1933 ACT FILE NO.:
1940 ACT FILE NO.: 811-21056
CIK NO.: 1568048
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: ADVISORS DISCIPLINED TRUST 1049
B. Name of depositor: ADVISORS ASSET MANAGEMENT, 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 SCOTT R. ANDERSON
Advisors Asset Management, 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 ____________, 2012 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 APRIL 19, 2013
SUBJECT TO COMPLETION
GLOBAL GOLD INCOME PORTFOLIO, SERIES 2013-3Q - AN SMC PORTFOLIO
(ADVISORS DISCIPLINED TRUST 1049)
A portfolio pursuing a covered call
option writing strategy consisting of
common stocks of foreign and
domestic companies involved in
aspects of the gold industry,
shares of exchange-traded funds
and U.S. Treasury obligations. The
stocks and shares of exchange-traded
funds are subject to call options.
PROSPECTUS
____________, 2013
SPONSOR:
[LOGO]
AAM
ADVISORS As with any investment, the Securities
ASSET MANAGEMENT and Exchange Commission has not approved
or disapproved of these securities or
passed upon the adequacy or accuracy of
PORTFOLIO CONSULTANT: this prospectus. Any contrary
SPRING MOUNTAIN CAPITAL, LP representation is a criminal offense.
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INVESTMENT SUMMARY
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INVESTMENT OBJECTIVE
The trust seeks to provide income and limited capital appreciation. There is
no assurance the trust will achieve its objective.
PRINCIPAL INVESTMENT STRATEGY
The trust seeks to achieve its objective by investing in a portfolio
primarily consisting of common stock of foreign and domestic companies involved
in aspects of the gold industry (the "Common Stocks"), shares of exchange traded
funds seeking to invest primarily in companies involved in aspects of the gold
industry (the "ETFs" or the "funds", together with the "Common Stocks" the
"Covering Securities") and U.S. Treasury obligations (the "Treasury
Obligations"). Each Covering Security is subject to a contractual right, in the
form of Long Term Equity AnticiPation Securities ("LEAPS(R)") which give the
holder of the LEAPS(R) the right to buy the corresponding Covering Security at a
predetermined price from the trust on any business day prior to the expiration
of the LEAPS(R). The writing of the LEAPS(R) generates premium income which is
used to purchase the Treasury Obligations. The portfolio was selected by Spring
Mountain Capital, LP, the portfolio consultant to the trust (the "Portfolio
Consultant").
A company will be considered to be involved in aspects of the gold industry
if it derives at least 50% of its revenues from gold-related activities
including mining, exploration, processing, fabrication, production, marketing,
distribution and dealing in gold and gold royalties. The Portfolio Consultant
selected the Covering Securities for the portfolio through an analysis based on
market capitalization, dividend levels and sustainability, revenues, revenue
growth, earnings, earnings growth and valuation or funds which invest in such
companies. In selecting the Covering Securities, the Portfolio Consultant
sought to create a portfolio that is diversified among stocks of companies
located throughout the world, including the United States.
Each LEAPS(R) is issued by The Options Clearing Corporation ("OCC") in the
form of an American style option, which means that it will be exercisable at the
strike price on any business day prior to its expiration date. The expiration
date for each of the LEAPS(R) included in the trust is _________________. As of
the close of business on the business day preceding the inception date of the
trust, the strike price of the LEAPS(R) in the trust is equal to approximately
________% of the closing market price on that date of the Covering Securities
deposited in the trust. Because the Covering Securities are subject to
LEAPS(R), the trust gives up any appreciation in price of the Covering
Securities above the strike price. See "Understanding Your Investment--The
Covered Call Strategy" for more information about how this investment strategy
operates. Of course, as with any similar investment, there can be no assurance
that the objective of the trust will be achieved.
Neither the Portfolio Consultant nor any of its affiliates accepts any
responsibility for the accuracy or completeness of this prospectus or any
information or disclosure that is provided to potential purchasers of interests
in the portfolio, or omitted from disclosure, other than with respect to
statements it has approved relating solely to the Portfolio Consultant. In
addition, the Portfolio Consultant does not make any representation regarding
the portfolio or the advisability of investing in the portfolio.
"SMC" and "Spring Mountain Capital" are service marks of Spring Mountain
Capital, LP and have been licensed for non-exclusive use by the trust.
Under normal market conditions, the trust will invest at least 40% of its
total assets in foreign common stocks. For this purpose, foreign common stocks
include common stocks issued by issuers (1) organized outside of the U.S., (2)
with headquarters or principal places of business located outside the U.S. or
(3) doing a substantial amount of business outside the U.S. (either 50% or more
of the issuer's assets are located outside the U.S. or 50% or more of the
issuer's revenues are derived outside the U.S.). In making this determination,
foreign common stocks are considered to include both direct investments of the
trust and indirect investments, such as investments of an underlying ETF owned
by the trust. Foreign common stocks may include investments in American
Depositary Receipts and other depositary receipts ("ADRs").
2 Investment Summary
Approximately ______% of the portfolio consists of funds classified as "non-
diversified" under the Investment Company Act of 1940. These funds have the
ability to invest more than 5% of their assets in securities of a single issuer
which could reduce diversification.
PRINCIPAL RISKS
As with all investments, you can lose money by investing in this trust. The
trust also might not perform as well as you expect. This can happen for reasons
such as these:
* SECURITY PRICES WILL FLUCTUATE. The value of your investment may fall over
time.
* THE ISSUER OF A SECURITY MAY BE UNWILLING OR UNABLE TO MAKE DIVIDEND PAYMENTS
IN THE FUTURE. This may reduce the level of dividends the trust receives
which would reduce your income and cause the value of your units to fall.
* THE FINANCIAL CONDITION OF AN ISSUER MAY WORSEN OR ITS CREDIT RATINGS MAY
DROP, RESULTING IN A REDUCTION IN THE VALUE OF YOUR UNITS. This may occur
at any point in time, including during the primary offering period.
* THE VALUE OF THE LEAPS(R) REDUCES THE VALUE OF YOUR UNITS. As the value of
the LEAPS(R) increases, it has a negative impact on the value of your
units. The value of a LEAPS(R) does not increase or decrease at the same
rate as the underlying Covering Security.
* AS THE WRITER (SELLER) OF LEAPS(R), THE TRUST FORGOES THE OPPORTUNITY TO
PROFIT FROM INCREASES IN THE MARKET VALUE OF THE COVERING SECURITIES ABOVE
THE SUM OF THE PREMIUM AND THE STRIKE PRICE OF THE COVERED CALL OPTIONS,
BUT RETAINS THE RISK OF LOSS SHOULD THE PRICE OF THE COVERING SECURITIES
DECLINE.
* THE LEAPS(R) MAY BE EXERCISED ON ANY BUSINESS DAY PRIOR TO EXPIRATION
RESULTING IN THE COVERING SECURITIES BEING SOLD TO THE OPTION HOLDERS OF
THE LEAPS(R) PRIOR TO THE TERMINATION OF THE TRUST WHICH COULD TRIGGER
ADVERSE TAX CONSEQUENCES.
* THE TRUST INVESTS IN SHARES OF ONE OR MORE ETFS. You should understand the
section titled "Exchange-Traded 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. The trust and underlying funds have management and operating
expenses. You will bear not only your share of the trust's expenses, but
also the expenses of the underlying funds. By investing in other funds,
the trust incurs greater expenses than you would incur if you invested
directly in the funds.
* THE TRUST AND ANY UNDERLYING FUND ARE CONSIDERED TO BE CONCENTRATED IN
SECURITIES ISSUED BY COMPANIES INVOLVED IN ASPECTS OF THE GOLD INDUSTRY.
Negative developments in this industry will affect the value of your
investment more than would be the case in a more diversified investment.
* STOCKS OF FOREIGN COMPANIES HELD BY THE TRUST OR AN UNDERLYING FUND PRESENT
RISKS BEYOND THOSE OF U.S. ISSUERS. These risks may include market and
political factors related to the company's foreign market, international
trade conditions, less regulation, smaller or less liquid markets,
increased volatility, differing accounting practices and changes in the
value of foreign currencies.
* THE TRUST AND THE UNDERLYING FUNDS MAY INVEST IN STOCKS OF SMALL AND
MID-SIZE COMPANIES. These stocks are often more volatile and have lower
trading volumes than stocks of larger companies. Small and mid-size
companies may have limited products or financial resources, management
inexperience and less publicly available information.
* THE VALUE OF THE TREASURY OBLIGATIONS WILL GENERALLY FALL IF INTEREST RATES,
IN GENERAL, RISE. No one can predict whether interest rates will rise or
fall in the future.
* WE<F1>* DO NOT ACTIVELY MANAGE THE PORTFOLIO. Except in limited
circumstances, the trust will generally hold, and continue to buy, the same
Covering Securities and Treasury Obligations even if their market value
declines and will generally hold, and continue to write, the same call
options, even if the market value of the Covering Securities increases.
--------------------
<F1>* "AAM," "we" and related terms mean Advisors Asset Management, Inc., the
trust sponsor, unless the context clearly suggests otherwise.
Investment Summary 3
WHO SHOULD INVEST
You should consider this investment if you:
* want to own a defined portfolio of stocks of gold-related foreign and
domestic companies and ETFs subject to LEAPS(R) along with Treasury
Obligations.
* want the potential to receive income and limited capital appreciation.
* are comfortable with a covered call option investment strategy.
You should not consider this investment if you:
* are uncomfortable with the risks of an unmanaged investment in common
stocks and ETFs subject to LEAPS(R) along with Treasury Obligations.
* are uncomfortable investing in foreign companies or companies involved in
aspects of the gold industry.
* seek current income, capital preservation or the potential for unlimited
capital appreciation.
* are uncomfortable with a covered call option investment strategy.
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ESSENTIAL INFORMATION
---------------------
UNIT PRICE AT INCEPTION $10.0000
INCEPTION DATE ____________, 2013
TERMINATION DATE __________________
DISTRIBUTION DATES 25th day of March, June,
September and December
RECORD DATES 10th day of March, June,
September and December
INITIAL DISTRIBUTION DATE __________ 25, 2013
INITIAL RECORD DATE __________ 10, 2013
CUSIP NUMBERS
Standard Accounts _________
Fee Based Accounts _________
TICKER SYMBOL ______
MINIMUM INVESTMENT $1,000/100 units
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<FN>
* As of ____________, 2013 and may vary thereafter.
</FN>
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 2.45 24.50
Creation & development fee 0.50 5.00
------- -------
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 _.__ ____
Underlying 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 deferred sales fee and
the total creation and development fee. The deferred sales fee is fixed at
$0.245 per unit and will be paid on __________ 20, 2013. The creation and
development fee is fixed at $0.05 per unit and is paid at the end of the initial
offering period (anticipated to be approximately 90 days). The trust will bear
the management and operating expenses of any underlying ETF. While the trust
will not pay these expenses directly out of its assets, these expenses are shown
in the trust's annual expenses above to illustrate the impact of these expenses.
The trustee or sponsor will waive fees otherwise payable by the trust in an
amount equal to any 12b-1 fees or other compensation the trustee, sponsor or an
affiliate receives from a fund in connection with the trust's investment in the
fund.
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 $_____
___ months (approximate 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.
4 Investment Summary
GLOBAL GOLD INCOME PORTFOLIO, SERIES 2013-3Q - AN SMC PORTFOLIO
(ADVISORS DISCIPLINED TRUST 1049)
PORTFOLIO
AS OF THE TRUST INCEPTION DATE, ____________, 2013
PERCENTAGE OF MARKET COST OF
NUMBER TICKER AGGREGATE OFFERING VALUE PER SECURITIES
OF SHARES SYMBOL ISSUER(1) PRICE SHARE(2) TO TRUST(2)
----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- _____%
Materials -- _____%
REGISTERED INVESTMENT COMPANIES -- _____%
Exchange Traded Funds -- _____%
--------- ----------
TOTAL COMMON STOCKS AND REGISTERED INVESTMENT COMPANIES ___.__% $_______
--------- ----------
PERCENTAGE OF COST OF
NAME OF ISSUER AND TITLE OF AGGREGATE OFFERING PAR SECURITIES
TREASURY OBLIGATION(1) PRICE VALUE TO TRUST(2)
----------------------------------------------------------------------------------------------------------------------------------
TREASURY OBLIGATIONS -- _____%
--------- ----------
TOTAL TREASURY OBLIGATIONS __.__% $______
--------- ----------
Continued
Investment Summary 5
GLOBAL GOLD INCOME PORTFOLIO, SERIES 2013-3Q - AN SMC PORTFOLIO
(ADVISORS DISCIPLINED TRUST 1049)
PORTFOLIO (CONTINUED)
AS OF THE TRUST INCEPTION DATE, ____________, 2013
PERCENTAGE OF NUMBER MARKET MARKET
DESCRIPTION OF AGGREGATE OFFERING OF VALUE PER VALUE TO
CALL OPTIONS(1) PRICE CONTRACTS(3) CONTRACT(2) TRUST(2)
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LONG TERM EQUITY ANTICIPATION SECURITIES ("LEAPS(R)") -- (_____)% (3)
--------- ----------
TOTAL LEAPS(R) (_____)% $(______)
--------- ----------
--------- ----------
TOTAL 100.00% $_______
========= ==========
<FN>
See "Notes to Portfolio"
</FN>
6 Investment Summary
Notes to Portfolio
(1) Securities are represented by contracts to purchase securities.
(2) The value of common stocks and shares of registered investment companies 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. The value of U.S. Treasury
obligations is based on the current offering side evaluation as of the
close of the New York Stock Exchange on the business day prior to the
trust's inception date. The value of LEAPS(R) is based on the most recent
closing sale price (or current ask price if there is no closing sale price)
as of the close of the New York Stock Exchange on the business day prior to
the trust's inception date. The aggregate offering or ask price is greater
than the aggregate bid price of securities, which is the basis on which
redemption prices will be determined for purposes of redemption of units
after the initial offering period.
Accounting Standards Codification 820, "Fair Value Measurements"
establishes a framework for measuring fair value and expands disclosure
about fair value measurements in financial statements for the trust. The
framework under the standard is comprised of a fair value hierarchy, which
requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or
liabilities in active markets that the trust has the ability to access
as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities, quoted prices
in markets that are not active, and other inputs that are observable
or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a trust's own
assumptions about the assumptions that market participants would use
in pricing an asset or liability.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risk associated with investing those securities.
Changes in valuation techniques may result in transfers in or out of an
investment's assigned level as described above.
The following table summarizes the trust's investments as of the trust's
inception, based on inputs used to value them:
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------------------------
Common Stocks $ $ $
Registered Investment Companies
Treasury Obligations
LEAPS(R)
----------------------------------------------------------------------
Total $ $ $
======================================================================
The cost of the securities to the sponsor and the sponsor's profit or
(loss) (which is the difference between the cost of the securities to the
sponsor and the cost of the securities to the trust) are __________ and
$(__________), respectively.
(3) The LEAPS(R) can be exercised on any business day prior to their expiration
on _________________. Each contract entitles the holder thereof to
purchase 100 shares of the Covering Security at the strike price.
(4) This is a security issued by a foreign company that trades on a U.S.
securities exchange or an option related to such a security.
Common Stocks comprise approximately ______% of the investments in the
trust, broken down by country of organization as set forth below:
(5) A Treasury Obligation marked with this note was issued at an original issue
discount.
(6) This is a non-income producing security.
Investment Summary 7
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UNDERSTANDING YOUR INVESTMENT
-----------------------------
THE COVERED CALL STRATEGY
The strategy followed by the trust is a covered call option writing strategy.
A writer (seller) of a covered call sells call options against a security
currently held by the writer. The writer of a call option receives a cash
premium for selling the call option but is obligated to sell the security at the
strike price, if the option is exercised. The payor of the option premium, the
option holder, has the right, but not the obligation, to purchase the security
at the strike price on any business day prior to the LEAPS(R) expiration date.
The option writer gives up any increase in the covered security above the strike
price. This strategy may be appropriate for an investor who is willing to limit
the upside potential on the security in return for receiving the option premium.
On or before the trust's inception date, the sponsor entered into contracts
to buy the Covering Securities. The sponsor then wrote LEAPS(R) on each of the
Covering Securities and received an option premium. Using the option premium
proceeds, the sponsor entered into contracts to buy the Treasury Obligations.
On the trust's inception date, the sponsor deposited the Covering Securities
subject to the LEAPS(R) and the Treasury Obligations with the trustee on behalf
of the trust. At such time the sponsor also assigned the LEAPS(R) to the trust,
giving the option holders the right to purchase Covering Securities from the
trust.
Each LEAPS(R) gives the option holder the right (but not the obligation) to
purchase the Covering Securities from the trust at the strike price on any
business day prior to the LEAPS(R) expiration. The strike price for a Covering
Security held by the trust will be adjusted downward (but not below zero) upon
certain extraordinary distributions made by the issuers of the Covering
Securities to unitholders before the LEAPS(R) expiration triggered by certain
corporate events affecting such Covering Security. See "Understanding Your
Investment--Investment Risks--LEAPS(R)". In calculating the net asset value of
a trust unit, the price of a unit is reduced by the value of the LEAPS(R).
As of the close of business on the business day preceding the inception date,
the capital appreciation on the Covering Securities held by the trust is limited
to a maximum of approximately ______%, because of the obligation of the trust to
the option holder with respect to each of the Covering Securities entitling the
option holder to purchase the Covering Securities at the strike price. The
LEAPS(R) limit the upside potential in the Covering Securities to an amount
approximately equal to the strike price. However, as the option premium
received in return for writing the LEAPS(R) was used to purchase Treasury
Obligations, you will receive interest from the Treasury Obligations during the
life of the trust and your pro rata portion of the principal from the Treasury
Obligations after the Treasury Obligations' maturity.
If the market price of a Covering Security held by the trust is greater than
its strike price, the trust will not participate in any appreciation in that
Covering Security above the strike price because it is expected that the holder
of the related LEAPS(R) will exercise its right to purchase that Covering
Security from the trust at the strike price. If the market price of a Covering
Security held by the trust is less than its strike price at the trust's
mandatory termination date, it is expected that the LEAPS(R) will expire without
being exercised. To the extent particular Covering Securities held by the trust
decline in price or fail to appreciate
8 Understanding Your Investment
to a price equal to the related strike price, the trust will not achieve its
maximum potential appreciation.
The Treasury Obligations included in the trust are non-callable debt
obligations that are issued by and backed by the full faith and credit of the
U.S. Government, although units of the trust are not so backed. Additionally,
the U.S. Government assures the timely payment of principal and interest on the
underlying Treasury Obligations in the trust. Of course, this applies only to
the payment of principal and interest on the Treasury Obligations and not the
units themselves.
Below are sample illustrations of certain possible future market conditions:
* Covering Security prices increase above the LEAPS(R) strike price: The
LEAPS(R) are exercised and the underlying Covering Security shares are sold
at the strike price. Net proceeds received by the trust from the sale of
the Covering Security will be distributed to unitholders and will not be
reinvested by the trust. Profits are limited to the premium received from
writing the LEAPS(R), dividends received from the Covering Securities prior
to their sale from the portfolio, interest received from the Treasury
Obligations, plus the difference between each Covering Security's initial
price and their strike price. Investors will forgo any dividends paid on
the Covering Securities subsequent to their sale from the portfolio. It is
important to note that writing covered calls limits the appreciation
potential of the underlying Covering Securities.
* Covering Security prices remain stable: The LEAPS(R) expire worthless and
the trust still owns the Covering Security shares. Profits are limited to
the premium received from writing the LEAPS(R), plus dividends from the
Covering Securities, as well as interest received from the Treasury
Obligations.
* Covering Security prices decrease: The LEAPS(R) expire worthless and the
trust still owns the Covering Security shares. The break-even on the
Covering Securities is lowered by the premium received from writing the
LEAPS(R). In addition, the trust will receive dividends from the Covering
Securities, and interest from the Treasury Obligations.
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 plus
* accrued interest, if any.
The "net asset value per unit" is the value of the securities, cash and other
assets in the trust reduced by the liabilities of the trust divided by the total
units outstanding. In calculating the net asset value per unit, the value of
the Covering Securities are netted against the value of the LEAPS(R). 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
Understanding Your Investment 9
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 the value of the Covering Securities
and LEAPS(R) using the last sale price for securities traded on a national
securities exchange or a U.S. options exchange. For this purpose, the trustee
provides us closing prices from a reporting service approved by us. In some
cases we will price the Covering Securities and LEAPS(R) based on the last asked
or bid price in the over-the-counter market or by using other recognized pricing
methods. We will do this if a security is not principally traded on a national
securities exchange or a U.S. options exchange or if the market quotes are
unavailable or inappropriate.
We generally determine the value of the Treasury Obligations during the
initial offering period based on the aggregate offering side evaluations of the
Treasury Obligations determined (a) on the basis of current offering prices of
the Treasury Obligations, (b) if offering prices are not available for any
particular Treasury Obligation, on the basis of current offering prices for
comparable securities, (c) by determining the value of the Treasury Obligations
on the offer side of the market by appraisal, or (d) by any combination of the
above. After the initial offering period ends, we generally determine the value
of the Treasury Obligations as described in the preceding sentence based on the
bid side evaluations rather than the offering side evaluations. The offering
side price generally represents the price at which investors in the market are
willing to sell a security and the bid side evaluation generally represents the
price that investors in the market are willing to pay to buy a security. The
bid side evaluation is lower than the offering side evaluation. As a result of
this pricing method, unitholders should expect a decrease in the net asset value
per unit on the day following the end of the initial offering period equal to
the difference between the current offering side evaluation and bid side
evaluation of the Treasury Obligations.
Capelogic, Inc., an independent pricing service, determined the initial
prices of the securities shown under "Portfolio" in this prospectus as described
above at the close of regular trading on the New York Stock Exchange on the
business day before the date of this prospectus. On the first day we sell units
we will compute the unit price as of the close of regular trading on the New
York Stock Exchange or the time the registration statement filed with the
Securities and Exchange Commission becomes effective, if later.
10 Understanding Your Investment
ORGANIZATION COSTS. During the initial offering period, part of the value of
the securities represents an amount that will pay the costs of creating your
trust. These costs include the costs of preparing the registration statement
and legal documents, federal and state registration fees, the Portfolio
Consultant's security selection fee, the initial fees and expenses of the
trustee and the initial audit. Your trust will reimburse us for these costs at
the end of the initial offering period or after six months, if earlier. The
value of your units will decline when the trust pays these costs.
ACCRUED INTEREST. Accrued interest represents unpaid interest on a bond from
the last day it paid interest. Accrued interest on the trust units consists of
two elements. The first element arises as a result of accrued interest which is
the accumulation of unpaid interest on Treasury Obligations in the trust from
the last day on which interest was paid on the Treasury Obligations. Interest
on the Treasury Obligations is generally paid semi-annually, although the trust
accrues such interest daily. Because your trust always has an amount of
interest earned but not yet collected, the public offering price of units will
have added to it the proportionate share of accrued interest to the date of
settlement. The second element of accrued interest arises because of the
structure of the trust's interest account. The trustee has no cash available
for distribution to unitholders until it receives interest payments on the bonds
in the trust and may be required to advance its own funds to make trust interest
distributions. As a result, interest account balances are established to limit
the need for the trustee to advance funds in connection with such interest
distributions. If you sell or redeem your units you will be entitled to receive
your proportionate share of the accrued interest from the purchaser of your
units.
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 3.45% 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
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 $0.245 per unit. Your trust pays the
deferred sales fee in one payment as described on page 4. If you redeem or sell
your units prior to collection of the deferred sales fee, you will pay the
deferred sales fee upon redemption or sale of your units. If you purchase units
after the 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.
MINIMUM PURCHASE. The minimum amount you can generally purchase of the trust
appears on page 4 under "Essential Information", but such amounts may vary
depending on your selling firm.
Understanding Your Investment 11
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. Except as expressly provided herein, you may
not combine discounts. Since the deferred sales fee and the creation and
development fee are fixed dollar amounts per unit, your trust must charge these
fees per unit regardless of any discounts. However, if you are eligible to
receive a discount such that your total sales fee is less than the fixed dollar
amount of the sum of the deferred sales fee and the creation and development
fee, we will credit you the difference between your total sales fee and the
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 3.10
$500,000 - $999,999 2.95
$1,000,000 or more 2.45
We apply these fees as a percent of the public offering price per unit at the
time of purchase. The breakpoints will be adjusted to take into consideration
purchase orders stated in dollars which cannot be completely fulfilled due to
the requirements that only whole units be issued.
You aggregate initial offering period 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. If you purchase initial offering
period units that qualify for the fee account or rollover/exchange discount
described below and also purchase additional initial offering period units on a
single day from the same broker-dealer that do not qualify for the fee account
or rollover/exchange discount, you aggregate all initial offering period units
purchased for purposes of determining the applicable breakpoint level in the
table above on the additional units, but such additional units will not qualify
for the fee account or rollover/exchange discount described below. Secondary
market unit purchases are not aggregated with initial offering period unit
purchases for purposes of determining the applicable breakpoint level. You can
also include these orders as your own for purposes of this aggregation:
* orders submitted by your spouse or children (including step-children)
under 21 years of age living in the same household and
* orders submitted by your trust estate or fiduciary accounts.
The discounts described above apply only to initial offering period
purchases.
Fee Accounts. Investors may purchase units through registered investment
advisers, certified financial planners or registered broker-dealers who in each
case either charge investor accounts ("Fee Accounts") periodic fees for
brokerage services, financial planning, investment advisory or asset management
services, or provide such services in connection with an investment account for
which a comprehensive "wrap fee" charge ("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 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. If
units of
12 Understanding Your Investment
the trust are purchased for a Fee Account and the units are subject to a Wrap
Fee in such Fee Account (i.e., the trust is "Wrap Fee Eligible") then investors
may be eligible to purchase units of the trust in these Fee Accounts that 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 0.50%
-------
Total sales fee 0.50%
=======
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 employees (and immediate family members) of the sponsor
and its affiliates. 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 officers, directors and employees
(and immediate family members) of selling firms. These purchases are made at
the public offering price per unit less the applicable regular dealer
concession. Immediate family members for the purposes of this section include
your spouse, children (including step-children) under the age of 21 living in
the same household, and parents (including step-parents). These discounts apply
to initial offering period and secondary market purchases. All employee
discounts are subject to the policies of the related selling firm, including but
not limited to, householding policies or limitations. Only officers, directors
and employees (and their immediate family members) of selling firms that allow
such persons to participate in this employee discount program are eligible for
the discount.
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 unit investment trusts (regardless of sponsor).
The discounted public offering price per unit for these transactions is equal to
the regular public offering price per unit less 1.00%. However, if you invest
redemption or termination proceeds of $500,000 or more in units of the trust,
the maximum sales fee on your units will be limited to the maximum sales fee for
the applicable amount invested in the table under "Large Purchases" above. 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 calendar 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.
Understanding Your Investment 13
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 to initial offering period purchases.
RETIREMENT ACCOUNTS. The portfolio may be suitable for purchase in tax-
advantaged retirement accounts. You should contact your financial professional
about the accounts offered and any additional fees imposed.
HOW TO SELL YOUR UNITS
You can sell or redeem your units on any business day the New York Stock
Exchange is open by contacting your financial professional. Unit prices are
available daily on the Internet at WWW.AAMPORTFOLIOS.COM or through your
financial professional. The sale and redemption price of units is equal to the
net asset value per unit, provided that you will not pay any remaining creation
and development fee or organization costs if you sell or redeem units during the
initial offering period. The sale and redemption price is sometimes referred to
as the "liquidation price." You pay any remaining deferred sales fee when you
sell or redeem your units. Certain broker-dealers may charge a transaction or
other fee for processing unit redemption or sale requests.
SELLING UNITS. We may maintain a secondary market for units. This means
that if you want to sell your units, we may buy them at the current net asset
value, provided that you will not pay any remaining creation and development fee
or organization costs if you sell units during the initial offering period. We
may then resell the units to other investors at the public offering price or
redeem them for the redemption price. Our secondary market repurchase price is
the same as the redemption price. Certain broker-dealers might also maintain a
secondary market in units. You should contact your financial professional for
current repurchase prices to determine the best price available. We may
discontinue our secondary market at any time without notice. Even if we do not
make a market, you will be able to redeem your units with the trustee on any
business day for the current redemption price.
REDEEMING UNITS. You may also redeem your units directly with the trustee,
The Bank of New York Mellon, 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
14 Understanding Your Investment
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 received after
that time or is incomplete in any way, you will receive the next net asset value
computed after the trustee receives your completed request.
If you redeem your units, the trustee will generally send you a payment for
your units no later than seven days after it receives all necessary
documentation (this will usually only take three business days). The only time
the trustee can delay your payment is if the New York Stock Exchange is closed
(other than weekends or holidays), the Securities and Exchange Commission
determines that trading on that exchange is restricted or an emergency exists
making sale or evaluation of the securities not reasonably practicable, and for
any other period that the Securities and Exchange Commission permits.
EXCHANGE OPTION. You may be able to exchange your units for units of our
other unit trusts at a reduced sales fee. You can contact your financial
professional for more information about trusts currently available for
exchanges. Before you exchange units, you should read the prospectus carefully
and understand the risks and fees. You should then discuss this option with
your financial professional to determine whether your investment goals have
changed, whether current trusts suit you and to discuss tax consequences. We
may discontinue this option upon sixty days notice.
DISTRIBUTIONS
DISTRIBUTIONS. Your trust generally pays distributions of its net investment
income along with any excess capital on each 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.
Interest and dividends received by your trust, including that part of the
proceeds of any disposition of Treasury Obligations which represents accrued
interest, is credited by the trustee to your trust's "income account". Other
receipts are credited to the "capital account". After deduction of amounts
sufficient to reimburse the trustee, without interest, for any amounts advanced
and paid to the sponsor as the unitholder of record as of the first settlement
date, interest, dividends and other income received will be distributed on each
distribution date to unitholders of record as of the preceding record date. All
distributions will be net of estimated expenses. Funds in the capital account
will be distributed on each distribution date to unitholders of record as of the
preceding record date provided that the amount available for distribution
therein shall equal at least $0.01 per unit.
Because investment income payments are not received by your trust at a
constant rate throughout the year, income distributions may be more or less than
the amount credited to the income account as of the record date. Investors who
purchase units between a record date and a distribution date will receive their
first distribution
Understanding Your Investment 15
on the second distribution date after the purchase.
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 or in the underlying ETFs.
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 or in
the underlying ETFs 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 in your trust
or in the underlying ETFs 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.
LEAPS(R). Although you may redeem your units at any time, if you redeem
before the LEAPS(R) are exercised or expire, the value of your units may be
adversely affected by the value of the LEAPS(R). However, if LEAPS(R) are not
exercised and you hold your units until the trust's scheduled termination date,
the LEAPS(R) will expire and the trust's portfolio will consist of only cash or
securities or a combination of each.
If you sell or redeem your units before the LEAPS(R) are exercised, or if the
trust terminates prior to its scheduled termination date and the LEAPS(R) have
not been exercised, you may not realize any appreciation in the value of the
Covering Securities because even if the Covering Securities appreciate in value,
that appreciation may be more than fully, fully or partly offset by an increase
in value in the LEAPS(R) The value of the LEAPS(R) is deducted from the value of
the trust's assets when determining the value of a unit. If the Covering
Securities decline in price, your loss may be greater than it would be if there
were no LEAPS(R) because the value of the LEAPS(R) is a reduction to the value
of the Covering Securities when calculating the value of a unit. An increase in
value of the LEAPS(R), an obligation of the trust to sell or deliver the
Covering Securities at the strike price if the LEAPS(R) are exercised by the
option holder, will reduce the value of the Covering Securities in the trust,
below the value of
16 Understanding Your Investment
the Covering Securities that would otherwise be realizable if the Covering
Securities were not subject to the LEAPS(R). You should note that even if the
price of a Covering Security does not change, if the value of a LEAPS(R)
increases (for example, based on increased volatility of a Covering Security)
your unit will lose value.
The value of the LEAPS(R) reduces the value of your units. As the value of
the LEAPS(R) increases, it has a more negative impact on the value of your
units. The value of the LEAPS(R) will also be affected by changes in the value
and dividend rates of the Covering Securities, an increase in interest rates, a
change in the actual and perceived volatility of the stock market and the
Covering Securities and the remaining time to expiration. Additionally, the
value of a LEAPS(R) does not increase or decrease at the same rate as the
underlying Covering Securities (although they generally move in the same
direction). However, as a LEAPS(R) approaches its expiration date, its value
increasingly moves with the price of the Covering Security subject to the
LEAPS(R).
The strike price for each LEAPS(R) held by the trust may be adjusted downward
before the LEAPS(R) expiration triggered by certain corporate events affecting
that Covering Security. The OCC generally does not adjust option strike prices
to reflect ordinary dividends paid on the related stock but may adjust option
strike prices to reflect certain corporate events affecting the related stock
such as extraordinary dividends, stock splits, merger or other extraordinary
distributions or events. A reduction in the strike price of an option could
reduce the trust's capital appreciation potential on the related Covering
Security.
If the value of the underlying Covering Securities exceeds the strike price
of the LEAPS(R), it is likely that the option holder will exercise their right
to purchase the Covering Security subject to the LEAPS(R) from the trust. As
the LEAPS(R) may be exercised on any business day prior to their expiration,
Covering Securities may be sold to the option holders of the LEAPS(R) prior to
the termination of the trust. If this occurs, distributions from the trust will
be reduced by the amount of the dividends which would have been paid by Covering
Securities sold from the trust. As discussed under "Understanding Your
Investment--Taxes", the sale of Covering Securities from the trust will likely
result in capital gains to unit holders, which may be short-term depending on
the holding period of the Covering Securities. In addition, the sale of
Covering Securities may, in certain circumstances, result in the early
termination of the trust.
EXCHANGE TRADED FUNDS. The trust may invest in shares of exchange-traded
funds. You should understand the section titled "Understanding Your Investment-
-Exchange-Traded Funds" before you invest. Shares of ETFs 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 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. ETFs are subject to various
risks, including management's ability to meet the fund's investment objective,
and to manage the fund's portfolio when the underlying securities are redeemed
or sold, during the periods of market turmoil and as investors' perceptions
regarding ETFs or their underlying investment change. The trust and the
underlying funds have 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 the other funds, the trust incurs
Understanding Your Investment 17
greater expenses than you would incur if you invested directly in the funds.
ETFs also face index correlation risk which is the risk that the performance
of an ETF will vary from the actual performance of the fund's target index,
known as "tracking error." This can happen due to transaction costs, market
impact, corporate actions (such as mergers and spin-offs) and timing variances.
Some funds use a technique called "representative sampling," which means that
the fund invests in a representative sample of securities in its target index
rather than all of the index securities. This could increase the risk of
tracking error.
CONCENTRATION RISK is the risk that the value of your trust is more
susceptible to fluctuations based on factors that impact a particular industry
because the portfolio concentrates in companies within that industry. A
portfolio "concentrates" in an industry when securities issued by companies in a
particular industry make up 25% or more of the portfolio.
The trust and underlying ETFs concentrate in stocks of companies involved in
aspects of the GOLD INDUSTRY. Companies in the gold industry may be involved in
the mining, exploration, processing, fabrication, production, marketing,
distribution and dealing in gold and gold royalties. Competitive pressures may
have a significant effect on the financial condition of such companies.
Companies in the gold industries are highly dependent on the price of gold
bullion. These prices may fluctuate substantially over short periods of time so
the value of stock of gold companies may be more volatile than other types of
investment. In times of significant inflation or great economic uncertainty,
gold and other precious metals may outperform other investments. However, in
times of stable economic growth, other investments may offer greater
appreciation potential and the value of gold and other precious metals may be
adversely affected which could in turn affect the value of stock of companies
involved in the gold industry. General risks of the industry also include the
general state of the economy, consolidation, domestic and international
politics, price and supply fluctuations, technical progress, labor relations,
government regulations, volatile interest rates, consumer spending trends,
overall capital spending levels and excess capacity. In addition, these
companies may also be significantly affected by volatility of commodity prices,
currency exchange rates, import controls, worldwide competition, depletion of
resources, and mandated expenditures for safety and pollution control devices.
These companies are also at risk for environmental damage claims.
FOREIGN ISSUER RISK. Because the trust and underlying ETFs invest in stocks
of foreign companies, the trust involves additional risks that differ from an
investment exclusively in domestic stocks. These risks include the risk of
losses due to future political and economic developments, international trade
conditions, foreign withholding taxes and restrictions on foreign investments
and exchange of securities. The trust also involves the risk that fluctuations
in exchange rates between the U.S. dollar and foreign currencies may negatively
affect the value of the stocks. The trust involves the risk that information
about the stocks is not publicly available or is inaccurate due to the absence
of uniform accounting and financial reporting standards. In addition, some
foreign securities markets are less liquid than U.S. markets. This could cause
the trust to buy stocks at a higher price or sell stocks at a lower price than
would be the case in a highly liquid market. Foreign securities markets are
often more volatile and involve higher trading
18 Understanding Your Investment
costs than U.S. markets, and foreign companies, securities markets and brokers
are also generally not subject to the same level of supervision and regulation
as in the U.S. Certain stocks may be held in the form of ADRs. ADRs represent
receipts for foreign common stock deposited with a custodian (which may include
the trustee of your trust). The ADRs in the trust, if any, trade in the U.S. in
U.S. dollars and are registered with the Securities and Exchange Commission.
ADRs generally involve the same types of risks as foreign common stock held
directly. Some ADRs may experience less liquidity than the underlying common
stocks traded in their home market.
The trust may invest in certain securities issued by entities located in
emerging markets or that conduct business in emerging markets countries.
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.
SMALL AND MID-SIZE COMPANIES. The trust and underlying ETFs may invest in
stocks issued by small and mid-size companies. The share prices of these
companies are often more volatile than those of larger companies as a result of
several factors common to many such issuers, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information.
U.S. TREASURY OBLIGATIONS. U.S. Treasury obligations are direct obligations
of the United States which are backed by the full faith and credit of the United
States. The value of the Treasury Obligations will be adversely affected by
decreases in bond prices and increases in interest rates. Certain Treasury
Obligations may have been purchased at prices of less than their par value at
maturity, indicating a market discount. Other Treasury Obligations may have
been purchased at prices greater than their par value at maturity, indicating a
market premium. The coupon interest rate of Treasury Obligations purchased at a
market discount was lower than current market interest rates of newly issued
bonds of comparable rating and type and the coupon interest rate of Treasury
Obligations purchased at a market premium was higher than current market
interest rates of newly issued bonds of comparable rating and type. Generally,
the value of bonds purchased at a market discount will increase in value faster
than bonds purchased at a market premium if interest rates decrease.
Conversely, if interest rates increase, the value of bonds purchased at a market
discount will decrease faster than bonds purchased at a market premium.
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.
Understanding Your Investment 19
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.
PORTFOLIO CONSULTANT. The Portfolio Consultant may be unsuccessful in
identifying securities consistent with the trust's investment strategy. The
trust may not achieve its objective if this happens.
EXCHANGE-TRADED FUNDS
Exchange-traded funds are investment pools that hold other securities. The
ETFs that may be included in the trust are open-end funds or UITs registered
under the Investment Company Act of 1940 and HOLDRs that issue shares that are
approved for listing and trading on a national securities exchange. HOLDRs are
depositary receipts that represent an undivided beneficial ownership in the
stocks of a group of specified companies selected according to a defined
strategy. Unlike typical open-end funds or UITs, ETFs generally do not sell or
redeem their individual shares at net asset value. ETFs generally sell and
redeem shares in large blocks (often known as "Creation Units"), however the
sponsor does not intend to sell or redeem ETF shares in this manner. In
addition, securities exchanges list ETF shares for trading, which allows
investors to purchase and sell individual ETF shares among themselves at market
prices throughout the day. The trust will purchase and sell ETF shares on these
securities exchanges. ETFs therefore possess characteristics of traditional
open-end funds and UITs, which issue redeemable shares, and of corporate common
stocks, which generally issue shares that trade at negotiated prices on
securities exchanges and are not redeemable.
ETFs can provide exposure to broad-based indices, growth and value styles,
market cap segments, sectors and industries, and specific countries or regions
of the world. The securities comprising ETFs may be common equity securities or
fixed income securities. In general, ETFs contain anywhere from fewer than 20
securities to more than 1000 securities. As a result, investors in ETFs (and
investors in the trust) obtain exposure to a much greater number of securities
than an individual investor would typically be able to obtain on their own. The
performance of ETFs is generally highly correlated with the indices or sectors
which they are designed to track.
Only the trustee may vote the shares of the 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 Advisors Asset Management, Inc. (as depositor/sponsor, evaluator and
supervisor) and The Bank of New York Mellon (as trustee). 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
20 Understanding Your Investment
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 securities of
companies involved in aspects of the gold industry and ETFs invested in such
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.
Covering Securities may also be called pursuant to the LEAPS(R) prior to the
trust's mandatory termination date. When your trust sells securities, the
composition and diversity of the securities in the portfolio may be altered. If
a public tender offer has been made for a security or a merger, acquisition or
similar transaction has been announced affecting a security, the trustee may
either sell the security or accept a tender offer if the supervisor determines
that the action is in the best interest of unitholders. The trustee will
distribute any cash proceeds to unitholders. If your trust receives securities
or other property, it will either hold the securities or property in the
portfolio or sell the securities or property and distribute the proceeds. If
any contract for the purchase of securities fails, the sponsor will refund the
cash and sales fee attributable to the failed contract to unitholders on or
before the next distribution date unless substantially all of the moneys held to
cover the purchase are reinvested in substitute securities in accordance with
the trust agreement. The sponsor may direct the reinvestment of security sale
proceeds if the sale is the direct result of serious adverse credit factors
which, in the opinion of the sponsor, would make retention of the securities
detrimental to the trust. In such a case, the sponsor may, but is not obligated
to, direct the reinvestment of sale proceeds in any other securities that meet
the criteria for inclusion in the trust on the trust's inception date. The
sponsor may also instruct the trustee to take action necessary to ensure that
the portfolio continues to satisfy the qualifications of a regulated investment
company.
We will increase the size of your trust as we sell units. When we create
additional units, we will seek to replicate the existing portfolio. Any
additional Covering Securities deposited will be subject to the LEAPS(R) with
the same terms as the LEAPS(R) initially deposited. 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.
Pursuant to an exemptive order, your trust may be able to purchase securities
from other trusts that we sponsor when we create additional units. Your trust
may also be able to sell securities to other trusts that we sponsor to satisfy
unit redemption, pay deferred sales charges or expenses, in connection with
periodic tax compliance or
Understanding Your Investment 21
in connection with the termination of your trust. The exemption may enable each
trust to eliminate commission costs on these transactions. The price for those
securities will be the closing price on the sale date on the exchange where the
securities are principally traded as certified by us to 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 scheduled mandatory termination date set forth under "Essential
Information" in the "Investment Summary" section will be subsequent to the
expiration of the LEAPS(R). If the LEAPS(R) are exercised prior to the
expiration, the trust will receive cash; if the LEAPS(R) are not exercised, the
trust will continue to hold the Covering Securities in the portfolio. If the
trust is terminated early, the trustee will either sell the Covering Securities
subject to LEAPS(R) or enter into a closing purchase transaction as a result of
which the LEAPS(R) will be cancelled and then sell the underlying Covering
Securities.
The trustee will notify you of any termination and sell any remaining
securities. The trustee will send your final distribution to you within a
reasonable time following liquidation of all the securities after deducting
final expenses. Your termination distribution may be less than the price you
originally paid for your units.
THE SPONSOR. The sponsor of the trust is Advisors Asset Management, Inc. 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 unit investment trust division at
8100 East 22nd Street North, Building 800, Suite 102, Wichita, Kansas 67226 or
by using the contacts listed on the back cover of this prospectus. AAM 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
22 Understanding Your Investment
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 sponsor or an affiliate may use the list of securities in the trust in
its independent capacity (which may include acting as an investment adviser or
broker-dealer) and distribute this information to various individuals and
entities. The sponsor or an affiliate may recommend or effect transactions in
the securities. This may also have an impact on the price your trust pays for
the securities and the price received upon unit redemption or trust termination.
The sponsor may act as agent or principal in connection with the purchase and
sale of securities, including those held by the trust, and may act as a
specialist market maker in the securities. The sponsor may also issue reports
and make recommendations on the securities in the trust. The sponsor or an
affiliate may have participated in a public offering of one or more of the
securities in the trust. The sponsor, an affiliate or their employees may have
a long or short position in these securities or related securities. An officer,
director or employee of the sponsor or an affiliate may be an officer or
director for the issuers of the securities.
THE TRUSTEE. The Bank of New York Mellon is the trustee of your trust. Its
principal unit investment trust division office is located at 2 Hanson Place,
12th Floor, Brooklyn, New York 11217. You can contact the trustee by calling
the telephone number on the back cover of this prospectus or by writing to its
unit investment trust office. We may remove and replace the trustee in some
cases without your consent. The trustee may also resign by notifying us and
investors.
PORTFOLIO CONSULTANT. The Portfolio Consultant, Spring Mountain Capital, LP,
is a privately owned investment manager. In addition to providing portfolio
consulting services to the trust, the Portfolio Consultant provides investment
management services to funds, managed accounts for high net worth individuals
and also makes direct investments on behalf of its clients. The Portfolio
Consultant was founded in 2001 and is based in New York, New York. The
Portfolio Consultant is not an affiliate of the sponsor. The Portfolio
Consultant makes no representations that the portfolio will achieve the
investment objectives or will be profitable or suitable for any particular
potential investor. The Portfolio Consultant cannot forecast or guarantee
future results and many risk factors, including but not limited to market
fluctuations, may effect the Portfolio Consultant's portfolio selection and the
portfolio's performance. Potential investors should consult with their tax and
legal advisers before making such an investment. The Portfolio Consultant may
use the list of securities in the portfolio in its independent capacity as an
investment adviser and distribute this information to various individuals and
entities. The Portfolio Consultant may recommend to other clients or otherwise
effect transactions in the securities held by the trust. This may have an
adverse effect on the prices of the securities. This also may have an impact on
the price the trust pays for the securities and the price received upon unit
redemptions or liquidation of the securities. The Portfolio Consultant also
issues reports and makes recommendations on securities, which may include the
securities in the trust. Neither the Portfolio Consultant nor the sponsor
manages the trust. Opinions expressed by the Portfolio Consultant are not
necessarily those of the sponsor, and may not actually come to pass. The
Portfolio Consultant is being compensated for its portfolio consulting services,
including selection of this
Understanding Your Investment 23
trust portfolio. A portion of this compensation is paid by the trust as part of
the trust's organization costs and the remainder will be paid by the sponsor.
The Portfolio Consultant has not independently verified, and shall have no
liability for determining whether the bond selection criteria is appropriate for
the investment strategy.
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 3.10%
$50,000 - $99,999 2.85
$100,000 - $249,999 2.60
$250,000 - $499,999 2.30
$500,000 - $999,999 2.20
$1,000,000 or more 1.75
We apply these concessions or agency commissions as a percent of the public
offering price per unit at the time of the transaction. 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 2.15% 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 Fee Accounts subject to a Wrap Fee.
Broker-dealers and other firms that sell units of certain unit investment
trusts for which AAM acts as sponsor are eligible to receive additional
compensation for volume sales. The sponsor offers two separate volume
concession structures for certain trusts that are referred to as "Volume
Concession A" and "Volume Concession B." The trust offered in this prospectus
is a Volume Concession A trust. Broker-dealers and other firms that sell units
of any Volume Concession A trust are eligible to receive the additional
compensation described below. Such payments will be in addition to the regular
concessions paid to firms as set forth in the applicable trust's prospectus.
The additional concession is based on total initial offering period sales of all
Volume Concession A trusts during a calendar quarter as set forth in the
following table:
INITIAL OFFERING PERIOD SALES VOLUME
DURING CALENDAR QUARTER CONCESSION
---------------------------------------------------------
Less than $10,000,000 0.000%
$10,000,000 but less than $25,000,000 0.050
$25,000,000 but less than $50,000,000 0.100
$50,000,000 but less than $75,000,000 0.110
$75,000,000 but less than $100,000,000 0.120
$100,000,000 but less than $250,000,000 0.125
$250,000,000 but less than $500,000,000 0.135
$500,000,000 or more 0.150
This volume concession will be paid on units of all Volume Concession A
trusts sold in the initial offering period, except as described below. For a
trust to be eligible for this additional Volume Concession A compensation for
calendar quarter sales, the trust's prospectus must include disclosure related
to this additional Volume Concession A compensation; a trust is not eligible for
this additional Volume Concession A compensation if the prospectus for such
trust does not include disclosure related to this additional Volume Concession A
compensation. Broker-dealer firms will not receive additional compensation
unless they sell at least $10.0 million of units
24 Understanding Your Investment
of Volume Concession A trusts during a calendar quarter. For example, if a firm
sells $9.5 million of units of Volume Concession A trusts in the initial
offering period during a calendar quarter, the firm will not receive any
additional compensation with respect to such trusts. Once a firm reaches a
particular breakpoint during a quarter, the firm will receive the stated volume
concession on all initial offering period sales of Volume Concession A trusts
during the applicable quarter. For example, if a firm sells $12.5 million of
units of Volume Concession A trusts in the initial offering period during a
calendar quarter, the firm will receive additional compensation of 0.05% of
$12.5 million and if a firm sells $27.0 million of units of Volume Concession A
trusts in the initial offering period during a calendar quarter, the firm will
receive additional compensation of 0.100% of $27.0 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 currently 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. A number of factors are considered in determining
whether to pay these additional amounts. Such factors may include, but are not
limited to, the level or type of services provided by the intermediary, the
level or expected level of sales of our products by the intermediary or its
agents, the placing of our products on a preferred or recommended product list
and access to an intermediary's personnel. 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 information about the breakdown of
unit sales among an intermediary's representatives or offices, obtaining shelf
space in broker-dealer firms and similar activities designed to promote the sale
of our products. We make such payments to a substantial majority of
intermediaries that sell our products. We may also make certain payments to, or
on behalf of, intermediaries to defray a portion of their costs incurred for the
purpose of facilitating unit sales, such as the costs of developing or
purchasing trading systems to process unit trades. Payments of such additional
compensation described in this paragraph and the volume concessions described
above, some of which may be characterized as "revenue sharing," may create an
incentive for financial intermediaries and their agents to sell or recommend our
products, including this trust, over other products. These arrangements will
not change the price you pay for your units.
We generally register units for sale in various states in the U.S. We do not
register units for sale in any foreign country. This prospectus does not
constitute an offer of units in any state or country where units cannot be
offered or sold lawfully. We may reject any order for units in whole or in
part.
Understanding Your Investment 25
We may gain or lose money when we hold units in the primary or secondary
market due to fluctuations in unit prices. The gain or loss is equal to the
difference between the price we pay for units and the price at which we sell or
redeem them. We may also gain or lose money when we deposit securities to
create units. The amount of our profit or loss on the initial deposit of
securities into the trust is shown in the "Notes to Portfolio."
TAXES
This section summarizes some of the main U.S. federal income tax consequences
of owning units of the trust. This section is current as of the date of this
prospectus. Tax laws and interpretations change frequently, and these summaries
do not describe all of the tax consequences to all taxpayers. For example,
these summaries generally do not describe your situation if you are a
corporation, a non-U.S. person, a broker/dealer, or other investor with special
circumstances. In addition, this section does not describe your state, local or
foreign tax consequences.
This federal income tax summary is based in part on the advice of counsel to
the sponsor. The Internal Revenue Service could disagree with any conclusions
set forth in this section. In addition, our counsel was not asked to review,
and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the trust. This may not be
sufficient for you to use for the purpose of avoiding penalties under federal
tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.
TRUST STATUS. The trust intends to qualify as a "regulated investment
company" under the federal tax laws. If the trust qualifies as a regulated
investment company and distributes its income as required by the tax law, the
trust generally will not pay federal income taxes.
DISTRIBUTIONS. Trust distributions are generally taxable. This is true even
with respect to distributions from the trust that are derived from tax-exempt
income from ETFs that the trust invests in. After the end of each year, you
will receive a tax statement that separates your trust's distributions into
three categories, ordinary income distributions, capital gains dividends and
return of capital. 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. Under the "Health Care and Education Reconciliation Act
of 2010," income from the trust may also be subject to a new 3.8 percent
"medicare tax" imposed for taxable years beginning after 2012. This tax will
generally apply to
26 Understanding Your Investment
your net investment income if your adjusted gross income exceeds certain
threshold amounts, which are $250,000 in the case of married couples filing
joint returns and $200,000 in the case of single individuals.
OPTIONS. As part of its portfolio, the trust may write one or more call
options on certain stock or stock indexes. Generally premiums received for
writing options are not taxable, but instead are taxed when the option expires,
is exercised or is deemed to be sold. Thus, the amounts of the premiums will
generally be taken into account at that time in determining the amount of
dividends to be paid to the unitholder. These amounts may be part of the
dividends taxed as ordinary income or those taxed as long-term capital gain,
depending on the circumstances. Further, the trust's transaction in options
will be subject to special provisions of the Internal Revenue Code that, among
other things, may affect the character of gains and losses realized by the trust
(i.e., may affect whether gains or losses are ordinary or capital, or short-term
or long- term), may affect the amount of dividends which may be taken into
account as a dividend which is eligible for the capital gains tax rates, may
accelerate recognition of income to the trust and may defer trust losses. These
rules could, therefore, affect the character, amount and timing of distributions
to unitholders. These provisions also (a) may require the trust to mark-to-
market certain types of the positions in its portfolio (i.e., treat them as if
they were closed out), and (b) may cause the trust to recognize income without
receiving cash with which to make distributions in amounts necessary to satisfy
the distribution requirements for qualifying to be taxed as a regulated
investment company and for avoiding excise taxes.
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.
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 20% for taxpayers in the 39.6% tax bracket, 15% for taxpayers in the
25%, 28%, 33% and 35% tax brackets and 0% for taxpayers in the 10% and 15% tax
brackets.
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
Understanding Your Investment 27
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. 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 capital gains
tax rates.
EXCHANGES. If you elect to have your proceeds from your trust rolled over
into a future trust, the exchange would generally be considered a sale for
federal income tax purposes.
DEDUCTIBILITY OF TRUST EXPENSES. Expenses incurred and deducted by your
trust will generally not be treated as income taxable to you. In some cases,
however, you may be required to treat your portion of these trust expenses as
income. In these cases you may be able to take a deduction for these expenses.
However, certain miscellaneous itemized deductions, such as investment expenses,
may be deducted by individuals only to the extent that all of these deductions
exceed 2% of the individual's adjusted gross income. Some individuals may also
be subject to further limitations on the amount of their itemized deductions,
depending on their 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.
INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS. 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. Dividends paid by PFICs will not be treated as qualified
dividend income.
FOREIGN INVESTORS. If you are a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership,
28 Understanding Your Investment
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 properly
reports 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 reported 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. In the case of
dividends with respect to taxable years of the trust beginning prior to 2014,
distributions from the trust that are properly reported by the trust as an
interest-related dividend attributable to certain interest income received by
the trust or as a short-term capital gain dividend attributable to certain net
short-term capital gain income received by the trust may not be subject to U.S.
federal income taxes, including withholding taxes when received by certain
foreign investors, provided that the trust makes certain elections and certain
other conditions are met. In addition, distributions in respect of shares after
December 31, 2013 may be subject to a U.S. withholding tax of 30% in the case of
distributions to (i) certain non-U.S. financial institutions that have not
entered into an agreement with the U.S. Treasury to collect and disclose certain
information and are not resident in a jurisdiction that has entered into such an
agreement with the U.S. Treasury and (ii) certain other non-U.S. entities that
do not provide certain certifications and information about the entity's U.S.
owners. Dispositions of units by such persons may be subject to such
withholding after December 31, 2016. You should also consult your tax advisor
with respect to other U.S. tax withholding and reporting requirements.
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 $0.05 per unit. The trustee will deduct this
amount from your trust's assets as of the close of the initial offering period.
No portion of this fee is applied to the payment of distribution expenses or as
compensation for sales efforts. This fee will not be deducted from proceeds
received upon a repurchase, redemption or exchange of units before the close of
the initial public offering period.
Your trust will pay a fee to the trustee for its services. The trustee also
benefits when it holds cash for your trust in non-interest bearing accounts.
Your trust will reimburse us as supervisor, evaluator and sponsor for providing
portfolio supervisory services, for evaluating your portfolio and for providing
bookkeeping and administrative services. Our reimbursements may exceed the
costs of the services we provide to your trust but will not exceed the costs of
services provided to all of our unit investment trusts in any calendar year.
All of these fees may adjust for inflation without your approval.
Your trust will also pay its general operating expenses. Your trust may pay
expenses such as trustee expenses (including legal and auditing expenses),
various governmental charges, fees for
Understanding Your Investment 29
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 will pay a license fee to
Spring Mountain Capital, LP for the use of certain service marks and other
property. 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 bear the expenses of the underlying ETFs. While the
trust will not pay these expenses directly out of its assets, these expenses are
shown in the trust's annual operating expenses in the "Fees and Expenses Table"
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).
30 Understanding Your Investment
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UNITHOLDERS
ADVISORS DISCIPLINED TRUST 1049
We have audited the accompanying statement of financial condition, including the
trust portfolio on pages 5 through 7, of Advisors Disciplined Trust 1049, as of
____________, 2013, 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 Mellon, 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 ____________, 2013. 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 Advisors Disciplined
Trust 1049 as of ____________, 2013, in conformity with accounting principles
generally accepted in the United States of America.
Chicago, Illinois GRANT THORNTON LLP
____________, 2013
ADVISORS DISCIPLINED TRUST 1049
STATEMENT OF FINANCIAL CONDITION AS OF ____________, 2013
-------------------------------------------------------------------------------------------------------------
INVESTMENT IN SECURITIES
Contracts to purchase underlying securities (1)(2) . . . . . . . . . . . . . . . . . . . . . . . $
Accrued interest to first settlement date (1) . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
==========
LIABILITIES AND INTEREST OF INVESTORS
Liabilities:
Market value of call options (LEAPS(R)) (1) . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued interest payable to sponsor (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organization costs (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred sales fee (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Creation and development fee (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Interest of investors:
Cost to investors (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: initial sales fee (4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: deferred sales fee, creation and development fee and organization costs (3)(4)(5) . . .
----------
Net interest of investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
==========
Number of units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
==========
Net asset value per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
==========
<FN>
(1) Aggregate cost of the securities is based on the closing sale price
evaluations as determined by the evaluator. The trustee will advance the
amount of net interest accrued to the first settlement date to the trust
for distribution to the sponsors as unitholders of record as of such date.
The liability for the LEAPS(R) are based on their aggregate underlying
value.
(2) Cash or an irrevocable letter of credit has been deposited with the trustee
covering the funds (aggregating $800,000) necessary for the purchase of
securities in the trust represented by purchase contracts.
(3) A portion of the public offering price represents an amount sufficient to
pay for all or a portion of the costs incurred in establishing and offering
the trust. These costs have been estimated at $0.05 per unit for the
trust. A distribution will be made as of the earlier of the close of the
initial offering period or six months following the trust's inception date
to an account maintained by the trustee from which this obligation of the
investors will be satisfied. To the extent the actual organization costs
are greater than the estimated amount, only the estimated organization
costs added to the public offering price will be reimbursed to the sponsor
and deducted from the assets of the trust.
(4) The total sales fee consists of an initial sales fee, a deferred sales fee
and a creation and development fee. The initial sales fee is equal to the
difference between the maximum sales fee and the sum of the deferred sales
fee and the total creation and 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 $0.245 per unit and the creation
and development fee is equal to $0.05 per unit.
(5) The aggregate cost to investors includes the applicable sales fee assuming
no reduction of sales fees.
</FN>
Understanding Your Investment 31
CONTENTS
INVESTMENT SUMMARY
-----------------------------------------------------------------------
A concise description 2 Investment Objective
of essential information 2 Principal Investment Strategy
about the portfolio 3 Principal Risks
4 Who Should Invest
4 Essential Information
4 Fees and Expenses
5 Portfolio
UNDERSTANDING YOUR INVESTMENT
-----------------------------------------------------------------------
Detailed information to 8 The Covered Call Strategy
help you understand 9 How to Buy Units
your investment 14 How to Sell Your Units
15 Distributions
16 Investment Risks
20 Exchange-Traded Funds
20 How the Trust Works
26 Taxes
29 Expenses
30 Experts
30 Additional Information
31 Report of Independent Registered
Public Accounting Firm
31 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 ADVISORS ASSET
MANAGEMENT, INC.
(877) 858-1773
CALL THE BANK OF NEW YORK MELLON
(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:
ADVISORS DISCIPLINED TRUST 1049
Securities Act file number: 333-__________
Investment Company Act file number: 811-21056
GLOBAL GOLD
INCOME PORTFOLIO,
SERIES 2013-3Q - AN
SMC PORTFOLIO
PROSPECTUS
____________, 2013
[LOGO]
AAM
ADVISORS
ASSET MANAGEMENT
ADVISORS DISCIPLINED TRUST 1049
GLOBAL GOLD INCOME PORTFOLIO, SERIES 2013-3Q - AN SMC PORTFOLIO
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning each
trust described in the prospectus for the Advisors 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 unit investment
trust division of Advisors Asset Management, Inc. at 18925 Base Camp Road, Suite
203, Monument, Colorado 80132, at 8100 East 22nd Street North, Building 800,
Suite 102, Wichita, Kansas 67226 or by calling (877) 858-1773. This Information
Supplement is dated as of the date of the prospectus.
CONTENTS
General Information 2
Investment Objective and Policies 3
Risk Factors 5
Administration of the Trust 12
Portfolio Transactions and Brokerage Allocation 21
Purchase, Redemption and Pricing of Units 21
Taxation 27
Performance Information 29
GENERAL INFORMATION
Each trust is one of a series of separate unit investment trusts created
under the name Advisors 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 Advisors Asset
Management, Inc. (as sponsor, evaluator and supervisor) and The Bank of New York
Mellon (as trustee).
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 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 principal amounts and shares of the securities in such
trust. Thus, although additional units will be issued, each unit will generally
continue to represent the same principal amount and 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. The
Covering Securities in the trust will be subject to a contractual right, in the
form of LEAPS(R) giving the holder of the LEAPS(R) the right to buy the
corresponding security at a
-2-
predetermined price from the trust on any business day prior to the expiration
of the LEAPS(R). Neither the sponsor nor the trustee shall be liable in any way
for any failure in any of the securities. However, should any contract for the
purchase of any of the securities initially deposited in a trust fail, the
sponsor will, unless substantially all of the moneys held in the trust to cover
such purchase are reinvested in substitute securities in accordance with the
trust agreement, refund the cash and sales fee attributable to such failed
contract to all unitholders on the next distribution date.
INVESTMENT OBJECTIVE AND POLICIES
The trust seeks to provide income and limited capital appreciation by
investing in a portfolio consisting of the Covering Securities and U.S. Treasury
obligations with the Covering Securities being subject to a contractual right in
the form of LEAPS(R) (as described in the prospectus). 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.
-3-
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.
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.
Covering Securities may be called pursuant to LEAPS(R) prior to the trust's
mandatory termination date.
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, exercised, redeemed, will mature in
accordance with their terms 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 for securities other than the
Treasury Obligations must be securities of the type selected for the trust and
must not adversely affect the federal income tax status of the trust.
The Replacement Securities for failed Treasury Obligations (i) shall be
bonds, debentures, notes or other straight debt obligations (whether secured or
unsecured and whether senior or subordinated) without equity or other conversion
features, with fixed maturity dates substantially the same as those of the
Failed Securities, having no warrants or subscription privileges attached;
(ii) shall be payable in United States currency; (iii) shall not be "when, as
and if issued" obligations or restricted securities; (iv) shall be issued after
July 18, 1984 if interest thereon is United States source income; (v) shall be
issued or guaranteed by an issuer subject to or exempt from the reporting
requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934
(or similar provisions of law) or in effect guaranteed, directly or indirectly,
by means by of a lease agreement, agreement to buy securities, services or
products, or other similar commitment of the credit of such an issuer to the
payment of the Replacement Securities; and
-4-
(vi) shall not cause the units of the related trust to cease to be rated "AAA"
by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. if the units
are so rated. For the Treasury Obligations, the purchase price of the
Replacement Securities (exclusive of accrued interest) shall not exceed the
principal attributable to the Failed Securities.
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. Whether or not a Replacement Security for
a Treasury Obligation is acquired, an amount equal to the accrued interest (at
the coupon rate of the failed Treasury Obligation) will be paid to unitholders
of the trust to the date the sponsor removes the failed Treasury Obligation from
the trust if the sponsor determines not to purchase a Replacement Security or to
the date of substitution if a Replacement Security is purchased. All such
interest paid to unitholders which accrued after the date of settlement for a
purchase of units will be paid by the sponsor. In the event a Replacement
Security could not be acquired by a trust, the net annual interest income per
unit for such trust would be reduced.
To the best of the sponsor's knowledge, there is no litigation pending as
of the trust's inception in respect of any security that might reasonably be
expected to have a material adverse effect on the trust. At any time after the
trust's inception, litigation may be instituted on a variety of grounds with
respect to the securities. The sponsor is unable to predict whether any such
litigation may be instituted, or if instituted, whether such litigation might
have a material adverse effect on the trust. The sponsor and the trustee shall
not be liable in any way for any default, failure or defect in any security.
RISK FACTORS
MARKET RISK. Because the trust and the underlying ETFs 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
-5-
susceptible to general stock market movements. The value of stocks often rises
or falls rapidly and unpredictably as market confidence and perceptions of
companies change. These perceptions are based on factors including expectations
regarding government economic policies, inflation, interest rates, economic
expansion or contraction, political climates and economic or banking crises. The
value of units will fluctuate with the value of the stocks in the trust and may
be more or less than the price you originally paid for your units. As with any
investment, we cannot guarantee that the performance of the trust will be
positive over any period of time. Because the trust is unmanaged, the Trustee
will not sell stocks in response to market fluctuations as is common in managed
investments. In addition, because some trusts hold a relatively small number of
stocks, you may encounter greater market risk than in a more diversified
investment.
DIVIDENDS. Stocks represent ownership interests in a company and are not
obligations of the company. Common stockholders have a right to receive payments
from the company that is subordinate to the rights of creditors, bondholders or
preferred stockholders of the company. This means that common stockholders have
a right to receive dividends only if a company's board of directors declares a
dividend and the company has provided for payment of all of its creditors,
bondholders and preferred stockholders. If a company issues additional debt
securities or preferred stock, the owners of these securities will have a claim
against the company's assets before common stockholders if the company declares
bankruptcy or liquidates its assets even though the common stock was issued
first. As a result, the company may be less willing or able to declare or pay
dividends on its common stock.
LEAPS(R). Although you may redeem your units at any time, if you redeem
before the LEAPS(R) are exercised or expire, the value of your units may be
adversely affected by the value of the LEAPS(R). However, if LEAPS(R) are not
exercised and you hold your units until the trust's scheduled termination date,
the LEAPS(R) will have ceased to exist and the trust's portfolio will consist of
only cash or securities or a combination of each.
If you sell or redeem your units before the LEAPS(R) are exercised, or if
the trust terminates prior to its scheduled termination date and the LEAPS(R)
have not been exercised, you may not realize any appreciation in the value of
the Covering Securities because even if the Covering Securities appreciate in
value, that appreciation may be more than fully, fully or partly offset by an
increase in value in the LEAPS(R) The value of the LEAPS(R) is deducted from the
value of the trust's assets when determining the value of a unit. If the
Covering Securities decline in price, your loss may be greater than it would be
if there were no LEAPS(R) because the value of the LEAPS(R) is a reduction to
the value of the Covering Securities when calculating the value of a unit. An
increase in value of the LEAPS(R), an obligation of the trust to sell or deliver
the Covering Securities at the strike price if the LEAPS(R) are exercised by the
option holder, will reduce the value of the Covering Securities in the trust,
below the value of the Covering Securities that would otherwise be realizable if
the Covering Securities were not subject to the LEAPS(R). You should note that
even if the price of a Covering Security does not change, if the value of a
LEAPS(R) increases (for example, based on increased volatility of a Covering
Security) your unit will lose value.
The value of the LEAPS(R) reduces the value of your units. As the value of
the LEAPS(R) increases, it has a more negative impact on the value of your
units. The value of the LEAPS(R) will
-6-
also be affected by changes in the value and dividend rates of the Covering
Securities, an increase in interest rates, a change in the actual and perceived
volatility of the stock market and the Covering Securities and the remaining
time to expiration. Additionally, the value of a LEAPS(R) does not increase or
decrease at the same rate as the underlying Covering Securities (although they
generally move in the same direction). However, as a LEAPS(R) approaches its
expiration date, its value increasingly moves with the price of the Covering
Security subject to the LEAPS(R).
The strike price for each LEAPS(R) held by the trust may be adjusted
downward before the LEAPS(R) expiration triggered by certain corporate events
affecting that Covering Security. The OCC generally does not adjust option
strike prices to reflect ordinary dividends paid on the related stock but may
adjust option strike prices to reflect certain corporate events affecting the
related stock such as extraordinary dividends, stock splits, merger or other
extraordinary distributions or events. A reduction in the strike price of an
option could reduce the trust's capital appreciation potential on the related
Covering Security.
If the value of the underlying Covering Securities exceeds the strike price
of the LEAPS(R), it is likely that the option holder will exercise their right
to purchase the Covering Security subject to the LEAPS(R) from the trust. As the
LEAPS(R) may be exercised on any business day prior to their expiration,
Covering Securities may be sold to the option holders of the LEAPS(R) prior to
the termination of the trust. If this occurs, distributions from the trust will
be reduced by the amount of the dividends which would have been paid by Covering
Securities sold from the trust. In addition, the sale of Covering Securities
may, in certain circumstances, result in the early termination of the trust.
EXCHANGE TRADED FUNDS. Because the trust may invest in ETFs, you should
understand the risks of investing in ETFs before purchasing units. Shares of
ETFs may 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
ETFs may decrease. The amount of such discount from net asset value is subject
to change from time to time in response to various factors. ETFs are subject to
various risks, including management's ability to meet the ETF's investment
objective, and to manage the ETF portfolio when the underlying securities are
redeemed or sold during periods of market turmoil and as investors' perceptions
regarding ETFs or their underlying investments change. The trust and the
underlying funds have 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 the other funds, the trust incurs greater expenses than you would
incur if you invested directly in the funds.
ETFs are also face index correlation risk which is the risk that the
performance of an ETF will vary from the actual performance of the fund's target
index, known as "tracking error." This can happen due to transaction costs,
market impact, corporate actions (such as mergers and spin-offs) and timing
variances. Some funds use a technique called "representative sampling," which
means that the fund invests in a representative sample of securities in its
target index rather than all of the index securities. This could increase the
risk of tracking error.
Some of the ETFs held by the trust are open-end funds. Open-end funds of
the type held by the trust are passively-managed investment companies that are
registered under the Investment
-7-
Company Act of 1940. These open-end funds have received orders from the
Securities and Exchange Commission exempting them from various provisions of the
Investment Company Act of 1940. Regular open-end funds generally issue
redeemable securities that are issued and redeemed at a price based on the
fund's current net asset and are not traded on a securities exchange. The open-
end funds selected for the trust, however, issue shares of common stock that are
traded on a securities exchange based on negotiated prices rather than the
fund's current net asset value. These funds only issue new shares and redeem
outstanding shares in very large blocks, often called "creation units," in
exchange for an in-kind distribution of the fund's portfolio securities. Due to
a variety of cost and administrative factors, the trust will generally buy and
sell shares of its underlying open-end funds on securities exchanges rather than
engaging in transactions in creation units. Shares of exchange-traded open-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 open-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.
Some of the ETFs held by the trust may be UITs. UITs of the type held by
the trust are passively-managed investment companies that are registered under
the Investment Company Act of 1940. These UITs differ significantly from your
trust in certain respects, even though the UITs held in the trust's portfolio
and the trust itself are registered unit investment trusts. The UITs in the
trust's portfolio have received orders from the Securities and Exchange
Commission exempting them from various provisions of the Investment Company Act
of 1940. Regular UITs, such as your trust, generally issue redeemable
securities that are issued and redeemed at a price based on the UIT's current
net asset and are not traded on a securities exchange. The UITs selected for
the trust, however, issue units that are traded on a securities exchange based
on negotiated prices rather than the UIT's current net asset value. These UITs
only issue new shares and redeem outstanding shares in very large blocks, often
called "creation units," in exchange for an in-kind distribution of the UIT's
portfolio securities. Due to a variety of cost and administrative factors, the
trust will generally buy and sell shares of its underlying UITs on securities
exchanges rather than engaging in transactions in creation units. Units of
exchange-traded UITs 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 UIT units may decrease. The amount of such discount from
net asset value is subject to change from time to time in response to various
factors.
Some of the ETFs held by the trust may be HOLDRs. HOLDRS are trusts formed
under a depositary trust agreement among The Bank of New York Mellon, as
trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, other depositors
and the owners of HOLDRS. Contrary to the other funds in your trust, a HOLDRS
trust is not a registered investment company under the Investment Company Act of
1940. HOLDRS trusts issue depositary receipts representing an undivided
beneficial ownership in the common stock of their underlying companies. HOLDRS
trusts hold shares of common stock issued by a group of companies specified at
the time of the initial offering of the HOLDRS trust. HOLDRS are separate from
the underlying common stocks that are represented by a HOLDRS trust. HOLDRS
represent a beneficial ownership of the underlying securities in the HOLDRS
trust. Owners of HOLDRS, such as your trust, have the same rights and
privileges as if they owned the underlying securities beneficially outside of
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HOLDRS. Your trust, as an owner of HOLDRS, retains the right to receive any
reports and communications that the issuers of underlying securities are
required to send to beneficial owners of their securities. The HOLDRS
depositary trust agreement entitles owners of HOLDRS, such as your trust, to
receive, subject to certain limitations and net of any fees and expenses of the
trustee, any distributions of cash (including dividends), securities or property
made with respect to the underlying securities. However, any distribution of
securities by an issuer of underlying securities will generally be deposited
into the HOLDRS trust and will become part of the underlying securities unless
the distributed securities are not listed for trading on a U.S. national
securities exchange or through the Nasdaq National Market System or the
distributed securities have a Standard & Poor's Global Industry Classification
Standard ("GICS") sector classification that is different from the GICS sectors
classifications represented in the HOLDRS at the time of the distribution. In
addition, if the issuer of underlying securities offers rights to acquire
additional underlying securities or other securities, the rights may be made
available to your trust, as an owner of HOLDRS, may be disposed of or may lapse.
The underlying securities in a HOLDRS trust may change as a result of certain
corporate actions, distributions of securities by the underlying issuers or
other events. Investors only may acquire, hold or transfer HOLDRS in a round-
lot amount of 100 HOLDRS or round-lot multiples. A HOLDRS trust generally
issues additional HOLDRS on a continuous basis. HOLDRS are neither interests in
nor obligations of Merrill Lynch, Pierce, Fenner & Smith Incorporated. HOLDRS
are not interests in the Bank of New York Mellon, as trustee. A HOLDRS trust
generally does not publish or otherwise calculate the aggregate value of the
underlying securities represented by a HOLDRS receipt. HOLDRS may trade at a
discount from the aggregate value of the underlying securities in a HOLDRS trust
in the secondary market. This risk is separate and distinct from the risk that
the value of the HOLDRS may decrease. The amount of such discount from net
asset value is subject to change from time to time in response to various
factors.
GOLD COMPANIES. The trust and underlying ETFs invest significantly in
stocks of companies involved in aspects of the gold industry. Companies in the
gold industry may be involved in the mining, exploration, processing,
fabrication, production, marketing, distribution and dealing in gold and gold
royalties. Competitive pressures may have a significant effect on the financial
condition of such companies. Companies in the gold industries are highly
dependent on the price of gold bullion. These prices may fluctuate
substantially over short periods of time so the value of stock of gold companies
may be more volatile than other types of investment. In times of significant
inflation or great economic uncertainty, gold and other precious metals may
outperform other investments. However, in times of stable economic growth,
other investments may offer greater appreciation potential and the value of gold
and other precious metals may be adversely affected which could in turn affect
the value of stock of companies involved in the gold industry. Companies in
this industry may also be affected by the volatility of commodity prices,
exchange rates, import controls, worldwide competition, depletion of resources,
and mandated expenditures for safety and pollution control devices. In addition,
they may be adversely affected by technical progress, labor relations, and
governmental regulation. These companies are also at risk for environmental
damage claims.
U.S. TREASURY OBLIGATIONS. U.S. Treasury obligations are direct
obligations of the United States which are backed by the full faith and credit
of the United States. There is no guarantee that the U.S. government will be
able to satisfy its interest payment obligations to the trust over
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the life of the trust. The value of the Treasury Obligations will be adversely
affected by decreases in bond prices and increases in interest rates. Certain
Treasury Obligations may have been purchased on the trust's inception date at
prices of less than their par value at maturity, indicating a market discount.
Other Treasury Obligations may have been purchased on the Initial Date of
Deposit at prices greater than their par value at maturity, indicating a market
premium. The coupon interest rate of Treasury Obligations purchased at a market
discount was lower than current market interest rates of newly issued bonds of
comparable rating and type and the coupon interest rate of Treasury Obligations
purchased at a market premium was higher than current market interest rates of
newly issued bonds of comparable rating and type. Generally, the value of bonds
purchased at a market discount will increase in value faster than bonds
purchased at a market premium if interest rates decrease. Conversely, if
interest rates increase, the value of bonds purchased at a market discount will
decrease faster than bonds purchased at a market premium.
MARKET DISCOUNTS AND PREMIUMS. Certain of the Treasury Obligations in
certain of the trusts may have been acquired at a market discount from par value
at maturity. The coupon interest rates on the discount Treasury Obligations at
the time they were purchased and deposited in the trusts were lower than the
current market interest rates for newly issued bonds of comparable rating and
type. If such interest rates for newly issued comparable Treasury Obligations
increase, the market discount of previously issued Treasury Obligations will
become greater, and if such interest rates for newly issued comparable Treasury
Obligations decline, the market discount of previously issued Treasury
Obligations will be reduced, other things being equal. Investors should also
note that the value of Treasury Obligations purchased at a market discount will
increase in value faster than Treasury Obligations purchased at a market premium
if interest rates decrease. Conversely, if interest rates increase, the value
of Treasury Obligations purchased at a market discount will decrease faster than
Treasury Obligations purchased at a market premium. In addition, if interest
rates rise, the prepayment risk of higher yielding, premium Treasury Obligations
and the prepayment benefit for lower yielding, discount Treasury Obligation will
be reduced. A discount Treasury Obligation held to maturity will have a larger
portion of its total return in the form of taxable income and capital gain and
loss in the form of tax-exempt interest income than a comparable Treasury
Obligation newly issued at current market rates. Market discount attributable
to interest changes does not indicate a lack of market confidence in the issue.
Neither the sponsor nor the trustee shall be liable in any way for any default,
failure or defect in any of the Treasury Obligations.
Certain of the Treasury Obligations held by the trust may have been
acquired at a market premium from par value at maturity. The coupon interest
rates on the premium Treasury Obligations at the time they were purchased by the
trust were higher than the current market interest rates for newly issued
Treasury Obligations of comparable rating and type. If such interest rates for
newly issued and otherwise comparable Treasury Obligations decrease, the market
premium of previously issued Treasury Obligations will be increased, and if such
interest rates for newly issued comparable Treasury Obligations increase, the
market premium of previously issued Treasury Obligations will be reduced, other
things being equal. The current returns of Treasury Obligations trading at a
market premium are initially higher than the current returns of comparable
Treasury Obligations of a similar type issued at currently prevailing interest
rates because premium Treasury Obligations tend to decrease in market value as
they
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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 Treasury Obligation 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 Treasury Obligations have
an offering side valuation which represents a premium over par or for original
issue discount Treasury Obligations a premium over the accreted value.
FOREIGN ISSUERS. Because the trust and the underlying ETFs may invest in
foreign stocks, you should understand the additional risks involved in such
investments that differ from an investment in domestic stocks. Investments in
foreign securities may involve a greater degree of risk than those in domestic
securities. There is generally less publicly available information about foreign
companies in the form of reports and ratings similar to those that are published
about issuers in the United States. Also, foreign issuers are generally not
subject to uniform accounting, auditing and financial reporting requirements
comparable to those applicable to United States issuers. With respect to certain
foreign countries, there is the possibility of adverse changes in investment or
exchange control regulations, expropriation, nationalization or confiscatory
taxation, limitations on the removal of funds or other assets of the trust,
political or social instability, or diplomatic developments which could affect
United States investments in those countries. Moreover, industrial foreign
economies may differ favorably or unfavorably from the United States' economy in
terms of growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Foreign securities markets are generally not as developed or efficient as those
in the United States. While growing in volume, they usually have substantially
less volume than the New York Stock Exchange, and securities of some foreign
issuers are less liquid and more volatile than securities of comparable United
States issuers. Fixed commissions on foreign exchanges are generally higher than
negotiated commissions on United States exchanges. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed issuers than in the United States.
A trust may also involve the risk that fluctuations in exchange rates
between the U.S. dollar and foreign currencies may negatively affect the value
of the stocks. For example, if a foreign stock rose 10% in price but the U.S.
dollar gained 5% against the related foreign currency, a U.S. investor's return
would be reduced to about 5%. This is because the foreign currency would "buy"
fewer dollars or, conversely, a dollar would buy more of the foreign currency.
Many foreign currencies have fluctuated widely against the U.S. dollar for a
variety of reasons such as supply and demand of the currency, investor
perceptions of world or country economies, political instability, currency
speculation by institutional investors, changes in government policies, buying
and selling of currencies by central banks of countries, trade balances and
changes in interest rates. A trust's foreign currency transactions will be
conducted with foreign exchange dealers acting as principals on a spot (i.e.,
cash) buying basis. These dealers realize a profit based on the difference
between the price at which they buy the currency (bid price) and the price at
which they sell the currency (offer price). The evaluator will estimate the
currency exchange rates based on current activity in the related currency
exchange markets, however, due to the volatility of the markets and other
factors, the estimated rates may not be
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indicative of the rate a trust might obtain had the trustee sold the currency in
the market at that time.
The trust may invest in certain securities issued by entities located in
emerging markets or that conduct business in emerging markets countries.
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.
SMALL-CAP AND MID-CAP COMPANIES. Small and mid-size company stocks have
customarily involved more investment risk than large company stocks. Small and
mid-size companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large companies. Some of
these companies may distribute, sell or produce products which have recently
been brought to market and may be dependent on key personnel.
The prices of small and mid-size company securities are often more volatile
than prices associated with large company issues, and can display abrupt or
erratic movements at times, due to limited trading volumes and less publicly
available information. Also, because small and mid-size companies normally have
fewer shares outstanding and these shares trade less frequently than large
companies, it may be more difficult for a trust which contains these securities
to buy and sell significant amounts of such shares without an unfavorable impact
on prevailing market prices.
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, including that
part of the proceeds of any disposition of Treasury Obligations which represent
accrued interest, is credited by the trustee to the Income Account for the
trust. All other receipts are credited by the trustee to a separate Capital
Account for the trust. The trustee will normally distribute any income
received by a trust on each distribution date or shortly thereafter to
unitholders of record on the preceding record date. The trust will also
generally make required distributions or distributions to avoid imposition of
tax at the end of each year if it has elected to be taxed as a "regulated
investment company" for federal tax purposes. 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
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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 $1.00 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).
Because investment income payments 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.
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;
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(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;
(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;
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(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.
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
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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
maturity, liquidation, redemption or other disposition of the last of the
securities held in the trust but in no event is it to continue beyond the
mandatory termination date. If the value of a trust shall be less than the
applicable minimum value stated in the prospectus (generally 40% of the total
value of securities deposited in the trust during the initial offering period),
the trustee may, in its discretion, and shall, when so directed by the sponsor,
terminate the trust. A trust may be terminated at any time by the holders of
units representing 66 2/3% of the units thereof then outstanding. 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,
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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.
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 their pro rata
share of the balances remaining in the Income and Capital Accounts of the trust.
The sponsor may, but is not obligated to, offer for sale units of a
subsequent series of a trust at approximately the time of the mandatory
termination date. If the sponsor does offer such units for sale, unitholders
may be given the opportunity to purchase such units at a public offering price
that includes a reduced sales fee. There is, however, no assurance that units
of any new series of a trust will be offered for sale at that time, or if
offered, that there will be sufficient units available for sale to meet the
requests of any or all unitholders.
THE TRUSTEE. The trustee is The Bank of New York Mellon, a trust company
organized under the laws of New York. The Bank of New York Mellon 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 Mellon 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
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such resignation is to take effect. The sponsor upon receiving notice of such
resignation is obligated to appoint a successor trustee promptly. If, upon such
resignation, no successor trustee has been appointed and has accepted the
appointment within thirty days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
In case at any time the trustee shall not meet the requirements set forth in the
trust agreement, or shall become incapable of acting, or if a court having
jurisdiction in the premises shall enter a decree or order for relief in respect
of the trustee in an involuntary case, or the trustee shall commence a voluntary
case, under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or any receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) for the trustee or for any substantial part
of its property shall be appointed, or the trustee shall generally fail to pay
its debts as they become due, or shall fail to meet such written standards for
the trustee's performance as shall be established from time to time by the
sponsor, or if the sponsor determines in good faith that there has occurred
either (1) a material deterioration in the creditworthiness of the trustee or
(2) one or more grossly negligent acts on the part of the trustee with respect
to a trust, the sponsor, upon sixty days' prior written notice, may remove the
trustee and appoint a successor trustee, as hereinafter provided, by written
instrument, in duplicate, one copy of which shall be delivered to the trustee so
removed and one copy to the successor trustee. Notice of such removal and
appointment shall be mailed to each unitholder by the sponsor. Upon execution
of a written acceptance of such appointment by such successor trustee, all the
rights, powers, duties and obligations of the original trustee shall vest in the
successor. The trustee must be a corporation organized under the laws of the
United States, or any state thereof, be authorized under such laws to exercise
trust powers and have at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
THE SPONSOR. The sponsor of the trust is Advisors Asset Management, Inc.
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 unit investment trust division at
8100 East 22nd Street North, Building 800, Suite 102, Wichita, Kansas 67226 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. Advisors Asset Management, 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
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appointment by the successor evaluator. If upon resignation of the evaluator no
successor has accepted appointment within thirty days after notice of
resignation, the evaluator may apply to a court of competent jurisdiction for
the appointment of a successor. Notice of such resignation or removal and
appointment shall be mailed by the trustee to each unitholder.
LIMITATIONS ON LIABILITY. The sponsor, evaluator, and supervisor are
liable for the performance of their obligations arising from their
responsibilities under the trust agreement but will be under no liability to the
unitholders for taking any action or refraining from any action in good faith
pursuant to the trust agreement or for errors in judgment, except in cases of
its own gross negligence, bad faith or willful misconduct or its reckless
disregard for its duties thereunder. The sponsor shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any securities.
The trust agreement provides that the trustee shall be under no liability
for any action taken in good faith in reliance upon prima facie properly
executed documents or for the disposition of moneys, securities or certificates
except by reason of its own gross negligence, bad faith or willful misconduct,
or its reckless disregard for its duties under the trust agreement, nor shall
the trustee be liable or responsible in any way for depreciation or loss
incurred by reason of the sale by the trustee of any securities. In the event
that the sponsor shall fail to act, the trustee may act and shall not be liable
for any such action taken by it in good faith. The trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the securities or upon the interest thereof. In addition, the trust
agreement contains other customary provisions limiting the liability of the
trustee.
The trustee and unitholders may rely on any evaluation furnished by the
evaluator and shall have no responsibility for the accuracy thereof. The trust
agreement provides that the determinations made by the evaluator shall be made
in good faith upon the basis of the best information available to it, provided,
however, that the evaluator shall be under no liability to the trustee or
unitholders for errors in judgment, but shall be liable for its gross
negligence, bad faith or willful misconduct or its reckless disregard for its
obligations under the trust agreement.
EXPENSES OF THE TRUST. The sponsor will not charge a trust any fees for
services performed as sponsor. The sponsor will receive a portion of the sale
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.
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The trustee receives for its services that fee set forth in the prospectus.
The trustee's fee which is calculated and paid monthly is based on the total
number of units of the related trust outstanding as of January 1 for any annual
period, except during the initial offering period the fee will be based on the
units outstanding at the end of each month. The trustee benefits to the extent
there are funds for future distributions, payment of expenses and redemptions in
the Capital and Income Accounts since these Accounts are non-interest bearing
and the amounts earned by the trustee are retained by the trustee. Part of the
trustee's compensation for its services to a trust is expected to result from
the use of these funds.
The supervisor will charge a trust a surveillance fee for services
performed for the trust in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation received from other unit investment trusts for which the sponsor
both acts as sponsor and provides portfolio surveillance, exceed the aggregate
cost to the sponsor of providing such services. Such fee shall be based on the
total number of units of the related trust outstanding as of January 1 for any
annual period, except during the initial offering period the fee will be based
on the units outstanding at the end of each month.
For evaluation of the securities in a trust, the evaluator shall receive an
evaluation fee in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation from other unit investment trusts for which the sponsor acts as
sponsor and provides evaluation services, exceed the aggregate cost of providing
such services. Such fee shall be based on the total number of units of the
related trust outstanding as of January 1 for any annual period, except during
the initial offering period the fee will be based on the units outstanding at
the end of each month.
For providing bookkeeping and administrative services to a trust, the
sponsor shall receive an administration fee in an amount not to exceed that
amount set forth in the prospectus but in no event will such compensation, when
combined with all compensation from other unit investment trusts for which the
sponsor acts as sponsor and provides evaluation services, exceed the aggregate
cost of providing such services. Such fee shall be based on the total number of
units of the related trust outstanding as of January 1 for any annual period,
except during the initial offering period the fee will be based on the units
outstanding at the end of each month.
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
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and costs of any action taken by the trustee to protect the trust or the rights
and interests of the unitholders; (e) indemnification of the trustee for any
loss, liability or expense incurred by it in the administration of the trust not
resulting from negligence, bad faith or willful misconduct on its part or its
reckless disregard of its obligations under the trust agreement;
(f) indemnification of the sponsor for any loss, liability or expense incurred
in acting in that capacity without gross negligence, bad faith or willful
misconduct or its reckless disregard for its obligations under the trust
agreement; and (g) expenditures incurred in contacting unitholders upon
termination of the trust. The fees and expenses set forth herein are payable
out of a trust and, when owing to the trustee, are secured by a lien on the
trust. If the balances in the Income and Capital Accounts are insufficient to
provide for amounts payable by the trust, the trustee has the power to sell
securities to pay such amounts. These sales may result in capital gains or
losses to unitholders. A trust may pay the costs of updating its registration
statement each year.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
When a trust sells securities, the composition and diversity of the
securities in the trust may be altered. In order to obtain the best price for a
trust, it may be necessary for the sponsor to specify minimum amounts in which
blocks of securities are to be sold. In effecting purchases and sales of a
trust's portfolio securities, the sponsor may direct that orders be placed with
and brokerage commissions be paid to brokers, including brokers which may be
affiliated with the trust, the sponsor or dealers participating in the offering
of units.
PURCHASE, REDEMPTION AND PRICING OF UNITS
PUBLIC OFFERING PRICE. Units of a trust are offered at the public offering
price thereof. During the initial offering period, the public offering price
per unit is equal to the net asset value per unit plus the applicable sales fee
referred to in the prospectus plus organization costs plus accrued interest, if
any. In calculating the net asset value per unit, the value of the Covering
Securities is reduced by the value of the LEAPS(R). The initial sales fee is
equal to the difference between the maximum 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 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 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 cash or 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 Portfolio Consultant's security selection
fee, 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.
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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 "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: for the Covering Securities and
LEAPS(R), the evaluation will generally be based on the last sale price on for
securities traded on a national securities exchange or U.S. options 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. For the Treasury Obligations,
The value is generally determined during the initial offering period based on
the aggregate offersing side evaluation. After the initial offering period
ends, the value of the Treasury Obligations is generally determined based on the
bid side evaluations. The aggregate bid and offering side evaluations of the
securities shall be determined (a) on the basis of current bid or offering
prices of the securities, (b) if bid or offering prices are not available for
any particular security, on the basis of current bid or offering prices for
comparable securities, (c) by determining the value of securities on the bid or
offer side of the market by appraisal, or (d) by any combination of the above.
The foregoing evaluations and computations shall be made as of the close of
regular trading on the New York Stock Exchange, on each business day commencing
with the trust's inception date of the securities, effective for all sales made
during the preceding 24-hour period.
The interest on the Treasury Obligations deposited in a trust, less the
related estimated fees and expenses, will accrue daily. The amount of net
interest income which accrues per unit may change as securities mature or are
redeemed, exchanged or sold, or as the expenses of a trust change or the number
of outstanding units of a trust changes.
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Although payment is normally made three business days following the order
for purchase, payments may be made prior thereto. A person will become the
owner of units on the date of settlement provided payment has been received.
Cash, if any, made available to the sponsor prior to the date of settlement for
the purchase of units may be used in the sponsor's business and may be deemed to
be a benefit to the sponsor, subject to the limitations of the Securities
Exchange Act of 1934.
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest
on a Treasury Obligation from the last day on which interest thereon was paid.
Interest on Treasury Obligations generally is paid monthly or semi-annually
although a trust accrues such interest daily. Because of this, a trust always
has an amount of interest earned but not yet collected by the trustee. For this
reason, with respect to sales settling subsequent to the first settlement date,
the public offering price of units of a trust will have added to it the
proportionate share of accrued interest to the date of settlement. Unitholders
will receive on the next distribution date of a trust the amount, if any, of
accrued interest paid on their units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the public offering price in the sale of units to
the public, the trustee will advance the amount of accrued interest as of the
first settlement date and the same will be distributed to the sponsor as the
unitholder of record as of the first settlement date. Consequently, the amount
of accrued interest to be added to the public offering price of units will
include only accrued interest from the first settlement date to the date of
settlement, less any distributions from the Income Account subsequent to the
first settlement date.
Because of the varying interest payment dates of securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the applicable trusts and distributed to unitholders.
Therefore, there will always remain an item of accrued interest that is added to
the value of the units. If a unitholder sells or redeems all or a portion of
his units, he will be entitled to receive his proportionate share of the accrued
interest from the purchaser of his units. Since the trustee has the use of the
funds held in the Income Account for distributions to unitholders and since such
account is non-interest-bearing to unitholders, the trustee benefits thereby.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. While the value
of Treasury Obligations for purposes of calculating the net asset value of units
during the initial offering period will generally be determined on the basis of
the current offering prices of the Treasury Obligations, after the initial
offering period the value of the Treasury Obligation for purposes of calculating
net asset value of units will generally be determined on the basis of the
current bid prices of the Treasury Obligations. As of the close of business on
the business day before the trust's inception date, the public offering price
per unit exceeded the redemption price at which units could have been redeemed
by the amount of the sales fee. The bid prices on Treasury Obligations similar
to those in the trust are lower than the offering prices thereof. For this
reason, among others (including fluctuations in the market prices of the
securities and the fact that the public offering price includes a sales fee),
the amount realized by a unitholder upon any redemption of units may be less
than the price paid for such units.
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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 Financial Industry Regulatory Authority, Inc. and through others. Sales
may be made to or through dealers at prices which represent discounts from the
public offering price as set forth in the prospectus. Certain commercial banks
may be making units available to their customers on an agency basis. The
sponsor reserves the right to change the discounts from time to time.
We may provide, at our own expense and out of our own profits, additional
compensation and benefits to broker-dealers who sell shares of units of this
trust and our other products. This compensation is intended to result in
additional sales of our products and/or compensate broker-dealers and financial
advisors for past sales. We may make these payments for marketing, promotional
or related expenses, including, but not limited to, expenses of entertaining
retail customers and financial advisors, advertising, sponsorship of events or
seminars, obtaining shelf space in broker-dealer firms and similar activities
designed to promote the sale of the our products. These arrangements will not
change the price you pay for your units.
The sponsor reserves the right to reject, in whole or in part, any order
for the purchase of units.
PROFITS OF SPONSOR. The sponsor will receive gross sales fees equal to the
percentage of the offering price of the units of such trusts stated in the
prospectus and will pay a portion of such sales fees to dealers and agents. In
addition, the sponsor may realize a profit or a loss resulting from the
difference between the purchase prices of the securities to the sponsor and the
cost of such securities to a trust. The sponsor may also realize profits or
losses with respect to securities deposited in a trust which were acquired from
underwriting syndicates of which the sponsor was a member. An underwriter or
underwriting syndicate purchases securities from the issuer on a negotiated or
competitive bid basis, as principal, with the motive of marketing such
securities to investors at a profit. The sponsor may realize additional profits
or losses during the initial offering period on unsold units as a result of
changes in the daily evaluation of the securities in a trust.
MARKET FOR UNITS. After the initial offering period, while not obligated
to do so, the sponsor may, subject to change at any time, maintain a market for
units of the trust offered hereby and to continuously offer to purchase said
units at the net asset value determined by the evaluator, provided that the
repurchase price will not be reduced by 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 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
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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.
Unitholders must sign the request exactly as their names appear on the records
of the trustee. 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.
Redemption shall be made by the trustee no later than the seventh day
following the day on which a tender for redemption is received (the "Redemption
Date") by payment of cash equivalent to the redemption price, determined as set
forth below under "Computation of Redemption Price," as of the close of regular
trading on the New York Stock Exchange next following such tender, multiplied by
the number of units being redeemed. Any units redeemed shall be canceled and
any undivided fractional interest in the related trust extinguished. The price
received upon redemption might be more or less than the amount paid by the
unitholder depending on the value of the securities in the trust at the time of
redemption. Unitholders who sell or redeem units prior to such time as the
entire 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.
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,
the size of a trust will be, and the diversity of a trust may be, reduced but
each remaining unit will continue to represent approximately the same
proportional interest in each security. Sales may be required at a time when
securities would not otherwise be sold and may result in lower prices than might
otherwise be realized. The price received upon redemption may be more or less
than the amount paid by the unitholder depending on the value of the securities
in the portfolio at the time of redemption.
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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; (2) the aggregate value of each issue of the securities held in
the trust as determined by the evaluator as described above (including a
reduction in the value of the Covering Securities by the value of the
LEAPS(R)); and (3) interest accrued and unpaid on the securities in the
trust as of the date of computation;
B. Deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the trust and for which no deductions
have been previously made for the purpose of additions to the Reserve
Account; (2) an amount representing estimated accrued expenses, including
but not limited to fees and expenses of the trustee (including legal and
auditing fees), the evaluator, the sponsor and counsel, if any; (3) cash
held for distribution to unitholders of record as of the business day prior
to the evaluation being made; and (4) other liabilities incurred by the
trust, provided that the redemption price will not be reduced by any
remaining creation and development fee or organization costs during the
initial offering period; and
C. Finally dividing the results of such computation by the number of units of
the trust outstanding as of the date thereof.
RETIREMENT PLANS. A trust may be suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other qualified retirement
plans. Generally, capital gains and income received under each of the foregoing
plans are deferred from Federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some
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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. Units may be purchased 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.
TAXATION
The prospectus contains a discussion of certain U.S. federal income tax
issues concerning your trust and the purchase, ownership and disposition of
trust units. The discussion below supplements the prospectus discussion and is
qualified in its entirety by the prospectus discussion. Prospective investors
should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of trust units, as well
as the tax consequences arising under the laws of any state, locality, non-U.S.
country, or other taxing jurisdiction.
The federal income tax summary below and in the prospectus is based in part
on the advice of counsel to your trust. The Internal Revenue Service could
disagree with any conclusions set forth in these discussions. In addition, our
counsel was not asked to review, and has not reached a conclusion with respect
to the federal income tax treatment of the assets to be held by your trust. This
may not be sufficient for prospective investors to use for the purpose of
avoiding penalties under federal tax law.
If so indicated in the prospectus, your trust intends (i) to elect and (ii)
to qualify annually as a regulated investment company under the Code and to
comply with applicable distribution requirements so that it will not pay federal
income tax on income and capital gains distributed to its unitholders.
To qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies, your trust must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies, and net income from certain publicly traded partnerships; (b)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the trust's assets is represented by
cash and cash items (including receivables), U.S. government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer generally limited for the purposes of
this calculation to an amount not greater than 5% of the value of the trust's
total assets and not greater than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities (other than U.S. government securities or the
securities of other
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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 (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
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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 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.
-29-
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The consents of the initial evaluator, independent public accountants and
legal counsel
The following exhibits:
1.1 Trust Agreement (to be filed by amendment).
1.1.1 Standard Terms and Conditions of Trust (to be filed by amendment).
1.2 Certificate of Amendment of Certificate of Incorporation and Certificate
of Merger of Advisors Asset Management, Inc. Reference is made to
Exhibit 1.2 to the Registration Statement on Form S-6 for Advisors
Disciplined Trust 647 (File No. 333-171079) as filed on January 6, 2011.
1.3 Bylaws of Advisors Asset Management, Inc. Reference is made to
Exhibit 1.3 to the Registration Statement on Form S-6 for Advisors
Disciplined Trust 647 (File No. 333-171079) as filed on January 6, 2011.
1.5 Form of Dealer Agreement. Reference is made to Exhibit 1.5 to the
Registration Statement of Form S-6 for Advisors Disciplined Trust 262
(File No. 333-150575) as filed of June 17, 2008.
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).
3.3 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 Advisors Asset Management, Inc. Reference is
made to Exhibit 6.1 to the Registration Statement on Form S-6 for
Advisors Disciplined Trust 736 (File No. 333-174382) as filed on
August 18, 2011.
7.1 Power of Attorney. Reference is made to Exhibit 7.1 to the Registration
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Advisors Disciplined Trust 1049 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 19th day of April, 2013.
ADVISORS DISCIPLINED TRUST 1049
By ADVISORS ASSET MANAGEMENT, 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 April 19, 2013 by the following
persons in the capacities indicated:
SIGNATURE TITLE
Scott I. Colyer Director of Advisors Asset )
Management, Inc. )
Lisa A. Colyer Director of Advisors Asset )
Management, Inc. )
James R. Costas Director of Advisors Asset )
Management, Inc. )
Christopher T. Genovese Director of Advisors Asset )
Management, Inc. )
Randy J. Pegg Director of Advisors Asset )
Management, Inc. )
R. Scott Roberg Director of Advisors Asset )
Management, Inc. )
S-2
Jack Simkin Director of Advisors Asset )
Management, Inc. )
Andrew Williams Director of Advisors Asset )
Management, 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.
S-3