York Stock Exchange on the trust's inception date, the number
of units may be adjusted so that the public offering price per unit equals $10.
The number of units, fractional interest of each unit in the trust, estimated
interest distributions per unit and estimated current and long-term returns will
increase or decrease to the extent of any adjustment.
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,
* 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
principal amounts 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. 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.
In the event of a failure to deliver any bond that has been purchased for the
trust under a contract ("failed bonds"), the sponsor is authorized to purchase
other bonds ("replacement bonds"). The trustee shall pay for replacement bonds
out of funds held in connection with the failed bonds
18 Understanding Your Investment
and will accept delivery of such bonds to make up the original principal of the
trust. The replacement bonds must be purchased within 20 days after delivery of
the notice of the failed contract, and the purchase price (exclusive of accrued
interest) may not exceed the principal attributable to the failed bonds.
Whenever a replacement bond has been acquired for the trust, the trustee shall,
within five days thereafter, notify all unitholders of the trust of the
acquisition of the replacement bond and shall, on the next 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 bond exceeded the
cost of the replacement bond. In addition, a replacement bond must (at the time
of purchase):
* be a municipal bond;
* have a fixed maturity or disposition date comparable to that of the failed
bond it replaces;
* be purchased at a price that results in a yield to maturity and in a
current return which is approximately equivalent to the yield to maturity
and current return of the failed bond which it replaces; and
* be rated at least in the category of BBB or Baa by a major rating
organization.
If the right of limited substitution described above shall not be used to
acquire replacement bonds in the event of a failed contract, the sponsor will
refund the sales charge attributable to such failed bonds to all unitholders of
the trust, and distribute the principal attributable to such failed bonds on the
next monthly distribution date which is more than 30 days thereafter. In the
event a replacement bond is not acquired by the trust, the estimated net annual
interest income per unit would be reduced and the estimated current and long-
term returns might be lowered.
ESTIMATED CURRENT AND LONG-TERM RETURNS. The estimated current return and
the estimated long-term return as of the business day before the trust's
inception date are shown under "Essential Information" in the "Investment
Summary" section of this 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 your trust and with the default,
redemption, maturity, exchange or sale of bonds. The public offering price will
vary with changes in the price of the bonds. Accordingly, 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 of the bonds and (2) takes
into account the expenses and sales charge associated with units. Since the
value and estimated retirements of the bonds and the expenses of your trust will
change, there is no assurance that the present estimated long-term return will
be realized in the future. The 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 the
estimated current return calculation includes only net annual interest income
and public offering price.
In order to acquire certain bonds, it may be necessary for the sponsor or
trustee to pay amounts covering accrued interest on the bonds
Understanding Your Investment 19
which exceed the amounts which will be made available through cash furnished by
the sponsor on the trust's inception date. This cash may exceed the interest
which would accrue to the first settlement date. The trustee has agreed to pay
for any amounts necessary to cover any excess and will be reimbursed when funds
become available from interest payments on the related bonds.
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, redemption, 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 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
20 Understanding Your Investment
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 3.00% 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 2.00% of the public offering price per unit. No
distribution fee is paid to broker-dealers or other selling firms in connection
with unit sales in investment accounts that charge a "wrap fee" or periodic fees
for investment advisory, financial planning or asset management services in lieu
of commissions. 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 summarizes 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 these summaries
do not describe all of the tax consequences to all taxpayers. For example,
these summaries generally do not describe your situation if you are a
corporation, a non-U.S. person, a broker/dealer, or other investor with special
circumstances. In addition, this section does not describe your state or
foreign taxes. As with any investment, you should consult your own tax
professional about your particular consequences. In addition, the Internal
Revenue Service issued new withholding and reporting regulations effective
January 1, 2001. Foreign investors should consult their own tax advisors
regarding the tax consequences of these regulations.
ASSETS OF THE TRUST. The trust will hold various debt obligations (the
"Bonds"). All of the assets held by the trust constitute the "Trust Assets."
For purposes of this federal tax discussion, it is assumed that the Bonds
constitute debt the interest on which is includible in gross income for federal
income tax purposes.
TRUST STATUS. The trust will not be taxed as a corporation for federal
income tax purposes. As a unit owner, you will be treated as the owner of a pro
rata portion of the assets of your trust, and as such you will be considered to
have received a pro rata share of income (e.g., interest, accruals of original
issue discount, and capital gains, if any) from the Trust Assets when such
income would
Understanding Your Investment 21
be considered to be received by you if you directly owned the Trust Assets.
This is true even if you elect to have your distributions automatically
reinvested into additional units. In addition, the income from the Trust Assets
which you must take into account for federal income tax purposes is not reduced
by amounts used to pay trust expenses (including the deferred sales charge, if
any).
YOUR TAX BASIS AND INCOME OR LOSS UPON DISPOSITION. If your trust disposes
of Trust Assets, you will generally recognize gain or loss. If you dispose of
your units or redeem your units for cash, you will also generally recognize gain
or loss. To determine the amount of this gain or loss, you must subtract your
tax basis in the related Trust Assets from your share of the total amount
received in the transaction. You can generally determine your initial tax basis
in each Trust Asset by apportioning the cost of your units, generally including
sales charges, among each Trust Asset ratably according to their value on the
date you purchase your units. In certain circumstances, however, you may have
to adjust your tax basis after you purchase your units (for example, in the case
of accruals of original issue discount, market discount, premium and accrued
interest, as discussed below).
Under the recently enacted "Jobs and Growth Tax Relief Reconciliation Act of
2003" (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 transaction 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 these 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 of your units. The tax
rates for capital gains realized from assets held for one year or less are
generally the same as for ordinary income. The Internal Revenue Code, however,
treats certain capital gains as ordinary income in special situations.
DISCOUNT, ACCRUED INTEREST AND PREMIUM ON BONDS. Some Bonds may have been
sold with original issue discount. This generally means that the Bonds were
originally issued at a price below their face (or par) value. Original issue
discount accrues on a daily basis and generally is treated as interest income
for federal income tax purposes. Your basis of each Bond which was issued with
original issue discount must be increased as original issue discount accrues.
Some Bonds may have been purchased by you or your trust at a market discount.
Market discount is generally the excess of the stated redemption price at
maturity for the Bond over the purchase price of the Bond. Market discount can
22 Understanding Your Investment
arise based on the price the trust pays for a Bond or on the price you pay for
your units. Market discount is taxed as ordinary income. You will recognize
this income when your trust receives principal payments on the Bond, when the
Bond is disposed of or redeemed, or when you sell or redeem your units.
Alternatively, you may elect to include market discount in taxable income as it
accrues. Whether or not you make this election will affect how you calculate
your basis and the timing of certain interest expense deductions. "Stripped"
U.S. Treasury obligations are subject to the original issue discount rules,
rather than being treated as having market discount.
Alternatively, some Bonds may have been purchased by you or your trust at a
premium. Generally, if the tax basis of your pro rata portion of any Bond,
generally including sales charges, exceeds the amount payable at maturity, such
excess is considered premium. You may elect to amortize premium. If you make
this election, you may reduce your interest income received on the Bond by the
amount of the premium that is amortized and your tax basis will be reduced.
If the price of your units includes accrued interest on a Bond, you must
include the accrued interest in your tax basis in that Bond. When your trust
receives this accrued interest, you must treat it as a return of capital and
reduce your tax basis in the Bond.
This discussion provides only the general rules with respect to the tax
treatment of original issue discount, market discount and premium. The rules,
however, are complex and special rules apply in certain circumstances. For
example, the accrual of market discount or premium may differ from the
discussion set forth above in the case of Bonds that were issued with original
issue discount.
EXCHANGES. If you elect to reinvest amounts received from the trust into a
future trust, it is considered a sale for federal income tax purposes, and any
gain on the sale will be treated as a capital gain, and any loss will be treated
as a capital loss. However, any loss you incur in connection with the exchange
of your units of your trust for units of a future trust will generally be
disallowed with respect to this deemed sale and subsequent deemed repurchase, to
the extent the two trusts have substantially identical assets under the wash
sale provisions of the Internal Revenue Code.
LIMITATIONS ON THE DEDUCTIBILITY OF TRUST EXPENSES. Generally, for federal
income tax purposes, you must take into account your full pro rata share of your
trust's income, even if some of that income is used to pay trust expenses. You
may deduct your pro rata share of each expense paid by the trust to the same
extent as if you directly paid the expense. You may, however, be required to
treat some or all of the expenses of your trust as miscellaneous itemized
deductions. Individuals may only deduct certain miscellaneous itemized
deductions to the extent they exceed 2% of adjusted gross income.
FOREIGN, STATE AND LOCAL TAXES. Some distributions by your trust may be
subject to foreign withholding taxes. Any interest withheld will nevertheless
be treated as income to you. However, because you are deemed to have paid
directly your share of foreign taxes that have been paid or accrued by your
trust, you may be entitled to a foreign tax credit or deduction for U.S. tax
purposes with respect to such taxes.
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 will not be
subject to U.S. federal income taxes, including withholding taxes, on some of
the
Understanding Your Investment 23
income from your trust or on gain from the sale or redemption of your Units,
provided that certain conditions are met. You should consult your tax advisor
with respect to the conditions you must meet in order to be exempt for U.S. tax
purposes.
In the opinion of special counsel to the trust for New York tax matters, the
trust is not an association taxable as a corporation and the income of the trust
will be treated as the income of the unitholders under the existing income tax
laws of the State and City of New York.
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.
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 and as special counsel for New York tax matters.
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).
24 Understanding Your Investment
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UNITHOLDERS
ADVISOR'S DISCIPLINED TRUST 22
We have audited the accompanying statement of financial condition, including the
trust portfolio on page 4, of Advisor's Disciplined Trust 22, as of December
___, 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 December ___, 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 22 as of December ___, 2004, in conformity with accounting
principles generally accepted in the United States of America.
GRANT THORNTON LLP
Chicago, Illinois
December ___, 2004
ADVISOR'S DISCIPLINED TRUST 22
STATEMENT OF FINANCIAL CONDITION
AS OF DECEMBER ___, 2004
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES
Contracts to purchase underlying securities (1)(2) . . . . . . . . . . . . $
Accrued interest to first settlement date (1) . . . . . . . . . . . . . .
Cash (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
==========
LIABILITIES AND INTEREST OF INVESTORS
Liabilities:
Accrued interest payable to sponsor (1) . . . . . . . . . . . . . . . . $
Organization costs (3) . . . . . . . . . . . . . . . . . . . . . . . . .
----------
----------
Interest of investors:
Cost to investors (5) . . . . . . . . . . . . . . . . . . . . . . . . .
Less: sales fee and organization costs (3)(4)(5) . . . . . . . . . . . .
----------
Net interest of investors . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
==========
Number of units . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
==========
Net asset value per unit . . . . . . . . . . . . . . . . . . . . . . . . . $
==========
<FN>
(1) Aggregate cost of the securities is based on the offer side 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 $__________) 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 is equal to 3.95% (equivalent to 4.112% of the net
amount invested).
(5) The aggregate cost to investors includes the applicable sales fee assuming
no reduction of sales fees for quantity purchases.
Understanding Your Investment 25
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
5 Types of Bonds
5 Insurance on the Bonds
UNDERSTANDING YOUR INVESTMENT
- -------------------------------------------------------------------
Detailed information to 6 How to Buy Units
help you understand 9 How to Sell Your Units
your investment 10 Distributions
11 Investment Risks
17 Bond Insurance
18 How the Trust Works
21 Taxes
24 Expenses
24 Experts
24 Additional Information
25 Report of Independent Registered
Public Accounting Firm
25 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 22
Securities Act file number: 333-________
Investment Company Act file number: 811-21056
TAXABLE MUNICIPAL BOND
INVESTMENT GRADE
INTERMEDIATE PORTFOLIO,
SERIES 1
PROSPECTUS
DECEMBER ___, 2004
[LOGO]
ADVISOR'S
ASSET MANAGEMENT
A DIVISION OF FIXED INCOME SECURITIES, L.P.
ADVISOR'S DISCIPLINED TRUST 22
TAXABLE MUNICIPAL BOND INVESTMENT GRADE INTERMEDIATE PORTFOLIO, SERIES 1
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
Risk Factors 7
Administration of the Trust 18
Purchase, Redemption and Pricing of Units 24
Performance Information 30
Description of Securities Ratings 31
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. At the close of the New York Stock Exchange on the trust's
inception date, the number of units may be adjusted so that the public offering
price per unit equals $10. The number of units, fractional interest of each
unit in the trust and estimated interest distributions per unit will increase or
decrease to the extent of any adjustment. 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
-2-
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,
refund the cash and sales charge attributable to such failed contract to all
unitholders on the next distribution date.
INVESTMENT OBJECTIVE AND POLICIES
The trust seeks to provide monthly distributions of interest income and
capital preservation by investing in a portfolio primarily consisting of
investment grade interest-bearing municipal debt obligations. There is, of
course, no guarantee that the trust will achieve its objective. The trust
portfolio consists of interest-bearing obligations issued by or on behalf of
states and territories of the United States, and political subdivisions and
authorities thereof. The prospectus provides additional information regarding
the trust's objective and investment strategy.
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.
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.
-3-
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) shall be bonds,
debentures, notes or other straight debt obligations (whether secured or
unsecured and whether senior or subordinated) without equity or other conversion
features, with fixed maturity dates substantially the same as those of the
Failed Securities, having no warrants or subscription privileges attached;
(ii) shall be payable in United States currency; (iii) shall not be "when, as
and if issued" obligations or restricted securities; (iv) shall be issued after
July 18, 1984 if interest thereon is United States source income; (v) shall be
issued or guaranteed by an issuer subject to or exempt from the reporting
requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934
(or similar provisions of law) or in effect guaranteed, directly or indirectly,
by means by of a lease agreement, agreement to buy securities, services or
products, or other similar commitment of the credit of such an issuer to the
payment of the Replacement Securities; (vi) if the prospectus for the related
trust provides that an objective of such trust is to provide income exempt from
United States federal taxation, shall be securities issued by states or
territories of the United States or political subdivisions thereof which shall
have the benefit of an exemption from United States federal taxation of interest
to an extent equal to or greater than that of the Securities they replace and,
if the prospectus for the related trust provides that an objective of such trust
is to provide income exempt from state taxation, shall have the benefit of an
exemption from state taxation to an extent equal to or greater than that of the
Securities they replace; and (vii) shall not cause the units of the related
-4-
trust to cease to be rated "AAA" by Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. if the units are so rated. The purchase price of the
Replacement Securities (exclusive of accrued interest) shall not exceed the
principal attributable to the Failed Securities. In addition, no substitution of
Replacement Securities will be made without an opinion of counsel that such
substitution will not adversely affect the federal income tax status of the
related trust, if such Replacement Securities when added to all previously
purchased Replacement Securities in the related trust exceed 15% of the
principal amount of Securities initially deposited in the related 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
-5-
fund accumulated for the scheduled retirement of a portion of an issue to
maturity. Special or extraordinary redemption provisions may provide for
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. If a discount security is a tax-
exempt municipal bond and the discount security is held to maturity, the
security 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
-6-
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.
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.
RISK FACTORS
MUNICIPAL BONDS. The trusts include certain types of bonds described below.
Accordingly, an investment in a trust should be made with an understanding of
the characteristics of and risks associated with such bonds. The types of bonds
included in each trust are described in the prospectus. Neither the sponsor nor
the trustee shall be liable in any way for any default, failure or defect in any
of the bonds.
Certain of the bonds may be general obligations of a governmental entity
that are backed by the taxing power of such entity. All other bonds in the
trusts are revenue bonds payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds, on the
other hand, are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source. There are, of course,
variations in the security of the different bonds in a trust, both within a
particular classification and between classifications, depending on numerous
factors.
Certain of the bonds may be obligations which derive their payments from
mortgage loans. Certain of such housing bonds may be FHA insured or may be
single family mortgage revenue bonds issued for the purpose of acquiring from
originating financial institutions notes secured by mortgages on residences
located within the issuer's boundaries and owned by persons of low or moderate
income. Mortgage loans are generally partially or completely prepaid prior to
their final maturities as a result of events such as sale of the mortgaged
premises, default, condemnation or casualty loss. Because these bonds are
subject to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such bonds will probably
be redeemed prior to their scheduled maturities or even prior to their ordinary
call dates. Extraordinary mandatory redemption without premium could also result
from the failure of the originating financial institutions to make mortgage
loans in sufficient amounts within a specified time period. Additionally,
unusually high rates of default on the underlying mortgage loans may reduce
revenues available for the payment of principal of or interest on such mortgage
revenue bonds. If the bonds are tax-exempt municipal bonds, these bonds were
issued under Section 103A of the Internal Revenue Code, which Section contains
certain requirements relating to the use of the proceeds of such bonds in order
for the interest on such bonds to retain its tax-exempt status. In this case the
issuer of the bonds has covenanted to comply with applicable requirements and
-7-
bond counsel to such issuer has issued an opinion that the interest on the bonds
is exempt from Federal income tax under existing laws and regulations. In
addition, certain issuers of housing bonds have considered various ways to
redeem bonds they have issued prior to the stated first redemption dates for
such bonds. In connection with the housing bonds held by a trust, the sponsor at
the date of the trust's inception is not aware that any of the respective
issuers of such bonds are actively considering the redemption of such bonds
prior to their respective stated initial call dates.
Certain of the bonds may be health care revenue bonds. Ratings of bonds
issued for health care facilities are often based on feasibility studies that
contain projections of occupancy levels, revenues and expenses. A facility's
gross receipts and net income available for debt service may be affected by
future events and conditions including, among other things, demand for services
and the ability of the facility to provide the services required, physicians'
confidence in the facility, management capabilities, competition with other
health care facilities, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses, the cost
and possible unavailability of malpractice insurance, the funding of Medicare,
Medicaid and other similar third party pay or programs, government regulation
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar third party
pay or programs.
Certain of the bonds may be obligations of public utility issuers,
including those selling wholesale and retail electric power and gas. General
problems of such issuers would include the difficulty in financing large
construction programs in an inflationary period, the limitations on operations
and increased costs and delays attributable to environmental considerations, the
difficulty of the capital market in absorbing utility debt, the difficulty in
obtaining fuel at reasonable prices and the effect of energy conservation. In
addition, Federal, state and municipal governmental authorities may from time to
time review existing, and impose additional, regulations governing the
licensing, construction and operation of nuclear power plants, which may
adversely affect the ability of the issuers of certain of the bonds to make
payments of principal and/or interest on such bonds.
Certain of the bonds may be obligations of issuers whose revenues are
derived from the sale of water and/or sewerage services. Such bonds are
generally payable from user fees. The problems of such issuers include the
ability to obtain timely and adequate rate increases, population decline
resulting in decreased user fees, the difficulty of financing large construction
programs, the limitations on operations and increased costs and delays
attributable to environmental considerations, the increasing difficulty of
obtaining or discovering new supplies of fresh water, the effect of conservation
programs and the impact of "no-growth" zoning ordinances.
Certain of the bonds may be industrial revenue bonds ("IRBs"). IRBs have
generally been issued under bond resolutions pursuant to which the revenues and
receipts payable under the arrangements with the operator of a particular
project have been assigned and pledged to purchasers. In some cases, a mortgage
on the underlying project may have been granted as security for the IRBs.
Regardless of the structure, payment of IRBs is solely dependent upon the
creditworthiness of the corporate operator of the project or corporate
-8-
guarantor. Corporate operators or guarantors may be affected by many factors
which may have an adverse impact on the credit quality of the particular company
or industry. These include cyclicality of revenues and earnings, regulatory and
environmental restrictions, litigation resulting from accidents or
environmentally-caused illnesses, extensive competition and financial
deterioration resulting from a corporate restructuring pursuant to a leveraged
buy-out, takeover or otherwise. Such a restructuring may result in the operator
of a project becoming highly leveraged which may impact on such operator's
creditworthiness which in turn would have an adverse impact on the rating and/or
market value of such bonds. Further, the possibility of such a restructuring may
have an adverse impact on the market for and consequently the value of such
bonds, even though no actual takeover or other action is ever contemplated or
effected.
Certain of the bonds may be obligations that are secured by lease payments
of a governmental entity (hereinafter called "lease obligations"). Lease
obligations are often in the form of certificates of participation. Although the
lease obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to appropriate for and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. A governmental entity that enters into such
a lease agreement cannot obligate future governments to appropriate for and make
lease payments but covenants to take such action as is necessary to include any
lease payments due in its budgets and to make the appropriations therefor. A
governmental entity's failure to appropriate for and to make payments under its
lease obligation could result in insufficient funds available for payment of the
obligations secured thereby. Although "non-appropriation" lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult.
Certain of the bonds may be obligations of issuers which are, or which
govern the operation of, schools, colleges and universities and whose revenues
are derived mainly from ad valorem taxes or for higher education systems, from
tuition, dormitory revenues, grants and endowments. General problems relating to
school bonds include litigation contesting the state constitutionality of
financing public education in part from ad valorem taxes, thereby creating a
disparity in educational funds available to schools in wealthy areas and schools
in poor areas. Litigation or legislation on this issue may affect the sources of
funds available for the payment of school bonds in the trusts. General problems
relating to college and university obligations include the prospect of a
declining percentage of the population consisting of "college" age individuals,
possible inability to raise tuitions and fees sufficiently to cover increased
operating costs, the uncertainty of continued receipt of Federal grants and
state funding, and government legislation or regulations which may adversely
affect the revenues or costs of such issuers.
Certain of the bonds in certain of the trusts may be obligations which are
payable from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. The major portion of an airport's gross operating income is
generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for leases, occupancy of certain
terminal space and service fees. Airport operating income may therefore be
-9-
affected by the ability of the airlines to meet their obligations under the use
agreements. From time to time the air transport industry has experienced
significant variations in earnings and traffic, due to increased competition,
excess capacity, increased costs, deregulation, traffic constraints and other
factors, and several airlines have experienced severe financial difficulties.
Similarly, payment on bonds related to other facilities is dependent on revenues
from the projects, such as user fees from ports, tolls on turnpikes and bridges
and rents from buildings. Therefore, payment may be adversely affected by
reduction in revenues due to such factors as increased cost of maintenance,
decreased use of a facility, lower cost of alternative modes of transportation,
scarcity of fuel and reduction or loss of rents.
Certain of the bonds may be obligations which are payable from and secured
by revenues derived from the operation of resource recovery facilities. Resource
recovery facilities are designed to process solid waste, generate steam and
convert steam to electricity. Resource recovery bonds may be subject to
extraordinary optional redemption at par upon the occurrence of certain
circumstances, including but not limited to: destruction or condemnation of a
project; contracts relating to a project becoming void, unenforceable or
impossible to perform; changes in the economic availability of raw materials,
operating supplies or facilities necessary for the operation of a project or
technological or other unavoidable changes adversely affecting the operation of
a project; and administrative or judicial actions which render contracts
relating to the projects void, unenforceable or impossible to perform or impose
unreasonable burdens or excessive liabilities. The Sponsor cannot predict the
causes or likelihood of the redemption of resource recovery bonds in a trust
prior to the stated maturity of the bonds.
Certain of the bonds may have been acquired at a market discount from par
value at maturity. The coupon interest rates on discount bonds at the time they
were purchased and deposited in a trust 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 bonds increase, the market discount
of previously issued bonds will become greater, and if such interest rates for
newly issued comparable bonds decline, the market discount of previously issued
bonds will be reduced, other things being equal. Investors should also note that
the value of bonds purchased at a market discount will increase in value faster
than bonds purchased at a market premium if interest rates decrease. Conversely,
if interest rates increase, the value of bonds purchased at a market discount
will decrease faster than bonds 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 bonds will be reduced. A
bond purchased at a market discount and held to maturity will have a larger
portion of its total return in the form of taxable income and capital gain and
less in the form of tax-exempt interest income than a comparable bond newly
issued at current market rates. Market discount attributable to interest changes
does not indicate a lack of market confidence in the issue.
Certain of the bonds may be "zero coupon" bonds. 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
-10-
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.
Certain of the bonds may have been purchased on a "when, as and if issued"
or "delayed delivery" basis. See "Notes to Portfolio" in the prospectus. The
delivery of any such bonds may be delayed or may not occur. Interest on these
Bonds begins accruing to the benefit of unitholders on their respective dates of
delivery. To the extent any bonds are actually delivered to a trust after their
respective expected dates of delivery, unitholders who purchase their unit prior
to the date such bonds are actually delivered to the trustee would be required
to adjust their tax basis in their unit for a portion of the interest accruing
on such bonds during the interval between their purchase of unit and the actual
delivery of such bonds. As a result of any such adjustment, the Estimated
Current Returns during the first year would be slightly lower than those stated
in the Prospectus which would be the returns after the first year, assuming the
portfolio of a trust and estimated annual expenses other than that of the
trustee (which may be reduced in the first year only) do not vary from that set
forth in the prospectus. Unitholders will be "at risk" with respect to all bonds
in the portfolios including "when, as and if issued" and "delayed delivery"
bonds (i.e., may derive either gain or loss from fluctuations in the evaluation
of such bonds) from the date they commit for unit.
Certain of the bonds may be subject to redemption prior to their stated
maturity date pursuant to sinking fund provisions, call provisions or
extraordinary optional or mandatory redemption provisions or otherwise. A
sinking fund is a reserve fund accumulated over a period of time for retirement
of debt. A callable debt obligation is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is a method
by which a debt obligation is redeemed, at or before maturity, by the proceeds
of a new debt obligation. In general, call provisions are more likely to be
exercised when the offering side valuation is at a premium over par than when it
is at a discount from par. The exercise of redemption or call provisions will
(except to the extent the proceeds of the called bonds are used to pay for unit
redemptions) result in the distribution of principal and may result in a
reduction in the amount of subsequent interest distributions; it may also affect
the current return on unit of the trust involved. Each trust portfolio contains
a listing of the sinking fund and call provisions, if any, with respect to each
of the debt obligations. Extraordinary optional redemptions and mandatory
redemptions result from the happening of certain events. Generally, events that
may permit the extraordinary optional redemption of bonds or may require the
mandatory redemption of bonds include, among others: if the securities is a tax-
exempt municipal bond, a final determination that the interest on the bonds is
taxable; the substantial damage or destruction by fire or other casualty of the
project for which the proceeds of the bonds were used; an exercise by a local,
state or Federal governmental unit of its power of eminent domain to take all or
substantially all of the project for which the proceeds of the bonds were used;
changes in the economic availability of raw materials, operating supplies or
facilities or technological or other changes which render the operation of the
project for which the proceeds of the bonds were used uneconomic; changes in law
or an administrative or judicial decree which renders the performance of the
agreement under which the proceeds of the bonds were made available to finance
-11-
the project impossible or which creates unreasonable burdens or which imposes
excessive liabilities, such as taxes, not imposed on the date the bonds are
issued on the issuer of the bonds or the user of the proceeds of the bonds; an
administrative or judicial decree which requires the cessation of a substantial
part of the operations of the project financed with the proceeds of the bonds;
an overestimate of the costs of the project to be financed with the proceeds of
the bonds resulting in excess proceeds of the bonds which may be applied to
redeem bonds; or an underestimate of a source of funds securing the bonds
resulting in excess funds which may be applied to redeem bonds. The issuer of
certain bonds in a trust may have sold or reserved the right to sell, upon the
satisfaction of certain conditions, to third parties all or any portion of its
rights to call bonds in accordance with the stated redemption provisions of such
bonds. In such a case the issuer no longer has the right to call the bonds for
redemption unless it reacquires the rights from such third party. A third party
pursuant to these rights may exercise the redemption provisions with respect to
a bond at a time when the issuer of the bond might not have called a bond for
redemption had it not sold such rights. The Sponsor is unable to predict all of
the circumstances which may result in such redemption of an issue of bonds. See
also the discussion of single family mortgage and multi-family revenue bonds
above for more information on the call provisions of such bonds.
To the best knowledge of the Sponsor, there is no litigation pending as of
the Date of Deposit in respect of any bonds which might reasonably be expected
to have a material adverse effect upon any of the trusts. At any time after the
trust's inception date, litigation may be initiated on a variety of grounds with
respect to bonds in a trust. Such litigation, as, for example, suits challenging
the issuance of pollution control revenue bonds under environmental protection
statutes, may affect the validity of such bonds or the tax-free nature of the
interest thereon if the bond is a tax-exempt municipal bond. In addition, other
factors may arise from time to time which potentially may impair the ability of
issuers to meet obligations undertaken with respect to the bonds.
PUERTO RICO. Your trust may significantly invest in bonds issued by issuers
located in Puerto Rico. Accordingly, an investment in such a trust should be
made with an understanding of the general risks associated with the Commonwealth
of Puerto Rico.
Geographic Location and Demography. The Commonwealth of Puerto Rico
("Puerto Rico" or, the "Commonwealth") is the fourth largest of the Caribbean
islands and is located approximately 1,600 miles Southeast of New York. It is
approximately 100 miles long and 35 miles wide. According to the United States
Census Bureau, the population of Puerto Rico was approximately 3,800,000 in
2000, compared to 3,522,000 in 1990. However, the Puerto Rico Planning Board
(the "Planning Board") estimates that as of July 2005, the population will be
approximately 3,889,000.
Relationship with the United States. Puerto Rico came under the sovereignty
of the United States with the signing of the Treaty of Paris on December 10,
1898, at the conclusion of the Spanish-American War. Puerto Ricans became
citizens of the United States in 1917, by virtue of the Jones Act, approved by
the Congress of the United States. In 1950, the Congress of the United States
enacted Public Law 600 in order to provide for an increased Puerto Rican self-
-12-
government. This law set forth the political, economic and fiscal relationship
between Puerto Rico and the United States. It also provided for the drafting and
adoption of a local constitution on July 25, 1952.
The Constitution of Puerto Rico was drafted by a Constituent Commission,
approved in a special referendum by the people of Puerto Rico, amended and
ratified by the United States Congress, and subsequently approved by the
President of the United States. The official designation of the Government or
body politic has henceforth been "Estado Libre Asociado", which literally
translates to "Free Associated State", and has been called "Commonwealth" by the
United States Government.
The United States and the Commonwealth of share a common defense, market
and currency. Puerto Rico exercises virtually the same control over its internal
affairs as any of the fifty states of the United States. However, it differs
from the states in its relationship with the United States federal government.
The people of Puerto Rico are citizens of the United States but do not vote in
national elections (they can only vote in local (Puerto Rico) elections). The
people of the Commonwealth are represented in Congress by a Resident
Commissioner who has a voice in the House of Representatives and limited voting
power. Puerto Rico is a self-governing commonwealth in association with the
United States. The chief of state of the Commonwealth is the President of the
United States. The head of government is an elected Governor. There are two
legislative chambers: the House of Representatives, 51 seats, and the Senate, 27
seats.
While Puerto Rico has authority over its internal affairs, the United
States controls interstate trade, foreign relations and commerce, customs
administration, control of air, land and sea, immigration and emigration,
nationality and citizenship, currency, maritime laws, military service, military
bases, army, navy and air force, declaration of war, constitutionality of laws,
jurisdictions and legal procedures, treaties, radio and television
communications, agriculture, mining and minerals, highways, postal system;
social security, and other areas generally controlled by the federal government
in the United States. Puerto Rican institutions control internal affairs unless
U.S. law is involved, as in matters of public health and pollution. The major
differences between Puerto Rico and the 50 states are its local taxation system
and exemption from Internal Revenue Code, its lack of voting representation in
either house of the U.S. Congress, the ineligibility of Puerto Ricans to vote in
presidential elections, and its lack of assignation of some revenues reserved
for the states
Economy. The Commonwealth has established policies and programs directed
principally at developing the manufacturing and services sectors of the economy
and expanding and modernizing the Commonwealth's infrastructure. Domestic and
foreign investment have been stimulated by selective tax exemptions, development
loans, and other financial and tax incentives. Infrastructure expansion and
modernization have been to a large extent financed by bonds and notes issued by
the Commonwealth, its public corporations and municipalities. Economic progress
has been aided by significant increases in the levels of education and
occupational skills of the Commonwealth's population.
The economy of Puerto Rico is closely linked to the United States economy.
The following exogenous variables are affected by the United States economy:
exports, direct investment, transfer payments, interest rates, inflation and
-13-
tourist expenditures. During fiscal year 2002 (July 2001 through June 2002),
approximately 89% of Puerto Rico's exports went to the United States mainland,
which was also the source of approximately 50% of Puerto Rico's imports.
Puerto Rico enjoyed almost two decades of economic expansion through fiscal
year 2001. Almost every sector of the economy participated, and record levels of
employment were achieved. Factors behind this expansion included government-
sponsored economic development programs, periodic declines in the value of the
United States dollar, increased in the level of federal transfers, a significant
expansion in construction investment driven by infrastructure projects and
private investment, primarily in housing, the relatively low cost of borrowing
and low oil prices. In fiscal year 2002, however, preliminary Planning Board
figures indicate that the economy of Puerto Rico registered a decline of .2% in
real gross product.
The dominant sectors of the Puerto Rico economy are manufacturing and
services. The manufacturing sector has undergone fundamental changes over the
years as a result of increased emphasis on higher wage, high technology
industries, such as pharmaceuticals, electronics, computers, microprocessors,
professional and scientific instruments and certain high technology machinery
and equipment. The service sector, including finance, insurance, real estate,
wholesale and retail trade and tourism, also plays a major role in the economy.
It ranks second only to manufacturing in contribution to the gross domestic
product and leads all sectors in providing employment.
Puerto Rico is heavily dependent on oil imports for the production of
electricity. As a result of the construction of two cogeneration plants,
however, one of which is fueled by liquefied natural gas and the other by coal,
Puerto Rico's dependence on oil imports for the production of electricity has
been reduced from 99% to 72%.
The Commonwealth's gross product in fiscal year 2002 was $45.2 billion.
This represents an increase in gross product of 28.7% from fiscal year 1998.
Since fiscal year 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal year 2002, aggregate personal
income was $42.6 billion and personal income per capita was $11,069.
According to the Department of Labor and Human Resources Household
Employment Survey (the "Survey"), average employment increased from 1,137,000 in
fiscal year 1998 to 1,169,600 in fiscal year 2002. Average unemployment rate
decreased from 13.6% in fiscal year 1998 to 12% in fiscal year 2002.
According to the Survey, during the first seven months in fiscal year 2003,
total monthly seasonally adjusted employment averaged 1,201,600 compared to
1,159,100 in the same period of fiscal year 2002, an increase of 3.7%.
Notwithstanding this increase in average monthly employment, due to a higher
labor participation rate and a significant increase in the civilian population
aged 16 years and over, the unemployment rate increased to 12% during the first
seven months of fiscal year 2003 from 11.6% during the same period of fiscal
year 2002. Total employment for January 2003 was 1,225,000, an increase of
22,000 compared to the same month in 2002.
-14-
The Planning Board's real gross domestic product forecast for fiscal year
2003, made in February 2003, projects an increase of 1.7%.
Incentives under the United States Tax Code. United States corporations
operating in Puerto Rico have been subject to special tax provisions since the
Revenue Act of 1921. Prior to the enactment of the Tax Reform Act of 1976, under
Section 931 of the Internal Revenue Code, as amended (the "Code"), United States
corporations operating in Puerto Rico (and meeting certain source of income
tests) were taxed only on income arising from sources within the United States.
The Tax Reform Act of 1976 created Section 936 of the Code, which revised
the tax treatment of United States corporations operating in Puerto Rico by
taxing such corporations on their worldwide income in a manner similar to that
applicable to any other United States corporation but providing such
corporations a full credit for the federal tax on their business and qualified
investment income in Puerto Rico. The credit provided an effective 100% federal
tax exemption for operating and qualifying investment income from Puerto Rico
sources.
As a result of amendments to Section 936 made in 1996 (the "1996
Amendments"), the tax credit is being phased out over a ten-year period for
companies that were operating in Puerto Rico in 1995 and is no longer available
for corporations that establish operations in Puerto Rico after October 13,
1995. The 1996 Amendments also eliminated the credit previously available for
income derived from certain qualified investments in Puerto Rico.
The 1996 Amendments added Section 30A to the Code. Section 30A permits a
"qualifying domestic corporation" ("QDC") that meets certain gross income tests
to claim a credit (the "Section 30A Credit") against federal income tax imposed
on taxable income derived from sources outside the United States from the active
conduct of a trade or business in Puerto Rico or from the sale of substantially
all the assets used in such business ("Possession Income"). The Section 30A
Credit will not be available for taxable years commencing after 2005.
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to 85% of the
maximum earnings subject to the OASDI portion of Social Security taxes plus an
allowance for fringe benefits of 15% of qualified possession wages, (ii) a
specified percentage of depreciation deductions ranging between 15% and 65%,
based on the class life of tangible property and (iii) a portion of Puerto Rico
income taxes paid by the QDC, up to a 9% effective rate (but only if the QDC
does not elect the profit-split method for allocating income from intangible
property).
In the case of taxable years beginning after December 31, 2001, the amount
of Possession Income that qualifies for the Section 30A Credit is subject to a
cap based on the QDC's Possession Income for an average adjusted base period
ending before October 14, 1995.
Under Section 936 of the Code, as amended by the 1996 Amendments, United
States corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their United States
corporate income tax the portion of such tax attributable to income derived from
-15-
the active conduct of a trade or business within Puerto Rico and from the sale
or exchange of substantially all assets used in the active conduct of such trade
or business.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one of three
formulas: (i) a cost-sharing formula, whereby it is allowed to claim all profits
attributable to manufacturing intangibles and other functions carried out in
Puerto Rico provided it makes a cost sharing payment in the amount required
under Section 936; (ii) a profit-split formula, whereby it is allowed to claim
50% of the combined net income of its affiliated group from the sale of products
manufactured in Puerto Rico; or (iii) a cost-plus formula, whereby it is allowed
to claim a reasonable profit on the manufacturing costs incurred in Puerto Rico.
The Section 936 credit is now only available to companies that were
operating in Puerto Rico on October 13, 1995, and had elected the percentage of
income credit provided by Section 936. Such percentage of income credit is equal
to 40% of the federal income tax otherwise imposable on the Puerto Rico active
business income or derived from the sale or exchange of substantially all assets
used in such business.
In the case of taxable years beginning on or after 1998, the Possession
Income subject to the Section 936 credit is subject to a cap based on the
Section 936 Corporation's Possession Income for an average adjusted base period
ending on October 14, 1995. The Section 936 credit is eliminated for taxable
years commencing after 2005.
One of the elements of the Commonwealth's new economic development plan
involves amending the Code to provide a new tax regime applicable to United
States-based businesses that have operations in Puerto Rico or other United
States possessions. A proposal to amend the Code in this regard put forth by the
Governor of Puerto Rico has broad bi-partisan support in both the United States
Senate and the House of Representatives.
The proposal would amend the Code as follows: (i) Sections 30A and 936
would be allowed to expire according to their terms; (ii) Section 956 would be
amended to exclude from current U.S. tax 90% of the otherwise taxable
investments in certain U.S. property made by a "Qualified CFC" out of its
"Qualified Income"; (iii) as an alternative to the Section 956 exclusion,
Section 245 would be amended to allow an 85% dividends received deduction with
respect to dividends paid out of Qualified Income by the Qualified CFC; and (iv)
the investment in United States properties by the QFC out of its Qualified
Income will not be subject to the imputation of interest nor to the treatment as
a constructive dividend.
A "Qualified CFC" would be defined under the Code as a controlled foreign
corporation which is created or organized under the laws of the Commonwealth or
a possession of the United States. "Qualified Income" would be limited to that
portion of the Qualified CFC's foreign source income that is derived from the
active conduct by the Qualified CFC of a trade or business in Puerto Rico (or a
possession of the United States) or from the sale or exchange of substantially
all the assets used by the Qualified CFC in the active conduct of such a trade
or business. The proposed Section 956 exclusion would be applicable only to
income that is eligible for deferral under general United States tax principles.
-16-
The legislative process for consideration of this proposal is in the early
stages and, thus, it is not possible at this time to determine whether the
proposal will be enacted into law or what amendments, if any may be made to it.
Debt and, Revenues and Expenditures. The Constitution of Puerto Rico limits
the amount of general obligation (full faith and credit) debt that can be issued
or guaranteed by the Commonwealth. The Commonwealth's policy has been and
continues to be to maintain the amount of such debt prudently below the
constitutional limitation. Direct debt of the Commonwealth is supported by
Commonwealth taxes. Debt of municipalities of the Commonwealth, other than bond
anticipation notes, is supported by real and personal property taxes and
municipal license taxes. As of December 31, 2002, total public sector debt of
the Commonwealth (in thousands) was equal to $30,461,988.
General Fund total revenues for fiscal year 2002 were $7,502 million,
representing an increase of $540 million, or 7.8%, from fiscal year 2001
revenues. Expenditures for fiscal year 2002 were $7,597.1, which was $131.4
million, or 1.8%, higher than the $7,465.7 million budgeted. The principal
reasons for this difference were: (i) health reform costs of approximately $125
million; (ii) payroll and other costs of education of approximately $64.9
million; and (iii) public safety costs of approximately $66.5 million.
Bond Ratings. All outstanding general obligation bonds of the Commonwealth
are rated A- (with a negative outlook) by Standard & Poor's Ratings Services and
Baa1 by Moody's Investor's Service, Inc. Any explanation concerning the
significance of such ratings must be obtained from the rating agencies. There is
no assurance that any ratings will continue for any period of time or that they
will not be revised or withdrawn.
Local Issuances. It should be noted that the creditworthiness of
obligations issued by local Puerto Rican issuers may be unrelated to the
creditworthiness of obligations issued by the Commonwealth of Puerto Rico, and
there is no obligation on the part of the Commonwealth to make payment on such
local obligations in the event of default.
The information provided above is only a brief summary of the complex
factors affecting the financial situation in Puerto Rico and is derived from
sources that are generally available to investors and are believed to be
accurate. No independent verification has been made as to the accuracy or
completeness of any of the preceeding information. It is based in part on
information obtained from Commonwealth and local agencies in Puerto Rico or
contained in Official Statements for various Puerto Rico obligations.
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.
-17-
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.
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.
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.
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.
-18-
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;
(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.
-19-
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
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
-20-
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
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.
-21-
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.
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.
-22-
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
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
-23-
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.
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 plus cash deposited to pay organization costs plus
accrued interest, if any. 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
plus cash deposited to pay organization costs plus accrued interest, if any.
The sales fee as a percentage of the public offering price and the net amount
invested is set forth in the prospectus. During the initial offering period, a
portion of the public offering price includes an amount of cash 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 close of business on
the business day before 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
-24-
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. The amount of net interest
income which accrues 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.
-25-
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 close of business on the business day before 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 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
-26-
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.
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
-27-
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.
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.
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.
-28-
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, provided that the
redemption price is not reduced by the organization costs of the trust
during the initial offering period; 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 may 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.
-29-
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
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 close of business on the business day before 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
-30-
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
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.
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES. A Standard &
Poor's corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific debt bond. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation.
II. Nature of and provisions of the obligation.
III. Protection afforded by, and relative position of, the bond in the
event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA--An obligation rated "AA" differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A--An obligation rated "A" is somewhat more susceptible to adverse effects
of changes in circumstances and economic conditions than obligations in higher-
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB--An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
-31-
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: A provisional rating ("p") assumes the successful
completion of the project financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of or the risk of default upon failure of such
completion. The investor should exercise his own judgement with respect to such
likelihood and risk.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's rating symbols and their meanings follows:
Aaa--Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
-32-
Contents of Registration Statement
This Registration Statement comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The consents of the initial evaluator, independent public accountants and
legal counsel
The following exhibits:
1.1 Trust Agreement (to be filed by amendment).
1.1.1 Standard Terms and Conditions of Trust (to be filed by amendment).
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,
Series 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,
Series 10 (File No. 333-115977) as filed on May 28, 2004.
3.1 Opinion of counsel as to legality of securities being registered (to be
filed by amendment).
3.2 Opinion of counsel as to federal income tax status of securities being
registered (to be filed by amendment).
3.3 Opinion of counsel as to the New York tax status of securities being
registered (to be filed by amendment).
4.1 Consent of evaluator (to be filed by amendment).
4.2 Consent of independent auditors (to be filed by amendment).
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, Series 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, Series 10
(File No. 333-115977) as filed on May 28, 2004.
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Advisor's Disciplined Trust 22 has duly caused this 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 24th day of November, 2004.
ADVISOR'S DISCIPLINED TRUST 22
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
Registration Statement has been signed below on November 24, 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*
- -------------------------------------------------------------------------------
*An executed copy of each of the related powers of attorney is filed
herewith or incorporated herein by reference as Exhibit 7.1.
S-3