1933 ACT FILE NO.: 333-_____
1940 ACT FILE NO.: 811-21056
CIK NO.: 1328906
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 57
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 _______, 2005 at _____ pursuant to Rule 487.
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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 OCTOBER 12, 2005
SUBJECT TO COMPLETION
CALIFORNIA MUNICIPAL CLOSED-END PORTFOLIO, SERIES 1
(ADVISOR'S DISCIPLINED TRUST 57)
A portfolio of shares of closed-end
funds that invest primarily in municipal
bonds seeking income exempt from
federal and California income taxes for
California residents with capital
appreciation potential
An investment can be made in the
funds directly. Direct investments
would not be subject to the trust sales
fee, expenses or organization costs.
PROSPECTUS
OCTOBER ___, 2005
[LOGO]
As with any investment, the Securities
ADVISOR'S and Exchange Commission has not approved
ASSET MANAGEMENT or disapproved of these securities or
passed upon the adequacy or accuracy of
A DIVISION OF FIXED this prospectus. Any contrary
INCOME SECURITIES, L.P. representation is a criminal offense.
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INVESTMENT SUMMARY
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INVESTMENT OBJECTIVE
The trust seeks to provide interest income exempt from federal and California
income taxes with capital appreciation as a secondary objective.
PRINCIPAL INVESTMENT STRATEGY
The trust seeks to provide income exempt from federal and California income
taxes with capital appreciation potential by investing in a portfolio primarily
consisting of common stock of closed-end investment companies (known as "closed-
end funds") that invest primarily in municipal bonds issued primarily by
California issuers. We<FN1>* selected the portfolio in an effort to offer
investors greater diversification by investing in a range of closed-end funds
that are further diversified across underlying bonds. Approximately ___% of the
portfolio consists of funds classified as "non-diversified" under the Investment
Company Act of 1940. These funds have the ability to invest more than 5% of
their assets in securities of a single issuer which could reduce
diversification. In selecting these closed-end funds, we considered factors
such as historical returns, income potential, potential future growth, portfolio
diversification and advisor experience, however, we did not use a specific
credit quality strategy. Under normal circumstances, the trust will invest at
least 80% of its assets in closed-end investment companies having policies to
invest at least 80% of their assets in California municipal bonds. The closed-
end funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal and California income tax, however, income from these bonds
may be subject to the alternative minimum tax and a portion of the income could
be derived from non-California bonds and be taxable to California residents.
PRINCIPAL RISKS
As with all investments, you can lose money by investing in this trust. The
trust also might not perform as well as you expect. This can happen for reasons
such as these:
* SECURITY PRICES WILL FLUCTUATE. The value of your investment may fall over
time.
* THE VALUE OF THE SECURITIES IN THE CLOSED-END FUNDS 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 MAY BE UNABLE TO MAKE INTEREST AND/OR PRINCIPAL PAYMENTS IN THE
FUTURE. This may reduce the level of dividends a closed-end fund pays
which would reduce your income and cause the value of your units to fall.
* THE FINANCIAL CONDITION OF A BOND 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.
* THE TRUST INVESTS IN SHARES OF CLOSED-END FUNDS. You should understand the
section titled "Closed-End Funds" before you invest. In particular, shares
of these funds tend to trade at a discount from their net asset value and
are subject to risks related to factors such as the manager's ability to
achieve a fund's objective, market conditions affecting a fund's
investments and use of leverage. The trust and the underlying funds have
management and operating expenses. You will bear not only your share of
the trust's expenses, but also the expenses of the underlying funds. By
investing in other funds, the trust incurs greater expenses than you would
incur if you invested directly in the funds.
* THE CLOSED-END FUNDS INVEST IN CALIFORNIA MUNICIPAL BONDS. Municipal bonds
are debt obligations issued by state and local governments or by their
political subdivisions or authorities. States, local governments and
municipalities issue municipal bonds to raise money for various public
purposes such as building public facilities, refinancing outstanding
obligations and financing general operating expenses. These bonds include
general obligation bonds, which are backed by the full faith and credit of
the issuer and may be repaid from any revenue source, and revenue bonds,
which may be repaid only from the revenue of a specific facility or source.
Because the funds held in the trust are concentrated in bonds of issuers
located in California, there may be more risk than if the bonds were issued
by issuers located in several states.
* WE DO NOT ACTIVELY MANAGE THE PORTFOLIO. While the closed-end funds have
managed portfolios, except in limited circumstances, the trust will hold,
and continue to buy, shares of the same funds even if their market value
declines.
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<FN1>* "FIS," "we" and related terms mean Fixed Income Securities, L.P., the
trust sponsor, unless the context clearly suggests otherwise.
2 Investment Summary
WHO SHOULD INVEST
You should consider this investment if you want:
* to own securities representing interests in managed funds that invest
primarily in California municipal bonds.
* the potential to receive monthly distributions of federal and California
tax-exempt income.
You should not consider this investment if you:
* are uncomfortable with the risks of an unmanaged investment in closed-end
funds that invest primarily in California municipal bonds.
* seek capital appreciation as a primary objective.
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ESSENTIAL INFORMATION
---------------------
UNIT PRICE AT INCEPTION $10.0000
INCEPTION DATE October ___, 2005
TERMINATION DATE April ___, 2011
ESTIMATED NET ANNUAL DISTRIBUTIONS
First year $________ per unit
Subsequent years $________ per unit
DISTRIBUTION DATES Last day of each month
RECORD DATES 15th day of each month
INITIAL DISTRIBUTION DATE November 30, 2005
INITIAL RECORD DATE November 15, 2005
CUSIP NUMBERS
Standard Accounts
Cash distributions 00765T____
Reinvest distributions 00765T____
Fee Based Accounts
Cash distributions 00765T____
Reinvest distributions 00765T____
TICKER SYMBOL ADT____
MINIMUM INVESTMENT $1,000/100 units
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FEES AND EXPENSES
The amounts below are estimates of the direct and indirect expenses that you
may incur based on a $10 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 3.35 33.50
Creation & development fee 0.60 6.00
------- -------
Maximum sales fee 4.95% $49.50
======= =======
ORGANIZATION COSTS 0.50% $5.00
======= =======
AS A % AMOUNT
ANNUAL OF NET PER 100
OPERATING EXPENSES ASSETS UNITS
------------------------
Trustee fee & expenses 0.16% $1.50
Supervisory, evaluation
and administration fees 0.11 1.00
Closed-end fund expenses _.___ _____
------- -------
Total _.___% $_____
======= =======
The initial sales fee is the difference between the total sales fee (maximum
of 4.95% of the unit offering price) and the sum of the remaining deferred sales
fee and the total creation and development fee. The deferred sales fee is fixed
at $0.335 per unit and is paid in three monthly installments beginning May 20,
2006. The creation and development fee is fixed at $0.06 per unit and is paid
at the end of the initial offering period (anticipated to be six months). The
trust will indirectly bear the management and operating expenses of the
underlying closed-end funds. While the trust will not pay these expenses
directly out of its assets, these expenses are shown in the trust's annual
operating expenses above to illustrate the impact of these expenses.
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 years $_____
5 years $_____
5 1/2 years (life of trust) $_____
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
CALIFORNIA MUNICIPAL CLOSED-END PORTFOLIO, SERIES 1
(ADVISOR'S DISCIPLINED TRUST 57)
PORTFOLIO
AS OF THE TRUST INCEPTION DATE, OCTOBER ___, 2005
PERCENTAGE OF MARKET COST OF
NUMBER TICKER AGGREGATE OFFERING VALUE PER SECURITIES
OF SHARES SYMBOL ISSUER PRICE SHARE(1) TO TRUST(2)
- -----------------------------------------------------------------------------------------------------------------------------------
- ---------- --------- ----------
________ 100.00% $________
========== ========= ==========
<FN>
Notes to Portfolio
(1) Securities are represented by contracts to purchase such securities. The
cost of each security is based on the most recent closing sale price of
each security as of the close of regular trading on the New York Stock
Exchange on the business day prior to the trust's inception date.
(2) 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.
4 Investment Summary
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UNDERSTANDING YOUR INVESTMENT
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HOW TO BUY UNITS
You can buy units of the trust on any business day the New York Stock
Exchange is open by contacting your financial professional. Unit prices are
available daily on the Internet at WWW.AAMUNITTRUST.COM. The public offering
price of units includes:
* the net asset value per unit plus
* organization costs plus
* the sales fee.
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.
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. During the initial offering period, the value of the
securities includes organization costs.
Pricing the Securities. We generally determine the value of securities using
the last sale price for securities traded on a national securities exchange or
the Nasdaq Stock Market. For this purpose, the trustee provides us closing
prices from a reporting service approved by us. In some cases we will price a
security based on its fair value after considering appropriate factors relevant
to value of the security. We will only do this if a security is not principally
traded on a national securities exchange or the Nasdaq Stock Market, or if the
market quotes are unavailable or inappropriate.
We determined the initial prices of the securities shown under "Portfolio" in
this prospectus as described above at the close of regular trading on the
New York Stock Exchange on the business day before the date of this prospectus.
On the first day we sell units we will compute the unit price as of the close of
regular trading on the New York Stock Exchange or the time the registration
statement filed with the Securities and Exchange Commission becomes effective,
if later.
Organization Costs. During the initial offering period, part of the value of
the units represents an amount that will pay the costs of creating your trust.
These costs include the costs of preparing the registration statement and legal
documents, federal and state registration fees, the initial fees and expenses of
the trustee and the initial audit. Your trust will sell securities to reimburse
us for these costs at the end of the initial offering period or after six
months, if earlier. The value of your units will decline when the trust pays
these costs.
TRANSACTIONAL SALES FEE. You pay a fee in connection with purchasing units.
We refer to this fee as the "transactional sales fee." The transactional sales
fee has both an initial and a deferred component and equals 4.35% of the public
offering price per unit based on a $10 public offering price per unit. This
percentage amount of the transactional sales fee is based on the unit price on
the trust's inception date. The transactional sales fee equals the difference
between the total sales fee and the creation and development fee.
Understanding Your Investment 5
As a result, the percentage and dollar amount of the transactional sales fee
will vary as the public offering price per unit varies. The transactional sales
fee does not include the creation and development fee which is described under
"Expenses."
The maximum sales fee equals 4.95% of the public offering price per unit at
the time of purchase. You pay the initial sales fee at the time you buy units.
The initial sales fee is the difference between the total sales fee percentage
(maximum of 4.95% of the public offering price per unit) and the sum of the
remaining fixed dollar deferred sales fee and the total fixed dollar creation
and development 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 $0.335 per unit. Your trust pays the
deferred sales fee in equal monthly installments as described on page 3. If you
redeem or sell your units prior to collection of the total deferred sales fee,
you will pay any remaining deferred sales fee upon redemption or sale of your
units.
If you purchase units after the last deferred sales fee payment has been
assessed, the secondary market sales fee is equal to 4.95% of the public
offering price per unit and does not include deferred payments.
REDUCING YOUR SALES FEE. We offer a variety of ways for you to reduce the
fee you pay. It is your financial professional's responsibility to alert us of
any discount when you order units. Since the deferred sales fee and the
creation and development fee are fixed dollar amounts per unit, your trust must
charge these fees 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 and the creation and development
fee, we will credit you the difference between your total sales fee and these
fixed dollar fees 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 4.95%
$50,000 - $99,999 4.70
$100,000 - $249,999 4.45
$250,000 - $499,999 3.95
$500,000 or more 2.95
We apply these fees as a percent of the public offering price per unit at the
time of purchase. We also apply the different purchase levels on a unit basis
using a $10 unit equivalent. For example, if you purchase between 10,000 and
24,999 units, your fee is 4.45% of your public offering price per unit.
You may AGGREGATE unit 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 orders 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 the transactional 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
6 Understanding Your Investment
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. You should consult your financial advisor to determine whether you
can benefit from these accounts. To purchase units in these fee-based accounts,
your financial advisor must purchase units designated with one of the fee
account CUSIP numbers, if available. Please contact your financial advisor for
more information. Fee account purchases are not subject to the transactional
sales fee but will be subject to the creation and development fee that is
retained by the sponsor. For example, this table illustrates the sales fee you
will pay as a percentage of the initial $10 public offering price per unit (the
percentage will vary with the unit price).
Initial sales fee 0.00%
Deferred sales fee 0.00%
-------
Transactional sales fee 0.00%
=======
Creation and development fee 0.60%
-------
Total sales fee 0.60%
=======
This discount applies only during the initial offering period. 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 the transactional sales fee for purchases made by
officers, directors and employees of the sponsor and its affiliates and their
family members (spouses, children and parents). These purchases are not subject
to the transactional sales fee but will be subject to the creation and
development fee.
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.
These discounts apply during the initial offering period and in the secondary
market.
Exchange Option. We waive a portion of the sales fee on units of the trust
offered in this prospectus if you buy your units with redemption or termination
proceeds from any of our other unit trusts. You may also purchase units of the
trust offered in this prospectus at this reduced fee if you purchase your units
with (1) termination proceeds from an unaffiliated unit trust or (2) redemption
proceeds from an unaffiliated unit trust if such trust is scheduled to terminate
within 30 days of the redemption. 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
$250,000 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. To qualify for this discount, the
termination or redemption proceeds used to purchase units of the trust offered
in this prospectus must be derived from a transaction that occurred within 30
days of your purchase of units of the trust offered in this prospectus. In
addition, the discount will only be available for investors that utilize the
same broker-dealer (or a different broker-dealer with appropriate notification)
for both the unit purchase and the transaction resulting in the receipt of the
termination or redemption proceeds used for the unit purchase. You may be
required to provide appropriate documentation or other information to your
broker-dealer to evidence your eligibility for this sales fee discount.
Please note that if you purchase units of the trust in this manner using
redemption proceeds
Understanding Your Investment 7
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. This discount applies
only during the initial offering period.
Dividend Reinvestment Plan. We do not charge any sales fee when you reinvest
distributions from your trust into additional units of the trust. This sales
fee discount applies during the initial offering period and in the secondary
market. Since the deferred sales fee and the creation and development fee are
fixed dollar amounts per unit, your trust must charge these fees per unit
regardless of this discount. If you elect the distribution reinvestment plan,
we will credit you with additional units with a dollar value sufficient to cover
the amount of any remaining deferred sales fee or creation and development fee
that will be collected on such units at the time of reinvestment. The dollar
value of these units will fluctuate over time.
RETIREMENT ACCOUNTS. The portfolio may be suitable for purchase in tax-
advantaged retirement accounts. You should contact your financial professional
about the accounts offered and any additional fees imposed.
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 any remaining creation
and development fee or 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 your units. Certain broker-dealers may charge a transaction fee
for processing unit redemption or sale requests.
SELLING UNITS. We may maintain a secondary market for units. This means
that if you want to sell your units, we may buy them at the current net asset
value, provided that you will not pay any remaining creation and development fee
or 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 any remaining creation and development
fee or organization costs if you redeem units during the initial offering
period. You will pay any remaining deferred sales fee at the time you redeem
units. The trustee must receive your completed redemption request prior to the
close of regular trading on the New York Stock Exchange for you to receive the
net asset value for a particular day. If your request is received after that
time or is incomplete in any way, you will receive
8 Understanding Your Investment
the next net asset value computed after the trustee receives your completed
request.
If you redeem your units, the trustee will generally send you a payment for
your units no later than seven days after it receives all necessary
documentation (this will usually only take three business days). The only time
the trustee can delay your payment is if the New York Stock Exchange is closed
(other than weekends or holidays), the Securities and Exchange Commission
determines that trading on that exchange is restricted or an emergency exists
making sale or evaluation of the securities not reasonably practicable, and for
any other period that the Securities and Exchange Commission permits.
To redeem your units, you must send the trustee any certificates for your
units. You must properly endorse your certificates or sign a written transfer
instrument with a signature guarantee. The trustee may require additional
documents such as a certificate of corporate authority, trust documents, a death
certificate, or an appointment as executor, administrator or guardian. The
trustee cannot complete your redemption or send your payment to you until it
receives all of these documents in complete form.
You can request an in-kind distribution of the securities underlying your
units if you tender at least 2,500 units for redemption (or such other amount as
required by your financial professional's firm). This option is generally
available only for securities traded and held in the United States. The trustee
will make any in-kind distribution of securities by distributing applicable
securities in book entry form to the account of your financial professional at
Depository Trust Company. You will receive whole shares of the applicable
securities and cash equal to any fractional shares. You may not request this
option in the last 30 days of your trust's life. We may discontinue this option
upon sixty days notice.
EXCHANGE OPTION. You may be able to exchange your units for units of our
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 at any time upon sixty days notice.
DISTRIBUTIONS
MONTHLY DISTRIBUTIONS. Your trust generally pays distributions of its net
investment income (pro-rated on an annual basis) along with any excess capital
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. For example, this could happen as a result
of a merger or similar transaction involving a company whose stock is in your
portfolio. The amount of your distributions will vary from time to time as
companies change their dividends or trust expenses change.
The closed-end funds in the trust's portfolio make dividend payments at
various times during the year. When the trust receives dividends from a fund,
the trustee credits the dividends to the trust's accounts. In an effort to make
relatively regular income distributions, the trust's monthly
Understanding Your Investment 9
income distribution is equal to one-twelfth of the estimated net annual
dividends to be received by the trust after deduction of trust operating
expenses. Because the trust does not necessarily receive dividends from the
underlying funds at a constant rate throughout the year, the trust's income
distributions to unitholders may be more or less than the amount credited to the
trust accounts as of the record date. For the purpose of minimizing fluctuation
in income distributions, the trustee is authorized to advance such amounts as
may be necessary to provide income distributions of approximately equal amounts.
The trustee will be reimbursed, without interest, for any such advances from
available income received by the trust on the ensuing record date.
ESTIMATED ANNUAL DISTRIBUTIONS. The estimated net annual distributions are
also shown under "Essential Information" in the "Investment Summary" section of
this prospectus. We base the estimate of the dividends the trust will receive
from the closed-end funds by annualizing the most recent dividends declared by
the closed-end funds. Due to various factors, actual dividends received from
the closed-end funds will most likely differ from their most recent annualized
dividends. The actual net annual distributions you will receive will vary with
changes in the trust's fees and expenses, in dividends received and with the
sale of securities. The estimated net annual distributions for subsequent years
are expected to be less than estimated distributions for the first year because
a portion of the securities included in the trust portfolio will be sold during
the first year to pay for organization costs, creation and development fee and
the deferred sales fee.
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 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. 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 bonds held by a closed-end
fund will fall if interest rates increase. The securities held by the closed-
end funds typically fall in value when interest rates rise and rise in value
when interest rates fall. The securities held by the closed-end funds with
longer periods before maturity are often more sensitive to interest rate
changes.
CREDIT RISK is the risk that a borrower is unable to meet its obligation to
pay principal or interest on a security held by a closed-end fund.
10 Understanding Your Investment
CLOSED-END FUNDS. Your portfolio invests in shares of closed-end investment
companies. You should understand the section titled "Closed-End Funds" before
you invest.
MUNICIPAL BOND RISKS. Each of the closed-end funds held by the trust invests
in tax-exempt municipal bonds. Municipal bonds are debt obligations issued by
states or by political subdivisions or authorities of states. Municipal bonds
are typically designated as general obligation bonds, which are general
obligations of a governmental entity that are backed by the taxing power of such
entity, or revenue bonds, which are payable from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
Municipal bonds are long-term fixed rate debt obligations that generally decline
in value with increases in interest rates, when an issuer's financial condition
worsens or when the rating on a bond is decreased. Many municipal bonds may be
called or redeemed prior to their stated maturity, an event which is more likely
to occur when interest rates fall. In such an occurrence, a closed-end fund may
not be able to reinvest the money it receives in other bonds that have as high a
yield or as long a maturity.
Many municipal bonds are subject to continuing requirements as to the actual
use of the bond proceeds or manner of operation of the project financed from
bond proceeds that may affect the exemption of interest on such bonds from
federal income taxation. The market for municipal bonds is generally less
liquid than for other securities and therefore the price of municipal bonds may
be more volatile and subject to greater price fluctuations than securities with
greater liquidity. In addition, an issuer's ability to make income
distributions generally depends on several factors including the financial
condition of the issuer and general economic conditions. Any of these factors
may negatively impact the price of municipal bonds held by a closed-end fund and
would therefore impact the price of both the fund shares and the trust units.
The funds invest primarily in municipal bonds that pay interest that is
exempt from regular federal income tax. Income from these bonds may be subject
to the federal alternative minimum tax.
CALIFORNIA RISKS. Because the trust invests in funds that invest primarily
in California municipal securities, the trust is more susceptible to political,
economic, regulatory or other factors affecting California municipal securities
than an investment which does not limit its investments to such issuers. These
risks include possible legislative, state constitutional or regulatory
amendments that may affect the ability of state and local governments or
regional governmental authorities to raise money to pay principal and interest
on their municipal securities. Economic, fiscal and budgetary conditions
throughout the state may also influence the trust's performance. California has
recently incurred a severe budget deficit. The sponsor is unable to predict
what impact these issues may have on the value of your units or the obligations
held by the funds included in the trust.
California state and local government obligations may be adversely affected
by political and economic conditions and developments within the State of
California and the nation as a whole. Through popular initiative and
legislative activity, the ability of the State of California and its local
governments to raise money through property taxes and to increase spending has
been the subject of considerable debate and change in recent years. Various
State Constitutional amendments,
Understanding Your Investment 11
for example, have been adopted which have the effect of limiting property tax
and spending increases, while legislation has sometimes added to these
limitations and has at other times sought to reduce their impact. It can be
expected that similar types of State legislation or Constitutional proposals
will continue to be introduced. The impact of future developments in these
areas is unclear.
Fuel and energy prices in the State of California have risen sharply in
recent months. Because of capacity constraints in electric generation and
transmission, California utilities have been forced to purchase wholesale power
at high prices. While the government of California and the Federal Energy
Regulatory Commission are considering further actions to deal with the
shortcomings in California's energy market, it is not possible to predict what
the long-term impact of these developments will be on California's economy.
Such fuel and energy issues could have severe adverse effects of the state's
economy.
Although revenue obligations of the State of California or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of the funds held by the trust or the ability of bond
issuers to make timely payments of principal and interest on such obligations.
The value of California municipal instruments may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
federal income tax rates, the supply of tax-exempt bonds, the credit quality and
rating of the issues and perceptions with respect to the level of interest
rates.
There can be no assurance that there will not be a decline in economic
conditions or that particular California municipal securities in the funds held
by the trust will not be adversely affected by any such changes.
All outstanding general obligation bonds of the State are rated "A" by
Standard and Poor's and "A2" by Moody's.
Further information concerning California risk factors may be obtained upon
request to the sponsor as described in "Additional Information."
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.
CLOSED-END FUNDS
Closed-end funds are a type of investment company that holds an actively
managed portfolio of securities. Closed-end funds issue shares in "closed-end"
offerings which generally trade on a stock exchange (although some closed-end
fund shares are not listed on a securities exchange). Since closed-end funds
maintain a relatively fixed pool of investment capital, portfolio managers may
be better able to adhere to their investment philosophies through greater
flexibility and control. In addition, closed-end funds don't have to manage
fund liquidity to meet potentially large redemptions.
Closed-end funds are subject to various risks, including management's ability
to meet the closed-end fund's investment objective, and to manage the closed-end
fund portfolio when the underlying securities are redeemed or sold, during
periods of market turmoil and as investors' perceptions regarding closed-end
funds or their underlying investments change.
12 Understanding Your Investment
Shares of closed-end funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from
the risk that the net asset value of closed-end fund shares may decrease. The
amount of such discount from net asset value is subject to change from time to
time in response to various factors.
Certain of the closed-end funds included in the trust may employ the use of
leverage in their portfolios through the issuance of preferred stock. While
leverage often serves to increase the yield of a closed-end fund, this leverage
also subjects the closed-end fund to increased risks. These risks may include
the likelihood of increased volatility and the possibility that the closed-end
fund's common share income will fall if the dividend rate on the preferred
shares or the interest rate on any borrowings rises.
Only the trustee may vote the shares of the closed-end funds held in the
trust. The trustee will vote the shares in the same general proportion as
shares held by other shareholders of each fund. Your trust is generally
required, however, to reject any offer for securities or other property in
exchange for portfolio securities as described under "How the Trust
Works--Changing Your Portfolio."
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 and fractional interest of each unit in the trust 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. Under normal
circumstances, the trust will invest at least 80% of its assets in closed-end
investment companies having policies to invest at least 80% of their assets in
California municipal bonds. 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, 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.
The trust will not participate in rights offerings of the closed-end funds.
We will increase the size of your trust as we sell units. When we create
additional units, we will seek to replicate the existing portfolio. When your
trust buys securities, it may pay brokerage or other
Understanding Your Investment 13
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. 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.
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 on the termination date
set forth under "Essential Information" in the "Investment Summary" section of
this prospectus. 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 prospectus
14 Understanding Your Investment
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. During the initial offering period, the distribution fee (the
broker-dealer concession or agency commission) for broker-dealers and other
firms is as follows:
TRANSACTION CONCESSION OR
AMOUNT: AGENCY COMMISSION:
------------------------------------------
Less than $50,000 3.60%
$50,000 - $99,999 3.35
$100,000 - $249,999 3.10
$250,000 - $499,999 2.60
$500,000 - $999,999 1.60
$1,000,000 or more 1.25
We apply these concessions or agency commissions as a percent of the public
offering price per unit at the time of the transaction. We also apply the
different levels on a unit basis using a $10 unit equivalent. The broker-dealer
concession or agency commission is 4.00% of the public offering price per unit
for secondary market sales. For transactions involving unitholders of other
unit investment trusts who use their redemption or termination proceeds to
purchase units of the trust, the distribution fee is 2.60% of the public
offering price per unit. 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.
Broker-dealers and other firms that sell units of all Advisor's Disciplined
Trusts are eligible to receive additional compensation for volume sales. Such
payments will be in addition to the regular concessions paid to firms as set
forth in the applicable trust's prospectus. The additional concession is based
on total initial offering period sales of all Advisor's Disciplined Trusts
during a calendar quarter as set forth in the following table:
INITIAL OFFERING PERIOD SALES VOLUME
DURING CALENDAR QUARTER CONCESSION
------------------------------------------------------
Less than $2,500,000 0.00%
$2,500,000 but less than $20,000,000 0.05
$20,000,000 but less than $50,000,000 0.10
$50,000,000 or more 0.15
Eligible units include units of all Advisor's Disciplined Trusts sold in the
initial offering period. Broker-dealer firms will not receive additional
compensation for the first $2.5 million sold in units during a calendar quarter.
For example, if a firm sells $3.5 million of units in the initial offering
period during a calendar quarter, the firm will receive additional compensation
of 0.05% of $1 million. Also, if a firm sells $22.5 million of units in the
initial offering period during a calendar quarter, the firm will receive
additional compensation of 0.10% of $20 million. In addition, dealer firms will
not receive volume concessions on the sale of units which are not subject to a
transactional sales charge. However, such sales will be included in determining
whether a firm has met the sales level breakpoints for volume concessions.
Secondary market sales of all unit trusts are excluded for purposes of these
volume concessions. We will pay these amounts out of our own assets within a
reasonable time following each calendar quarter.
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.
Understanding Your Investment 15
We may provide, at our own expense and out of our own profits, additional
compensation and benefits to broker-dealers who sell shares of units of this
trust and our other products. This compensation is intended to result in
additional sales of our products and/or compensate broker-dealers and financial
advisors for past sales. We may make these payments for marketing, promotional
or related expenses, including, but not limited to, expenses of entertaining
retail customers and financial advisors, advertising, sponsorship of events or
seminars, obtaining shelf space in broker-dealer firms and similar activities
designed to promote the sale of the our products. These arrangements will not
change the price you pay for your units.
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. The amount of our profit or loss on the initial deposit of
securities into the trust is shown in the "Notes to Portfolio."
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, local or
foreign tax consequences.
This federal income tax summary is based in part on the advice and opinion of
counsel to the Sponsor. The Internal Revenue Service could disagree with any
conclusions set forth in this section. In addition, our counsel was not asked
to review, and has not reached a conclusion with respect to the federal income
tax treatment of the assets to be deposited in the trust. This may not be
sufficient for you to use for the purpose of avoiding penalties under federal
tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.
ASSETS OF THE TRUST. The trust is expected to hold shares (the "RIC Shares")
in funds qualifying as regulated investment companies ("RICs") that are treated
as interests in regulated investment companies for federal income tax purposes.
It is possible that the trust will also hold other assets, including assets
that are treated differently for federal income tax purposes from those
described above, in which case you will have federal income tax consequences
different from or in addition to those described in this section. All of the
assets held by the trust constitute the "Trust Assets." Neither our counsel nor
we have analyzed the proper federal income tax treatment of the Trust Assets and
thus neither our counsel nor we have reached a conclusion regarding the federal
income tax treatment of the Trust Assets.
16 Understanding Your Investment
TRUST STATUS. If the trust is at all times operated in accordance with the
documents establishing the trust and certain requirements of federal income tax
law are met, 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 each of the Trust Assets, and as such you will be considered to have
received a pro rata share of income (e.g., dividends and capital gains, if any)
from each Trust Asset when such income would 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 reinvested into additional units. In addition, the income
from Trust Assets that you must take into account for federal income tax
purposes is not reduced by amounts used to pay sales charges or trust expenses.
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, including sales
charges, among the Trust Assets ratably according to their values on the date
you acquire your units. In certain circumstances, however, you may have to
adjust your tax basis after you acquire your units (for example, in the case of
certain dividends that exceed a corporation's accumulated earnings and profits,
as discussed below).
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 capital gains rates are generally effective for
taxable years beginning before January 1, 2009. For later periods, 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
capital 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. 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.
DIVIDENDS FROM RIC SHARES. Some dividends on the RIC Shares may be
designated as "capital gain dividends," generally taxable to you as long-term
capital gains. Some dividends on the RIC Shares may qualify as "exempt interest
dividends," which generally are excluded from your gross income for federal
income tax purposes. Some or all of the exempt-interest dividends, however may
be taken into account in determining your alternative minimum tax, and may have
other tax consequences (e.g., they may affect the amount of your social security
benefits that are taxed). Other dividends on the RIC Shares will generally be
taxable to you as ordinary income. If you hold a unit for six months or less or
if your trust holds a RIC Share for six months or less, any loss incurred by you
related to the disposition of such
Understanding Your Investment 17
RIC Share will be disallowed to the extent of the exempt-interest dividends you
received. To the extent, if any, it is not disallowed, it will be treated as a
long-term capital loss to the extent of any long-term capital gain distributions
received (or deemed to have been received) with respect to such RIC Share.
Distributions of income or capital gains declared on the RIC Shares in October,
November or December will be deemed to have been paid to you on December 31 of
the year they are declared, even when paid by the RIC during the following
January.
DIVIDENDS RECEIVED DEDUCTION. A corporation that owns units generally will
not be entitled to the dividends received deduction with respect to dividends
received by the trust, because the dividends received deduction is generally not
available for dividends from RICs.
IN-KIND DISTRIBUTIONS. Under certain circumstances as described in this
prospectus, you may request an In-Kind Distribution of Trust Assets when you
redeem your units or at your trust's termination. By electing to receive an In-
Kind Distribution, you will receive Trust Assets plus, possibly, cash. You will
not recognize gain or loss if you only receive whole Trust Assets in exchange
for the identical amount of your pro rata portion of the same Trust Assets held
by your trust. However, if you also receive cash in exchange for a Trust Asset
or a fractional portion of a Trust Asset, you will generally recognize gain or
loss based on the difference between the amount of cash you receive and your tax
basis in such Trust Asset or fractional portion.
EXCHANGES. If you elect to have your proceeds from your trust rolled over
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 new trust will generally be
disallowed with respect to this deemed sale and subsequent deemed repurchase, to
the extent the two trusts have substantially identical Trust 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 your trust to the same
extent as if you directly paid the expense. You may 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.
Because the RICs pay exempt-interest dividends, which are treated as tax-
exempt interest for federal income tax purposes, you will not be able to deduct
some of your share of the trust expenses. In addition, you will not be able to
deduct some of your interest expense for debt that you incur or continue to
purchase or carry your units.
FOREIGN 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 may not be subject to U.S. federal income taxes, including withholding
taxes, on some of the income from your trust or on any 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. You should also consult your tax advisor
with respect to other U.S. tax withholding and reporting requirements.
18 Understanding Your Investment
NEW YORK TAX STATUS. Based on the advice of Emmet, Marvin & Martin, LLP,
special counsel to the trust for New York tax matters, under the existing income
tax laws of the State and City of New York, your trust will not be taxed as a
corporation, and the income of your trust will be treated as the income of the
unitholders in the same manner as for federal income tax purposes. You should
consult your tax advisor regarding potential foreign, state or local taxation
with respect to your units.
CALIFORNIA TAXES
Chapman and Cutler LLP has examined the income tax laws of the State of
California to determine its applicability to the trust and to unitholders who
are full-time residents of the State of California ("California unitholders").
In connection therewith, Chapman and Cutler LLP has examined the registration
statement, the prospectus proposed to be filed with the Securities and Exchange
Commission, the Trust Agreement and such other documents as they have deemed
pertinent. The assets of the trust will consist of shares in entities each of
which is taxed as a regulated investment company (each a "RIC" and collectively,
the "RICs") for federal income tax purposes (the "RIC Shares").
Neither the sponsor nor its counsel have independently examined the RIC
Shares to be deposited in and held in the trust. However, although no opinion
is expressed with respect to the issuance of the RIC Shares, in rendering the
opinion expressed herein, it has been assumed that: (i) each RIC qualifies as a
regulated investment company for federal income tax purposes and (ii) at the
close of each quarter of the taxable year of each RIC, at least 50 percent of
the value of such RIC's total assets consists of obligations the interest on
which is exempt from the income tax imposed by the State of California that is
applicable to individuals, trusts and estates (the "California Personal Income
Tax").
Based upon the foregoing, and upon an investigation of such matters of law as
were considered to be applicable, Chapman and Cutler LLP is of the opinion that,
under existing provisions of the law of the State of California as of the date
hereof:
1. The trust is not an association taxable as a corporation for purposes of
the California Corporation Tax Law, and each California unitholder will be
treated as the owner of a pro rata portion of the trust, and the income of such
portion of the trust will be treated as the income of the California unitholders
under the California Personal Income Tax.
2. The portion of each dividend paid by a RIC to the trust and distributed
to a California unitholder which (i) is excludable from California taxable
income for purposes of the California Personal Income Tax if received directly
by a California unitholder, (ii) is properly designated as an exempt-interest
dividend for California income tax purposes in a written notice mailed to its
shareholders not later than 60 days after the close of its taxable year and
(iii) does not exceed the amount of interest received by the RIC during its
taxable year (minus certain nondeductible expenses) on obligations the interest
on which would be excludable from California taxable income for purposes of the
California Personal Income Tax if received directly by a California unitholder,
will be excludable from California taxable income for purposes of the California
Personal Income Tax when received by the trust and distributed to a California
unitholder. However, dividends other than exempt-interest dividends paid by a
RIC will
Understanding Your Investment 19
generally be taxable for purposes of the California Personal Income Tax.
3. Each California unitholder of the trust will generally recognize gain or
loss for California Personal Income Tax purposes if the trustee disposes of a
RIC Share (whether by redemption, sale or otherwise) or when the California
unitholder redeems or sells Units of the trust, to the extent that such a
transaction results in a recognized gain or loss to such California unitholder
for federal income tax purposes. However, there are certain differences between
the recognition of gain or loss for federal income tax purposes and for
California Personal Income Tax purposes, and California unitholders are advised
to consult their own tax advisors.
4. Under the California Personal Income Tax, interest on indebtedness
incurred or continued by a California Unitholder to purchase Units in the
California Series is not deductible for purposes of the California Personal
Income Tax.
This opinion does not address the taxation of persons other than full time
residents of California. This opinion relates only to California unitholders
subject to the California Personal Income Tax. No opinion is expressed with
respect to the taxation of California unitholders subject to the California
Corporation Tax Law and such California unitholders are advised to consult their
own tax advisors. Please note, however, that dividends from the RIC Shares
attributed to a California unitholder that is subject to the California
Corporation Tax Law may be includible in its gross income for purposes of
determining its California franchise tax and its California income tax. Chapman
and Cutler LLP has not examined any of the RIC Shares to be deposited and held
in the trust or the proceedings for the issuance thereof or the opinions of
counsel with respect thereto, and no opinion is expressed with respect to
taxation under any other provisions of the California law. Ownership of the
units may result in collateral California tax consequences to certain taxpayers.
Prospective investors should consult their tax advisors as to the applicability
of any such collateral consequences.
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.
The sponsor will receive a fee from your trust for creating and developing
the trust, including determining the trust's objectives, policies, composition
and size, selecting service providers and information services and for providing
other similar administrative and ministerial functions. This "creation and
development fee" is a charge of $0.06 per unit. The trustee will deduct this
amount from your trust's assets as of the close of the initial offering period.
No portion of this fee is applied to the payment of distribution expenses or as
compensation for sales efforts. This fee will not be deducted from proceeds
received upon a repurchase, redemption or exchange of units before the close of
the initial public offering period.
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.
20 Understanding Your Investment
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 distributions received on the
securities but in some cases may sell securities to pay trust expenses.
The trust will also indirectly bear the expenses of the underlying closed-end
funds. While the trust will not pay these expenses directly out of its assets,
these expenses are shown in the trust's annual operating expenses under "Fees
and Expenses" to illustrate the impact of these 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 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 included 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).
Understanding Your Investment 21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UNITHOLDERS
ADVISOR'S DISCIPLINED TRUST 57
We have audited the accompanying statement of financial condition, including the
trust portfolio on page 4, of Advisor's Disciplined Trust 57, as of October ___,
2005, 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. The
trust is not required to have, nor were we engaged to perform an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of financial condition, assessing the accounting
principles used and significant estimates made by the sponsor, as well as
evaluating the overall statement of financial condition presentation. 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 October ___, 2005. 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 57 as of October ___, 2005, in conformity with accounting
principles generally accepted in the United States of America.
Chicago, Illinois GRANT THORNTON LLP
October ___, 2005
ADVISOR'S DISCIPLINED TRUST 57
STATEMENT OF FINANCIAL CONDITION AS OF OCTOBER ___, 2005
- -------------------------------------------------------------------------------
INVESTMENT IN STOCKS
Contracts to purchase underlying stocks (1)(2) . . . . . . . . . . . . . . $
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
=========
LIABILITIES AND INTEREST OF INVESTORS
Liabilities:
Organization costs (3) . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred sales fee (4) . . . . . . . . . . . . . . . . . . . . . . . . .
Creation and development fee (4) . . . . . . . . . . . . . . . . . . . .
---------
---------
Interest of investors:
Cost to investors (5) . . . . . . . . . . . . . . . . . . . . . . . . .
Less: initial sales fee (4)(5) . . . . . . . . . . . . . . . . . . . . .
Less: deferred sales fee, creation and development 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 closing sale price
evaluations as determined by the evaluator.
(2) Cash or an irrevocable letter of credit has been deposited with the trustee
covering the funds (aggregating $200,000) necessary for the purchase of
securities in the trust represented by purchase contracts.
(3) A portion of the public offering price represents an amount sufficient to
pay for all or a portion of the costs incurred in establishing and offering
the trust. These costs have been estimated at $0.05 per unit for the
trust. A distribution will be made as of the earlier of the close of the
initial offering period or six months following the trust's inception date
to an account maintained by the trustee from which this obligation of the
investors will be satisfied. To the extent the actual organization costs
are greater than the estimated amount, only the estimated organization
costs added to the public offering price will be reimbursed to the sponsor
and deducted from the assets of the trust.
(4) The total sales fee consists of an initial sales fee, a deferred sales fee
and a creation and development fee. The initial sales fee is equal to the
difference between the maximum sales fee and the sum of the remaining
deferred sales fee and the total creation and development fee. The maximum
sales fee is 4.95% of the public offering price per unit. The deferred
sales fee is equal to $0.335 per unit and the creation and development fee
is equal to $0.06 per unit.
(5) The aggregate cost to investors includes the applicable sales fee assuming
no reduction of sales fees for quantity purchases.
22 Understanding Your Investment
CONTENTS
INVESTMENT SUMMARY
- -------------------------------------------------------------------
A concise description 2 Investment Objective
of essential information 2 Principal Investment Strategy
about the portfolio 2 Principal Risks
3 Who Should Invest
3 Essential Information
3 Fees and Expenses
4 Portfolio
UNDERSTANDING YOUR INVESTMENT
- -------------------------------------------------------------------
Detailed information to 5 How to Buy Units
help you understand 8 How to Sell Your Units
your investment 9 Distributions
10 Investment Risks
12 Closed-End Funds
13 How the Trust Works
16 Taxes
19 California Taxes
20 Expenses
21 Experts
21 Additional Information
22 Report of Independent Registered
Public Accounting Firm
22 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) 848-6468
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 57
Securities Act file number: 333-________
Investment Company Act file number: 811-21056
CALIFORNIA MUNICIPAL
CLOSED-END PORTFOLIO,
SERIES 1
PROSPECTUS
OCTOBER ___, 2005
[LOGO]
ADVISOR'S
ASSET MANAGEMENT
A DIVISION OF FIXED INCOME SECURITIES, L.P.
ADVISOR'S DISCIPLINED TRUST 57
CALIFORNIA MUNICIPAL CLOSED-END 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
Closed-End Funds 5
Risk Factors 5
Administration of the Trust 19
Portfolio Transactions and Brokerage Allocation 28
Purchase, Redemption and Pricing of Units 28
Performance Information 34
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 amounts, which
will generally maintain the existing relationship among the shares of the
securities in such trust. Thus, although additional units will be issued, each
unit will generally continue to represent the same number of shares of each
security. 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.
The trustee has not participated in the selection of the securities
deposited in the trust and has no responsibility for the composition of the
trust portfolio.
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 fee attributable to such failed contract to all
unitholders on the next distribution date.
INVESTMENT OBJECTIVE AND POLICIES
The California Municipal Closed-End Portfolio seeks interest income exempt
from regular federal and California personal income taxes through investment in
a portfolio primarily consisting of shares of closed-end investment companies
which invest in California municipal bonds. Income distributions may be subject
to state and local taxes and certain income distributions from the trust may be
subject to the alternative minimum tax. The trust also seeks capital
appreciation as a secondary objective. There is, of course, no guarantee that
the trust will achieve its objective. 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 special circumstances as provided in the
trust agreement. Thus, the assets of a trust will generally remain unchanged
under normal circumstances. The trust agreement provides that the sponsor may
(but need not) direct the trustee to dispose of a security in certain events
such as the issuer having defaulted on the payment on any of its outstanding
obligations or the price of a security has declined to such an extent or other
such credit factors exist so that in the opinion of the supervisor the retention
of such securities would be detrimental to the trust. If a public tender offer
has been made for a security or a merger or acquisition has been announced
affecting a security, the trustee may either sell the security or accept a
tender offer for cash if the supervisor determines that the sale or tender is in
the best interest of unitholders. The trustee will distribute any excess cash
proceeds to unitholders. Pursuant to the trust agreement and with limited
exceptions, the trustee may sell any securities or other properties acquired in
exchange for securities such as those acquired in connection with a merger or
other transaction. If offered such new or exchanged securities or property
other than cash, the trustee shall generally reject the offer. However, in the
event such securities or property are nonetheless acquired by the trust, they
may be accepted for deposit in a trust and either sold by the trustee or held in
a trust pursuant to the direction of the sponsor.
The trustee may sell securities, designated by the supervisor, from a trust
for the purpose of redeeming units of such trust tendered for redemption and the
payment of expenses.
Proceeds from the sale of securities (or any securities or other property
received by a trust in exchange for securities) are credited to the Capital
Account of a trust for distribution to unitholders or to meet redemptions.
-3-
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 otherwise liquidated 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 ("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.
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 must be equity securities of
the type selected for the trust and must not adversely affect the federal income
tax status of the trust. Whenever a Replacement Security is acquired for a
trust, the trustee shall 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 fee attributable to such Failed
Securities to all unitholders of the trust and the trustee will distribute the
cash 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 cash, they may not be able to reinvest such proceeds in other securities
at a return equal to or in excess of the return which such proceeds would have
earned for unitholders of such trust.
In the event that a Replacement Security is not acquired by a trust, the
income for such trust may be reduced.
To the best of the sponsor's knowledge, there is no litigation pending as
of the trust's inception in respect of any security that 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.
-4-
CLOSED-END FUNDS
Closed-end funds are actively managed investment companies that invest in
various types of securities. Closed-end funds issue shares of common stock that
are generally traded on a securities exchange (although some closed-end fund
shares are not listed on a securities exchange). Closed-end funds are subject
to various risks, including management's ability to meet the closed-end fund's
investment objective, and to manage the closed-end fund portfolio when the
underlying securities are redeemed or sold, during periods of market turmoil and
as investors' perceptions regarding closed-end funds or their underlying
investments change.
Shares of closed-end funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from
the risk that the net asset value of closed-end fund shares may decrease. The
amount of such discount from net asset value is subject to change from time to
time in response to various factors.
Certain of the closed-end funds included in the trust may employ the use of
leverage in their portfolios through the issuance of preferred stock. While
leverage often serves to increase the yield of a closed-end fund, this leverage
also subjects the closed-end fund to increased risks. These risks may include
the likelihood of increased volatility and the possibility that the closed-end
fund's common share income will fall if the dividend rate on the preferred
shares or the interest rate on any borrowings rises.
RISK FACTORS
CLOSED-END FUNDS. The closed-end funds in the trust invest in senior
corporate loans. As such, an investment in units of the trust should be made
with an understanding of the risks of investing in both closed-end fund shares
and senior loans.
Closed-end funds' portfolios are managed and their shares are generally
listed on a securities exchange. The net asset value of closed-end fund shares
will fluctuate with changes in the value of the underlying securities that the
closed-end fund owns. In addition, for various reasons closed-end fund shares
frequently trade at a discount from their net asset value in the secondary
market. The amount of such discount from net asset value is subject to change
from time to time in response to various factors. Closed-end funds' articles of
incorporation may contain certain anti-takeover provisions that may have the
effect of inhibiting a fund's possible conversion to open-end status and
limiting the ability of other persons to acquire control of a fund. In certain
circumstances, these provisions might also inhibit the ability of stockholders
(including the trust) to sell their shares at a premium over prevailing market
prices. This characteristic is a risk separate and distinct from the risk that
a fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those closed-end
fund shares that were purchased by the trust at a premium. In the unlikely
event that a closed-end fund converts to open-end status at a time when its
shares are trading at a premium there would be an immediate loss in value to the
trust since shares of open-end funds trade at net asset value. Certain closed-
end funds may have in place or may put in place in the future plans pursuant to
which the fund may repurchase its own shares in the marketplace. Typically,
these plans are put in place in an attempt by a fund's board of directors to
-5-
reduce a discount on its share price. To the extent that such a plan is
implemented and shares owned by the trust are repurchased by a fund, the trust's
position in that fund will be reduced and the cash will be distributed.
The trust is prohibited from subscribing to a rights offering for shares of
any of the closed-end funds in which it invests. In the event of a rights
offering for additional shares of a fund, unitholders should expect that the
trust will, at the completion of the offer, own a smaller proportional interest
in such fund that would otherwise be the case. It is not possible to determine
the extent of this dilution in share ownership without knowing what proportion
of the shares in a rights offering will be subscribed. This may be particularly
serious when the subscription price per share for the offer is less than the
fund's net asset value per share. Assuming that all rights are exercised and
there is no change in the net asset value per share, the aggregate net asset
value of each shareholder's shares of common stock should decrease as a result
of the offer. If a fund's subscription price per share is below that fund's net
asset value per share at the expiration of the offer, shareholders would
experience an immediate dilution of the aggregate net asset value of their
shares of common stock as a result of the offer, which could be substantial.
Closed-end funds may use leveraging in their portfolios. Leveraging can be
expected to cause increased price volatility for those fund's shares, and as a
result, increased volatility for the price of the units of the trust. There can
be no assurance that a leveraging strategy will be successful during any period
in which it is employed.
MUNICIPAL BONDS. The closed-end funds in the trust invest in certain types
of bonds described below. Accordingly, an investment in the trust should be made
with an understanding of the characteristics of and risks associated with such
bonds.
Certain of the bonds in a closed-end fund may be general obligations of a
governmental entity that are backed by the taxing power of such entity. Other
bonds 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 closed-end fund, both
within a particular classification and between classifications, depending on
numerous factors.
Certain of the bonds in a closed-end fund 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
-6-
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. 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 each case the issuer of the bonds has covenanted to comply
with applicable requirements and 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. 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.
Certain of the bonds in a closed-end fund 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 in a closed-end fund 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 in
a closed-end fund to make payments of principal and/or interest on such bonds.
Certain of the bonds in a closed-end fund 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.
-7-
Certain of the bonds in a closed-end fund 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
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 in a closed-end fund 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 in a closed-end fund 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.
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.
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Certain of the bonds in a closed-end fund 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
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 in a closed-end fund 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
prior to the stated maturity of the bonds.
Certain of the bonds in a closed-end fund 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 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.
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Certain of the bonds in a closed-end fund 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
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 in a closed-end fund 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.
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: 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
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 closed-end fund 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
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bond for redemption had it not sold such rights. No one can 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.
CALIFORNIA. Economic Outlook. The State of California's fiscal problems
that started in the 2001-02 fiscal year have started to turn around. Employment
in the months ahead is expected to increase at a moderate pace. The UCLA
Anderson Forecast has projected California job growth at 1.6% in 2005, an
improvement over the 0.8% growth in 2004 but moderate by historical standards.
The strongest growth, 3.7%, is projected by UCLA to be in business and
professional services, education, and health services. Leisure and hospitality
jobs are projected to grow at rates above 2%. Construction-related employment is
expected to remain strong while housing demand is high and interest rates are
low. The real estate and finance sector should continue to be a positive factor
in the economy. Although real estate sales and prices are expected to slow,
there is no reason to believe they will collapse.
A weaker dollar should aid the export sectors of California's economy and
assist in the recovery of the high-tech sector in the Bay Area. Business
spending on new equipment has been slow during this recovery; nevertheless, 2004
saw a 10.2% increase in business investments on equipment, and growth in 2005 is
expected by UCLA to be at 9.6%. This will help support expansion in California's
manufacturing sector. Tax revenue collected in the first seven months of the
2004-05 fiscal year was 0.9% above budget estimates. Good corporate profits,
rising employment, a robust real estate market, and healthy personal income
growth were responsible for this positive result. In 2005, personal income
growth is projected by UCLA to remain above 5%, while employment growth will
accelerate to 1.6%.
California's economy is improving and its policymakers are taking action to
reduce spending and augment revenues to address the budgetary imbalances that
have plagued the State since the 2001-02 fiscal year. The State experienced
moderate increases in general revenues, primarily personal income, corporate,
and sales tax revenues, while expenses remained stable. However, the expenses
for the State's governmental activities have again exceeded its revenues.
Revenues for the State's business-type activities approximated its expenses for
all categories except unemployment programs, which had expenses that were $640
million in excess of revenues. As a result, net assets for both governmental and
business-type activities decreased during the 2003-04 fiscal year, but the
decline of 18% was much less than the 416% decrease last year.
Net Assets -- The primary government had net assets of $40.0 billion as of
June 30, 2004. After reducing this total amount by $78.8 billion for investment
in capital assets (net of related debt) and by $12.8 billion for restricted net
assets, the resulting unrestricted net assets were a negative $51.6 billion.
Restricted net assets are dedicated for specified uses and are not available to
fund current activities. More than half of the negative $51.6 billion is a
result of the $28.2 billion in outstanding bonded debt issued to build capital
assets for school districts and other local governmental entities. The bonded
debt reduces the unrestricted net assets, but the capital assets that would
offset the reduction are recorded by local government instead of the State.
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Changes in Net Assets -- The primary government's total net assets
decreased by $8.5 billion (a 17.5% decrease) during the year ended
June 30, 2004. Net assets of governmental activities decreased by $7.5 billion
(18.9%), while net assets of business-type activities decreased by
$1.0 billion (11.2%).
Employment in California reached a low point in the second quarter of 2003
and experienced slow, uneven growth through the first two quarters of the 2003-
04 fiscal year. Job growth picked up in early 2004, only to slow again in the
spring of 2004. The weakness in the California economy continued to be
concentrated in the high technology industries of the Bay Area. By the spring of
2004, employment in the information technology industry had fallen by 22% since
its peak in the final quarter of 2000. Across the State, employment in
government at all levels--federal, state, and local--also lagged. On the
positive side, jobs were added in construction, professional and business
services, financial services, and health and education services during the
year. Recovery of the stock market in 2003 and early 2004, as well as robust
consumer spending and capital gains from a strong real estate market,
contributed to strong gains in personal income and corporation tax revenues.
The economy picked up speed in early 2004. Real gross domestic product
averaged 3.9% over the four quarters of 2004 and ended the year at a respectable
3.8%. National employment growth, while not spectacular, improved over that of
2003. The promising surge of jobs in the early months of 2004 subsided, but the
year still yielded an average increase of almost 183,000 new jobs per month in
the nation--a dramatic improvement over the average monthly growth of 7,800 in
2003. While the nation's job growth in 2004 might be described as uneven,
California's job growth was even more volatile. Months in which the state lost
jobs were followed by those with blockbuster growth. Although the month of
December had a job loss, on average the state gained just over 21,000 jobs per
month in 2004--a big improvement over the average monthly loss of 5,000 jobs
seen in the previous year.
Despite an erratic and generally sluggish job market, California's housing
market has continued to soar. The California Association of Realtors (CAR)
reported that the median price of a single family home reached $460,370 in
October 2004, a 21.4% increase over October 2003. The rapid price increases of
the past two years have caused the affordability of homes to decline. In
September 2004, CAR estimated that only 19% of Californians could afford to buy
a median priced home. Low affordability levels usually result in the slowing of
price increases. The real estate research firm DataQuick reported that Southern
California sales in December 2004 were down 6.5% over the previous year.
Statewide sales were still above last year's level, but only barely. DataQuick
believes that prices in "more expensive neighborhoods have leveled off or come
down slightly from a summer peak. In mid-market and entry-level neighborhoods it
appears that both sales activity and appreciation remain strong." The real
estate outlook is for a more restrained pace for both sales and price increases
in 2005. The Bay Area, the region hardest hit by the recession of 2001, has
begun to see increases in employment. Both the San Francisco and Oakland areas
had job gains in September, October, and November, while the San Jose area has
achieved stability but not growth. Exports of California-produced computer and
electronic products are one of the factors fueling this growth. Exports of
California-produced goods and services grew by 17% in 2004, a big improvement
over the moderate 2% growth in 2003. The weaker dollar should help maintain this
momentum in the months ahead. Southern California, particularly the Riverside-
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San Bernardino region, produced the best economic growth in the state during the
first half of 2004. International trade and related warehousing have been major
factors in the region's economic growth.
Infrastructure Planning. A comprehensive Five-Year Infrastructure Plan was
developed that called for the investment of $56.0 billion in the State's
infrastructure over five years, starting with the 2003-04 fiscal year. The
funding was to be provided partially from the voter-approved amendment to the
Constitution that assigned revenue from the sales tax on gasoline for use on
transportation activities. Transfers from the General Fund are proposed to be
suspended in the 2005-06 fiscal year, for a savings of $1.3 billion. Since this
transfer was also suspended in the 2004-05 fiscal year, there will be no change
in funding between the 2004-05 and 2005-06 fiscal years. As part of the
Administration's budget control proposals, the suspension of transfers would be
constitutionally prohibited after the 2006-07 fiscal year. Transfers that have
been suspended will be treated as loans and will be repaid within a 15-year
period, in even increments, unless early repayment is made.
Budget Outlook. The 2004-05 Budget Act was enacted on July 31, 2004.
General Fund total resources and expenditures were projected to be $80 billion
and $78 billion, respectively. The budget depends heavily on spending
reductions, fund shifts, cost avoidance, bonds, debt service savings,
transfers/other revenues, loans/borrowing, and pension reform to close the
budget deficit.
The Governor's Budget for the 2005-06 fiscal year, released on January 10,
2005, projects $9.1 billion in savings from ten proposals involving spending
reductions, mainly in education, transportation, health and social services, and
employee compensation, as well as mandate suspensions and external borrowing.
The Legislative Analyst's Office, California's nonpartisan fiscal and policy
advisor, noted that the Governor's Budget appeared to be a "reasonable starting
point" but commented that its major proposals--Proposition 98 minimum funding
protection and across-the-board reductions--raise concerns. The concern relates
to the potential shifting of spending reductions to non-Proposition 98 programs,
which would severely restrict the Legislature's ability to prioritize spending
decisions in revenue-lean years. A structural imbalance of approximately $5
billion is estimated in subsequent years.
Debt Management Plan. In 2002, the State Treasurer implemented a Strategic
Debt Management Plan. A principal goal of this plan was to better match the
timeframe for repaying debt for infrastructure projects to the useful life of
the assets being funded. The plan also proposed to reduce debt service in the
2001-02 through 2003-04 fiscal years by approximately $2.0 billion and to
increase the State's long-term debt capacity to finance infrastructure needs.
These goals were to be achieved by: (1) shifting from level principal payments
to level debt service payments for new bond issues; (2) restructuring existing
debt to achieve significant one-time debt service reductions and to expedite the
transition to level debt service payments; and (3) implementing recent
legislation that authorizes the State to issue variable-rate debt for a portion
of its general obligation bond portfolio.
Debt Administration. During the 2003-04 fiscal year, the State continued to
implement the strategies adopted in its 2002 Strategic Debt Management Plan.
Under this plan, the State changed how it makes payments on new general
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obligation bond issuances, by shifting from level principal payments to level
debt service payments (principal and interest combined). In addition, the State
is deferring the initial principal payments on newly issued general obligation
bonds. Although intended to aid in closing the State's near-term budget
shortfall, both of these practices individually will result in the primary
government incurring increased interest costs in the future because of the delay
in paying off outstanding principal balances. The plan also targeted the
restructuring of certain general obligation bonds to achieve one-time reductions
in debt service requirements and to facilitate a faster transition to level debt
service payments. On July 1, 2003, the State issued general obligation bonds
that refunded $870 million of outstanding general obligation bonds. This debt
restructuring reduced debt service payments during the 2003-04 fiscal year, but
it achieved this reduction by increasing future debt service requirements. On
June 29, 2004, the State issued general obligation bonds that current and
advance refunded $218 million of outstanding general obligation bonds. The
advance refunding resulted in an economic gain of $8.5 million.
The economic gain is the difference between the present value of the old
debt service requirements and the present value of the new debt service
requirements, discounted at 4.1% per year over the life of the bonds. Lastly,
the plan included the issuance of variable-rate debt for a portion of the
State's general obligation bond portfolio. The State issued $1.4 billion of
variable-rate general obligation bonds in the 2002-03 fiscal year and plans to
issue more in the 2004-05 fiscal year. This practice can be beneficial because,
historically, variable-rate bonds are issued at rates below those of fixed-rate
bonds. Also, when market rates fall, interest rates decrease. However, when
market rates rise, so do interest payments on outstanding principal balances.
In March 2004, California's voters passed the Economic Recovery Bond Act, which
provided up to $15 billion in one-time financing for the accumulated state
budget deficit. The bonds are secured by a pledge of revenues derived from
dedicated sales and use taxes. As of June 30, 2004, the State had issued $10.9
billion of these bonds. At June 30, 2004, the primary government had total
bonded debt outstanding of $76.5 billion. Of this amount, $46.1 billion (60.3%)
represents general obligation bonds, which are backed by the full faith and
credit of the State. The current portion of general obligation bonds outstanding
is $1.6 billion and the long term portion is $44.6 billion. The remaining $30.3
billion (39.7%) of bonded debt outstanding represents revenue bonds, which are
secured solely by specified revenue sources. The current portion of revenue
bonds outstanding is $965 million and the long-term portion is $29.4 billion.
Budgetary Control. Annually, the State Legislature prepares a budget that
contains estimates of revenues and expenditures for the ensuing fiscal year.
This budget is the result of negotiations between the Governor and the
Legislature. Throughout the fiscal year, adjustments, in the form of budget
revisions, executive orders, and financial legislation agreed to by the parties,
are made to the budget. The State Controller is statutorily responsible for
control over revenues due the primary government and for expenditure of each
appropriation contained in the budget. Budgeted appropriations are the
expenditure authorizations that allow state agencies to purchase or create
liabilities for goods and services. The accounting system provides the
Controller's Office with a centrally controlled record system to fully account
for each budgeted appropriation, including its unexpended balance, and for all
cash receipts and disbursements. The accounting system is decentralized in that
the detail of each control account is maintained at the agency level. During the
fiscal year, the control accounts and the agency accounts are maintained and
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reconciled on a cash basis. At the end of the fiscal year, each agency prepares
annual accrual reports for receivables and payables. The Controller's Office
combines its control accounts with the agency accrual reports to prepare the
Budgetary/Legal Basis Annual Report and the Budgetary/Legal Basis Annual Report
Supplement. The methods of accounting for expenditures and revenues in these
reports are governed by state laws and regulations that, in some cases, are not
in full agreement with GAAP. The information in the CAFR represents a
consolidation of the amounts in the Budgetary/Legal Basis Annual Report and
adjustments to the account balances to conform to GAAP.
Cash Management. Cash temporarily idle during the year is invested in the
Pooled Money Investment Account (PMIA). Investment of PMIA moneys is restricted
by law to the following categories: U.S. government securities, securities of
federally sponsored agencies, domestic corporate bonds, bank notes, interest-
bearing time deposits in California banks and savings and loan associations,
prime commercial paper, repurchase and reverse repurchase agreements, security
loans, bankers' acceptances, negotiable certificates of deposit, and loans to
various bond funds. The average daily investment balance for the year ended June
30, 2004, amounted to $54.6 billion, with an average effective yield of 1.53%.
For the year ended June 30, 2003, the average daily investment balance was $52.6
billion and the average effective yield was 2.15%. The total earnings of the
PMIA for the year ended June 30, 2004, amounted to $836 million, which was
distributed as follows: $125 million to the General Fund, $370 million to
special funds, $340 million to local governments, $1 million to CalPERS, and
$774,000 to CalSTRS. The State has established a cash management program for
the General Fund to regularly issue short-term obligations to meet cash flow
needs. The State issues revenue anticipation notes (RANs) to partially fund
timing differences between revenues and expenditures. A significant portion of
the General Fund revenues are received in the later half of the fiscal year,
while disbursements are paid more evenly throughout the fiscal year. If
additional external cash flow borrowing is required, the State issues revenue
anticipation warrants (RAWs).
In March 2004, the California voters approved a one-time Economic Recovery
Bond of up to $15.0 billion to pay off the State's accumulated budget deficit.
The bonds are secured by a pledge of revenues that are derived from designated
sales and use taxes. As of June 30, the State has issued $10.9 billion of
Economic Recovery Bonds.
Risk Management. The primary government has elected, with a few
exceptions, to be self-insured against loss or liability and generally does not
maintain reserves. Losses are covered by appropriations in the year in which the
payment occurs. The discounted liability for unpaid self-insured workers'
compensation losses is estimated to be $2.7 billion as of June 30, 2004.
Proposed Budget 2005/2006. The Governor released his proposed budget on
January 10, 2005. The budget estimates an operating deficit of $8.6 billion in
2005-06 if no corrective actions are taken. The Administration has ten major
proposals to achieve a savings of $9.1 billion. These proposals mainly reduce
funding for public kindergarten through 12th grade (K-12) education,
transportation programs, health and human services, state employee compensation,
and local mandate programs. The proposals also include the issuance of an
additional $1.7 billion of Economic Recovery Bonds. The 2005-06 proposed
spending plan totals $109 billion, excluding federal funds and bond funds. This
represents estimated General Fund expenditures of $86 billion and special fund
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expenditures of $23 billion. Proposed General Fund expenditures are 4.2% higher
than the $82 billion expenditures estimated for the 2004-05 fiscal year. In its
2005-06 Overview of the Governor's Budget, the Legislative Analyst's Office,
California's nonpartisan fiscal and policy advisor, notes that the budget
proposal has several positive attributes that would provide ongoing savings.
However, it was viewed as limited in solutions because "the budget relies nearly
entirely on expenditure reductions, targeted on relatively few major
areas--namely K-12 education, transportation, and social services." Concerns
were also expressed regarding the Administration's proposal for across-the-board
reductions to state programs that would not take into consideration program
priorities.
Ratings. As of September 2005, all outstanding general obligation bonds of
the State of California are rated A by Standard & Poor's Ratings Services and A2
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 California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and there is
no obligation on the part of the State to make payment on such local obligations
in the event of default.
The foregoing information constitutes only a brief summary of some of the
general factors which may impact certain issuers of bonds and does not purport
to be a complete or exhaustive description of all adverse conditions to which
the issuers of such obligations are subject. Additionally, many factors
including national economic, social and environmental policies and conditions,
which are not within the control of the issuers of such bonds, could affect or
could have an adverse impact on the financial condition of the State and various
agencies and political subdivisions thereof. The sponsor is unable to predict
whether or to what extent such factors or other factors may affect the issuers
of the bonds contained in the California trust, the market value or
marketability of such bonds or the ability of the respective issuers of such
bonds acquired by the California trust to pay interest on or principal of such
bonds.
The California trust is susceptible to political, economic or regulatory
factors affecting issuers of California municipal obligations (the "California
Municipal Obligations"). These include the possible adverse effects of certain
California constitutional amendments, legislative measures, voter initiatives
and other matters that are described. The information provided above is only a
brief summary of the complex factors affecting the financial situation in
California and is derived from sources that are generally available to investors
and are believed to be accurate. No independent verification has been made of
the accuracy or completeness of any of the following information. It is based in
part on information obtained from various State and local agencies in California
or contained in Official Statements for various California Municipal
Obligations.
HIGH-YIELD SECURITIES. Certain of the bonds in a closed-end fund may be
"high-yield, high-risk" debt obligations or "junk" obligations. The bonds
entail additional risks, including increased credit risks and the risk that the
value of the units will decline, and may decline precipitously, with increases
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in interest rates. In recent years there have been wide fluctuations in
interest rates and thus in the value of debt obligations generally. Certain of
the securities included in the funds in the trust may be subject to greater
market fluctuations and risk of loss of income and principal than are
investments in lower-yielding, higher-rated securities, and their value may
decline precipitously because of increases in interest rates, not only because
the increases in rates generally decrease values, but also because increased
rates may indicate a slowdown in the economy and a decrease in the value of
assets generally that may adversely affect the credit of issuers of high-yield,
high-risk securities resulting in a higher incidence of defaults among high-
yield, high-risk securities. A slowdown in the economy, or a development
adversely affecting an issuer's creditworthiness, may result in the issuer being
unable to maintain earnings or sell assets at the rate and at the prices,
respectively, that are required to produce sufficient cash flow to meet its
interest and principal requirements. For an issuer that has outstanding both
senior commercial bank debt and subordinated high-yield, high-risk securities,
an increase in interest rates will increase that issuer's interest expense
insofar as the interest rate on the bank debt is fluctuating. However, many
leveraged issuers enter into interest rate protection agreements to fix or cap
the interest rate on a large portion of their bank debt. This reduces exposure
to increasing rates, but reduces the benefit to the issuer of declining rates.
The sponsor cannot predict future economic policies or their consequences or,
therefore, the course or extent of any similar market fluctuations in the
future.
"High-yield" or "junk" securities, the generic names for securities rated
below BBB by Standard & Poor's, or below Baa by Moody's, are frequently issued
by corporations in the growth stage of their development, by established
companies whose operations or industries are depressed or by highly leveraged
companies purchased in leveraged buyout transactions. The market for high-yield
securities is very specialized and investors in it have been predominantly
financial institutions. High-yield securities are generally not listed on a
national securities exchange. Trading of high- yield securities, therefore,
takes place primarily in over-the-counter markets that consist of groups of
dealer firms that are typically major securities firms. Because the high-yield
security market is a dealer market, rather than an auction market, no single
obtainable price for a given security prevails at any given time. Prices are
determined by negotiation between traders. The existence of a liquid trading
market for the securities may depend on whether dealers will make a market in
the securities. There can be no assurance that a market will be made for any of
the securities, that any market for the securities will be maintained or of the
liquidity of the securities in any markets made. Not all dealers maintain
markets in all high-yield securities. Therefore, since there are fewer traders
in these securities than there are in "investment grade" securities, the bid-
offer spread is usually greater for high-yield securities than it is for
investment grade securities. The price at which the securities may be sold to
meet redemptions and the value of the trust will be adversely affected if
trading markets for the securities are limited or absent. If the rate of
redemptions is great, the value of the trust may decline to a level that
requires liquidation.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the issuers
of lower-rated securities may not be as strong as that of other issuers.
Moreover, if a security is recharacterized as equity by the Internal Revenue
Service for federal income tax purposes, the issuer's interest deduction with
respect to the security will be disallowed and this disallowance may adversely
affect the issuer's credit rating. Because investors generally perceive that
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there are greater risks associated with the lower-rated securities in the funds
in the trust, the yields and prices of these securities tend to fluctuate more
than higher- rated securities with changes in the perceived quality of the
credit of their issuers. In addition, the market value of high-yield, high-risk
securities may fluctuate more than the market value of higher-rated securities
since these securities tend to reflect short-term credit development to a
greater extent than higher-rated securities. Lower-rated securities generally
involve greater risks of loss of income and principal than higher-rated
securities. Issuers of lower-rated securities may possess fewer
creditworthiness characteristics than issuers of higher-rated securities and,
especially in the case of issuers whose obligations or credit standing have
recently been downgraded, may be subject to claims by debtholders, owners of
property leased to the issuer or others which, if sustained, would make it more
difficult for the issuers to meet their payment obligations. High-yield, high-
risk securities are also affected by variables such as interest rates, inflation
rates and real growth in the economy. Therefore, investors should consider
carefully the relative risks associated with investment in securities that carry
lower ratings.
The value of the shares of the closed-end funds reflects the value of the
portfolio securities, including the value (if any) of securities in default.
Should the issuer of any security default in the payment of principal or
interest, the closed-end funds in the trust may incur additional expenses
seeking payment on the defaulted security. Because amounts (if any) recovered
by the funds in payment under the defaulted security may not be reflected in the
value of the fund shares until actually received by the funds, and depending
upon when a unitholder purchases or sells his or her units, it is possible that
a unitholder would bear a portion of the cost of recovery without receiving any
portion of the payment recovered.
High-yield, high-risk securities are generally subordinated obligations.
The payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of the
issuer. Senior obligations generally include most, if not all, significant debt
obligations of an issuer, whether existing at the time of issuance of
subordinated debt or created thereafter. Upon any distribution of the assets of
an issuer with subordinated obligations upon dissolution, total or partial
liquidation or reorganization of or similar proceeding relating to the issuer,
the holders of senior indebtedness will be entitled to receive payment in full
before holders of subordinated indebtedness will be entitled to receive any
payment. Moreover, generally no payment with respect to subordinated
indebtedness may be made while there exists a default with respect to any senior
indebtedness. Thus, in the event of insolvency, holders of senior indebtedness
of an issuer generally will recover more, ratably, than holders of subordinated
indebtedness of that issuer.
Obligations that are rated lower than "BBB" by Standard & Poor's, or "Baa"
by Moody's, respectively, should be considered speculative as such ratings
indicate a quality of less than investment grade. Investors should carefully
review the objective of the trust and consider their ability to assume the risks
involved before making an investment in the trust.
DISCOUNT SECURITIES. Certain of the securities held by the closed-end
funds in the trust 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
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were purchased and deposited in the funds were lower than the current market
interest rates for newly issued securities of comparable rating and type. If
such interest rates for newly issued comparable securities increase, the market
discount of previously issued securities will become greater, and if such
interest rates for newly issued comparable securities decline, the market
discount of previously issued securities will be reduced, other things being
equal. Investors should also note that the value of securities purchased at a
market discount will increase in value faster than securities purchased at a
market premium if interest rates decrease. Conversely, if interest rates
increase, the value of securities purchased at a market discount will decrease
faster than securities purchased at a market premium. In addition, if interest
rates rise, the prepayment risk of higher yielding, premium securities and the
prepayment benefit for lower yielding, discount securities will be reduced.
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.
PREMIUM SECURITIES. Certain of the securities held by the closed-end funds
in the trust may have been acquired at a market premium from par value at
maturity. The coupon interest rates on the premium securities at the time they
were purchased by the fund were higher than the current market interest rates
for newly issued securities of comparable rating and type. If such interest
rates for newly issued and otherwise comparable securities decrease, the market
premium of previously issued securities will be increased, and if such interest
rates for newly issued comparable securities increase, the market premium of
previously issued securities will be reduced, other things being equal. The
current returns of securities trading at a market premium are initially higher
than the current returns of comparable securities of a similar type issued at
currently prevailing interest rates because premium securities tend to decrease
in market value as they approach maturity when the face amount becomes payable.
Because part of the purchase price is thus returned not at maturity but through
current income payments, early redemption of a premium security at par or early
prepayments of principal will result in a reduction in yield. Redemption
pursuant to call provisions generally will, and redemption pursuant to sinking
fund provisions may, occur at times when the redeemed securities have an
offering side valuation which represents a premium over par or for original
issue discount securities a premium over the accreted value.
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 or the equivalent)
with instructions to purchase additional securities, in such trust and the
issuance of a corresponding number of additional units. In connection with such
deposits, 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 and other acquisition costs.
ADMINISTRATION OF THE TRUST
DISTRIBUTIONS TO UNITHOLDERS. Income received by a trust is credited by
the trustee to the Income Account for the trust. All other receipts are
credited by the trustee to a separate Capital Account for the trust. The
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trustee will normally distribute any income received by a 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 estimated net annual income distributions to be
received by the trust. All distributions will be net of applicable expenses.
There is no assurance that any actual distributions will be made since all
dividends received may be used to pay expenses. In addition, excess amounts
from the Capital Account of a trust, if any, will be distributed at least
annually to the unitholders then of record. Proceeds received from the
disposition of any of the securities after a record date and prior to the
following distribution date will be held in the Capital Account and not
distributed until the next distribution date applicable to the Capital Account.
The trustee shall be required to make a distribution from the Capital Account if
the cash balance on deposit therein available for distribution shall be
sufficient to distribute at least $0.01 per unit. The trustee is not required
to pay interest on funds held in the Capital or Income Accounts (but may itself
earn interest thereon and therefore benefits from the use of such funds).
The distribution to the unitholders as of each record date will be made on
the following distribution date or shortly thereafter and shall consist of an
amount substantially equal to such portion of the unitholders' pro rata share of
the estimated annual income distributions to be received by the trust after
deducting estimated expenses. Because dividends are not received by a trust at
a constant rate throughout the year, such distributions to unitholders are
expected to fluctuate. Persons who purchase units will commence receiving
distributions only after such person becomes a record owner. A person will
become the owner of units, and thereby a unitholder of record, on the date of
settlement provided payment has been received. Notification to the trustee of
the transfer of units is the responsibility of the purchaser, but in the normal
course of business the selling broker-dealer provides such notice.
The trustee will periodically deduct from the Income Account of a trust
and, to the extent funds are not sufficient therein, from the Capital Account of
a trust amounts necessary to pay the expenses of the trust. The trustee also
may withdraw from said accounts such amounts, if any, as it deems necessary to
establish a reserve for any governmental charges payable out of a trust.
Amounts so withdrawn shall not be considered a part of a trust's assets until
such time as the trustee shall return all or any part of such amounts to the
appropriate accounts. In addition, the trustee may withdraw from the Income and
Capital Accounts of a trust such amounts as may be necessary to cover
redemptions of units.
DISTRIBUTION REINVESTMENT. Unitholders may elect to have distributions of
capital (including capital gains, if any) or dividends or both automatically
invested into additional units of their trust without a sales fee. Your trust
will pay any deferred sales fee per unit regardless of any sales fee discounts.
However, if you are eligible to receive a discount such that the sales fee you
must pay is less than the applicable deferred sales fee and creation and
development fee, you will be credited the difference between your sales fee and
the deferred sales fee and the creation and development fee at the time you buy
your units. Accordingly, if you reinvest distributions into additional units of
your trust, you will be credited the amount of any remaining deferred sales fee
and creation and development fee on such units at the time of reinvestment.
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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 Income Account:
(1) the amount of income received on the securities (including income
received as a portion of the proceeds of any disposition of
securities);
(2) the amounts paid for purchases of replacement securities or for
purchases of securities otherwise pursuant to the trust
agreement, if any, and for redemptions;
(3) the deductions, if any, from the Income Account for payment into
the Reserve Account;
(4) the deductions for applicable taxes and fees and expenses of the
trustee, the depositor, the evaluator, the supervisor, counsel,
auditors and any other expenses paid by the trust;
(5) the amounts reserved for purchases of contract securities, for
purchases made pursuant to replace failed contract securities or
for purchases of securities otherwise pursuant to the trust
agreement, if any;
(6) the deductions for payment of the depositor's expenses of
maintaining the registration of the trust units, if any;
(7) the aggregate distributions to unitholders; and
(8) the balance remaining after such deductions and distributions,
expressed both as a total dollar amount and as a dollar amount
per unit outstanding on the last business day of such calendar
year;
(B) As to the Capital Account:
(1) the net proceeds received due to sale, maturity, redemption,
liquidation or disposition of any of the securities, excluding
any portion thereof credited to the Income Account;
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(2) the amount paid for purchases of replacement securities or for
purchases of securities otherwise pursuant to the trust
agreement, if any, and for redemptions;
(3) the deductions, if any, from the Capital Account for payments
into the Reserve Account;
(4) the deductions for payment of applicable taxes and fees and
expenses of the trustee, the depositor, the evaluator, the
supervisor, counsel, auditors and any other expenses paid by the
trust;
(5) the deductions for payment of the depositor's expenses of
organizing the trust;
(6) the amounts reserved for purchases of contract securities, for
purchases made pursuant to replace failed contract securities or
for purchases of securities otherwise pursuant to the trust
agreement, if any;
(7) the deductions for payment of deferred sales fee and creation and
development fee, if any;
(8) the deductions for payment of the depositor's expenses of
maintaining the registration of the trust units, if any;
(9) the aggregate distributions to unitholders; and
(10) the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount
per unit outstanding on the last business day of such calendar
year; and
(C) the following information:
(1) a list of the securities held as of the last business day of such
calendar year and a list which identifies all securities sold or
other securities acquired during such calendar year, if any;
(2) the number of units outstanding on the last business day of such
calendar year;
(3) the unit value based on the last trust evaluation of such trust
made during such calendar year; and
(4) the amounts actually distributed during such calendar year from
the Income and Capital Accounts, separately stated, expressed
both as total dollar amounts and as dollar amounts per unit
outstanding on the record dates for such distributions.
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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
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. In addition, the sponsor may
terminate a trust if it is based on a security index and the index is no longer
maintained. 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 fee
paid by such purchaser.
Beginning nine business days prior to, but no later than, the scheduled
termination date described in the prospectus, the trustee may begin to sell all
of the remaining underlying securities on behalf of unitholders in connection
with the termination of the trust. The sponsor may assist the trustee in these
sales and receive compensation to the extent permitted by applicable law. The
sale proceeds will be net of any incidental expenses involved in the sales.
The sponsor will generally instruct the trustee to sell the securities as
quickly as practicable during the termination proceedings without in its
judgment materially adversely affecting the market price of the securities, but
it is expected that all of the securities will in any event be disposed of
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within a reasonable time after a trust's termination. The sponsor does not
anticipate that the period will be longer than one month, and it could be as
short as one day, depending on the liquidity of the securities being sold. The
liquidity of any security depends on the daily trading volume of the security
and the amount that the sponsor has available for sale on any particular day.
Of course, no assurances can be given that the market value of the securities
will not be adversely affected during the termination proceedings.
Approximately thirty days prior to termination of a trust, the trustee will
notify unitholders of the termination and provide a form allowing qualifying
unitholders to elect an in-kind distribution. A unitholder who owns the minimum
number of units described in the prospectus may request an in-kind distribution
from the trustee instead of cash. The trustee will make an in-kind distribution
through the distribution of each of the securities of the trust in book entry
form to the account of the unitholder's bank or broker-dealer at Depository
Trust Company. The unitholder will be entitled to receive whole shares of each
of the securities comprising the portfolio of a trust and cash from the Capital
Account equal to the fractional shares to which the unitholder is entitled. The
trustee may adjust the number of shares of any security included in a
unitholder's in-kind distribution to facilitate the distribution of whole
shares. The sponsor may terminate the in-kind distribution option at any time
upon notice to the unitholders. Special federal income tax consequences will
result if a unitholder requests an in-kind distribution.
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 Income and Capital Accounts of the trust.
The sponsor may, but is not obligated to, offer for sale units of a
subsequent series of a trust at approximately the time of the mandatory
termination date. If the sponsor does offer such units for sale, unitholders
may be given the opportunity to purchase such units at a public offering price
that includes a reduced sales fee. There is, however, no assurance that units
of any new series of a trust will be offered for sale at that time, or if
offered, that there will be sufficient units available for sale to meet the
requests of any or all unitholders.
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 principal
unit investment trust division offices at 2 Hanson Place, 12th Floor, Brooklyn,
New York 11217, (800) 221-7668. The Bank of New York is subject to supervision
and examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law.
The trustee, whose duties are ministerial in nature, has not participated
in selecting the portfolio of any trust. In accordance with the trust
agreement, the trustee shall keep records of all transactions at its office.
Such records shall include the name and address of, and the number of units held
by, every unitholder of a trust. Such books and records shall be open to
inspection by any unitholder at all reasonable times during usual business
hours. The trustee shall make such annual or other reports as may from time to
time be required under any applicable state or federal statute, rule or
regulation. The trustee shall keep a certified copy or duplicate original of
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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.
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).
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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 sponsor and trustee in which event the sponsor or
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.
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
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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 sponsor may receive a fee from your trust for creating and developing
the trust, including determining the trust's objectives, policies, composition
and size, selecting service providers and information services and for providing
other similar administrative and ministerial functions. The amount of this
"creation and development fee" is set forth in the prospectus. The trustee will
deduct this amount from your trust's assets as of the close of the initial
offering period. No portion of this fee is applied to the payment of
distribution expenses or as compensation for sales efforts. This fee will not be
deducted from proceeds received upon a repurchase, redemption or exchange of
units before the close of the initial public offering period.
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 total
number of units of the related trust outstanding as of January 1 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. The trustee benefits to the extent
there are funds for future distributions, payment of expenses and redemptions in
the Capital and Income 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 of providing such services. Such fee shall be based on the
total number of units of the related trust outstanding as of January 1 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 of providing
such services. Such fee shall be based on the total number of units of the
related trust outstanding as of January 1 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 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 of providing such services. Such fee shall be based on the total number of
units of the related trust outstanding as of January 1 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.
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The trustee's fee, sponsor's fee for providing bookkeeping and
administrative services to the trust, supervisor's fee and evaluator's fee are
deducted from the Income Account of the related trust to the extent funds are
available and then from the Capital Account. Each such fee (other than any
creation and development fee) may be increased without approval of unitholders
by amounts not exceeding a proportionate increase in the Consumer Price Index or
any equivalent index substituted therefor.
The following additional charges are or may be incurred by the trust:
(a) fees for the trustee's extraordinary services; (b) expenses of the trustee
(including legal and auditing expenses and reimbursement of the cost of advances
to the trust for payment of expenses and distributions, but not including any
fees and expenses charged by an agent for custody and safeguarding of
securities) and of counsel, if any; (c) various governmental charges;
(d) expenses and costs of any action taken by the trustee to protect the trust
or the rights and interests of the unitholders; (e) indemnification of the
trustee for any loss, liability or expense incurred by it in the administration
of the trust not resulting from negligence, bad faith or willful misconduct on
its part or its reckless disregard of 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; and (g) 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 Income and Capital Accounts are insufficient to
provide for amounts payable by the trust, the trustee has the power to sell
securities to pay such amounts. These sales may result in capital gains or
losses to unitholders. A trust may pay the costs of updating its registration
statement each year.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
When a trust sells securities, the composition and diversity of the
securities in the trust may be altered. In order to obtain the best price for a
trust, it may be necessary for the sponsor to specify minimum amounts in which
blocks of securities are to be sold. In effecting purchases and sales of a
trust's portfolio securities, the sponsor may direct that orders be placed with
and brokerage commissions be paid to brokers, including brokers which may be
affiliated with the trust, the sponsor or dealers participating in the offering
of units.
PURCHASE, REDEMPTION AND PRICING OF UNITS
PUBLIC OFFERING PRICE. Units of a trust are offered at the public offering
price thereof. The public offering price per unit is equal to the net asset
value per unit plus organization costs plus the applicable sales fee referred to
in the prospectus. The initial sales fee is equal to the difference between the
maximum sales fee and the sum of the remaining deferred sales fee and the total
creation and development fee. The sales fee as a percentage of the public
offering price and the net amount invested is set forth in the prospectus. The
deferred sales fee is a fixed dollar amount and will be collected in
installments as described in the prospectus. The creation and development fee is
a fixed dollar amount and will be collected at the end of the initial offering
period as described in the prospectus. Units purchased after the initial
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deferred sales fee payment will be subject to the remaining deferred sales fee
payments. Units sold or redeemed prior to such time as the entire applicable
deferred sales fee has been collected will be assessed the remaining deferred
sales fee at the time of such sale or redemption. Units sold or redeemed prior
to such time as the entire applicable creation and development fee has been
collected will not be assessed the remaining creation and development fee at the
time of such sale or redemption. During the initial offering period, a portion
of the public offering price includes an amount of securities to pay for all or
a portion of the costs incurred in establishing a trust. These costs include
the cost of preparing the registration statement, the trust indenture and other
closing documents, registering units with the Securities and Exchange Commission
and states, the initial audit of the trust portfolio, legal fees and the initial
fees and expenses of the trustee. These costs will be deducted from a trust as
of the end of the initial offering period or after six months, if earlier.
Certain broker-dealers may charge a transaction fee for processing unit
purchases.
As indicated above, the initial public offering price of the units was
established by dividing the aggregate underlying value of the securities by the
number of units outstanding. Such price determination as of the opening of
business on the date a trust was created was made on the basis of an evaluation
of the securities in the trust prepared by the evaluator. After the opening of
business on this date, the evaluator will appraise or cause to be appraised
daily the value of the underlying securities as of the close of regular trading
on the New York Stock Exchange on days the New York Stock Exchange is open and
will adjust the public offering price of the units commensurate with such
valuation. Such public offering price will be effective for all orders received
at or prior to the close of regular trading on the New York Stock Exchange on
each such day. Orders received by the trustee, sponsor or any dealer for
purchases, sales or redemptions after that time, or on a day when the New York
Stock Exchange is closed, will be held until the next determination of price.
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. Net asset value per unit is determined by dividing
the value of a trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of units outstanding. The portfolio securities
are valued by the evaluator as follows: If the security is listed on a national
securities exchange or the Nasdaq Stock Market, the evaluation will generally be
based on the last sale price on the exchange or Nasdaq (unless the evaluator
deems the price inappropriate as a basis for evaluation). If the security is
not so listed or, if so listed and the principal market for the security is
other than on the exchange or Nasdaq, the evaluation will generally be made by
the evaluator in good faith based on an appraisal of the fair value of the
securities using recognized pricing methods.
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.
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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.
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.
We may provide, at our own expense and out of our own profits, additional
compensation and benefits to broker-dealers who sell shares of units of this
trust and our other products. This compensation is intended to result in
additional sales of our products and/or compensate broker-dealers and financial
advisors for past sales. We may make these payments for marketing, promotional
or related expenses, including, but not limited to, expenses of entertaining
retail customers and financial advisors, advertising, sponsorship of events or
seminars, obtaining shelf space in broker-dealer firms and similar activities
designed to promote the sale of the our products. These arrangements will not
change the price you pay for your units.
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 fees equal to the
percentage of the offering price of the units of such trusts stated in the
prospectus and will pay a portion of such sales fees 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. The sponsor may also realize profits or
losses with respect to securities deposited in a trust which were acquired from
underwriting syndicates of which the sponsor was a member. An underwriter or
underwriting syndicate purchases securities from the issuer on a negotiated or
competitive bid basis, as principal, with the motive of marketing such
securities to investors at a profit. The sponsor may realize additional profits
or losses during the initial offering period on unsold units as a result of
changes in the daily evaluation of the securities in a trust.
MARKET FOR UNITS. After the initial offering period, while not obligated
to do so, the sponsor may, subject to change at any time, maintain a market for
units of the trust offered hereby and to continuously offer to purchase said
units at the net asset value determined by the evaluator, provided that the
repurchase price will not be reduced by organization costs during the initial
offering period. While the sponsor may repurchase units from time to time, it
does not currently intend to maintain an active secondary market for units.
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Unitholders who wish to dispose of their units should inquire of their 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.
Unitholders who sell or redeem units prior to such time as the entire deferred
sales fee on such units has been collected will be assessed the amount of the
remaining deferred sales fee at the time of such sale or redemption. Unitholders
who sell or redeem units prior to such time as the entire creation and
development fee on such units has been collected will not be assessed the amount
of the remaining creation and development fee at the time of such sale or
redemption. 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. If the sponsor decides to maintain a secondary market, it may
suspend or discontinue purchases of units of the 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. Additional documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees, guardians or associations. The signatures must be
guaranteed by a participant in the Securities Transfer Agents Medallion Program
("STAMP") or such other signature guaranty program in addition to, or in
substitution for, STAMP, as may be accepted by the trustee. A certificate
should only be sent by registered or certified mail for the protection of the
unitholder. Since tender of the certificate is required for redemption when one
has been issued, units represented by a certificate cannot be redeemed until the
certificate representing such units has been received by the purchasers.
Redemption shall be made by the trustee no later than the seventh day
following the day on which a tender for redemption is received (the "Redemption
Date") by payment of cash equivalent to the redemption price, determined as set
forth below under "Computation of Redemption Price," as of the close of regular
trading on the New York Stock Exchange next following such tender, multiplied by
the number of units being redeemed. Any units redeemed shall be canceled and
any undivided fractional interest in the related trust extinguished. The price
received upon redemption might be more or less than the amount paid by the
unitholder depending on the value of the securities in the trust at the time of
redemption. Unitholders who sell or redeem units prior to such time as the
entire deferred sales fee on such units has been collected will be assessed the
amount of the remaining deferred sales fee at the time of such sale or
redemption. Unitholders who sell or redeem units prior to such time as the
entire creation and development fee on such units has been collected will not be
assessed the amount of the remaining creation and development fee at the time of
such sale or redemption. Certain broker-dealers may charge a transaction fee
for processing redemption requests.
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
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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 Income 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 Capital Account for a trust.
Unitholders tendering units for redemption may request a distribution in
kind (a "Distribution In Kind") from the trustee in lieu of cash redemption of
an amount and value of securities per unit equal to the redemption price per
unit as determined as of the evaluation time next following the tender, provided
that the tendering unitholder meets the requirements stated in the prospectus
and the unitholder has elected to redeem at least thirty days prior to the
termination of the trust. If the unitholder meets these requirements, a
Distribution In Kind will be made by the trustee through the distribution of
each of the securities of the trust in book entry form to the account of the
unitholder's bank or broker-dealer at Depository Trust Company. The tendering
unitholder shall be entitled to receive whole shares of each of the securities
comprising the portfolio of the trust and cash from the Capital Account equal to
the fractional shares to which the tendering unitholder is entitled. The
trustee shall make any adjustments necessary to reflect differences between the
redemption price of the units and the value of the securities distributed in
kind as of the date of tender. If funds in the Capital Account are insufficient
to cover the required cash distribution to the tendering unitholder, the trustee
may sell securities. The in kind redemption option may be terminated by the
sponsor at any time.
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.
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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.
COMPUTATION OF REDEMPTION PRICE. The redemption price for units 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
and (2) the aggregate value of each issue of the securities held in the
trust as determined by the evaluator as described above;
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, including
but not limited to fees and expenses of the trustee (including legal and
auditing fees), the evaluator, the sponsor and 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 will not be reduced by
organization costs 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 will lower the
minimum investment requirement for IRA accounts. Fees and charges with respect
to such plans may vary.
OWNERSHIP OF UNITS. Ownership of units will not be evidenced by
certificates unless a unitholder, the unitholder's registered broker/dealer or
the clearing agent for such broker/dealer makes a written request to the
trustee. Units are transferable by making a written request to the trustee and,
in the case of units evidenced by a certificate, by presenting and surrendering
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such certificate to the trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent by registered or
certified mail for the protection of the unitholder. Unitholders must sign such
written request, and such certificate or transfer instrument, exactly as their
names appear on the records of the trustee and on any certificate representing
the units to be transferred. Such signatures must be guaranteed as described
above.
Units may be purchased and certificates, if requested, will be issued in
denominations of one unit or any multiple thereof, subject to the minimum
investment requirement. Fractions of units, if any, will be computed to three
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
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 fees 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 fee
and assuming all dividends reinvested) or Wiesenberger Investment Companies
Service (which states fund performance annually on a total return basis) or of
the New York Stock Exchange Composite Index, the American Stock Exchange Index
(unmanaged indices of stocks traded on the New York and American Stock
Exchanges, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks) or the Standard & Poor's 500 Index (an
unmanaged diversified index of 500 stocks) or similar measurement standards
during the same period of time.
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CONTENTS OF REGISTRATION STATEMENT
This 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).
3.4 Opinion of counsel as to the Trustee and the Trust. (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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Advisor's Disciplined Trust 57 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 12th day of October, 2005.
ADVISOR'S DISCIPLINED TRUST 57
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 October 12, 2005 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.
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