1933 ACT FILE NO.:
1940 ACT FILE NO.: 811-21056
CIK NO.: 1373543
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 116
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 _______, 2006 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, 2006
SUBJECT TO COMPLETION
GREATER ASIA PORTFOLIO, SERIES 1
(ADVISOR'S DISCIPLINED TRUST 116)
A portfolio of stocks of companies
in the greater Asia region seeking
above average total return, primarily
through capital appreciation
PROSPECTUS
OCTOBER ___, 2006
[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 above average total return primarily through
capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
The trust seeks to provide above average total return primarily through
capital appreciation by investing in a diversified portfolio of stocks of
companies in the greater Asia region with a focus on Chica (including Hong
Kong), India, Indonesia, Japan, Russia, South Korea and Taiwan. These companies
may be headquartered in, have significant operations in or derive significant
revenues from Asia region countries. We* selected the trust portfolio
securities through an analysis based on market capitalization, revenues, revenue
growth, valuation and economic sector to construct a portfolio that we believe
generally represents the current economic makeup of the greater Asia region and
has the potential to benefit from future growth in this region. Of course, as
with any similar investment, there can be no assurance that the objective of the
trust will be achieved.
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 ISSUER OF A SECURITY MAY BE UNWILLING OR UNABLE TO MAKE DIVIDEND PAYMENTS
IN THE FUTURE. This may reduce the level of dividends the trust receives
which would reduce your income and cause the value of your units to fall.
* THE FINANCIAL CONDITION OF AN ISSUER MAY WORSEN OR ITS CREDIT RATINGS MAY
DROP, RESULTING IN A REDUCTION IN THE VALUE OF YOUR UNITS. This may occur
at any point in time, including during the primary offering period.
* THE TRUST IS CONSIDERED TO BE CONCENTRATED IN SECURITIES ISSUED BY COMPANIES
IN THE BASIC MATERIALS SECTOR. Negative developments in the basic
materials sector will affect the value of your investment more than would
be the case in a more diversified investment.
* STOCKS OF FOREIGN COMPANIES HELD BY THE TRUST PRESENT RISKS BEYOND THOSE OF
U.S. ISSUERS. These risks may include market and political factors related
to the company's foreign market, international trade conditions, less
regulation, smaller or less liquid markets, increased volatility, differing
accounting practices and changes in the value of foreign currencies.
* THE TRUST INVESTS SIGNIFICANTLY IN STOCKS OF SMALL AND MID-SIZE COMPANIES.
These stocks are often more volatile and have lower trading volumes than
stocks of larger companies. Small and mid-size companies may have limited
products or financial resources, management inexperience and less publicly
available information.
* WE DO NOT ACTIVELY MANAGE THE PORTFOLIO. Except in limited circumstances,
the trust will generally hold, and continue to buy, shares of the same
securities 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 a defined portfolio of stocks of foreign companies from the greater
Asia region.
* the potential for above average total return primarily through capital
appreciation.
You should not consider this investment if you:
* are uncomfortable with the risks of an unmanaged investment in stocks.
* are uncomfortable investing in foreign companies from the greater Asia
region, especially within emerging markets countries.
* seek income or capital preservation.
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ESSENTIAL INFORMATION
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UNIT PRICE AT INCEPTION $10.0000
INCEPTION DATE October ____, 2006
TERMINATION DATE ____________, 2008
ESTIMATED NET ANNUAL DISTRIBUTIONS
First year $______ per unit
Subsequent years $______ per unit
DISTRIBUTION DATES Last day of January, April
July and October
RECORD DATES 15th day of January, April
July and October
INITIAL DISTRIBUTION DATE January 31, 2007
INITIAL RECORD DATE January 15, 2007
CUSIP NUMBERS
Standard Accounts
Cash distributions _________
Reinvest distributions _________
Fee Based Accounts
Cash distributions _________
Reinvest distributions _________
TICKER SYMBOL _________
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 0.00% $0.00
Deferred sales fee 3.77 33.50
Creation & development fee 0.68 6.00
------- -------
Maximum sales fee 4.45% $39.50
======= =======
ORGANIZATION COSTS 0.50% $5.00
======= =======
AS A % AMOUNT
ANNUAL OF NET PER 100
OPERATING EXPENSES ASSETS UNITS
------------------------
Trustee fee & expenses _.__% $_____
Supervisory, evaluation
and administration fees 0.10 1.00
Closed-end fund expenses ____ _____
------- -------
Total ____% $_____
======= =======
During the initial offering period, the maximum sales fee is equal to the sum
of the remaining deferred sales fee and the total creation and development fee.
The maximum deferred sales fee is fixed at $0.335 per unit and is paid in three
monthly installments beginning April 20, 2007. The maximum 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 maximum sales fee is $0.395
per unit. The maximum sales fee and its components will fluctuate as a
percentage of the public offering price, provided that the maximum total sales
fee will be capped so that it will not exceed 4.45% of the public offering price
per unit. See "Understanding Your Investment--How To Buy Units." The trust
will not impose an initial sales fee prior to assessment of the first deferred
sales fee payment. If you purchase units after this time, you will also pay an
initial sales fee equal to the difference between $0.395 per unit and the
remaining deferred sales fee.
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 $_____
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
GREATER ASIA PORTFOLIO, SERIES 1
(ADVISOR'S DISCIPLINED TRUST 116)
PORTFOLIO
AS OF THE TRUST INCEPTION DATE, OCTOBER ___, 2006
PERCENTAGE OF MARKET COST OF
NUMBER TICKER AGGREGATE OFFERING VALUE PER SECURITIES
OF SHARES SYMBOL ISSUER PRICE SHARE(1) TO TRUST(2)
- --------------------------------------------------------------------------------------------------------------------------
- ------- --------- ----------
7,010 100.00% $148,546
======= ========= ==========
<FN>
Notes to Portfolio
(1) Securities are represented by contracts to purchase 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.
(3)This is a security issued by a foreign company that trades on a U.S.
securities exchange.
4 Investment Summary
THE SECURITIES
A brief description of each of the issuers of the portfolio securities
appears below.
Investment Summary 5
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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.AAMPORTFOLIOS.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
4:00 p.m. Eastern time) to give you the price for that day. If we receive your
order after this time, you will receive the price computed on the next business
day. Certain broker-dealers may charge a transaction or other fee for
processing unit purchase orders.
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 the last asked or bid price in the over-the-counter market or
by using other recognized pricing methods. 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 securities 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." Until the first deferred
sales fee payment is assessed, the transactional sales fee has only a deferred
sales fee that is a fixed dollar amount and equals $0.335 per unit. At a public
offering price of $10 per unit, the deferred sales fee will equal 3.35% of the
public offering price per unit. If the public offering price per unit exceeds
$10,
6 Understanding Your Investment
the deferred sales fee will be less than 3.35%. If the public offering price
per unit is less than $10, the deferred sales fee will exceed 3.35%, however,
the maximum total sales fee is capped and in no event will the total sales fee
exceed 4.45% of the public offering price per unit for any investor. If
applicable, the sales fee cap would be implemented by the sponsor foregoing
collection of deferred sales fee and/or creation and development fee payments
from all unitholders to the extent necessary to ensure that no purchaser is
assessed a total sales fee in excess of 4.45% of their public offering price per
unit. The sponsor currently intends to suspend or terminate the offering of
units if this were to occur. The transactional sales fee equals the difference
between the total sales fee and the creation and development fee. 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."
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.
The trust will not impose an initial sales fee prior to assessment of the
first deferred sales fee payment. However, if you purchase units of the trust
after the first deferred sales fee payment has been assessed, the transactional
sales fee will consist of an initial sales fee and the amount of any remaining
deferred sales fee payments. In this case, you pay the initial sales fee at the
time you buy units. This initial sales fee is equal to the difference between
$0.395 per unit and the remaining deferred sales fee.
REDUCING YOUR SALES FEE. We offer a variety of ways for you to reduce the
fee you pay. All sales fees are also subject to the capped maximum sales fee of
4.45% of the public offering price per unit. 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 $0.395
$50,000 - $99,999 0.370
$100,000 - $249,999 0.345
$250,000 - $499,999 0.295
$500,000 - $999,999 0.195
$1,000,000 or more 0.175
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 $0.345 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
Understanding Your Investment 7
* 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 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 during the initial offering period and in the secondary
market. Certain fee account investors may be assessed transaction or other fees
on the purchase and/or redemption of units by their broker-dealer or other
processing organizations for providing certain transaction or account
activities. We reserve the right to limit or deny purchases of units in fee
accounts by investors or selling firms whose frequent trading activity is
determined to be detrimental to the trust.
Employees. We waive 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.
Rollover/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
sales fee for these transactions is equal to $0.295 per unit. However, if you
invest redemption or termination proceeds of $500,000 or more in units of the
trust, the maximum sales fee on your units will be limited to the maximum sales
fee for the applicable amount invested in the table under "Large Purchases"
above. To qualify for this discount, the termination or redemption
8 Understanding Your Investment
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 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.
These discounts apply 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.AAMPORTFOLIOS.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 or
other fee for processing unit redemption or sale requests.
SELLING UNITS. We may maintain a secondary market for units. This means
that if you want to sell your units, we may buy them at the current net asset
value, provided that you will not pay 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.
Understanding Your Investment 9
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 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
at any time without notice.
EXCHANGE OPTION. You may be able to exchange your units for units of our
other unit trusts at a reduced sales fee. You can contact your financial
professional for more information about trusts currently available for
exchanges. Before you exchange units, you should read the prospectus carefully
and understand the risks and fees. You should then discuss this option with
your financial professional to determine whether your investment goals have
changed, whether current trusts suit you and to discuss tax consequences. We
may discontinue this option upon sixty days notice.
DISTRIBUTIONS
QUARTERLY DISTRIBUTIONS. Your trust generally pays distributions of its net
investment income along with any excess capital on each quarterly 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
10 Understanding Your Investment
involving a company whose stock is in your portfolio. The trust will also
generally make required distributions or distributions to avoid imposition of
tax at the end of each year because it is structured as a "regulated investment
company" for federal tax purposes. The amount of your distributions will vary
from time to time as companies change their dividends or trust expenses change.
ESTIMATED ANNUAL DISTRIBUTIONS. The estimated net annual distributions are
shown under "Essential Information" in the "Investment Summary" section of this
prospectus. We generally base the estimate of the income the trust may receive
on annualizing the most recent ordinary dividend declared by an issuer (or
adding the most recent interim and final dividends declared for certain foreign
issuers) or on scheduled income payments. However, dividend conventions for
certain companies and/or certain countries differ from those typically used in
the United States and in certain instances, dividends paid or declared over
several years or other periods were used to estimate annual distributions. Due
to this and various other factors, actual income payments received by the trust
will most likely differ from the most recent annualized dividends or scheduled
income payments. The actual net annual distributions you will receive will vary
with changes in the trust's fees and expenses, in income payments 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, the 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.
DIVIDEND PAYMENT RISK is the risk that an issuer of a security is unwilling
or unable to pay income on a security. Stocks represent ownership interests in
the issuers and are not obligations of the issuers. Common stockholders have a
right to receive dividends only after the company has provided for payment of
its creditors, bondholders and preferred stockholders. Common stocks do not
assure dividend payments. Dividends are paid only when declared by an issuer's
board of directors and the amount of any dividend may vary over time.
Understanding Your Investment 11
FOREIGN ISSUER RISK. Because the trust invests in stocks of foreign
companies, the trust involves additional risks that differ from an investment
exclusively in domestic stocks. These risks include the risk of losses due to
future political and economic developments, international trade conditions,
foreign withholding taxes and restrictions on foreign investments and exchange
of securities. The trust also involves the risk that fluctuations in exchange
rates between the U.S. dollar and foreign currencies may negatively affect the
value of the stocks. The trust involves the risk that information about the
stocks is not publicly available or is inaccurate due to the absence of uniform
accounting and financial reporting standards. In addition, some foreign
securities markets are less liquid than U.S. markets. This could cause the
trust to buy stocks at a higher price or sell stocks at a lower price than would
be the case in a highly liquid market. Foreign securities markets are often
more volatile and involve higher trading costs than U.S. markets, and foreign
companies, securities markets and brokers are also generally not subject to the
same level of supervision and regulation as in the U.S. Certain stocks may be
held in the form of American Depositary Receipts or other similar receipts
("ADRs"). ADRs represent receipts for foreign common stock deposited with a
custodian (which may include the trustee of your trust). The ADRs in the trust,
if any, trade in the U.S. in U.S. dollars and are registered with the Securities
and Exchange Commission. ADRs generally involve the same types of risks as
foreign common stock held directly. Some ADRs may experience less liquidity
than the underlying common stocks traded in their home market.
SMALL AND MID-SIZE COMPANIES. The trust invests significantly in stocks
issued by small and mid-size companies. The share prices of these companies are
often more volatile than those of larger companies as a result of several
factors common to many such issuers, including limited trading volumes, products
or financial resources, management inexperience and less publicly available
information.
LEGISLATION/LITIGATION. From time to time, various legislative initiatives
are proposed in the United States and abroad which may have a negative impact on
certain of the companies represented in the trust. In addition, litigation
regarding any of the issuers of the securities or of the industries represented
by these issuers may negatively impact the share prices of these securities. No
one can predict what impact any pending or threatened litigation will have on
the share prices of the securities.
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.
NO FDIC GUARANTEE. An investment in the trust is not a deposit of any bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
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
12 Understanding Your Investment
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. Your trust will
generally buy and sell securities:
* to pay expenses,
* to issue additional units or redeem units,
* in limited circumstances to protect the trust,
* to make required distributions or avoid imposition of taxes on the trust,
or
* as permitted by the trust agreement.
If a public tender offer has been made for a security or a merger,
acquisition or similar transaction has been announced affecting a security, the
trustee may either sell the security or accept a tender offer if the supervisor
determines that the action is in the best interest of unitholders. The trustee
will distribute any cash proceeds to unitholders. 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.
If any contract for the purchase of securities fails, the sponsor will refund
the cash and sales fee attributable to the failed contract to unitholders on or
before the next distribution date unless substantially all of the moneys held to
cover the purchase are reinvested in substitute securities in accordance with
the trust agreement. The sponsor may direct the reinvestment of security sale
proceeds if the sale is the direct result of serious adverse credit factors
which, in the opinion of the sponsor, would make retention of the securities
detrimental to the trust. In such a case, the sponsor may, but is not obligated
to, direct the reinvestment of sale proceeds in any other securities that meet
the criteria for inclusion in the trust on the trust's inception date. The
sponsor may also instruct the trustee to take action necessary to ensure that
the portfolio continues to satisfy the qualifications of a regulated investment
company.
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 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
Understanding Your Investment 13
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. Its
principal unit investment trust division office is located at 2 Hanson Place,
12th Floor, Brooklyn, New York 11217. You can contact the trustee by calling
the telephone number on the back cover of this prospectus or by writing to its
unit investment trust office. We may remove and replace the trustee in some
cases without your consent. The trustee may also resign by notifying us and
investors.
HOW WE DISTRIBUTE UNITS. We sell units to the public through broker-dealers
and other firms. We pay part of the sales fee to these distribution firms when
they sell units. 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 $0.300
$50,000 - $99,999 0.275
$100,000 - $249,999 0.250
$250,000 - $499,999 0.200
$500,000 - $999,999 0.100
$1,000,000 or more 0.100
We also apply the different levels on a unit basis using a $10 unit
equivalent. The broker-dealer
14 Understanding Your Investment
concession or agency commission is 65% of the applicable sales fee for secondary
market sales. For transactions involving unitholders of other unit investment
trusts who use their redemption or termination proceeds to purchase units of the
trust, the distribution fee is $0.20 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.
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.
Understanding Your Investment 15
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 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.
TRUST STATUS. The trust intends to qualify as a "regulated investment
company" under the federal tax laws. If the trust qualifies as a regulated
investment company and distributes its income as required by the tax law, the
trust generally will not pay federal income taxes.
DISTRIBUTIONS. Trust distributions are generally taxable. After the end of
each year, you will receive a tax statement that separates your trust's
distributions into two categories, ordinary income distributions and capital
gains dividends. Ordinary income distributions are generally taxed at your
ordinary tax rate, however, as further discussed below, certain ordinary income
distributions received from the trust may be taxed at the capital gains tax
rates. Generally, you will treat all capital gains dividends as long-term
capital gains regardless of how long you have owned your units. To determine
your actual tax liability for your capital gains dividends, you must calculate
your total net capital gain or loss for the tax year after considering all of
your other taxable transactions, as described below. In addition, the trust may
make distributions that represent a return of capital for tax purposes and thus
will generally not be taxable to you. The tax status of your distributions from
your trust is not affected by whether you reinvest your distributions in
additional units or receive them in cash. The income from your trust that you
must take into account for federal income tax purposes is not reduced by amounts
used to pay a deferred sales fee, if any. The tax laws may require you to treat
distributions made to you in January as if you had received them on December 31
of the previous year.
DIVIDENDS RECEIVED DEDUCTION. A corporation that owns units generally will
not be entitled to the dividends received deduction with respect to many
dividends received from the trust because
16 Understanding Your Investment
the dividends received deduction is generally not available for distributions
from regulated investment companies. However, certain ordinary income dividends
on units that are attributable to qualifying dividends received by the trust
from certain corporations may be designated by the trust as being eligible for
the dividends received deduction.
SALE OR REDEMPTION OF UNITS. If you sell or redeem your units, you will
generally recognize a taxable gain or loss. To determine the amount of this
gain or loss, you must subtract your tax basis in your units from the amount you
receive in the transaction. Your tax basis in your units is generally equal to
the cost of your units, generally including sales charges. In some cases,
however, you may have to adjust your tax basis after you purchase your units.
CAPITAL GAINS AND LOSSES AND CERTAIN ORDINARY INCOME DIVIDENDS. If you are
an individual, the maximum marginal federal tax rate for net capital gain is
generally 15% (generally 5% for certain taxpayers in the 10% and 15% tax
brackets). These new capital gains rates are generally effective for taxable
years beginning before January 1, 2011. 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. However, if you receive a
capital gain dividend from your trust and sell your unit at a loss after holding
it for six months or less, the loss will be recharacterized as long-term capital
loss to the extent of the capital gain dividend received. 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 treats certain capital
gains as ordinary income in special situations.
Ordinary income dividends received by an individual unitholder from a
regulated investment company such as the trust are generally taxed at the same
rates that apply to net capital gain (as discussed above), provided certain
holding period requirements are satisfied and provided the dividends are
attributable to qualifying dividends received by the trust itself. These
special rules relating to the taxation of ordinary income dividends from
regulated investment companies generally apply to taxable years beginning before
January 1, 2011. The trust will provide notice to its unitholders of the amount
of any distribution which may be taken into account as a dividend which is
eligible for the new capital gains tax rates.
IN-KIND DISTRIBUTIONS. Under certain circumstances, as described in this
prospectus, you may receive an in-kind distribution of trust securities when you
redeem units or when your trust terminates. This distribution is subject to
taxation and you will recognize gain or loss, generally based on the value at
that time of the securities and the amount of cash received.
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
Understanding Your Investment 17
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 realized on a sale or exchange
will be disallowed to the extent that units disposed of are replaced (including
through reinvestment of dividends) within a period of 61 days beginning 30 days
before and ending 30 days after disposition of units or to the extent that the
unitholder, during such period, acquires or enters into an option or contract to
acquire, substantially identical stock or securities. In such a case, the basis
of the units acquired will be adjusted to reflect the disallowed loss.
DEDUCTIBILITY OF TRUST EXPENSES. Generally, expenses incurred by your trust
will be deducted from the gross income received by your trust and only your
share of the trust's net income will be paid to you and reported as taxable
income to you. However, if the units of your trust are held by fewer than 500
unitholders at any time during a taxable year, your trust will generally not be
able to deduct certain expenses from income, thus resulting in your reported
share of the trust's taxable income being increased by your share of those
expenses, even though you do not receive a corresponding cash distribution. In
this case you may be able to take a deduction for these expenses; however,
certain miscellaneous itemized deductions, such as investment expenses, may be
deducted by individuals only to the extent that all of these deductions exceed
2% of the individual's adjusted gross income.
FOREIGN TAX CREDIT. If your trust invests in any foreign securities, the tax
statement that you receive may include an item showing foreign taxes your trust
paid to other countries. In this case, dividends taxed to you will include your
share of the taxes your trust paid to other countries. You may be able to
deduct or receive a tax credit for your share of these taxes.
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.
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
18 Understanding Your Investment
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.
EXPERTS
LEGAL MATTERS. Chapman and Cutler LLP acts as counsel for the trust and has
given an opinion that the units are validly issued. Dorsey & Whitney LLP acts
as counsel for the trustee.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Grant Thornton LLP,
independent registered public accounting firm, audited the statement of
financial condition and the portfolio 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 19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UNITHOLDERS
ADVISOR'S DISCIPLINED TRUST 116
We have audited the accompanying statement of financial condition, including the
trust portfolio on page 4, of Advisor's Disciplined Trust 116, as of October
___, 2006, 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 ___, 2006. 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 116 as of October ___, 2006, in conformity with accounting
principles generally accepted in the United States of America.
Chicago, Illinois GRANT THORNTON LLP
October ___, 2006
ADVISOR'S DISCIPLINED TRUST 116
STATEMENT OF FINANCIAL CONDITION AS OF OCTOBER ___, 2006
- ---------------------------------------------------------------------------------------------------------
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 & 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 $0.395 per unit and any remaining deferred sales fee.
The maximum sales fee is $0.395 per unit, not to exceed 4.45% of the public
offering price per unit. No initial sales fee is imposed prior to the
first deferred sales fee assessment. The deferred sales fee is equal to
$0.335 per unit and the creation and development fee is equal to $0.06 per
unit subject to the maximum sales fee percentage.
(5) The aggregate cost to investors includes the applicable sales fee assuming
no reduction of sales fees for quantity purchases.
20 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
5 The Securities
UNDERSTANDING YOUR INVESTMENT
- -------------------------------------------------------------------
Detailed information to 6 How to Buy Units
help you understand 9 How to Sell Your Units
your investment 10 Distributions
11 Investment Risks
12 How the Trust Works
16 Taxes
18 Expenses
19 Experts
19 Additional Information
20 Report of Independent Registered
Public Accounting Firm
20 Statement of Financial Condition
WHERE TO LEARN MORE
- -------------------------------------------------------------------
You can contact us for VISIT US ON THE INTERNET
free information about http://www.AAMPortfolios.com
this and other investments, BY E-MAIL
including the Information info@AAMPortfolios.com
Supplement CALL ADVISOR'S ASSET MANAGEMENT
(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
VISIT: http://www.sec.gov
(EDGAR Database)
CALL: 1-202-551-8090
(only for information on the operation of the
Public Reference Section)
REFER TO:
ADVISOR'S DISCIPLINED TRUST 116
Securities Act file number: 333-__________
Investment Company Act file number: 811-21056
GREATER ASIA
PORTFOLIO,
SERIES 1
PROSPECTUS
OCTOBER ___, 2006
[LOGO]
ADVISOR'S
ASSET MANAGEMENT
A DIVISION OF FIXED INCOME SECURITIES, L.P.
ADVISOR'S DISCIPLINED TRUST 116
GREATER ASIA PORTFOLIO, SERIES 1
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning
each trust described in the prospectus for the Advisor's Disciplined Trust
series identified above. This Information Supplement should be read in
conjunction with the prospectus. It is not a prospectus. It does not include
all of the information that an investor should consider before investing in a
trust. It may not be used to offer or sell units of a trust without the
prospectus. This Information Supplement is incorporated into the prospectus by
reference and has been filed as part of the registration statement with the
Securities and Exchange Commission. Investors should obtain and read the
prospectus prior to purchasing units of a trust. You can obtain the prospectus
without charge by contacting your financial professional or by contacting the
Advisor's Asset Management division of Fixed Income Securities, L.P. at 18925
Base Camp Road, Suite 203, Monument, Colorado 80132, at 8100 East 22nd Street
North, Suite 900B, Wichita, Kansas 67226-2309 or by calling (877) 858-1773.
This Information Supplement is dated as of the date of the prospectus.
CONTENTS
General Information 2
Investment Objective and Policies 3
Risk Factors 5
Administration of the Trust 12
Portfolio Transactions and Brokerage Allocation 21
Purchase, Redemption and Pricing of Units 21
Taxation 27
Performance Information 28
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
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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 trust seeks to provide total return primarily through capital appreciation
by investing in a portfolio consisting of stock of companies in the greater Asia
region with a focus on China (including Hong Kong), India, Indonesia, Japan,
Russia, South Korea and Taiwan. 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,
acquisitionor similar transaction has been announced affecting a security, the
trustee may either sell the security or accept a tender offer if the supervisor
determines that the action is in the best interest of unitholders. The trustee
will distribute any excess cash proceeds to unitholders. 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 sponsor may direct the reinvestment of security sale proceeds if the sale is
the direct result of serious adverse credit factors which, in the opinion of the
sponsor, would make retention of the securities detrimental to the trust. In
such a case, the sponsor may, but is not obligated to, direct the reinvestment
of sale proceeds in any other securities that meet the criteria for inclusion in
the trust on the trust's inception date. The sponsor may also instruct the
trustee to take action necessary to ensure that the portfolio continues to
satisfy the qualifications of a regulated investment company for federal tax
purposes if the trust has elected to be taxed as a regulated investment company.
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.
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In addition, if a trust has elected to be taxed as a regulated investment
company, the trustee may dispose of certain securities and take such further
action as may be needed from time to time to ensure that a trust continues to
satisfy the qualifications of a regulated investment company, including the
requirements with respect to diversification under Section 851 of the Internal
Revenue Code, and as may be needed from time to time to avoid the imposition of
any tax on a trust or undistributed income of a trust as a regulated investment
company.
Proceeds from the sale of securities (or any securities or other property
received by a trust in exchange for securities) are credited to the Capital
Account of a trust for distribution to unitholders or to meet redemptions.
Except for failed securities and as provided herein, in the prospectus or in the
trust agreement, the acquisition by a trust of any securities other than the
portfolio securities is prohibited.
Because certain of the securities in certain of the trusts may from time to
time under certain circumstances be sold or 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.
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To the best of the sponsor's knowledge, there is no litigation pending as
of the trust's inception in respect of any security 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.
RISK FACTORS
MARKET RISK. Because the trust invests in stocks, you should understand the
risks of investing in stocks before purchasing units. These risks include the
risk that the financial condition of the company or the general condition of the
stock market may worsen and the value of the stocks (and therefore units) will
fall. Stocks are especially susceptible to general stock market movements. The
value of stocks often rises or falls rapidly and unpredictably as market
confidence and perceptions of companies change. These perceptions are based on
factors including expectations regarding government economic policies,
inflation, interest rates, economic expansion or contraction, political climates
and economic or banking crises. The value of units will fluctuate with the value
of the stocks in the trust and may be more or less than the price you originally
paid for your units. As with any investment, we cannot guarantee that the
performance of the trust will be positive over any period of time. Because the
trust is unmanaged, the Trustee will not sell stocks in response to market
fluctuations as is common in managed investments. In addition, because some
trusts hold a relatively small number of stocks, you may encounter greater
market risk than in a more diversified investment.
DIVIDENDS. Stocks represent ownership interests in a company and are not
obligations of the company. Common stockholders have a right to receive payments
from the company that is subordinate to the rights of creditors, bondholders or
preferred stockholders of the company. This means that common stockholders have
a right to receive dividends only if a company's board of directors declares a
dividend and the company has provided for payment of all of its creditors,
bondholders and preferred stockholders. If a company issues additional debt
securities or preferred stock, the owners of these securities will have a claim
against the company's assets before common stockholders if the company declares
bankruptcy or liquidates its assets even though the common stock was issued
first. As a result, the company may be less willing or able to declare or pay
dividends on its common stock.
FOREIGN ISSUERS. Because a trust may invest in foreign stocks, they involve
additional risks that differ from an investment in domestic stocks. Investments
in foreign securities may involve a greater degree of risk than those in
domestic securities. There is generally less publicly available information
about foreign companies in the form of reports and ratings similar to those that
are published about issuers in the United States. Also, foreign issuers are
generally not subject to uniform accounting, auditing and financial reporting
requirements comparable to those applicable to United States issuers. With
respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the trust, political or social instability, or diplomatic
developments which could affect United States
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investments in those countries. Moreover, industrial foreign economies may
differ favorably or unfavorably from the United States' economy in terms of
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Foreign securities
markets are generally not as developed or efficient as those in the United
States. While growing in volume, they usually have substantially less volume
than the New York Stock Exchange, and securities of some foreign issuers are
less liquid and more volatile than securities of comparable United States
issuers. Fixed commissions on foreign exchanges are generally higher than
negotiated commissions on United States exchanges. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed issuers than in the United States.
A trust may also involve the risk that fluctuations in exchange rates
between the U.S. dollar and foreign currencies may negatively affect the value
of the stocks. For example, if a foreign stock rose 10% in price but the U.S.
dollar gained 5% against the related foreign currency, a U.S. investor's return
would be reduced to about 5%. This is because the foreign currency would "buy"
fewer dollars or, conversely, a dollar would buy more of the foreign currency.
Many foreign currencies have fluctuated widely against the U.S. dollar for a
variety of reasons such as supply and demand of the currency, investor
perceptions of world or country economies, political instability, currency
speculation by institutional investors, changes in government policies, buying
and selling of currencies by central banks of countries, trade balances and
changes in interest rates. A trust's foreign currency transactions will be
conducted with foreign exchange dealers acting as principals on a spot (i.e.,
cash) buying basis. These dealers realize a profit based on the difference
between the price at which they buy the currency (bid price) and the price at
which they sell the currency (offer price). The evaluator will estimate the
currency exchange rates based on current activity in the related currency
exchange markets, however, due to the volatility of the markets and other
factors, the estimated rates may not be indicative of the rate a trust might
obtain had the trustee sold the currency in the market at that time.
EMERGING MARKETS. An investment in units of the trust should be made with
an understanding of the risks inherent with investing in certain smaller and
emerging markets.
Compared to more mature markets, some emerging markets may have a low level
of regulation, enforcement of regulations and monitoring of investors'
activities. Those activities may include practices such as trading on material
non-public information. The securities markets of developing countries are not
as large as the more established securities markets and have substantially less
trading volume, resulting in a lack of liquidity and high price volatility.
There may be a high concentration of market capitalization and trading volume in
a small number of issuers representing a limited number of industries as well as
a high concentration of investors and financial intermediaries. These factors
may adversely affect the timing and pricing of the acquisition or disposal of
securities. In certain emerging markets, registrars are not subject to effective
government supervision nor are they always independent from issuers. The
possibility of fraud, negligence, undue influence being exerted by the issuer or
refusal to recognize ownership exists, which, along with other factors, could
result in the registration of a shareholding being completely lost. Investors
should therefore be aware that the Portfolio could
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suffer loss arising from these registration problems. In addition, the legal
remedies in emerging markets are often more limited than the remedies available
in the United States.
Practices pertaining to the settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in large
part because of the need to use brokers and counterparties who are less well
capitalized, and custody and registration of assets in some countries may be
unreliable. As a result, brokerage commissions and other fees are generally
higher in emerging markets and the procedures and rules governing foreign
transactions and custody may involve delays in payment, delivery or recovery of
money or investments. Delays in settlement could result in investment
opportunities being missed if the Portfolio is unable to acquire or dispose of a
security. Certain foreign investments may also be less liquid and more volatile
than U.S. investments, which may mean at times that such investments are unable
to be sold at desirable prices.
Political and economic structures in emerging markets often change rapidly,
which may cause instability. In adverse social and political circumstances,
governments have been involved in policies of expropriation, confiscatory
taxation, nationalization, intervention in the securities market and trade
settlement, and imposition of foreign investment restrictions and exchange
controls, and these could be repeated in the future. In addition to withholding
taxes on investment income, some governments in emerging markets may impose
different capital gains taxes on foreign investors. Foreign investments may also
be subject to the risks of seizure by a foreign government and the imposition of
restrictions on the exchange or export of foreign currency. Additionally, some
governments exercise substantial influence over the private economic sector and
the political and social uncertainties that exist for many developing countries
are considerable.
Another risk common to most developing countries is that the economy is
heavily export oriented and, accordingly, is dependent upon international trade.
The existence of overburdened infrastructures and obsolete financial systems
also presents risks in certain countries, as do environmental problems. Certain
economies also depend to a large degree upon exports of primary commodities and,
therefore, are vulnerable to changes in commodity prices which, in turn, may be
affected by a variety of factors.
CHINA. Investment in securities issued by companies organized, doing
business or traded in China or its territorial possessions involves risks not
typically associated with investments in securities of U.S. companies. For many
centuries, the economy of the People's Republic of China was largely closed by
geography as well as by government policy. Large-scale foreign investment in
China's economy began during the middle of the 19th century and was curtailed
after 1949 when the Communist government barred foreign investment. Political
and economic structures in China are undergoing significant evolution and rapid
development and may lack the social, political and economic stability
characteristics of the United States. In 1978, China began implementing an
economic reform program in an effort to revitalize the economy and improve the
standard of living. Since that time, the Chinese government's economic policies
have allowed for an increasing degree of liberalization from a centrally-planned
economy to a more market-oriented economy. In October 1992, the National
People's congress called for a "socialist market economy" in which full reign
should be given to market forces with the government limiting its
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role to setting and implementing broad macro-economic policies. As part of the
economic reforms, managers of enterprises have been granted more decision-making
powers and responsibilities in relation to matters such as production,
marketing, use of funds, and employment and disciplining of staff.
Economic reform in China, designed to replace Communist style central
planning, has proceeded largely by trial and error aimed at achieving the
fastest possible change with the minimum social dislocation. The reform process
has not always been even, however, it has generally proceeded in a direction
toward increased openness and decentralization of economic decision-making.
While there is a broad base of support for these reforms, there can be no
assurance that current or future reforms in economic, trade and investment
policies will be successful. Despite recent reforms, the Chinese Communist Party
continues to play the leading role in formulating policy and selecting and
providing personnel at all levels of government. In addition, a significant
portion of China's output continues to be derived state-owned enterprises and,
therefore, the Chinese government maintains control over a significant range of
products, including the production obligations and prices of such products. Of
course, there can be no assurance that reform efforts will be successful and in
certain economies, such as the former Soviet-bloc countries, reform efforts have
experienced difficulties.
The development of China's economy has been characterized by the adoption,
since 1953, of Five Year Plans and Twenty Year Plans carried out under the
supervision of the State Planning Commission which reports to the State Council,
China's highest executive body (the National People's Congress is the highest
authority and law-making body).
The Chinese economy is dependent on the economies of other Asian countries
and can be significantly affected by currency fluctuations and increasing
competition from Asia's other low-cost emerging economies. The stability of
China's economic policies has however, increased following its membership in
December 2001 in the World Trade Organization.
The willingness and ability of the Chinese government to support the
Chinese economy and market is uncertain. China has yet to develop comprehensive
securities, corporate, or commercial laws, and its market is relatively new and
undeveloped. Changes in government policy could significantly affect the markets
in China. A small number of industries, including the commercial banking
industry, which can be significantly affected by interest rate and currency
fluctuations, changes in market regulation, and political and economic
developments in the Asian region, represent a large portion of the Chinese
market as a whole. Given the still-developing nature of laws impacting China
region securities markets and corporate entities, changes in regulatory policy
could have a material adverse affect on the Securities.
HONG KONG. Hong Kong, established as a British colony in the 1840s,
reverted to Chinese sovereignty effective July 1, 1997. On such date, Hong Kong
became a Special Administrative Region ("SAR") of China. Hong Kong's new
constitution is the Basic Law (promulgated by China in 1990). Prior to July 1,
1997, the Hong Kong government followed a laissez-faire policy toward industry.
There were no major import, export or foreign exchange restrictions. Regulation
of business was generally minimal with certain exceptions, including regulated
entry into certain sectors of the economy and a fixed exchange rate regime by
which
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the Hong Kong dollar has been pegged to the U.S. dollar. Over the past two
decades through 1996, the gross domestic product (GDP) has tripled in real
terms, equivalent to an average annual growth of 6%. The full impact of the
Asian financial crisis, as well as current international economic instability,
is likely to continue to have a negative impact on the Hong Kong economy in the
future.
Although China has committed by treaty to preserve for 50 years the
economic and social freedoms enjoyed in Hong Kong prior to the reversion, the
continuation of the economic system in Hong Kong will be dependent on the
Chinese government, and there can be no assurance that the commitment made by
China regarding Hong Kong will be maintained. Prior to the reversion,
legislation was enacted in Hong Kong designed to extend democratic voting
procedures for Hong Kong's legislature. China has expressed disagreement with
this legislation, which it states is in contravention of the principles
evidenced in the Basic Law of the Hong Kong SAR. The national People's Congress
of China passed a resolution to the effect that the Legislative Council and
certain other councils and boards of the Hong Kong Government were to be
terminated on June 30, 1997. Such bodies have subsequently been reconstituted in
accordance with China's interpretation of the Basic Law. Any increase in
uncertainty as to the future economic and political status of Hong Kong could
have a materially adverse effect on the value of your Portfolio. The Sponsor is
unable to predict the level of market liquidity or volatility which may occur as
a result of the reversion to sovereignty, both of which may negatively impact
your Portfolio and the value of the Units.
The currency crisis which affected a majority of Asian markets since mid-
1997 has forced Hong Kong leaders to address whether to devalue the Hong Kong
dollar or maintain its peg to the U.S. dollar. During the volatile markets of
1998, the Hong Kong Monetary Authority (the "HKMA") acquired the common stock of
certain Hong Kong issuers on the Hong Kong Stock Exchange in an effort to
stabilize the Hong Kong dollar and thwart currency speculators. Government
intervention may hurt Hong Kong's reputation as a free market and increases
concerns that authorities are not willing to let Hong Kong's currency system
function autonomously. This may undermine confidence in the Hong Kong dollar's
peg to the U.S. dollar. Any downturn in economic growth or increase in the rate
of inflation in China or Hong Kong could have a materially adverse effect on the
value of your Portfolio.
Securities prices on the Hong Kong Stock Exchange can be highly volatile
and are sensitive to developments in Hong Kong and China, as well as other world
markets. For example, the Hang Seng Index declined by approximately 31% in
October, 1997 as a result of speculation that the Hong Kong dollar would become
the next victim of the Asian currency crisis, and in 1989, the Hang Seng Index
dropped 1,216 points (approximately 58%) in early June following the events in
Tiananmen Square. The Hang Seng Index gradually climbed subsequent to the events
at Tiananmen Square, but fell by 181 points on October 13, 1989 (approximately
6.5%) following a substantial fall in the U.S. stock markets. During 1994, the
Hang Seng Index lost approximately 31% of its value. From January through August
of 1998, during a period marked by international economic instability and a
global currency crisis, the Hang Seng Index declined by nearly 27%.
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INDIA. Investing in securities of Indian companies involves additional
risks, including, but not limited to, greater price volatility, substantially
less liquidity and significantly smaller market capitalization of securities
markets, more substantial governmental involvement in the economy, higher rates
of inflation and greater political, economic and social uncertainty.
Furthermore, future actions of the Indian government or religious and ethnic
unrest could have a significant impact on the economy.
JAPAN. The trust may invest in Japanese investments. The Japanese economy
grew substantially from the early 1960s through 1990. This growth averaged 10%
in real GDP terms during the years 1960 through 1970, an average of 5% during
the years 1970 through 1980 and an average of 4% during the years 1980 through
1990. During the 1990s, growth slowed down considerably and Japan entered into a
prolonged recession and the growth rate slowed to an average of 1.7%. The so-
called "lost decade" recession was due to the sudden end to the speculative
bubble economy of the late 1980s and early 1990s. Since the year 2000, Japan's
economic growth rate has remained relatively low.
To a certain extent, Japanese economic growth depends on the U.S. and
Chinese economies. Slowdowns in these two countries will necessarily have a
negative impact on Japan. Exposure to China, in terms of both imports and
exports, has been increasing in recent years.
The rising oil price is also a concern, and a sustained high price level
will have an impact on the Japanese economy. Rising costs could impede the
growth rate of industrial activity. Deflation has been the most negative factor
holding back the Japanese economy since the bursting of the bubble economy. CPI
growth has been negative for several years. If CPI growth remains below zero,
then the Japanese economic growth rate cannot be expected to accelerate.
Looking at Japanese industries, the automobile and electrical industries
had been the main driving forces for the Japanese economy up to the 1990s. The
electrical industry has recently lost some of its share in the global market. In
addition, Korean companies and Taiwanese companies are gaining market share in
the semiconductor and liquid crystal areas. The automobile industry is
maintaining a strong performance, and this large industry influences many
Japanese companies.
Global financial markets have begun to respond to a sense of increased
political stability in Japan and have recognized that progress has been made in
deregulation, as well as bank and other industry sector reorganizations in
recent months. However, some uncertainty remains as to the future of Japan's
governing coalition, the division of responsibility between legislative and key
administrative bodies with respect to key economic and financial policies, and
the effects of this division on the Japanese economy and stock market.
It is unclear whether Japan's company remains in recession and Japan
continues to experience, in some measure, increased unemployment, price
deflation, weakened real estate prices and weak currency. In addition,
structural problems related to historical patterns of over-regulation, excessive
government intervention and weak consumer demand continue in certain sectors
and, if coupled with a lack of strong fiscal direction and ineffectual
government response, may undercut Japan's economic recovery.
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An investment in the Portfolio may not be appropriate for investors unable
or unwilling to assume the increased risks of higher price volatility and
currency fluctuations associated with an investment in Japanese securities
trading in non-U.S. currencies. Japan has a multi-party, parliamentary form of
government. In the elections held on September 11, 2005, Junichiro Koizumi and
his Liberal Democratic Party won a landslide victory. The current governing
coalition now commands two-thirds majority in the Lower House, empowering the
government to pass legislative bills without requiring the consent of the Upper
House and permitting it to approve amendments to the Constitution, which are
then submitted to the Upper House and a national referendum. There can be no
assurance that the Japanese government will not be subject to abrupt or
unexpected changes in the future that may have an adverse impact on the Japanese
economy. Recent and future developments in the domestic political environment in
Japan may lead to changes in policy that might adversely affect the trust.
Investing in Japanese securities involves certain risks and special
considerations not usually associated with investing in securities of U.S.
companies, including risks related to the nature of the markets for Japanese
securities, including risks that the Japanese equities markets may be affected
by market developments in different ways than U.S. securities markets and may be
more volatile than U.S. securities markets. Moreover, as issuers of the trust's
portfolio securities generally will not be subject to the reporting requirements
of the SEC, there may be less publicly available information about the issuers
of these securities than about reporting U.S. companies.
RUSSIA. Investing in securities of Russian companies involves additional
risks, including, among others, the absence of developed legal structures
governing private or foreign investments and private property; the possibility
of the loss of all or a substantial portion of the trust's assets invested in
Russia as a result of expropriation; certain national policies which may
restrict the trust's investment opportunities, including, without limitation,
restrictions on investing in issuers or industries deemed sensitive to relevant
national interests; and potentially greater price volatility in, significantly
smaller capitalization of, and relative illiquidity of, some of these markets.
TAIWAN. The island's young democracy has yet to develop effective
institutions and mechanisms to implement public policy, and many issues remain
politicized. The current minority government is inexperienced and has shown
little commitment to undertaking painful reforms. The latest example comes in
the financial sector. While banking reform finally took off in early 2002, its
momentum has been uneven. The minister of finance--the third finance minister of
President Chan Shui-Bian's first term--resigned in November 2002 after failing
to obtain political support to deal with the asset quality problems of the
Credit Departments of Fishermen's and Farmers' Associations. Also, after years
of discussion concerning the consolidation of several financial system
supervisory bodies, the Council of Agriculture could not be included. This is
likely to lead to further setbacks in financial sector reform. While a cyclical
recovery is likely to relieve stress on the economy, the banks, and the budget,
the government is still left with high structural fiscal deficits. Legislators
only target a balanced budget in five to 10 years' time, a stance that is
inconsistent with maintaining the net worth of Taiwan. Taiwan's fiscal policy
has been subordinated to industrial policy, and public finances have weakened as
government revenue has declined as a percentage of GDP of 19% in 2002
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from 23% in 1993. Taiwan's economic structure is changing due to the migration
of industries to cheaper manufacturing bases and easier access to bigger markets
in mainland China. The island's strong domestic industrial base is moving up the
value chain but it does not relieve the ensuing domestic unemployment while
workers shift from the manufacturing sector to the service sector. Domestic
pressures to increase expenditure levels will require reforms in the island's
antiquated taxation system to relieve social pressures and upgrade
infrastructure and education to maintain competitiveness for better growth
prospects.
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
these 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 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
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. The trust will also generally make required distributions
or distributions to avoid imposition of tax at the end of each year if it has
elected to be taxed as a "regulated investment company" for federal tax
purposes. Unitholders will receive an amount substantially equal to their pro
rata share of the available balance of the Income Account of 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 the unitholders' pro rata share of the available
balance of the Income Account of 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
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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 reinvest distributions into
additional units of their trust without a sales fee. Your trust will pay any
deferred sales fee and creation and development 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.
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;
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(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;
(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;
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(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.
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; (3) to make such provisions as shall not adversely affect the interests
of the unitholders; or (4) to make such amendments as may be necessary (a) for a
trust to continue to qualify as a regulated investment company for federal
income tax purposes if the trust has elected to be taxed as such under the
United States Internal Revenue Code of 1986, as amended, or (b) to prevent the
trust from being deemed an association taxable as a corporation for federal
income tax purposes if the trust has not elected to be taxed as a regulated
investment company under the United States Internal Revenue Code of 1986, as
amended. 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
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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
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
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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) 848-6468. The Bank of New York is subject to supervision
and examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law.
The trustee, whose duties are ministerial in nature, has not participated
in selecting the portfolio of any trust. In accordance with the trust
agreement, the trustee shall keep records of all transactions at its office.
Such records shall include the name and address of, and the number of units held
by, every unitholder of a trust. Such books and records shall be open to
inspection by any unitholder at all reasonable times during usual business
hours. The trustee shall make such annual or other reports as may from time to
time be required under any applicable state or federal statute, rule or
regulation. The trustee shall keep a certified copy or duplicate original of
the trust agreement on file in its office available for inspection at all
reasonable times during usual business hours by any unitholder, together with a
current list of the securities held in each trust. Pursuant to the trust
agreement, the trustee may employ one or more agents for the purpose of custody
and safeguarding of securities comprising a trust.
Under the trust agreement, the trustee or any successor trustee may resign
and be discharged of a trust created by the trust agreement by executing an
instrument in writing and filing the same with the sponsor.
The trustee or successor trustee must mail a copy of the notice of
resignation to all unitholders then of record, not less than sixty days before
the date specified in such notice when such resignation is to take effect. The
sponsor upon receiving notice of such resignation is obligated to appoint a
successor trustee promptly. If, upon such resignation, no successor trustee has
been appointed and has accepted the appointment within thirty days after
notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. In case at any time the trustee
shall not meet the requirements set forth in the trust agreement, or
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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).
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.
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LIMITATIONS ON LIABILITY. The sponsor, evaluator, and supervisor are
liable for the performance of their obligations arising from their
responsibilities under the trust agreement but will be under no liability to the
unitholders for taking any action or refraining from any action in good faith
pursuant to the trust agreement or for errors in judgment, except in cases of
its own gross negligence, bad faith or willful misconduct or its reckless
disregard for its duties thereunder. The sponsor shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any securities.
The trust agreement provides that the trustee shall be under no liability
for any action taken in good faith in reliance upon prima facie properly
executed documents or for the disposition of moneys, securities or certificates
except by reason of its own gross negligence, bad faith or willful misconduct,
or its reckless disregard for its duties under the trust agreement, nor shall
the trustee be liable or responsible in any way for depreciation or loss
incurred by reason of the sale by the trustee of any securities. In the event
that the sponsor shall fail to act, the trustee may act and shall not be liable
for any such action taken by it in good faith. The trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the securities or upon the interest thereof. In addition, the trust
agreement contains other customary provisions limiting the liability of the
trustee.
The trustee and unitholders may rely on any evaluation furnished by the
evaluator and shall have no responsibility for the accuracy thereof. The trust
agreement provides that the determinations made by the evaluator shall be made
in good faith upon the basis of the best information available to it, provided,
however, that the evaluator shall be under no liability to the trustee or
unitholders for errors in judgment, but shall be liable for its gross
negligence, bad faith or willful misconduct or its reckless disregard for its
obligations under the trust agreement.
EXPENSES OF THE TRUST. The sponsor will not charge a trust any fees for
services performed as sponsor. The sponsor will receive a portion of the sale
commissions paid in connection with the purchase of units and will share in
profits, if any, related to the deposit of securities in the trust.
The 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
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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.
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
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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 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
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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.
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-
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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 any remaining creation and development
fee or 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. 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
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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
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
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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.
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;
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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 any
remaining creation and development fee or 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
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.
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TAXATION
The prospectus contains a discussion of certain U.S. federal income tax
issues concerning your trust and the purchase, ownership and disposition of
trust units. The discussion below supplements the prospectus discussion and is
qualified in its entirety by the prospectus discussion. Prospective investors
should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of trust units, as well
as the tax consequences arising under the laws of any state, locality, non-U.S.
country, or other taxing jurisdiction.
The federal income tax summary below and in the prospectus is based in part
on the advice of counsel to your trust. The Internal Revenue Service could
disagree with any conclusions set forth in these discussions. 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 held by your trust. This
may not be sufficient for prospective investors to use for the purpose of
avoiding penalties under federal tax law.
If so indicated in the prospectus, your trust intends (i) to elect and (ii)
to qualify annually as a regulated investment company under the Code and to
comply with applicable distribution requirements so that it will not pay federal
income tax on income and capital gains distributed to its unitholders.
To qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies, your trust must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies, and net income from certain publicly traded partnerships; (b)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the trust's assets is represented by
cash and cash items (including receivables), U.S. government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer generally limited for the purposes of
this calculation to an amount not greater than 5% of the value of the trust's
total assets and not greater than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities (other than U.S. government securities or the
securities of other regulated investment companies) of any one issuer, or two or
more issuers which the trust controls and are engaged in the same, similar or
related trades or businesses, or the securities of certain publicly traded
partnerships; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net short-
term capital gains in excess of net long-term capital losses but excludes net
capital gain, if any) and at least 90% of its net tax-exempt interest income
each taxable year.
As a regulated investment company, your trust generally will not be subject
to U.S. federal income tax on its investment company taxable income (as that
term is defined in the Code, but without regard to the deduction for dividends
paid) and net capital gain (the excess of net long-term capital gain over net
short term capital loss), if any, that it distributes to
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unitholders. The trusts intend to distribute to its unitholders, at least
annually, substantially all of its investment company taxable income and net
capital gain. If your trust retains any net capital gain or investment company
taxable income, it will generally be subject to federal income tax at regular
corporate rates on the amount retained. In addition, amounts not distributed on
a timely basis in accordance with a calendar year distribution requirement are
subject to a nondeductible 4% excise tax unless, generally, your trust
distributes during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses) for the one-year period
ending October 31 of the calendar year, and (3) any ordinary income and capital
gains for previous years that were not distributed during those years. To
prevent application of the excise tax, your trust intends to make its
distributions in accordance with the calendar year distribution requirement.
Further, if your trust retains any net capital gain, the trust may designate the
retained amount as undistributed capital gains in a notice to unitholders who,
if subject to federal income tax on long-term capital gains (i) will be required
to include in income for federal income tax purposes, as long-term capital gain,
their share of such undistributed amount, and (ii) will be entitled to credit
their proportionate share of the tax paid by the trust against their federal
income tax liabilities if any, and to claim refunds to the extent the credit
exceeds such liabilities. A distribution will be treated as paid on December 31
of the current calendar year if it is declared by your trust in October,
November or December with a record date in such a month and paid by your trust
during January of the following calendar year. These distributions will be
taxable to unitholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
If your trust failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the trust would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its unitholders) and all distributions out of earnings and
profits would be taxed to unitholders as ordinary dividend income.
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 A(6)(a) to the Registration Statement on
Form N-8B-2 for Advisor's Disciplined Trust (File No. 811-21056) as
filed on March 22, 2006.
1.3 Agreement of Limited Partnership of Fixed Income Securities, L.P.
Reference is made to Exhibit A(6)(b) to the Registration Statement on
Form N-8B-2 for Advisor's Disciplined Trust, Series 10
(File No. 811-21056) as filed on March 22, 2006.
1.4 Articles of Organization of Sterling Management, LLC, 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 73
(File No. 333-131959) as filed on March 16, 2006.
1.5 Operating Agreement of Sterling Management, LLC, general partner of Fixed
Income Securities L.P. Referenced is made Exhibit 1.5 to the Registration
Statement on Form S-6 for Advisor's Disciplined Trust 73
(File No. 333-131959) as filed on March 16, 2006.
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 73
(File No. 333-131959) as filed on March 16, 2006.
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 116 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, 2006.
ADVISOR'S DISCIPLINED TRUST 116
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, 2006 by the
following persons in the capacities indicated:
SIGNATURE TITLE
Scott Colyer Director of Sterling )
Resources, Inc., the Member )
of the General )
Partner of Fixed Income )
Securities, L.P. )
Jack Simkin Director of Sterling )
Resources, Inc., the Member )
of the General )
Partner of Fixed Income )
Securities, L.P. )
Jim Dillahunty Director of Sterling )
Resources, Inc., the Member )
of the General )
Partner of Fixed Income )
Securities, L.P. )
Joe Cotton Director of Sterling )
Resources, Inc., the Member )
of the General )
Partner of Fixed Income )
Securities, L.P. )
Dennis Marlin Director of Sterling )
Resources, Inc., the Member )
of the General )
Partner of Fixed Income )
Securities, L.P. )
S-2
Randy Pegg Director of Sterling )
Resources, Inc., the Member )
of the General )
Partner of Fixed Income )
Securities, L.P. )
Lisa Colyer Director of Sterling )
Resources, Inc., the Member )
of the General )
Partner of Fixed Income )
Securities, L.P. )
By /s/ ALEX R MEITZNER
-----------------------------
Alex R. Meitzner
Attorney-in-Fact*
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*An executed copy of each of the related powers of attorney is filed
herewith or incorporated herein by reference as Exhibit 7.1.
S-3