1933 ACT FILE NO.:
1940 ACT FILE NO.: 811-21056
CIK NO.: 1418992
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 229
B. Name of depositor: FIXED INCOME SECURITIES, INC.
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:
SCOTT COLYER MARK J. KNEEDY
Fixed Income Securities, Inc. 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 _______, 2008 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 FEBRUARY 6, 2008
SUBJECT TO COMPLETION
GLOBAL COVERED CALL & INCOME STRATEGIES CLOSED-END PORTFOLIO, SERIES 1
(ADVISOR'S DISCIPLINED TRUST 229)
A portfolio primarily consisting of shares
of closed-end funds that invest in securities
of foreign and/or U.S. issuers using
covered call option or other income
strategies seeking high current income
with capital appreciation potential
An investment can be made in the
funds directly. Direct investments
would not be subject to the trust sales
fee, expenses or organization costs.
PROSPECTUS
FEBRUARY __, 2008
[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, INC. representation is a criminal offense.
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INVESTMENT SUMMARY
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INVESTMENT OBJECTIVE
The trust seeks to provide high current income with capital appreciation as a
secondary objective.
PRINCIPAL INVESTMENT STRATEGY
The trust seeks to provide high current income with capital appreciation as a
secondary objective by investing in a portfolio primarily consisting of common
stock of closed-end investment companies (known as "closed-end funds") that
invest in securities of foreign and/or U.S. issuers with a focus on covered call
option strategies or other income-oriented investment strategies. Among other
securities, these funds may invest in foreign or U.S. corporate bonds,
government bonds, corporate loans, foreign currencies, preferred securities,
equity securities, call options and other similar or related securities. The
foreign issuers may be located in developed or emerging market countries.
In selecting these closed-end funds, we<FN1>* considered factors such as
historical returns, income potential, potential future growth, portfolio
diversification and advisor experience. We use a disciplined investment
methodology to select the funds for inclusion in the trust. We begin by
constructing a universe of funds that have a stated investment objective in line
with the trust's investment objective and that the fund advisor appears to be
adhering to. From this universe we select the final securities by utilizing a
multi-factor approach based on the following factors:
* Premium/Discount--We favor funds that are trading at a discount relative to
their peers and relative to their historic average.
* Dividend--We favor funds that have a history of a consistent and competitive
dividend and that appear to possess the ability to keep the dividend level
intact.
* Performance--We favor funds that have an above average history of performance
based on net asset value when compared to their peers and a relevant
benchmark.
Approximately __% of the funds in the portfolio are classified as "non-
diversified" under the Investment Company Act of 1940. These funds have the
ability to invest more than 5% of their assets in securities of a single issuer
which could reduce diversification. Under normal circumstances, the trust will
invest at least 80% of its assets in closed-end investment companies.
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.
* AN ISSUER MAY BE UNWILLING OR UNABLE TO DECLARE DIVIDENDS IN THE FUTURE, OR
MAY REDUCE THE LEVEL OF DIVIDENDS DECLARED. This may result in a reduction
in the value of your units.
* 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 initial offering period.
* THE CALL WRITING PORTION OF THE INVESTMENT STRATEGY OF A CLOSED-END FUND MAY
NOT BE SUCCESSFUL IN THAT A FUND MAY NOT REALIZE THE FULL APPRECIATION OF
STOCKS ON WHICH THE FUND HAS WRITTEN CALL OPTIONS. The ability to
successfully implement a fund's investment strategy depends on the fund
adviser's ability to predict pertinent market movements, which cannot be
assured.
* THE VALUE OF A CALL OPTION MAY BE ADVERSELY AFFECTED BY VARIOUS FACTORS,
INCLUDING FACTORS AFFECTING THE STOCK RELATED TO THE OPTION. The value of
an option will be affected by various factors, such as changes in the value
and dividend rates of the stock subject to the option, an increase in
interest rates, a change in the actual and perceived volatility of the
stock market and the common stock, and the remaining time to expiration.
The value of a call option may be adversely affected if the market for the
option becomes less liquid or smaller.
* THE TRUST INVESTS IN SHARES OF CLOSED-END FUNDS. You should understand the
section titled "Closed-End Funds" before you invest. In particular, shares
of these funds tend to trade at a discount from their net asset value and
are subject to risks related to factors such as the manager's ability to
achieve a fund's objective, market conditions affecting a fund's
investments and use of leverage. The trust and the underlying funds have
management and operating expenses. You will bear not only your share of
the trust's expenses, but also the expenses of the underlying funds. By
investing in other funds, the trust incurs greater expenses than you would
incur if you invested directly in the funds.
* SECURITIES OF FOREIGN ISSUERS HELD BY THE UNDERLYING FUNDS IN THE TRUST
PRESENT RISKS BEYOND THOSE OF U.S. ISSUERS. These risks may include market
and political factors related to the issuer's foreign market, international
trade conditions, the global and country-specific political environment,
less regulation, smaller or less liquid markets, increased volatility,
differing accounting practices and changes in the value of foreign
currencies.
* WE DO NOT ACTIVELY MANAGE THE PORTFOLIO. While the closed-end funds have
managed portfolios, except in limited circumstances, the trust will hold,
and continue to buy, shares of the same funds even if their market value
declines.
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<FN1>* "FIS," "we" and related terms mean Fixed Income Securities, Inc., the
trust sponsor, unless the context clearly suggests otherwise.
2 Investment Summary
WHO SHOULD INVEST
You should consider this investment if you want:
* to own securities representing interests in managed funds that invest
using covered call or other income-oriented strategies and collectively
provide a globally diversified investment.
* to diversify your overall portfolio with investments in securities of
foreign and U.S. issuers.
* the potential to receive monthly distributions of income with capital
appreciation potential.
You should not consider this investment if you:
* are uncomfortable with the risks of an unmanaged investment in closed-end
funds that invest using covered call or other income-oriented strategies
and collectively provide a globally diversified investment.
* are uncomfortable with a globally-diversified investment in foreign and
U.S. issuers.
* seek capital preservation or capital appreciation as a primary objective.
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ESSENTIAL INFORMATION
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UNIT PRICE AT INCEPTION $10.0000
INCEPTION DATE February __, 2008
TERMINATION DATE February __, 2010
ESTIMATED NET ANNUAL DISTRIBUTIONS
First year $______ per unit
Second year $______ per unit
DISTRIBUTION DATES 25th day of each month
RECORD DATES 10th day of each month
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 1.00% $10.00
Deferred sales fee 2.35 23.50
Creation & development fee 0.60 6.00
------- -------
Maximum sales fee 3.95% $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 _.__ 1.00
Closed-end fund expenses _.__ _____
------- -------
Total _.__% $_____
======= =======
The initial sales fee is the difference between the total sales fee (maximum
of 3.95% of the unit offering price) and the sum of the remaining deferred sales
fee and the total creation and development fee. The deferred sales fee is fixed
at $0.235 per unit and is paid in three monthly installments beginning
__________ 20, 2008. The creation and development fee is fixed at $0.06 per
unit and is paid at the end of the initial offering period (anticipated to be
six months).
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
GLOBAL COVERED CALL & INCOME STRATEGIES CLOSED-END PORTFOLIO, SERIES 1
(ADVISOR'S DISCIPLINED TRUST 229)
PORTFOLIO
AS OF THE TRUST INCEPTION DATE, FEBRUARY __, 2008
PERCENTAGE OF MARKET COST OF
NUMBER TICKER AGGREGATE OFFERING VALUE PER SECURITIES
OF SHARES SYMBOL ISSUER(1) PRICE SHARE(1) TO TRUST(2)
- ----------------------------------------------------------------------------------------------------------------------------------
--------- ----------
100.00% $_________
========= ==========
<FN>
Notes to Portfolio
(1) Securities are represented by contracts to purchase such securities. The
value of each security is based on the most recent closing sale price of
each security as of the close of regular trading on the New York Stock
Exchange on the business day prior to the trust's inception date.
(2) The cost of the securities to the sponsor and the sponsor's profit or
(loss) (which is the difference between the cost of the securities to the
sponsor and the cost of the securities to the trust) are $__________ and
($__________), respectively.
4 Investment Summary
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UNDERSTANDING YOUR INVESTMENT
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THE TRUST
The closed-end funds held by the trust invest in securities of foreign and/or
U.S. issuers that focus on covered call option strategies or other income-
oriented strategies. Among other securities, the trust may invest in foreign or
U.S. corporate bonds, government bonds, corporate loans, foreign currencies,
preferred securities, equity securities, call options and other similar or
related securities. The foreign issuers may be located in developed or emerging
market countries.
Call options are contracts representing the right to purchase an asset (e.g.,
a stock) at a specified price, the strike price, at a specified future date, the
expiration date, in exchange for an option premium. The closed-end funds held
in the trust generally employ an option strategy of writing (selling) covered
call options on stocks or other securities held within the closed-end funds or
on related indices. An option is generally considered "covered" when the
closed-end funds own the securities against which the options are sold.
Covered call option writing is designed to produce income from option premiums
and offset a portion of a market decline in the underlying security. In short,
a covered call strategy may provide limited downside protection of the "covered"
security in exchange for some of the upside appreciation potential.
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." The offer price will be effective for all
orders received prior to the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern time). If we receive your order prior to
the close of regular trading on the New York Stock Exchange or authorized
financial professionals receive your order prior to that time and properly
transmit the order to us by the time that we designate, then you will receive
the price computed on the date of receipt. If we receive your order after the
close of regular trading on the New York Stock Exchange, if authorized financial
professionals receive your order after that time or if orders are received by
such persons and are not transmitted to us by the time that we designate, then
you will receive the price computed on the date of the next determined offer
price provided that your order is received in a timely manner on that date. It
is the responsibility of the authorized financial professional to transmit the
orders that they receive to us in a timely manner. 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. We generally determine
Understanding Your Investment 5
the value of securities using the last sale price for securities traded on a
national securities exchange. For this purpose, the trustee provides us closing
prices from a reporting service approved by us. In some cases we will price a
security based on its fair value after considering appropriate factors relevant
to the value of the security. We will only do this if a security is not
principally traded on a national securities exchange or if the market quotes are
unavailable or inappropriate.
We determined the initial prices of the securities shown under "Portfolio" in
this prospectus as described above at the close of regular trading on the New
York Stock Exchange on the business day before the date of this prospectus. On
the first day we sell units we will compute the unit price as of the close of
regular trading on the New York Stock Exchange or the time the registration
statement filed with the Securities and Exchange Commission becomes effective,
if later.
ORGANIZATION COSTS. During the initial offering period, part of the value of
the units represents an amount that will pay the costs of creating your trust.
These costs include the costs of preparing the registration statement and legal
documents, federal and state registration fees, the initial fees and expenses of
the trustee and the initial audit. Your trust will sell securities to reimburse
us for these costs at the end of the initial offering period or after six
months, if earlier. The value of your units will decline when the trust pays
these costs.
TRANSACTIONAL SALES FEE. You pay a fee in connection with purchasing units.
We refer to this fee as the "transactional sales fee." The transactional sales
fee has both an initial and a deferred component and equals 3.35% of the public
offering price per unit based on a $10 public offering price per unit. This
percentage amount of the transactional sales fee is based on the unit price on
the trust's inception date. The transactional sales fee equals the difference
between the total sales fee and the creation and development fee. As a result,
the percentage and dollar amount of the transactional sales fee will vary as the
public offering price per unit varies. The transactional sales fee does not
include the creation and development fee which is described under "Expenses."
The maximum sales fee equals 3.95% of the public offering price per unit at
the time of purchase. You pay the initial sales fee at the time you buy units.
The initial sales fee is the difference between the total sales fee percentage
(maximum of 3.95% of the public offering price per unit) and the sum of the
remaining fixed dollar deferred sales fee and the total fixed dollar creation
and development fee. The initial sales fee will be approximately 1.00% of the
public offering price per unit depending on the public offering price per unit.
The deferred sales fee is fixed at $0.235 per unit. Your trust pays the
deferred sales fee in equal monthly installments as described on page 3. If you
redeem or sell your units prior to collection of the total deferred sales fee,
you will pay any remaining deferred sales fee upon redemption or sale of your
units.
If you purchase units after the last deferred sales fee payment has been
assessed, the secondary market sales fee is equal to 3.95% of the public
offering price and does not include deferred payments.
REDUCING YOUR SALES FEE. We offer a variety of ways for you to reduce the
fee you pay. It is your financial professional's responsibility to alert us of
any discount when you order units. Since the deferred sales fee and the
creation and development fee are fixed dollar amounts per unit, your trust must
charge these fees per unit regardless of
6 Understanding Your Investment
any discounts. However, if you are eligible to receive a discount such that
your total sales fee is less than the fixed dollar amounts 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 3.95%
$50,000 - $99,999 3.70
$100,000 - $249,999 3.45
$250,000 - $499,999 2.95
$500,000 - $999,999 1.95
$1,000,000 or more 1.75
We apply these fees as a percent of the public offering price per unit at the
time of purchase. We also apply the different purchase levels on a unit basis
using a $10 unit equivalent. For example, if you purchase between 10,000 and
24,999 units, your fee is 3.45% of your public offering price per unit.
You may AGGREGATE unit orders submitted by the same person for units of any
of the trusts we sponsor on any single day from any one broker-dealer to qualify
for a purchase level. You can also include these orders as your own for
purposes of this aggregation:
* orders submitted by your spouse or minor children living in the same
household and
* orders submitted by your trust estate or fiduciary accounts.
The discounts described above apply during the initial offering period.
Fee Accounts. We waive the transactional sales fee for purchases made
through registered investment advisers, certified financial planners or
registered broker-dealers who charge periodic fees in lieu of commissions or who
charge for financial planning or for investment advisory or asset management
services or provide these services as part of an investment account where a
comprehensive "wrap fee" is imposed. You should consult your financial advisor
to determine whether you can benefit from these accounts. To purchase units in
these fee-based accounts, your financial advisor must purchase units designated
with one of the fee account CUSIP numbers, if available. Please contact your
financial advisor for more information. Fee account purchases are not subject
to the transactional sales fee but will be subject to the creation and
development fee that is retained by the sponsor. For example, this table
illustrates the sales fee you will pay as a percentage of the initial $10 public
offering price per unit (the percentage will vary with the unit price).
Initial sales fee 0.00%
Deferred sales fee 0.00%
-------
Transactional sales fee 0.00%
=======
Creation and development fee 0.60%
-------
Total sales fee 0.60%
=======
This discount applies only during the initial offering period. 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
Understanding Your Investment 7
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
public offering price per unit for these transactions is equal to the regular
public offering price per unit less 1.00%. However, if you invest redemption or
termination proceeds of $250,000 or more in units of the trust, the maximum
sales fee on your units will be limited to the maximum sales fee for the
applicable amount invested in the table under "Large Purchases" above. To
qualify for this discount, the termination or redemption proceeds used to
purchase units of the trust offered in this prospectus must be derived from a
transaction that occurred within 30 days of your purchase of units of the trust
offered in this prospectus. In addition, the discount will only be available
for investors that utilize the same broker-dealer (or a different broker-dealer
with appropriate notification) for both the unit purchase and the transaction
resulting in the receipt of the termination or redemption proceeds used for the
unit purchase. You may be required to provide appropriate documentation or
other information to your broker-dealer to evidence your eligibility for this
sales fee discount.
Please note that if you purchase units of the trust in this manner using
redemption proceeds 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 and 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.
8 Understanding Your Investment
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 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 creations and development
fee or organization costs if you redeem units during the initial offering
period. We may then resell the units to other investors at the public offering
price or redeem them for the redemption price. Our secondary market repurchase
price is the same as the redemption price. Certain broker-dealers might also
maintain a secondary market in units. You should contact your financial
professional for current repurchase prices to determine the best price
available. We may discontinue our secondary market at any time without notice.
Even if we do not make a market, you will be able to redeem your units with the
trustee on any business day for the current redemption price.
REDEEMING UNITS. You may also redeem your units directly with the trustee,
The Bank of New York, on any day the New York Stock Exchange is open. The
redemption price that you will receive for units is equal to the net asset value
per unit, provided that you will not pay any remaining creation and development
fee or organization costs if you redeem units during the initial offering
period. You will pay any remaining deferred sales fee at the time you redeem
units. You will receive the net asset value for a particular day if the trustee
receives your completed redemption request prior to the close of regular trading
on the New York Stock Exchange. Redemption requests received by authorized
financial professionals prior to the close of regular trading on the New York
Stock Exchange that are properly transmitted to the trustee by the time
designated by the trustee, are priced based on the date of receipt. Redemption
requests received by the trustee after the close of regular trading on the New
York Stock Exchange, redemption requests received by authorized financial
professionals after that time or redemption requests received by such persons
that are not transmitted to the trustee until after the time designated by the
trustee, are priced based on the date of the next determined redemption price
provided they are received in a timely manner by the trustee on such date. It
is the responsibility of authorized financial professionals to transmit
redemption requests received by them to the trustee so they will be received in
a timely manner. If your request is not received in a timely manner 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
Understanding Your Investment 9
that trading on that exchange is restricted or an emergency exists making sale
or evaluation of the securities not reasonably practicable, and for any other
period that the Securities and Exchange Commission permits.
To redeem your units, you must send the trustee any certificates for your
units. You must properly endorse your certificates or sign a written transfer
instrument with a signature guarantee. The trustee may require additional
documents such as a certificate of corporate authority, trust documents, a death
certificate, or an appointment as executor, administrator or guardian. The
trustee cannot complete your redemption or send your payment to you until it
receives all of these documents in complete form.
You can request an in-kind distribution of the securities underlying your
units if you tender at least 2,500 units for redemption (or such other amount as
required by your financial professional's firm). This option is generally
available only for securities traded and held in the United States. The trustee
will make any in-kind distribution of securities by distributing applicable
securities in book entry form to the account of your financial professional at
Depository Trust Company. You will receive whole shares of the applicable
securities and cash equal to any fractional shares. You may not request this
option in the last 30 days of your trust's life. We may discontinue this option
upon sixty days notice.
EXCHANGE OPTION. You may be able to exchange your units for units of our
unit trusts at a reduced sales fee. You can contact your financial professional
for more information about trusts currently available for exchanges. Before you
exchange units, you should read the prospectus carefully and understand the
risks and fees. You should then discuss this option with your financial
professional to determine whether your investment goals have changed, whether
current trusts suit you and to discuss tax consequences. We may discontinue
this option at any time upon sixty days notice.
DISTRIBUTIONS
MONTHLY DISTRIBUTIONS. Your trust generally pays distributions of its net
investment income (pro-rated on an annual basis) along with any excess capital
on each monthly distribution date to unitholders of record on the preceding
record date. The record and distribution dates are shown under "Essential
Information" in the "Investment Summary" section of this prospectus. In some
cases, your trust might pay a special distribution if it holds an excessive
amount of cash pending distribution. For example, this could happen as a result
of a merger or similar transaction involving a company whose stock is in your
portfolio. The 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.
The closed-end funds in the trust's portfolio generally make dividend
payments on a monthly basis. Different funds pay dividends at different times
during a month. When the trust receives dividends from a fund, the trustee
credits the dividends to the trust's accounts. In an effort to make relatively
regular income distributions, the trust's monthly income distribution is equal
to one-twelfth of the estimated net annual dividends to be received by the trust
after deduction of trust operating expenses. Because the trust does not
necessarily receive dividends from the underlying funds at a constant rate
throughout the year, the
10 Understanding Your Investment
trust's income distributions to unitholders may be more or less than the amount
credited to the trust accounts as of the record date. For the purpose of
minimizing fluctuation in income distributions, the trustee is authorized to
advance such amounts as may be necessary to provide income distributions of
approximately equal amounts. The trustee will be reimbursed, without interest,
for any such advances from available income received by the trust on the ensuing
record date.
ESTIMATED ANNUAL DISTRIBUTIONS. The estimated net annual distributions are
shown under "Essential Information" in the "Investment Summary" section of this
prospectus. We generally base the estimate of the dividends the trust will
receive from the closed-end funds by annualizing the most recent dividends
declared by the closed-end funds. Due to various factors, actual dividends
received from the closed-end funds will most likely differ from their most
recent annualized dividends. The actual net annual distributions you will
receive will vary with changes in the trust's fees and expenses, in dividends
received and with the sale of securities. The estimated net annual
distributions for subsequent years are expected to be less than estimated
distributions for the first year because a portion of the securities included in
the trust portfolio will be sold during the first year to pay for organization
costs, creation and development fee and the deferred sales fee.
REPORTS. The trustee or your financial professional will make available to
you a statement showing income and other receipts of your trust for each
distribution. Each year the trustee will also provide an annual report on your
trust's activity and certain tax information. You can request copies of
security evaluations to enable you to complete your tax forms and audited
financial statements for your trust, if available.
INVESTMENT RISKS
All investments involve risk. This section describes the main risks that can
impact the value of the securities in your portfolio. You should understand
these risks before you invest. If the value of the securities falls, the value
of your units will also fall. We cannot guarantee that your trust will achieve
its objective or that your investment return will be positive over any period.
MARKET RISK is the risk that the value of the securities in your trust will
fluctuate. This could cause the value of your units to fall below your original
purchase price. Market value fluctuates in response to various factors. These
can include changes in interest rates, inflation, the financial condition of a
security's issuer, perceptions of the issuer, or ratings on a security. Even
though we supervise your portfolio, you should remember that we do not manage
your portfolio. Your trust will not sell a security solely because the market
value falls as is possible in a managed fund.
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.
CLOSED-END FUNDS. Your portfolio invests in shares of closed-end investment
companies. You should understand the section titled "Closed-End Funds" before
you invest.
Understanding Your Investment 11
OPTION RISK. The closed-end funds held in the trust generally invest using a
covered call option strategy or similar income-oriented investment strategies.
You should understand the risks of these strategies before you invest. In
employing a covered call strategy, a closed-end fund will generally write (sell)
call options on a significant portion of the fund's managed assets. These call
options will give the option holder the right, but not the obligation, to
purchase a security from the fund at the strike price on or prior to the
option's expiration date. The ability to successfully implement the fund's
investment strategy depends on the fund adviser's ability to predict pertinent
market movements, which cannot be assured. Thus, the use of options may require
a fund to sell portfolio securities at inopportune times or for prices other
than current market values, may limit the amount of appreciation the fund can
realize on an investment, or may cause the fund to hold a security that it might
otherwise sell. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the
option. Once an option writer (seller) has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security at the
exercise price. As the writer (seller) of a covered call option, a fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security underlying the call option above the sum of the
premium and the strike price of the call option, but has retained the risk of
loss should the price of the underlying security decline. The value of the
options written (sold) by a fund, which will be marked-to-market on a daily
basis, will be affected by changes in the value and dividend rates of the
underlying securities, an increase in interest rates, changes in the actual or
perceived volatility of securities markets and the underlying securities and the
remaining time to the options' expiration. The value of the options may also be
adversely affected if the market for the options becomes less liquid or smaller.
An option is generally considered "covered" if a closed-end fund owns the
security underlying the call option or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if required,
liquid cash or other assets are segregated by the fund) upon conversion or
exchange of other securities held by the fund. In certain cases, a call option
may also be considered covered if a fund holds a call option on the same
security as the call option written (sold) provided that certain conditions are
met. By writing (selling) covered call options, a fund generally seeks to
generate income, in the form of the premiums received for writing (selling) the
call options. Investment income paid by a fund to its shareholders (such as the
trust) may be derived primarily from the premiums it receives from writing
(selling) call options and, to a lesser extent, from the dividends and interest
it receives from the equity securities or other investments held in the fund's
portfolio and short-term gains thereon. Premiums from writing (selling) call
options and dividends and interest payments made by the securities in a fund's
portfolio can vary widely over time.
FOREIGN ISSUER RISK. Many of the underlying securities held by certain of
the closed-end funds in the trust may be issued by foreign issuers. This
subjects the trust to more risks than if it only invested in closed-end funds
which invest solely in securities of domestic issuers. Risks of foreign issuers
include restrictions on foreign investments and exchange of securities and
inadequate financial information. Foreign securities may also be affected by
market and political factors specific to the issuer's country as well as
fluctuations in foreign
12 Understanding Your Investment
currency exchange rates. Risks associated with investing in foreign securities
may be more pronounced in emerging markets where the securities markets are
substantially smaller, less developed, less liquid, less regulated, and more
volatile than the securities markets of the U.S. and developed foreign markets.
Investments in debt securities of foreign governments present special risks,
including the fact that issuers may be unable or unwilling to repay principal
and/or interest when due in accordance with the terms of such debt, or may be
unable to make such repayments when due in the currency required under the terms
of the debt. Political, economic and social events also may have a greater
impact on the price of debt securities issued by foreign governments than on the
price of U.S. securities. In addition, brokerage and other transaction costs on
foreign securities exchanges are often higher than in the United States and
there is generally less government supervision and regulation of exchanges,
brokers and issuers in foreign countries.
Certain of the funds held by the trust may invest in emerging markets
countries. Investing in emerging markets entails the risk that news and events
unique to a country or region will affect those markets and their issuers.
Countries with emerging markets may have relatively unstable governments, may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets. Emerging markets are
generally defined as countries in the initial states of their industrialization
cycles with low per capita income. The markets of emerging markets countries
are generally more volatile than the markets of developed countries with more
mature economies. All of the risks of investing in foreign securities described
above are heightened by investing in emerging markets countries.
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.
CLOSED-END FUNDS
Closed-end funds are a type of investment company that holds an actively
managed portfolio of securities. Closed-end funds issue shares in "closed-end"
offerings which generally trade on a stock exchange (although some closed-end
fund shares are not listed on a securities exchange). Since closed-end funds
maintain a relatively fixed pool of investment capital, portfolio managers may
be better able to adhere to their investment philosophies through greater
flexibility and control. In addition, closed-end funds don't have to manage
fund liquidity to meet potentially large redemptions.
Closed-end funds are subject to various risks, including management's ability
to meet the closed-end fund's investment objective, and to manage the closed-end
fund portfolio when the
Understanding Your Investment 13
underlying securities are redeemed or sold, during periods of market turmoil and
as investors' perceptions regarding closed-end funds or their underlying
investments change.
Shares of closed-end funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from
the risk that the net asset value of closed-end fund shares may decrease. The
amount of such discount from net asset value is subject to change from time to
time in response to various factors.
Certain of the closed-end funds included in the trust may employ the use of
leverage in their portfolios through the issuance of preferred stock. While
leverage often serves to increase the yield of a closed-end fund, this leverage
also subjects the closed-end fund to increased risks. These risks may include
the likelihood of increased volatility and the possibility that the closed-end
fund's common share income will fall if the dividend rate on the preferred
shares or the interest rate on any borrowings rises.
Only the trustee may vote the shares of the closed-end funds held in the
trust. The trustee will vote the shares in the same general proportion as
shares held by other shareholders of each fund. Your trust is generally
required, however, to reject any offer for securities or other property in
exchange for portfolio securities as described under "How the Trust Works--
Changing Your Portfolio."
HOW THE TRUST WORKS
YOUR TRUST. Your trust is a unit investment trust registered under the
Investment Company Act of 1940. We created the trust under a trust agreement
between Fixed Income Securities, Inc. (as depositor/sponsor, evaluator and
supervisor) and The Bank of New York (as trustee). We provide services to unit
trusts through our Advisor's Asset Management division. To create your trust,
we deposited securities with the trustee (or contracts to purchase securities
along with an irrevocable letter of credit or other consideration to pay for the
securities). In exchange, the trustee delivered units of your trust to us.
Each unit represents an undivided interest in the assets of your trust. These
units remain outstanding until redeemed or until your trust terminates. At the
close of the New York Stock Exchange on the trust's inception date, the number
of units may be adjusted so that the public offering price per unit equals $10.
The number of units and fractional interest of each unit in the trust will
increase or decrease to the extent of any adjustment.
CHANGING YOUR PORTFOLIO. Your trust is not a managed fund. Unlike a managed
fund, we designed your portfolio to remain relatively fixed. Under normal
circumstances, the trust will invest at least 80% of its assets in closed-end
investment companies. 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.
When your trust sells securities, the composition and diversity of the
securities in the portfolio may be altered. However, if the trustee sells fund
shares to redeem units or to pay trust expenses or sales charges, the trustee
will do so, as nearly as practicable, on a pro rata basis. If a
14 Understanding Your Investment
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 us, 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 materially adversely affect
your interest (as determined by the sponsor and the trustee). We cannot change
this agreement to reduce your interest in your trust without your consent.
Investors owning two-thirds of the units in your trust may vote to change this
agreement.
TERMINATION OF YOUR TRUST. Your trust will terminate on the termination date
set forth under "Essential Information" in the "Investment Summary" section of
this prospectus. The trustee may terminate your trust early if the value of the
trust is less than 40% of the original value of the securities in the trust at
the time of deposit. At this size, the expenses of your trust may create an
undue burden on your investment. Investors owning two-thirds of the units in
your trust may also vote to terminate the trust early. The trustee will
liquidate the trust in the event that a sufficient number of units not yet sold
to the public are tendered for redemption so that the net worth of the trust
would be reduced to less than 40% of the value of the securities at the time
they were deposited in the trust. If this happens, we will refund any sales
charge that you paid.
The trustee will notify you of any termination and sell any remaining
securities. The trustee will send your final distribution to you within a
reasonable time following liquidation of all the securities after deducting
final expenses. Your termination distribution may be less than the price you
originally paid for your units.
Understanding Your Investment 15
THE SPONSOR. The sponsor of the trust is Fixed Income Securities, Inc.
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. FIS is a registered
broker-dealer and investment adviser, a member of the Financial Industry
Regulatory Authority, Inc. (FINRA) and Securities Investor Protection
Corporation (SIPC) and a registrant of the Municipal Securities Rulemaking Board
(MSRB). If we fail to or cannot perform our duties as sponsor or become
bankrupt, the trustee may replace us, continue to operate your trust without a
sponsor, or terminate your trust.
We and your trust have adopted a code of ethics requiring our employees who
have access to information on trust transactions to report personal securities
transactions. The purpose of the code is to avoid potential conflicts of
interest and to prevent fraud, deception or misconduct with respect to your
trust.
THE TRUSTEE. The Bank of New York is the trustee of your trust with its
principal unit investment trust division offices located at 2 Hanson Place, 12th
Floor, Brooklyn, New York 11217. You can contact the trustee by calling the
telephone number on the back cover of this prospectus or by writing to its unit
investment trust office. We may remove and replace the trustee in some cases
without your consent. The trustee may also resign by notifying us and
investors.
HOW WE DISTRIBUTE UNITS. We sell units to the public through broker-dealers
and other firms. We pay part of the sales fee to these distribution firms when
they sell units. During the initial offering period, the distribution fee (the
broker-dealer concession or agency commission) for broker-dealers and other
firms is as follows:
TRANSACTION CONCESSION OR
AMOUNT: AGENCY COMMISSION:
------------------------------------------
Less than $50,000 3.00%
$50,000 - $99,999 2.75
$100,000 - $249,999 2.50
$250,000 - $499,999 2.00
$500,000 - $999,999 1.00
$1,000,000 or more 1.00
We apply these concessions or agency commissions as a percent of the public
offering price per unit at the time of the transaction. We also apply the
different levels on a unit basis using a $10 unit equivalent. The broker-dealer
concession or agency commission is 65% of the sales fee for secondary market
sales. For transactions involving unitholders of other unit investment trusts
who use their redemption or termination proceeds to purchase units of the trust,
the distribution fee is 2.00% of the public offering price per unit. No
distribution fee is paid to broker-dealers or other selling firms in connection
with unit sales in investment accounts that charge a "wrap fee" or periodic fees
for investment advisory, financial planning or asset management services in lieu
of commissions.
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
16 Understanding Your Investment
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
This volume concession will be paid on units of all eligible Advisor's
Disciplined Trusts sold in the initial offering period. For a trust to be
eligible for this additional compensation for calendar quarter sales, the
trust's prospectus must include disclosure related to this additional
compensation; a trust is not eligible for this additional compensation if the
prospectus for such trust does not include disclosure related to this additional
compensation. 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 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. As part of its general broker-dealer
business, the sponsor provides training, account servicing and related services
to TD AMERITRADE, Inc. and receives compensation for these services that is
partially comprised of an amount equal to twenty percent of the gross sales
concessions earned by TD AMERITRADE, Inc. on transactions in various securities,
including transactions in units of all unit investment trusts, whether or not
issued or distributed by the sponsor.
We generally register units for sale in various states in the U.S. We do not
register units for sale in any foreign country. This prospectus does not
constitute an offer of units in any state or country where units cannot be
offered or sold lawfully. We may reject any order for units in whole or in
part.
We may gain or lose money when we hold units in the primary or secondary
market due to fluctuations in unit prices. The gain or loss is equal to the
difference between the price we pay
Understanding Your Investment 17
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 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.
18 Understanding Your Investment
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 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
Understanding Your Investment 19
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.
FOREIGN INVESTORS. If you are a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership, estate or
trust), you should be aware that, generally, subject to applicable tax treaties,
distributions from the trust will be characterized as dividends for federal
income tax purposes (other than dividends which the trust designates as capital
gain dividends) and will be subject to U.S. income taxes, including withholding
taxes, subject to certain exceptions described below. However, distributions
received by a foreign investor from the trust that are properly designated by
the trust as capital gain dividends may not be subject to U.S. federal income
taxes, including withholding taxes, provided that the trust makes certain
elections and certain other conditions are met.
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
20 Understanding Your Investment
of our unit investment trusts in any calendar year. All of these fees may
adjust for inflation without your approval.
Your trust will also pay its general operating expenses. Your trust may pay
expenses such as trustee expenses (including legal and auditing expenses),
various governmental charges, fees for extraordinary trustee services, costs of
taking action to protect your trust, costs of indemnifying the trustee and the
sponsor, legal fees and expenses, expenses incurred in contacting you and costs
incurred to reimburse the trustee for advancing funds to meet distributions.
Your trust may pay the costs of updating its registration statement each year.
The trustee will generally pay trust expenses from distributions received on the
securities but in some cases may sell securities to pay trust expenses.
The trust will also indirectly bear the expenses of the underlying closed-end
funds. While the trust will not pay these expenses directly out of its assets,
these expenses are shown in the trust's annual operating expenses under "Fees
and Expenses" to illustrate the impact of these expenses.
EXPERTS
LEGAL MATTERS. Chapman and Cutler LLP 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 21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UNITHOLDERS
ADVISOR'S DISCIPLINED TRUST 229
We have audited the accompanying statement of financial condition, including the
trust portfolio on page 4, of Advisor's Disciplined Trust 229, as of February
__, 2008, 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 February __, 2008. 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 229 as of February __, 2008, in conformity with accounting
principles generally accepted in the United States of America.
Chicago, Illinois GRANT THORNTON LLP
February __, 2008
ADVISOR'S DISCIPLINED TRUST 229
STATEMENT OF FINANCIAL CONDITION AS OF FEBRUARY __, 2008
- ---------------------------------------------------------------------------------------------------------
INVESTMENT IN SECURITIES
Contracts to purchase underlying securities (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 & development fee. The initial sales fee is equal to the
difference between the maximum sales fee and the sum of the remaining
deferred sales fee and the total creation & development fee. On the
inception date, the total sales fee is 3.95% of the public offering price
per unit. The deferred sales fee is equal to $0.235 per unit and the
creation &development fee is equal to $0.06 per unit.
(5) The aggregate cost to investors includes the applicable sales fee assuming
no reduction of sales fees.
22 Understanding Your Investment
CONTENTS
INVESTMENT SUMMARY
- -------------------------------------------------------------------
A concise description 2 Investment Objective
of essential information 2 Principal Investment Strategy
about the portfolio 2 Principal Risks
3 Who Should Invest
3 Essential Information
3 Fees and Expenses
4 Portfolio
UNDERSTANDING YOUR INVESTMENT
- -------------------------------------------------------------------
Detailed information to 5 The Trust
help you understand 5 How to Buy Units
your investment 9 How to Sell Your Units
10 Distributions
11 Investment Risks
13 Closed-End Funds
14 How the Trust Works
18 Taxes
20 Expenses
21 Experts
21 Additional Information
22 Report of Independent Registered
Public Accounting Firm
22 Statement of Financial Condition
WHERE TO LEARN MORE
- -------------------------------------------------------------------
You can contact us for VISIT US ON THE INTERNET
free information about http://www.AAMPortfolios.com
this and other investments, BY E-MAIL
including the Information info@AAMPortfolios.com
Supplement CALL ADVISOR'S ASSET
MANAGEMENT (FIS)
(877) 858-1773
CALL THE BANK OF NEW YORK
(800) 848-6468
ADDITIONAL INFORMATION
- -------------------------------------------------------------------
This prospectus does not contain all information filed with the
Securities and Exchange Commission. To obtain or copy this
information including the Information Supplement (a duplication
fee may be required):
E-MAIL: publicinfo@sec.gov
WRITE: Public Reference Section
Washington, D.C. 20549
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 229
Securities Act file number: 333-__________
Investment Company Act file number: 811-21056
GLOBAL COVERED CALL & INCOME STRATEGIES CLOSED-END PORTFOLIO,
SERIES 1
PROSPECTUS
FEBRUARY __, 2008
[LOGO]
ADVISOR'S
ASSET MANAGEMENT
A DIVISION OF FIXED INCOME SECURITIES, INC.
ADVISOR'S DISCIPLINED TRUST 229
GLOBAL COVERED CALL AND INCOME STRATEGIES CLOSED-END PORTFOLIO, SERIES 1
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning each
trust described in the prospectus for the Advisor's Disciplined Trust series
identified above. This Information Supplement should be read in conjunction
with the prospectus. It is not a prospectus. It does not include all of the
information that an investor should consider before investing in a trust. It
may not be used to offer or sell units of a trust without the prospectus. This
Information Supplement is incorporated into the prospectus by reference and has
been filed as part of the registration statement with the Securities and
Exchange Commission. Investors should obtain and read the prospectus prior to
purchasing units of a trust. You can obtain the prospectus without charge by
contacting your financial professional or by contacting the Advisor's Asset
Management division of Fixed Income Securities, Inc. at 18925 Base Camp Road,
Suite 203, Monument, Colorado 80132, at 8100 East 22nd Street North, Suite 900B,
Wichita, Kansas 67226-2309 or by calling (877) 858-1773. This Information
Supplement is dated as of the date of the prospectus.
CONTENTS
General Information 2
Investment Objective and Policies 3
Closed-End Funds 5
Risk Factors 5
Administration of the Trust 12
Portfolio Transactions and Brokerage Allocation 21
Purchase, Redemption and Pricing of Units 22
Taxation 27
Performance Information 29
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, Inc. (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 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
in any of
-2-
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 high current income with capital appreciation as a
secondary objective through investment in a portfolio primarily consisting of
shares of closed-end investment companies that invest in securities of foreign
and/or U.S. issuers with a focus on covered call option strategies and other
income-oriented investment strategies. 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,
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 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.
-3-
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.
-4-
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.
CLOSED-END FUNDS
Closed-end funds are actively managed investment companies that invest in
various types of securities. Closed-end funds issue shares of common stock that
are generally traded on a securities exchange (although some closed-end fund
shares are not listed on a securities exchange). Closed-end funds are subject
to various risks, including management's ability to meet the closed-end fund's
investment objective, and to manage the closed-end fund portfolio when the
underlying securities are redeemed or sold, during periods of market turmoil and
as investors' perceptions regarding closed-end funds or their underlying
investments change.
Shares of closed-end funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from
the risk that the net asset value of closed-end fund shares may decrease. The
amount of such discount from net asset value is subject to change from time to
time in response to various factors.
Certain of the closed-end funds included in the trust may employ the use of
leverage in their portfolios through the issuance of preferred stock. While
leverage often serves to increase the yield of a closed-end fund, this leverage
also subjects the closed-end fund to increased risks. These risks may include
the likelihood of increased volatility and the possibility that the closed-end
fund's common share income will fall if the dividend rate on the preferred
shares or the interest rate on any borrowings rises.
RISK FACTORS
CLOSED-END FUNDS. The closed-end funds in the trust invest in stocks and
options. As such, an investment in units of the trust should be made with an
understanding of the risks of investing in both closed-end fund shares and such
securities.
Closed-end funds' portfolios are managed and their shares are generally
listed on a securities exchange. The net asset value of closed-end fund shares
will fluctuate with changes in the value of the underlying securities that the
closed-end fund owns. In addition, for various reasons closed-end fund shares
frequently trade at a discount from their net asset value in the secondary
market. The amount of such discount from net asset value is subject to change
from time to time in response to various factors. Closed-end funds' articles of
incorporation may contain certain anti-takeover provisions that may have the
effect of inhibiting a fund's possible conversion to open-end status and
limiting the ability of other persons to acquire control of a fund. In certain
circumstances, these provisions might also inhibit the ability of stockholders
-5-
(including the trust) to sell their shares at a premium over prevailing market
prices. This characteristic is a risk separate and distinct from the risk that
a fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those closed-end
fund shares that were purchased by the trust at a premium. In the unlikely
event that a closed-end fund converts to open-end status at a time when its
shares are trading at a premium there would be an immediate loss in value to the
trust since shares of open-end funds trade at net asset value. Certain closed-
end funds may have in place or may put in place in the future plans pursuant to
which the fund may repurchase its own shares in the marketplace. Typically,
these plans are put in place in an attempt by a fund's board of directors to
reduce a discount on its share price. To the extent that such a plan is
implemented and shares owned by the trust are repurchased by a fund, the trust's
position in that fund will be reduced and the cash will be distributed.
The trust is prohibited from subscribing to a rights offering for shares of
any of the closed-end funds in which it invests. In the event of a rights
offering for additional shares of a fund, unitholders should expect that the
trust will, at the completion of the offer, own a smaller proportional interest
in such fund that would otherwise be the case. It is not possible to determine
the extent of this dilution in share ownership without knowing what proportion
of the shares in a rights offering will be subscribed. This may be particularly
serious when the subscription price per share for the offer is less than the
fund's net asset value per share. Assuming that all rights are exercised and
there is no change in the net asset value per share, the aggregate net asset
value of each shareholder's shares of common stock should decrease as a result
of the offer. If a fund's subscription price per share is below that fund's net
asset value per share at the expiration of the offer, shareholders would
experience an immediate dilution of the aggregate net asset value of their
shares of common stock as a result of the offer, which could be substantial.
Closed-end funds may use leveraging in their portfolios. Leveraging can be
expected to cause increased price volatility for those fund's shares, and as a
result, increased volatility for the price of the units of the trust. There can
be no assurance that a leveraging strategy will be successful during any period
in which it is employed.
MARKET RISK. Because certain of the closed-end funds held in the trust
invest 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 a fund 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.
OPTION RISK. The closed-end funds held in the trust generally invest using
a covered call option strategy or similar income-oriented investment strategies.
You should understand the
-6-
risks of these strategies before you invest. In employing a covered call
strategy, a closed-end fund will generally write (sell) call options on a
significant portion of the fund's managed assets. These call options will give
the option holder the right, but not the obligation, to purchase a security from
the fund at the strike price on or prior to the option's expiration date. The
ability to successfully implement the fund's investment strategy depends on the
fund adviser's ability to predict pertinent market movements, which cannot be
assured. Thus, the use of options may require a fund to sell portfolio
securities at inopportune times or for prices other than current market values,
may limit the amount of appreciation the fund can realize on an investment, or
may cause the fund to hold a security that it might otherwise sell. The writer
(seller) of an option has no control over the time when it may be required to
fulfill its obligation as a writer (seller) of the option. Once an option writer
(seller) has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver the underlying security at the exercise price. As the writer (seller) of
a covered call option, a fund forgoes, during the option's life, the opportunity
to profit from increases in the market value of the security underlying the call
option above the sum of the premium and the strike price of the call option, but
has retained the risk of loss should the price of the underlying security
decline. The value of the options written (sold) by a fund, which will be
marked-to-market on a daily basis, will be affected by changes in the value and
dividend rates of the underlying equity securities, an increase in interest
rates, changes in the actual or perceived volatility of securities markets and
the underlying securities and the remaining time to the options' expiration. The
value of the options may also be adversely affected if the market for the
options becomes less liquid or smaller.
An option is generally considered "covered" if a closed-end fund owns the
security underlying the call option or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if required,
liquid cash or other assets are segregated by the fund) upon conversion or
exchange of other securities held by the fund. In certain cases, a call option
may also be considered covered if a fund holds a call option on the same
security as the call option written (sold) provided that certain conditions are
met. By writing (selling) covered call options, a fund generally seeks to
generate income, in the form of the premiums received for writing (selling) the
call options. Investment income paid by a fund to its shareholders (such as the
trust) may be derived primarily from the premiums it receives from writing
(selling) call options and, to a lesser extent, from the dividends and interest
it receives from the equity securities or other investments held in the fund's
portfolio and short-term gains thereon. Premiums from writing (selling) call
options and dividends and interest payments made by the securities in a fund's
portfolio can vary widely over time.
There can be no assurance that a liquid market for the options will exist
when a closed-end fund seeks to close out an option position. Reasons for the
absence of a liquid secondary market on an exchange include the following: (i)
there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options; (iv) unusual or unforeseen
of an exchange or The Options Clearing Corporation ("OCC") may not at all times
be adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series
-7-
of options). If trading were discontinued, the secondary market on that exchange
(or in that class or series of options) would cease to exist. However,
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms. A fund's ability to terminate over-the-counter options is more
limited than with exchange-traded options and may involve the risk that broker-
dealers participating in such transactions will not fulfill their obligations.
If a fund were unable to close out a covered call option that it had written
(sold) on a security, it would not be able to sell the underlying security
unless the option expired without exercise.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the options markets. Additionally, the exercise price of an option may be
adjusted downward before the option's expiration as a result of the occurrence
of certain corporate events affecting the underlying equity security, such as
extraordinary dividends, stock splits, merger or other extraordinary
distributions or events. In certain circumstances, a reduction in the exercise
price of an option could reduce a fund's capital appreciation potential on the
underlying security.
To the extent that a fund purchases options pursuant to a hedging strategy,
the fund will be subject to the following additional risks. If a put or call
option purchased by a fund is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), the fund will lose its entire investment
in the option. Also, where a put or call option on a particular security is
purchased to hedge against price movements in a related security, the price of
the put or call option may move more or less than the price of the related
security. If restrictions on exercise were imposed, a fund might be unable to
exercise an option it had purchased. If a fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless.
The writing (selling) and purchase of options is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. The successful use
of options depends in part on the ability of a fund's adviser to predict future
price fluctuations and, for hedging transactions, the degree of correlation
between the options and securities or currency markets.
FOREIGN ISSUERS. Since certain or all of the underlying securities held by
certain of the closed-end funds trust are issued by foreign companies, an
investment in the trust involves certain investment risks that are different in
some respects from an investment in a trust which invests entirely in the
securities of domestic issuers. These investment risks include future political
or governmental restrictions which might adversely affect the payment or receipt
of payment of dividends on the relevant securities, the possibility that the
financial condition of the issuers of the securities may become impaired or that
the general condition of the relevant stock market may worsen (both of which
would contribute directly to a decrease in the value of the securities and thus
in the value of the units), the limited liquidity and relatively small market
-8-
capitalization of the relevant securities market, expropriation or confiscatory
taxation, economic uncertainties and foreign currency devaluations and
fluctuations. In addition, for foreign issuers that are not subject to the
reporting requirements of the Securities Exchange Act of 1934, there may be less
publicly available information than is available from a domestic issuer. In
addition, foreign issuers are not necessarily subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic issuers. The securities of many
foreign issuers are less liquid and their prices more volatile than securities
of comparable domestic issuers. In addition, fixed brokerage commissions and
other transaction costs in foreign securities markets are generally higher than
in the United States and there is generally less government supervision and
regulation of exchanges, brokers and issuers in foreign countries than there is
in the United States. However, due to the nature of the issuers of the
securities in the closed-end funds selected for the trust, the sponsor believes
that adequate information will be available to allow the Supervisor to provide
portfolio surveillance for the trust.
Securities issued by non-U.S. issuers generally pay income in foreign
currencies and principally trade in foreign currencies. Therefore, there is a
risk that the U.S. dollar value of these securities will vary with fluctuations
in the U.S. dollar foreign exchange rates for the various securities.
There can be no assurance that exchange control regulations might not be
adopted in the future which might adversely affect payment to the closed-end
funds or the trust. The adoption of exchange control regulations and other
legal restrictions could have an adverse impact on the marketability of
international securities in the trust and on the ability of the trust to satisfy
its obligation to redeem units tendered to the trustee for redemption. In
addition, restrictions on the settlement of transactions on either the purchase
or sale side, or both, could cause delays or increase the costs associated with
the purchase and sale of the foreign Securities and correspondingly could affect
the price of the units.
Investors should be aware that it may not be possible to buy all securities
at the same time because of the unavailability of any security, and restrictions
applicable to the trust relating to the purchase of a security by reason of the
federal securities laws or otherwise.
Foreign securities generally have not been registered under the Securities
Act of 1933 and may not be exempt from the registration requirements of such
Act. Sales of non-exempt securities by a closed-end fund in the United States
securities markets are subject to severe restrictions and may not be
practicable. Accordingly, sales of these securities by a closed-end fund will
generally be effected only in foreign securities markets. Investors should
realize that the securities in the closed-end funds might be traded in foreign
countries where the securities markets are not as developed or efficient and may
not be as liquid as those in the United States. The value of the securities
will be adversely affected if trading markets for the securities are limited or
absent.
HIGH-YIELD SECURITIES. An investment in units of the trust should be made
with an understanding of the risks that an investment in "high-yield, high-risk"
debt obligations or "junk" obligations may entail, including increased credit
risks and the risk that the value of the units will
-9-
decline, and may decline precipitously, with increases in interest rates. In
recent years there have been wide fluctuations in interest rates and thus in the
value of debt obligations generally. Certain of the securities included in the
funds in the trust may be subject to greater market fluctuations and risk of
loss of income and principal than are investments in lower-yielding, higher-
rated securities, and their value may decline precipitously because of increases
in interest rates, not only because the increases in rates generally decrease
values, but also because increased rates may indicate a slowdown in the economy
and a decrease in the value of assets generally that may adversely affect the
credit of issuers of high-yield, high-risk securities resulting in a higher
incidence of defaults among high-yield, high-risk securities. A slowdown in the
economy, or a development adversely affecting an issuer's creditworthiness, may
result in the issuer being unable to maintain earnings or sell assets at the
rate and at the prices, respectively, that are required to produce sufficient
cash flow to meet its interest and principal requirements. For an issuer that
has outstanding both senior commercial bank debt and subordinated high-yield,
high-risk securities, an increase in interest rates will increase that issuer's
interest expense insofar as the interest rate on the bank debt is fluctuating.
However, many leveraged issuers enter into interest rate protection agreements
to fix or cap the interest rate on a large portion of their bank debt. This
reduces exposure to increasing rates, but reduces the benefit to the issuer of
declining rates. The sponsor cannot predict future economic policies or their
consequences or, therefore, the course or extent of any similar market
fluctuations in the future.
"High-yield" or "junk" securities, the generic names for securities rated
below BBB by Standard & Poor's, or below Baa by Moody's, are frequently issued
by corporations in the growth stage of their development, by established
companies whose operations or industries are depressed or by highly leveraged
companies purchased in leveraged buyout transactions. The market for high-yield
securities is very specialized and investors in it have been predominantly
financial institutions. High-yield securities are generally not listed on a
national securities exchange. Trading of high- yield securities, therefore,
takes place primarily in over-the-counter markets that consist of groups of
dealer firms that are typically major securities firms. Because the high-yield
security market is a dealer market, rather than an auction market, no single
obtainable price for a given security prevails at any given time. Prices are
determined by negotiation between traders. The existence of a liquid trading
market for the securities may depend on whether dealers will make a market in
the securities. There can be no assurance that a market will be made for any of
the securities, that any market for the securities will be maintained or of the
liquidity of the securities in any markets made. Not all dealers maintain
markets in all high-yield securities. Therefore, since there are fewer traders
in these securities than there are in "investment grade" securities, the bid-
offer spread is usually greater for high-yield securities than it is for
investment grade securities. The price at which the securities may be sold to
meet redemptions and the value of the trust will be adversely affected if
trading markets for the securities are limited or absent. If the rate of
redemptions is great, the value of the trust may decline to a level that
requires liquidation.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the issuers
of lower-rated securities may not be as strong as that of other issuers.
Moreover, if a security is recharacterized as equity by the Internal Revenue
Service for federal income tax purposes, the issuer's interest deduction with
respect to the security will be disallowed and this disallowance may adversely
affect the issuer's
-10-
credit rating. Because investors generally perceive that there are greater
risks associated with the lower-rated securities in the funds in the trust, the
yields and prices of these securities tend to fluctuate more than higher- rated
securities with changes in the perceived quality of the credit of their issuers.
In addition, the market value of high-yield, high-risk securities may fluctuate
more than the market value of higher-rated securities since these securities
tend to reflect short-term credit development to a greater extent than higher-
rated securities. Lower-rated securities generally involve greater risks of
loss of income and principal than higher-rated securities. Issuers of lower-
rated securities may possess fewer creditworthiness characteristics than issuers
of higher-rated securities and, especially in the case of issuers whose
obligations or credit standing have recently been downgraded, may be subject to
claims by debtholders, owners of property leased to the issuer or others which,
if sustained, would make it more difficult for the issuers to meet their payment
obligations. High-yield, high-risk securities are also affected by variables
such as interest rates, inflation rates and real growth in the economy.
Therefore, investors should consider carefully the relative risks associated
with investment in securities that carry lower ratings.
The value of the shares of the closed-end funds reflects the value of the
portfolio securities, including the value (if any) of securities in default.
Should the issuer of any security default in the payment of principal or
interest, the closed-end funds in the trust may incur additional expenses
seeking payment on the defaulted security. Because amounts (if any) recovered
by the funds in payment under the defaulted security may not be reflected in the
value of the fund shares until actually received by the funds, and depending
upon when a unitholder purchases or sells his or her units, it is possible that
a unitholder would bear a portion of the cost of recovery without receiving any
portion of the payment recovered.
High-yield, high-risk securities are generally subordinated obligations.
The payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of the
issuer. Senior obligations generally include most, if not all, significant debt
obligations of an issuer, whether existing at the time of issuance of
subordinated debt or created thereafter. Upon any distribution of the assets of
an issuer with subordinated obligations upon dissolution, total or partial
liquidation or reorganization of or similar proceeding relating to the issuer,
the holders of senior indebtedness will be entitled to receive payment in full
before holders of subordinated indebtedness will be entitled to receive any
payment. Moreover, generally no payment with respect to subordinated
indebtedness may be made while there exists a default with respect to any senior
indebtedness. Thus, in the event of insolvency, holders of senior indebtedness
of an issuer generally will recover more, ratably, than holders of subordinated
indebtedness of that issuer.
Obligations that are rated lower than "BBB" by Standard & Poor's, or "Baa"
by Moody's, respectively, should be considered speculative as such ratings
indicate a quality of less than investment grade. Investors should carefully
review the objective of the trust and consider their ability to assume the risks
involved before making an investment in the trust.
DISCOUNT SECURITIES. Certain of the securities held by the closed-end
funds in the trust may have been acquired at a market discount from par value at
maturity. The coupon interest
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rates on the discount securities at the time they were purchased and deposited
in the funds were lower than the current market interest rates for newly issued
securities of comparable rating and type. If such interest rates for newly
issued comparable securities increase, the market discount of previously issued
securities will become greater, and if such interest rates for newly issued
comparable securities decline, the market discount of previously issued
securities will be reduced, other things being equal. Investors should also
note that the value of securities purchased at a market discount will increase
in value faster than securities purchased at a market premium if interest rates
decrease. Conversely, if interest rates increase, the value of securities
purchased at a market discount will decrease faster than securities purchased at
a market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium securities and the prepayment benefit for lower
yielding, discount securities will be reduced. Market discount attributable to
interest changes does not indicate a lack of market confidence in the issue.
Neither the sponsor nor the trustee shall be liable in any way for any default,
failure or defect in any of the securities.
PREMIUM SECURITIES. Certain of the securities held by the closed-end funds
in the trust may have been acquired at a market premium from par value at
maturity. The coupon interest rates on the premium securities at the time they
were purchased by the fund were higher than the current market interest rates
for newly issued securities of comparable rating and type. If such interest
rates for newly issued and otherwise comparable securities decrease, the market
premium of previously issued securities will be increased, and if such interest
rates for newly issued comparable securities increase, the market premium of
previously issued securities will be reduced, other things being equal. The
current returns of securities trading at a market premium are initially higher
than the current returns of comparable securities of a similar type issued at
currently prevailing interest rates because premium securities tend to decrease
in market value as they approach maturity when the face amount becomes payable.
Because part of the purchase price is thus returned not at maturity but through
current income payments, early redemption of a premium security at par or early
prepayments of principal will result in a reduction in yield. Redemption
pursuant to call provisions generally will, and redemption pursuant to sinking
fund provisions may, occur at times when the redeemed securities have an
offering side valuation which represents a premium over par or for original
issue discount securities a premium over the accreted value.
ADDITIONAL DEPOSITS. The trust agreement authorizes the sponsor to
increase the size of a trust and the number of units thereof by the deposit of
additional securities, or cash (including a letter of credit or the equivalent)
with instructions to purchase additional securities, in such trust and the
issuance of a corresponding number of additional units. In connection with
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
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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 estimated net annual income distributions to be
received by the trust. All distributions will be net of applicable expenses.
There is no assurance that any actual distributions will be made since all
dividends received may be used to pay expenses. In addition, excess amounts
from the Capital Account of a trust, if any, will be distributed at least
annually to the unitholders then of record. Proceeds received from the
disposition of any of the securities after a record date and prior to the
following distribution date will be held in the Capital Account and not
distributed until the next distribution date applicable to the Capital Account.
The trustee shall be required to make a distribution from the Capital Account if
the cash balance on deposit therein available for distribution shall be
sufficient to distribute at least $0.01 per unit. The trustee is not required
to pay interest on funds held in the Capital or Income Accounts (but may itself
earn interest thereon and therefore benefits from the use of such funds).
The distribution to the unitholders as of each record date will be made on
the following distribution date or shortly thereafter and shall consist of an
amount substantially equal to such portion of the unitholders' pro rata share of
the estimated annual income distributions to be received by the trust after
deducting estimated expenses. Because dividends are not received by a trust at
a constant rate throughout the year, such distributions to unitholders are
expected to fluctuate. Persons who purchase units will commence receiving
distributions only after such person becomes a record owner. A person will
become the owner of units, and thereby a unitholder of record, on the date of
settlement provided payment has been received. Notification to the trustee of
the transfer of units is the responsibility of the purchaser, but in the normal
course of business the selling broker-dealer provides such notice.
The trustee will periodically deduct from the Income Account of a trust
and, to the extent funds are not sufficient therein, from the Capital Account of
a trust amounts necessary to pay the expenses of the trust. The trustee also
may withdraw from said accounts such amounts, if any, as it deems necessary to
establish a reserve for any governmental charges payable out of a trust.
Amounts so withdrawn shall not be considered a part of a trust's assets until
such time as the trustee shall return all or any part of such amounts to the
appropriate accounts. In addition, the trustee may withdraw from the Income and
Capital Accounts of a trust such amounts as may be necessary to cover
redemptions of units.
DISTRIBUTION REINVESTMENT. Unitholders may 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.
-13-
STATEMENTS TO UNITHOLDERS. With each distribution, the trustee will
furnish to each unitholder a statement of the amount of income and the amount of
other receipts, if any, which are being distributed, expressed in each case as a
dollar amount per unit.
The accounts of a trust are required to be audited annually, at the related
trust's expense, by independent public accountants designated by the sponsor,
unless the sponsor determines that such an audit would not be in the best
interest of the unitholders of the trust. The accountants' report will be
furnished by the trustee to any unitholder upon written request. Within a
reasonable period of time after the end of each calendar year, the trustee shall
furnish to each person who at any time during the calendar year was a unitholder
of a trust a statement, covering the calendar year, setting forth for the trust:
(A) As to the Income Account:
(1) the amount of income received on the securities (including income
received as a portion of the proceeds of any disposition of
securities);
(2) the amounts paid for purchases of replacement securities or for
purchases of securities otherwise pursuant to the trust
agreement, if any, and for redemptions;
(3) the deductions, if any, from the Income Account for payment into
the Reserve Account;
(4) the deductions for applicable taxes and fees and expenses of the
trustee, the depositor, the evaluator, the supervisor, counsel,
auditors and any other expenses paid by the trust;
(5) the amounts reserved for purchases of contract securities, for
purchases made pursuant to replace failed contract securities or
for purchases of securities otherwise pursuant to the trust
agreement, if any;
(6) the deductions for payment of the depositor's expenses of
maintaining the registration of the trust units, if any;
(7) the aggregate distributions to unitholders; and
(8) the balance remaining after such deductions and distributions,
expressed both as a total dollar amount and as a dollar amount
per unit outstanding on the last business day of such calendar
year;
(B) As to the Capital Account:
(1) the net proceeds received due to sale, maturity, redemption,
liquidation or disposition of any of the securities, excluding
any portion thereof credited to the Income Account;
-14-
(2) the amount paid for purchases of replacement securities or for
purchases of securities otherwise pursuant to the trust
agreement, if any, and for redemptions;
(3) the deductions, if any, from the Capital Account for payments
into the Reserve Account;
(4) the deductions for payment of applicable taxes and fees and
expenses of the trustee, the depositor, the evaluator, the
supervisor, counsel, auditors and any other expenses paid by the
trust;
(5) the deductions for payment of the depositor's expenses of
organizing the trust;
(6) the amounts reserved for purchases of contract securities, for
purchases made pursuant to replace failed contract securities or
for purchases of securities otherwise pursuant to the trust
agreement, if any;
(7) the deductions for payment of deferred sales fee and creation and
development fee, if any;
(8) the deductions for payment of the depositor's expenses of
maintaining the registration of the trust units, if any;
(9) the aggregate distributions to unitholders; and
(10) the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount
per unit outstanding on the last business day of such calendar
year; and
(C) the following information:
(1) a list of the securities held as of the last business day of such
calendar year and a list which identifies all securities sold or
other securities acquired during such calendar year, if any;
(2) the number of units outstanding on the last business day of such
calendar year;
(3) the unit value based on the last trust evaluation of such trust
made during such calendar year; and
(4) the amounts actually distributed during such calendar year from
the Income and Capital Accounts, separately stated, expressed
both as total dollar amounts and as dollar amounts per unit
outstanding on the record dates for such distributions.
-15-
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 from time to
time by the sponsor and trustee or their respective successors, without the
consent of any of the unitholders, (i) to cure any ambiguity or to correct or
supplement any provision which may be defective or inconsistent with any other
provision contained in the trust agreement, (ii) to make such other provision in
regard to matters or questions arising under the trust agreement as shall not
materially adversely affect the interests of the unitholders or (iii) to make
such amendments as may be necessary (a) for the 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 may not be
amended, however, without the consent of all unitholders then outstanding, so as
(1) to permit, except in accordance with the terms and conditions thereof, the
acquisition hereunder of any securities other than those specified in the
schedules to the trust agreement or (2) to reduce the percentage of units the
holders of which are required to consent to certain of such amendments. The
trust agreement may not be amended so as to reduce the interest in a trust
represented by units without the consent of all affected unitholders. Except
for the amendments, changes or modifications described above, neither the
sponsor nor the trustee may consent to any other amendment, change or
modification of the trust agreement without the giving of notice and the
obtaining of the approval or consent of unitholders representing at least 66
2/3% of the units then outstanding of the affected trust. No amendment may
reduce the aggregate percentage of units the holders of which are required to
consent to any amendment, change or modification of the trust agreement without
the consent of the unitholders of all of the units then outstanding of the
affected trust and in no event may any amendment be made which would (1) alter
the rights to the unitholders as against each other, (2) provide the trustee
with the power to engage in business or investment activities other than as
specifically provided in the trust agreement, (3) adversely affect the tax
status of the trust for federal income tax purposes or result in the units being
deemed to be sold or exchanged for federal income tax purposes or (4) unless the
trust has elected to be taxed as a regulated investment company for federal
income tax purposes, result in a variation of the investment of unitholders in
the trust. The trustee will 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
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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
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
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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
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
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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, Inc.
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 Financial Industry Regulatory
Authority, Inc. (FINRA) and the Securities Investor Protection Corporation
(SIPC), and a registrant of the Municipal Securities Rulemaking Board (MSRB).
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, Inc., the sponsor,
also serves as evaluator and supervisor. The evaluator and supervisor may
resign or be removed by the sponsor and trustee in which event the sponsor or
trustee is to use its best efforts to appoint a satisfactory successor. Such
resignation or removal shall become effective upon acceptance of appointment by
the successor evaluator. If upon resignation of the evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
evaluator may apply to a court of competent jurisdiction for the appointment of
a successor. Notice of such resignation or removal and appointment shall be
mailed by the trustee to each unitholder.
LIMITATIONS ON LIABILITY. The sponsor, evaluator, and supervisor are
liable for the performance of their obligations arising from their
responsibilities under the trust agreement but will be under no liability to the
unitholders for taking any action or refraining from any action in good faith
pursuant to the trust agreement or for errors in judgment, except in cases of
its own gross negligence, bad faith or willful misconduct or its reckless
disregard for its duties thereunder. The sponsor shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any securities.
The trust agreement provides that the trustee shall be under no liability
for any action taken in good faith in reliance upon prima facie properly
executed documents or for the disposition of moneys, securities or certificates
except by reason of its own gross negligence, bad faith or willful misconduct,
or its reckless disregard for its duties under the trust agreement, nor
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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 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.
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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 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
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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 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 as discussed in the prospectus. Orders received by the trustee,
sponsor or authorized financial professionals 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 as discussed in the
prospectus.
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
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"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, the evaluation will generally be based on the
last sale price on the exchange (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, 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-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
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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 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
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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 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
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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;
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
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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.
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
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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 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
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(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.
If the trust is treated as holding directly or indirectly 10 percent or
more of the combined voting power of the stock of a foreign corporation, and all
U.S. shareholders collectively own more than 50 percent of the vote or value of
the stock of such corporation, the foreign corporation may be treated as a
"controlled foreign corporation" (a "CFC") from a U.S. tax perspective. In such
circumstances, the trust will be required to include certain types of passive
income and certain other types of income relating to insurance, sales and
services with related parties and oil related income in the trust's taxable
income whether or not such income is distributed.
If the trust holds an equity interest in any "passive foreign investment
companies" ("PFICs"), which are generally certain foreign corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, certain rents and royalties or capital gains) or that hold
at least 50% of their assets in investments producing such passive income, the
trust could be subject to U.S. federal income tax and additional interest
charges on gains and certain distributions with respect to those equity
interests, even if all the income or gain is timely distributed to its
unitholders. The trust will not be able to pass through to its unitholders any
credit or deduction for such taxes. The trust may be able to make an election
that could ameliorate these adverse tax consequences. In this case, the trust
would recognize as ordinary income any increase in the value of such PFIC
shares, and as ordinary loss any decrease in such value to the extent it did not
exceed prior increases included in income. Under this election, the trust might
be required to recognize in a year income in excess of its distributions from
PFICs and its proceeds from dispositions of PFIC stock during that year, and
such income would nevertheless be subject to the distribution requirement and
would be taken into account for purposes of the 4% excise tax (described above).
Dividends paid by PFICs will not be treated as qualified 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
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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 Amendment to the 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 Incorporation of Fixed Income Securities, Inc. Reference
is made to Exhibit 1.2 to the Registration Statement on Form S-6 for
Advisor's Disciplined Trust 213 (File No. 333-148484) as filed on
January 4, 2008.
1.3 Bylaws of Fixed Income Securities, Inc. Reference is made to Exhibit 1.3
to the Registration Statement on Form S-6 for Advisor's Disciplined
Trust 213 (File No. 333-148484) as filed on January 4, 2008.
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 New York and federal income tax status of
securities being registered (to be filed by amendment).
3.3 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 Directors and Officers of Fixed Income Securities, Inc. Reference is
made to Exhibit 6.1 to the Registration Statement on Form S-6 for
Advisor's Disciplined Trust 213 (File No. 333-148484) as filed on
January 4, 2008.
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 213
(File No. 333-148484) as filed on January 4, 2008.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Advisor's Disciplined Trust 229 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 6th day of February, 2008.
ADVISOR'S DISCIPLINED TRUST 229
By FIXED INCOME SECURITIES, INC., DEPOSITOR
By /s/ ALEX R MEITZNER
-----------------------------
Alex R. Meitzner
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on February 6, 2008 by the
following persons in the capacities indicated:
SIGNATURE TITLE
Scott I. Colyer Director of Fixed Income )
Securities, Inc. )
Lisa A. Colyer Director of Fixed Income )
Securities, Inc. )
James R. Costas Director of Fixed Income )
Securities, Inc. )
Christopher T. Genovese Director of Fixed Income )
Securities, Inc. )
Randy J. Pegg Director of Fixed Income )
Securities, Inc. )
R. Scott Roberg Director of Fixed Income )
Securities, Inc. )
S-2
Jack Simkin Director of Fixed Income )
Securities, Inc. )
Andrew Williams Director of Fixed Income )
Securities, Inc. )
By /s/ ALEX R MEITZNER
-----------------------------
Alex R. Meitzner
Attorney-in-Fact*
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*An executed copy of each of the related powers of attorney is filed
herewith or incorporated herein by reference as Exhibit 7.1.
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