Registration No. 333-279412
1940 Act No. 811-05903
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to 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:
FT 11497
B.Name of depositor:
FIRST TRUST PORTFOLIOS L.P.
C.Complete address of
depositor's principal executive offices:
120 East Liberty Drive
Suite 400
Wheaton, Illinois 60187
D.Name and complete address
of agents for service:
| |
Copy to: |
| |
|
| JAMES A. BOWEN |
ERIC F. FESS |
| c/o First Trust Portfolios L.P. |
c/o Chapman and Cutler LLP |
| 120 East Liberty Drive |
320 South Canal Street |
| Suite 400 |
27th Floor |
| Wheaton, Illinois 60187 |
Chicago, Illinois 60606 |
E.Title and Amount of
Securities Being Registered:
An indefinite number of Units pursuant to Rule 24f-2 promulgated
under the Investment Company Act of 1940, as amended.
F.Approximate date of
proposed sale to public:
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 July 2, 2024 at 2:00 p.m. pursuant to Rule 487.
The registrant
hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
________________________________
FT 60/40 Target Income Portfolio, Series 3
FT 11497
FT 11497 is a series of a unit investment trust, the FT Series. FT 11497
consists of a single portfolio known as FT 60/40 Target Income Portfolio,
Series 3 (the "Trust"). The Trust invests in a diversified portfolio of shares
("Securities") issued by exchange-traded funds ("ETFs" or "Funds"), which are
advised by First Trust Advisors L.P., an affiliate of the Trust's Sponsor,
First Trust Portfolios L.P. An investment can be made in the underlying ETFs
directly rather than through the Trust. These direct investments can be made
without paying the sales charge, operating expenses and organizational costs
of the Trust. Certain of the ETFs invest in high-yield securities. See "Risk
Factors" for a discussion of the risks of investing in high-yield securities
or "junk" bonds. The Trust seeks current monthly income, with capital
appreciation as a secondary objective.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FIRST TRUST(R)
800-621-1675
The date of this prospectus is July 2, 2024
Table of Contents
Summary of Essential Information 3
Fee Table 4
Report of Independent Registered Public Accounting Firm 5
Statement of Net Assets 6
Schedule of Investments 7
The FT Series 8
Portfolio 9
Risk Factors 10
Public Offering 18
Distribution of Units 21
The Sponsor's Profits 22
The Secondary Market 22
How We Purchase Units 22
Expenses and Charges 22
Tax Status 23
Retirement Plans 25
Rights of Unit Holders 25
Income and Capital Distributions 26
Redeeming Your Units 27
Investing in a New Trust 28
Removing Securities from the Trust 28
Amending or Terminating the Indenture 29
Information on the Sponsor and Trustee 30
Other Information 31
Page 2
Summary of Essential Information (Unaudited)
FT 60/40 Target Income Portfolio, Series 3
FT 11497
At the Opening of Business on the Initial Date of Deposit-July 2, 2024
Sponsor: First Trust Portfolios L.P.
Trustee: The Bank of New York Mellon
Initial Number of Units (1) 16,780
Fractional Undivided Interest in the Trust per Unit (1) 1/16,780
Public Offering Price:
Public Offering Price per Unit (2) $ 10.000
Less Initial Sales Charge per Unit (3) (.000)
__________
Aggregate Offering Price Evaluation of Securities per Unit (4) 10.000
Less Deferred Sales Charge per Unit (3) (.150)
__________
Redemption Price per Unit (5) 9.850
Less Organization Costs per Unit (5) (.039)
__________
Net Asset Value per Unit $ 9.811
==========
Cash CUSIP Number 30336H 104
Reinvestment CUSIP Number 30336H 112
Fee Account Cash CUSIP Number 30336H 120
Fee Account Reinvestment CUSIP Number 30336H 138
Ticker Symbol FCWEIX
First Settlement Date July 3, 2024
Mandatory Termination Date (6) October 7, 2025
Income Account Distribution Record Date Tenth day of each month, commencing August 10, 2024.
Income Account Distribution Date (7) Twenty-fifth day of each month, commencing August 25, 2024.
______________
(1) As of the Evaluation Time (defined below in footnote 4) on the Initial
Date of Deposit, we may adjust the number of Units of the Trust so that the
Public Offering Price per Unit will equal approximately $10.00. If we make
such an adjustment, the fractional undivided interest per Unit will vary from
the amount indicated above.
(2) The Public Offering Price shown above reflects the value of the Securities
on the business day prior to the Initial Date of Deposit. No investor will
purchase Units at this price. The price you pay for your Units will be based
on their valuation at the Evaluation Time on the date you purchase your Units.
On the Initial Date of Deposit, the Public Offering Price per Unit will not
include any accumulated dividends on the Securities. After this date, a pro
rata share of any accumulated dividends on the Securities will be included.
(3) You will pay a maximum sales charge of 1.50% of the Public Offering Price
per Unit (equivalent to 1.50% of the net amount invested) which consists of an
initial sales charge and a deferred sales charge. The sales charges are
described in the "Fee Table."
(4) Each listed Security is valued at its last closing sale price at the
Evaluation Time on the business day prior to the Initial Date of Deposit. If a
Security is not listed, or if no closing sale price exists, it is valued at
its closing ask price on such date. See "Public Offering-The Value of the
Securities." Evaluations for purposes of determining the purchase, sale or
redemption price of Units are made as of the close of trading on the New York
Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on each day on
which it is open (the "Evaluation Time").
(5) The estimated organization costs per Unit will be deducted from the assets
of the Trust at the end of the initial offering period. If Units are redeemed
prior to the close of the initial offering period, these fees will not be
deducted from the redemption proceeds. See "Redeeming Your Units."
(6) See "Amending or Terminating the Indenture."
(7) The Trustee will distribute money from the Income and Capital Accounts
monthly on the twenty-fifth day of each month to Unit holders of record on the
tenth day of each month if the amount available for distribution from an
account equals at least $1.00 per 100 Units. See "Income and Capital
Distributions."
Page 3
Fee Table (Unaudited)
This Fee Table describes the fees and expenses that you may, directly or
indirectly, pay if you buy and hold Units of the Trust. See "Public Offering"
and "Expenses and Charges." Although the Trust has a term of approximately 15
months and is a unit investment trust rather than a mutual fund, this
information allows you to compare fees.
Amount
per Unit
________
Unit Holder Sales Fees (as a percentage of public offering price)
Maximum Sales Charge
Initial sales charge 0.00%(a) $.000
Deferred sales charge 1.50%(b) $.150
_____ _____
Maximum sales charge 1.50% $.150
===== =====
Organization Costs (as a percentage of public offering price)
Estimated organization costs .390%(c) $.0390
===== ======
Estimated Annual Trust Operating Expenses(d)
(as a percentage of average net assets)
Portfolio supervision, bookkeeping, administrative and evaluation fees .079% $.0080
Trustee's fee and other operating expenses .137%(e) $.0138
Acquired Fund fees and expenses .776%(f) $.0783
_____ ______
Total .992% $.1001
===== ======
Example
This example is intended to help you compare the cost of investing in the
Trust with the cost of investing in other investment products. The example
assumes that you invest $10,000 in the Trust and the principal amount and
distributions are rolled every 15 months into a New Trust. The example also
assumes a 5% return on your investment each year and that your Trust's, and
each New Trust's, sales charges and expenses stay the same. The example does
not take into consideration transaction fees which may be charged by certain
broker/dealers for processing redemption requests. Although your actual costs
may vary, based on these assumptions your costs, assuming you roll your
proceeds from one trust to the next for the periods shown, would be:
1 Year 3 Years 5 Years 10 Years
______ _______ _______ ________
$289 $886 $1,302 $2,775
If you elect not to roll your proceeds from one trust to the next, your costs
will be limited by the number of years your proceeds are invested, as set
forth above.
_____________
(a) The combination of the initial and deferred sales charge comprises what we
refer to as the "transactional sales charge." The initial sales charge is
actually equal to the difference between the maximum sales charge of 1.50% and
the sum of any remaining deferred sales charge. When the Public Offering Price
per Unit equals $10, there is no initial sales charge. If the price you pay
for your Units exceeds $10 per Unit, you will pay an initial sales charge.
(b) The deferred sales charge is a fixed dollar amount equal to $.150 per Unit
which, as a percentage of the Public Offering Price, will vary over time. The
deferred sales charge will be deducted in three monthly installments
commencing October 18, 2024.
(c) Estimated organization costs will be deducted from the assets of the Trust
at the end of the initial offering period, which is expected to be
approximately three months from the Initial Date of Deposit. Estimated
organization costs are assessed on a fixed dollar amount per Unit basis which,
as a percentage of average net assets, will vary over time.
(d) With the exception of the underlying Fund expenses, each of the fees
listed herein is assessed on a fixed dollar amount per Unit basis which, as a
percentage of average net assets, will vary over time.
(e) Other operating expenses do not include brokerage costs and other
portfolio transaction fees. In certain circumstances the Trust may incur
additional expenses not set forth above. See "Expenses and Charges."
(f) Although not actual Trust operating expenses, the Trust, and therefore
Unit holders, will indirectly bear similar operating expenses of the Funds in
which the Trust invests in the estimated amounts set forth in the table. These
expenses are estimated based on the actual Fund expenses disclosed in a Fund's
most recent SEC filing but are subject to change in the future. An investor in
the Trust will therefore indirectly pay higher expenses than if the underlying
Fund shares were held directly.
Page 4
Report of Independent
Registered Public Accounting Firm
To the Unit Holders and the Sponsor, First Trust Portfolios L.P., of FT 11497
Opinion on the Statement of Net Assets
We have audited the accompanying statement of net assets of FT 11497,
comprising FT 60/40 Target Income Portfolio, Series 3 (the "Trust"), one of
the series constituting the FT Series, including the schedule of investments,
as of the opening of business on July 2, 2024 (Initial Date of Deposit), and
the related notes. In our opinion, the statement of net assets presents
fairly, in all material respects, the financial position of the Trust as of
the opening of business on July 2, 2024 (Initial Date of Deposit), in
conformity with accounting principles generally accepted in the United States
of America.
Basis for Opinion
This statement of net assets is the responsibility of the Trust's Sponsor. Our
responsibility is to express an opinion on this statement of net assets based
on our audit. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Trust in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement, whether due to error or fraud. The Trust is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audit we are required to obtain an
understanding of internal control over financial reporting 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.
Our audit included performing procedures to assess the risks of material
misstatement of the statement of net assets, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and
disclosures in the statement of net assets. Our audit also included evaluating
the accounting principles used and significant estimates made by the Trust's
Sponsor, as well as evaluating the overall presentation of the statement of
net assets. Our procedures included confirmation of the irrevocable letter of
credit held by The Bank of New York Mellon, the Trustee, and deposited in the
Trust for the purchase of securities, as shown in the statement of net assets,
as of the opening of business on July 2, 2024, by correspondence with the
Trustee. We believe that our audit provides a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
July 2, 2024
We have served as the auditor of one or more investment companies sponsored by
First Trust Portfolios L.P. since 2001.
Page 5
Statement of Net Assets
FT 60/40 Target Income Portfolio, Series 3
FT 11497
At the Opening of Business on the Initial Date of Deposit-July 2, 2024
NET ASSETS
Investment in Securities represented by purchase contracts (1) (2) $167,800
Less liability for reimbursement to Sponsor for organization costs (3) (654)
Less liability for deferred sales charge (4) (2,517)
________
Net assets $164,629
========
Units outstanding 16,780
Net asset value per Unit (5) $ 9.811
ANALYSIS OF NET ASSETS
Cost to investors (6) $167,800
Less maximum sales charge (6) (2,517)
Less estimated reimbursement to Sponsor for organization costs (3) (654)
________
Net assets $164,629
========
_____________
NOTES TO STATEMENT OF NET ASSETS
The Trust is registered as a unit investment trust under the Investment
Company Act of 1940. The Sponsor is responsible for the preparation of
financial statements in accordance with accounting principles generally
accepted in the United States which require the Sponsor to make estimates and
assumptions that affect amounts reported herein. Actual results could differ
from those estimates. The Trust intends to comply in its initial fiscal year
and thereafter with provisions of the Internal Revenue Code applicable to
regulated investment companies and as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gains) distributed to Unit holders.
(1) The Trust invests in a diversified portfolio of ETFs. Aggregate cost of
the Securities listed under "Schedule of Investments" for the Trust is based
on their aggregate underlying value. The Trust has a Mandatory Termination
Date of October 7, 2025.
(2) An irrevocable letter of credit issued by The Bank of New York Mellon, of
which approximately $300,000 has been allocated to the Trust, has been
deposited with the Trustee as collateral, covering the monies necessary for
the purchase of the Securities according to their purchase contracts.
(3) A portion of the Public Offering Price consists of an amount sufficient to
reimburse the Sponsor for all or a portion of the costs of establishing the
Trust. These costs have been estimated at $.0390 per Unit. A payment will be
made at the end of the initial offering period to an account maintained by the
Trustee from which the obligation of the investors to the Sponsor will be
satisfied. To the extent that actual organization costs of the Trust 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) Represents the amount of mandatory deferred sales charge distributions of
$.150 per Unit, payable to the Sponsor in three equal monthly installments
beginning on October 18, 2024 and on the twentieth day of each month
thereafter (or if such date is not a business day, on the preceding business
day) through December 20, 2024. If Unit holders redeem Units before December
20, 2024, they will have to pay the remaining amount of the deferred sales
charge applicable to such Units when they redeem them.
(5) Net asset value per Unit is calculated by dividing the Trust's net assets
by the number of Units outstanding. This figure includes organization costs,
which will only be assessed to Units outstanding at the close of the initial
offering period.
(6) The aggregate cost to investors in the Trust includes a maximum sales
charge (comprised of an initial and a deferred sales charge) computed at the
rate of 1.50% of the Public Offering Price (equivalent to 1.50% of the net
amount invested, exclusive of the deferred sales charge), assuming no
reduction of the maximum sales charge as set forth under "Public Offering."
Page 6
Schedule of Investments
FT 60/40 Target Income Portfolio, Series 3
FT 11497
At the Opening of Business on the Initial Date of Deposit-July 2, 2024
Percentage Market Cost of
Ticker Symbol and of Aggregate Number Value per Securities to
Name of Issuer of Securities (1)(3) Offering Price of Shares Share the Trust (2)
___________________________________ ______________ _________ _________ _____________
EXCHANGE-TRADED FUNDS (100.00%):
FTHI First Trust BuyWrite Income ETF 15.00% 1,117 $22.54 $ 25,177
FEMB First Trust Emerging Markets Local Currency Bond ETF 3.00% 187 26.93 5,036
FPEI First Trust Institutional Preferred Securities and Income ETF 2.00% 183 18.36 3,360
FIIG First Trust Intermediate Duration Investment Grade Corporate ETF 3.00% 248 20.31 5,037
LGOV First Trust Long Duration Opportunities ETF 4.00% 323 20.77 6,709
LMBS First Trust Low Duration Opportunities ETF 3.00% 105 47.95 5,035
FTQI First Trust Nasdaq BuyWrite Income ETF 15.00% 1,230 20.46 25,166
FTSL First Trust Senior Loan Fund 5.00% 183 45.80 8,381
HYLS First Trust Tactical High Yield ETF 12.01% 497 40.54 20,148
FIXD First Trust TCW Opportunistic Fixed Income ETF 8.00% 313 42.87 13,418
RDVI FT Vest Rising Dividend Achievers Target Income ETF 15.00% 1,079 23.33 25,173
KNG FT Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R) 14.99% 503 50.02 25,160
_______ ________
Total Investments 100.00% $167,800
======= ========
_____________
(1) All Securities are represented by regular way contracts to purchase such
Securities which are backed by an irrevocable letter of credit deposited with
the Trustee. The Sponsor entered into purchase contracts for the Securities on
July 2, 2024. Such purchase contracts are expected to settle within one
business day.
(2) The cost of the Securities to the Trust represents the aggregate
underlying value with respect to the Securities acquired (generally determined
by the closing sale prices of the listed Securities and the ask prices of over-
the-counter traded Securities at the Evaluation Time on the business day prior
to the Initial Date of Deposit). The cost of Securities to the Trust may not
compute due to rounding the market value per share. The valuation of the
Securities has been determined by the Sponsor. In accordance with Financial
Accounting Standards Board Accounting Standards Codification 820, "Fair Value
Measurement," the Trust's investments are classified as Level 1, which refers
to securities traded in an active market. The cost of the Securities to the
Sponsor and the Sponsor's loss (which is the difference between the cost of
the Securities to the Sponsor and the cost of the Securities to the Trust)
are $168,489, and $689, respectively.
(3) Each Security is advised by First Trust Advisors L.P., an affiliate of the
Sponsor.
Page 7
The FT Series
The FT Series Defined.
We, First Trust Portfolios L.P. (the "Sponsor"), have created hundreds of
similar yet separate series of a unit investment trust which we have named the
FT Series. The series to which this prospectus relates, FT 11497, consists of
a single portfolio known as FT 60/40 Target Income Portfolio, Series 3.
The Trust was created under the laws of the State of New York by a Trust
Agreement (the "Indenture") dated the Initial Date of Deposit. This agreement,
entered into among First Trust Portfolios L.P., as Sponsor, The Bank of New
York Mellon as Trustee and First Trust Advisors L.P. as Portfolio Supervisor,
governs the operation of the Trust.
YOU MAY GET MORE SPECIFIC DETAILS CONCERNING THE NATURE, STRUCTURE AND RISKS
OF THIS PRODUCT IN AN "INFORMATION SUPPLEMENT" BY CALLING THE SPONSOR AT 800-
621-1675, DEPT. CODE 2.
How We Created the Trust.
On the Initial Date of Deposit, we deposited a portfolio of ETFs with the
Trustee and, in turn, the Trustee delivered documents to us representing our
ownership of the Trust in the form of units ("Units").
After the Initial Date of Deposit, we may deposit additional Securities in the
Trust, or cash (including a letter of credit or the equivalent) with
instructions to buy more Securities in order to create new Units for sale. If
we create additional Units, we will attempt, to the extent practicable, to
maintain the percentage relationship established among the Securities on the
Initial Date of Deposit (as set forth under "Schedule of Investments"),
adjusted to reflect the sale, redemption or liquidation of any of the
Securities or any stock split or merger or other similar event affecting the
issuer of the Securities.
Since the prices of the Securities will fluctuate daily, the ratio of
Securities in the Trust, on a market value basis, will also change daily. The
portion of Securities represented by each Unit will not change as a result of
the deposit of additional Securities or cash in the Trust. If we deposit cash,
you and new investors may experience a dilution of your investment. This is
because prices of Securities will fluctuate between the time of the cash
deposit and the purchase of the Securities, and because the Trust pays the
associated brokerage fees. To reduce this dilution, the Trust will try to buy
the Securities as close to the Evaluation Time and as close to the evaluation
price as possible. In addition, because the Trust pays the brokerage fees
associated with the creation of new Units and with the sale of Securities to
meet redemption and exchange requests, frequent redemption and exchange
activity will likely result in higher brokerage expenses.
An affiliate of the Trustee may receive these brokerage fees or the Trustee
may retain and pay us (or our affiliate) to act as agent for the Trust to buy
Securities. If we or an affiliate of ours act as agent to the Trust, we will
be subject to the restrictions under the Investment Company Act of 1940, as
amended (the "1940 Act"). When acting in an agency capacity, we may select
various broker/dealers to execute securities transactions on behalf of the
Trust, which may include broker/dealers who sell Units of the Trust. We do not
consider sales of Units of the Trust or any other products sponsored by First
Trust as a factor in selecting such broker/dealers.
We cannot guarantee that the Trust will keep its present size and composition
for any length of time. Securities may be periodically sold under certain
circumstances to satisfy Trust obligations, to meet redemption requests and,
as described in "Removing Securities from the Trust," to maintain the sound
investment character of the Trust, and the proceeds received by the Trust will
be used to meet Trust obligations or distributed to Unit holders. However,
Securities will not be sold to take advantage of market fluctuations or
changes in anticipated rates of appreciation or depreciation, or if they no
longer meet the criteria by which they were selected. You will not be able to
dispose of or vote any of the Securities in the Trust. As the holder of the
Securities, the Trustee will vote the Securities and, except as described
below and as described in "Removing Securities from the Trust," will endeavor
to vote the Securities such that the Securities are voted as closely as
possible in the same manner and the same general proportion as are the
Securities held by owners other than the Trust. If permitted under law and
rules thereunder and if the Sponsor determines or otherwise agrees that the
voting or response to other actions with respect to the Funds held by the
Trust should not be done as described above and, with respect to a Trust
structured as a grantor trust for tax purposes the outcome of voting or
response to such matters will not result in such Trust receiving new or
exchange securities, as certified to the Trustee by the Sponsor, the Sponsor
will direct the Trustee in writing as to the manner in which the voting or
response should be made. The Trustee shall have no responsibility or liability
for any loss or liability resulting from any vote or other response made
pursuant to the Sponsor's direction or otherwise in the absence of the
Sponsor's direction.
Page 8
Neither we nor the Trustee will be liable for a failure in any of the
Securities. However, if a contract for the purchase of any of the Securities
initially deposited in the Trust fails, unless we can purchase substitute
Securities ("Replacement Securities"), we will refund to you that portion of
the purchase price and transactional sales charge resulting from the failed
contract on the next Income Account Distribution Date. Any Replacement
Security the Trust acquires will be identical to those from the failed contract.
Portfolio
Objectives.
The Trust seeks current monthly income, with capital appreciation as a
secondary objective, by investing in a diversified portfolio of income-
generating ETFs.
Portfolio Selection Process.
The FT 60/40 Target Income Portfolio is a unit investment trust that invests
in ETFs which are diversified among multiple asset classes. Approximately 60%
of the Trust's portfolio consists of U.S. equity ETFs that employ an options
overwrite strategy and approximately 40% of the portfolio consists of fixed
income ETFs that are diversified among U.S. and foreign fixed income
securities. The portfolio consists solely of First Trust ETFs advised by First
Trust Advisors L.P., an affiliate of the Trust's Sponsor. The Trust's
portfolio will include both actively managed ETFs and ETFs that track an index.
The U.S. equity ETFs held by the Trust invest primarily in dividend-paying
common stocks across all market capitalizations. In addition, the U.S. equity
ETFs held by the Trust write call options on individual stocks and/or on stock
indices in order to generate premium income. The U.S. equity ETFs in the
portfolio were selected based on a number of factors including, but not
limited to, the size and liquidity of the U.S. equity ETFs (requiring a
minimum market capitalization of $50,000,000), the current dividend yield of
the U.S. equity ETFs (prioritizing U.S. equity ETFs with the highest dividend
yields), a minimum of six months of trading history, and the quality and
character of the securities held by the U.S. equity ETFs (considering the
consistency and reliability of dividends from the common stocks and premium
income from the call options). All other factors being equal, the Sponsor
selected U.S. equity ETFs with lower expense ratios, while attempting to limit
the overlap of the securities held by the U.S. equity ETFs.
The fixed income ETFs held by the Trust invest primarily in fixed income
securities and are diversified among U.S. and foreign fixed income securities
to provide investors with income and diversification across a broad range of
fixed income asset classes, including investment grade corporate bonds, high-
yield bonds, mortgage-backed securities, U.S. Treasury Obligations, preferred
securities, convertible securities, senior loans and foreign sovereign debt.
The fixed income ETFs in the portfolio were selected based on a number of
factors including, but not limited to, the size and liquidity of the fixed
income ETFs (requiring a minimum market capitalization of $50,000,000), the
current dividend yield of the fixed income ETFs (prioritizing fixed income
ETFs with the highest yields), a minimum of six months of trading history, and
the exposure to different fixed income asset types held by the fixed income
ETFs. Additionally, the following factors are not specifically weighted, but
rather are considered in combination with the above factors to construct an
overall view for each fixed income ETF that aids in determining the fixed
income ETF allocations for the Trust's portfolio.
- Interest Rate Outlook/Duration. The duration of a bond is a measure of its
price sensitivity to interest rate movements based on the bond's weighted
average term to maturity. In general, duration represents the expected
percentage change in the value of a security for an immediate 1% change in
interest rates. For example, the price of a security with a three-year
duration would be expected to drop by approximately 3% in response to a 1%
increase in interest rates. The duration of the fixed income ETFs in the
portfolio as of the Initial Date of Deposit is approximately 5 years.
- Asset Type Valuation. Asset type valuation is a determination of the
attractiveness of a fixed income asset type on the basis of valuation. The
relative value offered by different fixed income assets are then evaluated by
analyzing spread (yield of one fixed income asset type to the yield of another
fixed income asset type), credit fundamentals (metrics impacting overall
credit risk for a fixed income asset type, including rate of default and
trends in earnings), credit quality (there is no specified limit of high yield
securities as a percent of Trust assets) and supply and demand trends across
the fixed income asset types (including new issue supply and maturity of the
underlying securities). The Trust has no criteria relating to maturity.
- Asset Type Fundamentals. Asset type fundamentals are metrics that impact a
particular fixed income asset type, such as underlying leverage of issuers,
default rates of issuers (prioritizing fixed income ETFs that hold securities
with lower rates of default), earnings and debt levels of issuers and interest
Page 9
coverage of issuers. There are no specific criteria for the underlying
leverage, earnings, debt levels, or interest coverage of an issuer; instead,
those factors are considered in combination with each other to construct an
overall view of valuation for each fixed-income asset type that aids in
determining the allocations for the Trust's portfolio. The Sponsor considered
the trailing 12-month default rate for high yield securities categorically and
prioritized fixed income ETFs holding securities with lower rates of default.
The fundamentals are closely monitored and evaluated for trends to determine
if risk is improving or deteriorating in the asset type.
All other factors being equal, the Sponsor selected fixed income ETFs with
lower expense ratios, while attempting to limit the overlap of the securities
held by the fixed income ETFs.
In connection with the Trust's investments in ETFs advised by First Trust
Advisors L.P., an affiliate of the Trust's Sponsor, First Trust Advisors L.P.
will receive advisory fees from the underlying ETFs which it would not
otherwise receive if the Trust invested solely in ETFs advised by unaffiliated
third-parties. This may provide an incentive for the Sponsor to select ETFs
advised by First Trust Advisors L.P. over ETFs advised by unaffiliated third-
parties. The Sponsor may invest in an affiliated ETF even in circumstances
where an unaffiliated ETF may have lower fees or better performance over
certain time periods. However, the Sponsor selected what it considered to be
the best suited ETFs to achieve the Trust's investment objectives even though
there may be other ETFs, including those advised by unaffiliated third-
parties, that provide similar results.
While not a part of the Trust's portfolio selection process, through the
Trust's investment in the Funds, the Trust has exposure to covenant-lite loans.
As with any similar investments, there can be no guarantee that the objectives
of the Trust will be achieved. See "Risk Factors" for a discussion of the
risks of investing in the Trust.
Risk Factors
Principal Risks.
The following is a discussion of the principal risks of investing in the Trust.
Price Volatility. The Trust invests in ETFs. The value of the Trust's Units
will fluctuate with changes in the value of these Securities. The value of a
security fluctuates for several reasons including changes in investors'
perceptions of the financial condition of an issuer or the general condition
of the relevant stock market, such as market volatility, or when political or
economic events affecting the issuers occur.
Because the Trust is not managed, the Trustee will not sell Securities in
response to or in anticipation of market fluctuations, as is common in managed
investments. As with any investment, we cannot guarantee that the performance
of the Trust will be positive over any period of time, especially the
relatively short 15-month life of the Trust, or that you won't lose money.
Units of the Trust are not deposits of any bank and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Market Risk. Market risk is the risk that a particular security, or Units of
the Trust in general, may fall in value or underperform other investments.
Securities are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in securities prices. As a means to fight
inflation, which remains at elevated levels, the Federal Reserve has raised
interest rates and may continue to do so and is reversing previously
implemented quantitative easing. Recent and potential future bank failures
could result in disruption to the broader banking industry or markets
generally and reduce confidence in financial institutions and the economy as a
whole, which may also heighten market volatility and reduce liquidity. In
addition, local, regional or global events such as war, acts of terrorism,
spread of infectious diseases or other public health issues, recessions,
political turbulence or other events could have a significant negative impact
on the Trust and its investments. For example, the COVID-19 global pandemic
and the ensuing policies enacted by governments and central banks have caused
and may continue to cause significant volatility and uncertainty in global
financial markets, negatively impacting global growth prospects. While
vaccines have been developed, there is no guarantee that vaccines will be
effective against future variants of the disease. The impact of the COVID-19
pandemic, or any future public health crisis, may be short term or may last
for an extended period of time, and in either case could result in a
substantial economic downturn or recession. Ongoing armed conflicts between
Russia and Ukraine in Europe and among Israel, Hamas and other militant groups
in the Middle East have caused and could continue to cause significant market
disruptions and volatility within the markets in Russia, Europe, the Middle
East and the United States. The hostilities and sanctions resulting from those
hostilities could have a significant impact on certain Trust investments as
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well as Trust performance. Such events may affect certain geographic regions,
countries, sectors and industries more significantly than others. Such events
could adversely affect the prices and liquidity of the Trust's portfolio
securities and could result in disruptions in the trading markets. Any such
circumstances could have a materially negative impact on the value of the
Trust's Units and result in increased market volatility.
Distributions. As stated under "Summary of Essential Information," the Trust
will generally make monthly distributions of income. The Funds held by the
Trust make distributions on a monthly or quarterly basis. As a result of
changing interest rates, refundings, sales or defaults on the underlying
securities held by the Funds, and other factors, there is no guarantee that
distributions will either remain at current levels or increase over time.
Exchange-Traded Funds. The Trust invests in shares of ETFs. The Trust is
subject to substantially the same risks as those associated with the direct
ownership of the securities represented by the underlying ETFs in which it
invests. In addition, the Trust may be affected by losses of the ETFs and the
level of risk arising from the investment practices of the ETFs (such as the
use of leverage by the ETFs). The Trust has no control over the investments
and related risks taken by the ETFs in which it invests. The Trust and the
underlying funds have management and operating expenses. You will bear not
only your share of your 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.
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 the ETF 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.
Investment in Other Investment Companies Risk. Because the Trust holds Funds,
Unit holders are subject to the risk that the securities selected by the
Funds' investment advisors will underperform the markets, the relevant indices
or the securities selected by other funds. Further, Funds may in the future
invest in other types of securities which involve risk which may differ from
those set forth below. In addition, because the Trust holds Funds, Unit
holders bear both their proportionate share of the expenses of the Trust and,
indirectly the expenses of the Funds. Certain of the Funds held by the Trust
may invest a relatively high percentage of their assets in a limited number of
issuers. As a result, these Funds may be more susceptible to a single adverse
economic or regulatory occurrence affecting one or more of these issuers,
experience increased volatility and be highly concentrated in certain issuers.
Index Correlation Risk. Index correlation risk is the risk that the
performance of an index-based 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 index-based ETFs use a technique called
"representative sampling," which means that the ETF invests in a
representative sample of securities in its target index rather than all of the
index securities. This could increase the risk of a tracking error.
Common Stocks. Certain of the Funds held by the Trust invest in common stocks.
Common stocks represent a proportional share of ownership in a company. Common
stock prices fluctuate for several reasons including changes in investors'
perceptions of the financial condition of an issuer or the general condition
of the relevant stock market, such as market volatility, or when political or
economic events affecting the issuers occur. Common stock prices may also be
particularly sensitive to rising interest rates, as the cost of capital rises
and borrowing costs increase, negatively impacting issuers.
Convertible Securities. Certain of the Funds held by the Trust invest in
convertible securities. Convertible securities are bonds, preferred stocks,
and other securities that pay interest or dividends and are convertible into
common stocks. As such, convertible securities have some characteristics of
both bonds and common stocks. Like a bond (or some preferred stocks), a
convertible security typically pays a fixed rate of interest (or dividends)
and promises to repay principal at a given date in the future. However, an
investor can exchange the convertible security for a specific number of shares
of the issuing company's common stock at a "conversion price" specified at the
time the convertible security is issued. Companies that issue convertible
securities often do not have high credit ratings. In addition, the credit
rating of a company's convertible securities is typically lower than the
rating of the company's conventional debt securities, because convertibles are
normally considered junior or subordinate securities. Convertible securities
are predominantly high-yield securities. Convertible securities are typically
issued at prices which represent a premium to their conversion value.
Accordingly, the value of the convertible security increases (or decreases) as
the price of the underlying common stock increases (or decreases). Convertible
securities typically pay income yields that are higher than the dividend
Page 11
yields of the issuer's common stock, but lower than the yields of the issuer's
debt securities.
In general, a convertible security performs more like a stock when the
underlying common stock's price is closer to the conversion price of the
convertible security (because it is assumed that it will be converted into the
stock) and more like a bond when the underlying common stock's price is
significantly lower than the convertible security's conversion price (because
it is assumed that it will not be converted). For these reasons Unit holders
must be willing to accept the market risks of both bonds and common stocks.
However, because convertible securities have characteristics of both common
stocks and bonds, they tend to be less sensitive to interest rate changes than
bonds of comparable maturity and quality, and less sensitive to stock market
changes than common stocks. Because of these factors and the hybrid nature of
convertible securities, Unit holders should recognize that convertible
securities are likely to perform quite differently than broadly-based measures
of the stock and bond markets.
While all markets are prone to change over time, the generally high rate at
which convertible securities are retired (through conversion or redemption)
and replaced with newly issued convertible securities causes the convertible
securities market to change more rapidly than other markets. Due to the
smaller, less liquid market for convertible securities, the bid-offer spread
on such securities is generally greater than it is for investment grade bonds,
and the purchase or sale of such securities may take longer to complete.
Moreover, convertible securities with innovative structures, such as mandatory
conversion securities and equity-linked securities, have increased the
sensitivity of this market to the volatility of the equity markets and to the
special risks of those innovations. No one can guarantee that a liquid trading
market will exist for any convertible security because these securities
generally trade in the over-the-counter market (they are not listed on a
securities exchange).
High-Yield Securities. Certain of the Funds held by the Trust invest in
securities rated below investment grade by one or more rating agencies (high-
yield securities or "junk" bonds) or securities that are unrated and
determined by the Sponsor to be of comparable quality. High-yield, high-risk
securities are subject to greater market fluctuations and risk of loss than
securities with higher investment ratings. The value of these securities will
decline significantly with increases in interest rates, not only because
increases in rates generally decrease values, but also because increased rates
may indicate an economic slowdown. An economic slowdown, or a reduction in an
issuer's creditworthiness, may result in the issuer being unable to maintain
earnings at a level sufficient to maintain interest and principal payments.
High-yield securities or "junk" bonds, the generic names for securities rated
below "BBB-" by Standard & Poor's or below "Baa3" by Moody's, are frequently
issued by corporations in the growth stage of their development or by
established companies that are highly leveraged or whose operations or
industries are depressed. Obligations rated below "BBB-" should be considered
speculative as these ratings indicate a quality of less than investment grade,
and therefore carry an increased risk of default as compared to investment
grade issues. The Funds held by the Trust may invest in securities of any high-
yield credit quality, including securities rated as low as "D" by Standard and
Poor's or "C" by Moody's. Because high-yield securities are generally
subordinated obligations and are perceived by investors to be riskier than
higher rated securities, their prices tend to fluctuate more than higher rated
securities and are affected by short-term credit developments to a greater
degree.
The market for high-yield securities is smaller and less liquid than that for
investment grade securities. High-yield securities are generally not listed on
a national securities exchange but trade in the over-the-counter markets. Due
to the smaller, less liquid market for high-yield securities, the bid-offer
spread on such securities is generally greater than it is for investment grade
securities and the purchase or sale of such securities may take longer to
complete.
Distressed debt securities are speculative and involve substantial risks in
addition to the risks of investing in high-yield securities that are not in
default. Generally, holders of distressed debt securities will not receive
interest payments, and there is a substantial risk that the principal will not
be repaid. In any reorganization or liquidation proceeding related to a
distressed debt security, holders may lose their entire investment in the
security.
Investment Grade Securities. Certain of the Funds held by the Trust invest in
investment grade securities. The value of these securities will decline with
increases in interest rates, not only because increases in rates generally
decrease values, but also because increased rates may indicate an economic
slowdown. An economic slowdown, or a reduction in an issuer's
creditworthiness, may result in the issuer being unable to maintain earnings
at a level sufficient to maintain interest and principal payments.
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Limited Duration Bonds. Certain of the Funds held by the Trust invest in
limited duration bonds. Limited duration bonds are subject to interest rate
risk, which is the risk that the value of a security will fall if interest
rates increase. While limited duration bonds are generally subject to less
interest rate sensitivity than longer duration bonds, there can be no
assurance that interest rates will not rise during the life of the Trust.
Mortgage-Backed Securities. Certain of the Funds held by the Trust invest in
mortgage-backed securities. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and can include single- and multi-class pass-through
securities and collateralized mortgage obligations. Mortgage-backed securities
are based on different types of mortgages, including those on commercial real
estate or residential properties. These securities often have stated
maturities of up to thirty years when they are issued, depending upon the
length of the mortgages underlying the securities. In practice, however,
unscheduled or early payments of principal and interest on the underlying
mortgages may make the securities' effective maturity shorter than this.
Rising interest rates tend to extend the duration of mortgage-backed
securities, making them more sensitive to changes in interest rates, and may
reduce the market value of the securities. In addition, mortgage-backed
securities are subject to prepayment risk, the risk that borrowers may pay off
their mortgages sooner than expected, particularly when interest rates
decline. This can reduce the Funds', and therefore the Trust's, returns
because the Funds may have to reinvest that money at lower prevailing interest
rates.
Mortgage-backed securities, and particularly non-agency mortgage-backed
securities, are subject to liquidity risk, which is the risk that the value of
such securities held by a Fund will fall if trading in the securities is
limited or absent. No one can guarantee that a liquid trading market will
exist for any mortgage-backed security because these securities generally
trade in the over-the-counter market (they are not listed on a securities
exchange). The liquidity of a mortgage-backed security may change drastically
over time.
Options. Certain of the Funds held by the Trust invest in call options. The
value of an option may be adversely affected if the market for the option
becomes less liquid or smaller, and will be affected by changes in the value
and dividend rates of the stock subject to the option, an increase in interest
rates, a change in the actual and perceived volatility of the stock market and
the common stock and the remaining time to expiration. Additionally, the value
of an option does not increase or decrease at the same rate as the underlying
stock (although they generally move in the same direction). However, as an
option approaches its expiration date, its value increasingly moves with the
price of the stock subject to an option. The strike price for an option may be
adjusted downward before an option expiration triggered by certain corporate
events affecting that stock. A downward adjustment to the strike price will
have the effect of reducing the equity appreciation. Option strike prices may
be adjusted to reflect certain corporate events such as extraordinary
dividends, stock splits, merger or other extraordinary distributions or
events. If the value of the underlying stock exceeds the strike price of an
option, it is likely that the holder of that option will exercise their right
to purchase the stock.
Preferred Securities. Certain of the Funds held by the Trust invest in
preferred stocks. Preferred stocks are unique securities that combine some of
the characteristics of both common stocks and bonds. Preferred stocks
generally pay a fixed rate of return and are sold on the basis of current
yield, like bonds. However, because they are equity securities, preferred
stocks provide equity ownership of a company and the income is paid in the
form of dividends. Preferred stocks typically have a yield advantage over
common stocks as well as comparably-rated fixed income investments. Preferred
stocks are typically subordinated to bonds and other debt instruments in a
company's capital structure, in terms of priority to corporate income, and
therefore will be subject to greater credit risk than those debt instruments.
Senior Loans. Certain of the Funds held by the Trust invest in senior loans
issued by banks, other financial institutions, and other investors to
corporations, partnerships, limited liability companies and other entities to
finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock
repurchases, debt refinancings and, to a lesser extent, for general operating
and other purposes. An investment in senior loans involves risk that the
borrowers under senior loans may default on their obligations to pay principal
or interest when due. Although senior loans may be secured by specific
collateral, there can be no assurance that liquidation of collateral would
satisfy the borrower's obligation in the event of non-payment or that such
collateral could be readily liquidated. Senior loans are typically structured
as floating-rate instruments in which the interest rate payable on the
obligation fluctuates with interest rate changes. As a result, the yield on
Funds investing in senior loans will generally decline in a falling interest
rate environment and increase in a rising interest rate environment. Senior
loans are generally below investment grade quality and may be unrated at the
Page 13
time of investment; are generally not registered with the SEC or state
securities commissions; and are generally not listed on any securities
exchange. Transactions in senior loans may take longer than seven days to
settle which could affect an underlying Fund's ability to manage the liquidity
of its portfolio. Because senior loans are generally not registered with the
SEC under the Securities Act of 1933, as amended, they may not be subject to
the protections afforded under the federal securities laws. See "Risk Factors-
High-Yield Securities" for a description of the risks involved in investing in
below investment grade securities. In addition, the amount of public
information available on senior loans is generally less extensive than that
available for other types of assets.
Covenant-Lite Loans. Certain of the Funds held by the Trust invest
significantly in "covenant-lite" loans, which are loans made with minimal
protections for the lender. Because covenant-lite loans are less restrictive
on borrowers and provide less protection for lenders than typical corporate
loans, the risk of default may be significantly higher. Covenant-lite loans
contain fewer maintenance covenants, or no maintenance covenants at all, than
traditional loans and may not include terms that allow the lender to monitor
the financial performance of the borrower and declare a default if certain
criteria are breached. This may hinder the Funds' ability to reprice credit
risk associated with the borrower and reduce the Funds' ability to restructure
a problematic loan and mitigate potential loss. As a result, the Funds'
exposure to losses on such investments is increased, especially during a
downturn in the credit cycle.
Foreign Securities. Certain of the Funds held by the Trust invest in foreign
entities, which makes the Trust subject to more risks than if it only invested
in Funds which invest solely in domestic securities. Risks of foreign
securities include higher brokerage costs; different accounting standards;
expropriation, nationalization or other adverse political or economic
developments; currency devaluations, blockages or transfer restrictions;
restrictions on foreign investments and exchange of securities; inadequate
financial information; lack of liquidity of certain foreign markets; and less
government supervision and regulation of exchanges, brokers, and issuers in
foreign countries. Certain foreign markets have experienced heightened
volatility due to recent negative political or economic developments or
natural disasters. Securities issued by non-U.S. issuers may pay interest
and/or dividends in foreign currencies and may be principally traded in
foreign currencies. Therefore, there is a risk that the U.S. dollar value of
these interest and/or dividend payments and/or securities will vary with
fluctuations in foreign exchange rates. Investments in debt securities of
foreign governments present special risks, including the fact that issuers may
be unable or unwilling to repay principal and/or interest when due in
accordance with the terms of such debt, or may be unable to make such
repayments when due in the currency required under the terms of the debt.
Political, economic and social events also may have a greater impact on the
price of debt securities issued by foreign governments than on the price of
U.S. securities.
U.S. Treasury Obligations. Certain of the Funds held by the Trust invest in
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. U.S. Treasury obligations are generally not affected by credit risk,
but are subject to changes in market value resulting from changes in interest
rates. The value of U.S. Treasury obligations will be adversely affected by
decreases in bond prices and increases in interest rates, not only because
increases in interest rates generally decrease values, but also because
increased interest rates may indicate an economic slowdown.
Small and/or Mid Capitalization Companies. Certain of the Funds held by the
Trust invest in small and/or mid capitalization companies. Investing in stocks
of such companies may involve greater risk than investing in larger companies.
For example, such companies may have limited product lines, as well as shorter
operating histories, less experienced management and more limited financial
resources than larger companies. Securities of such companies generally trade
in lower volumes and are generally subject to greater and less predictable
changes in price than securities of larger companies. In addition, small and
mid-cap stocks may not be widely followed by the investment community, which
may result in low demand.
Large Capitalization Companies. Certain of the Funds held by the Trust invest
in large capitalization companies. The return on investment in stocks of large
capitalization companies may be less than the return on investment in stocks
of small and/or mid capitalization companies. Large capitalization companies
may also grow at a slower rate than the overall market.
Interest Rate Risk. Interest rate risk is the risk that the value of the
securities held by the Funds held by the Trust will fall if interest rates
increase. Securities typically fall in value when interest rates rise and rise
in value when interest rates fall. Securities with longer periods before
Page 14
maturity are often more sensitive to interest rate changes. The Federal
Reserve has raised interest rates and may continue to do so in response to
inflation. Therefore, risks associated with rising rates are heightened for
the securities held by the Funds.
Credit Risk. Credit risk is the risk that a security's issuer is unable or
unwilling to make dividend, interest or principal payments when due and the
related risk that the value of a security may decline because of concerns
about the issuer's ability or willingness to make such payments.
Call Risk. Call risk is the risk that the issuer prepays or "calls" a bond
before its stated maturity. An issuer might call a bond if interest rates fall
and the bond pays a higher than market interest rate or if the issuer no
longer needs the money for its original purpose. A bond's call price could be
less than the price the Fund paid for the bond and could be below the bond's
par value. This means a Fund could receive less than the amount paid for the
bond and may not be able to reinvest the proceeds in securities with as high a
yield as the called bond. A Fund may contain bonds that have "make whole" call
options that generally cause the bonds to be redeemable at any time at a
designated price. Such bonds are generally more likely to be subject to early
redemption and may result in the reduction of income received by the Fund.
Extension Risk. If interest rates rise, certain obligations may be paid off by
the obligor at a slower rate than expected, which will cause the value of such
obligations to fall.
Liquidity Risk. Liquidity risk is the risk that the value of a fixed-income
security held by a Fund will fall if trading in the security is limited or
absent. No one can guarantee that a liquid trading market will exist for any
fixed-income security because these securities generally trade in the over-the-
counter market (they are not listed on a securities exchange). During times of
reduced market liquidity, the Funds held by the Trust may not be able to sell
the underlying securities readily at prices reflecting the values at which the
underlying securities are carried on a Fund's books. Sales of large blocks of
securities by market participants that are seeking liquidity can further
reduce security prices in an illiquid market. Further, the bid/ask spread may
widen depending on market conditions and the liquidity of the underlying
investments held by a Fund.
Prepayment Risk. Many types of debt instruments are subject to prepayment
risk, which is the risk that the issuer will repay principal prior to the
maturity date. Debt instruments allowing prepayment may offer less potential
for gains during a period of declining interest rates.
Valuation Risk. Unlike publicly traded securities that trade on national
securities exchanges, there is no central place or exchange for trading most
debt securities. Debt securities generally trade on an "over-the-counter"
market. Due to the lack of centralized information and trading, the valuation
of debt securities may carry more uncertainty and risk than that of publicly
traded securities. Accordingly, determinations of the fair value of debt
securities may be based on infrequent and dated information. Also, because the
available information is less reliable and more subjective, elements of
judgment may play a greater role in valuation of debt securities than for
other types of securities.
Authorized Participant Concentration Risk. Only an authorized participant may
engage in creation or redemption transactions directly with an ETF. ETFs have
a limited number of institutions that act as authorized participants. To the
extent that these institutions exit the business or are unable to proceed with
creation and/or redemption orders with respect to an ETF and no other
authorized participant is able to step forward to create or redeem, in either
of these cases, ETF shares may trade at a discount to the ETF's net asset
value and possibly face delisting and the bid/ask spread on the ETF shares may
widen.
Fluctuation of Net Asset Value Risk. The net asset value of shares of a Fund
will generally fluctuate with changes in the market value of the Fund's
holdings. The market prices of shares will generally fluctuate in accordance
with changes in net asset value as well as the relative supply of and demand
for shares on the exchange on which they trade. The bid/ask spread may also
widen depending on market conditions and the liquidity of the underlying
investments held by a Fund. The Trust cannot predict whether shares will trade
below, at or above their net asset value because the shares trade on an
exchange at market prices and not at net asset value. Price differences may be
due, in large part, to the fact that supply and demand forces at work in the
secondary trading market for shares will be closely related to, but not
identical to, the same forces influencing the prices of the holdings of a Fund
trading individually or in the aggregate at any point in time.
Management Risk. Actively managed Funds are subject to management risk. In
managing a Fund's investment portfolio, the Fund's investment advisor will
apply investment techniques and risk analyses that may not have the desired
result. There can be no guarantee that the Funds will meet their investment
objectives.
Market Maker Risk. If a Fund has lower average daily trading volumes, it may
rely on a small number of third-party market makers to provide a market for
Page 15
the purchase and sale of shares. Any trading halt or other problem relating to
the trading activity of these market makers could result in a dramatic change
in the spread between a Fund's net asset value and the price at which the
Fund's shares are trading on the exchange, which could result in a decrease in
value of the Fund's shares. In addition, decisions by market makers to reduce
their role or step away from these activities in times of market stress could
inhibit the effectiveness of the arbitrage process in maintaining the
relationship between the underlying values of a Fund's portfolio securities
and the Fund's market price. This reduced effectiveness could result in a
Fund's shares trading at a discount to net asset value and also in greater
than normal intraday bid-ask spreads for Fund shares.
Trading Issues Risk. Although the shares of a Fund are listed for trading on a
securities exchange, there can be no assurance that an active trading market
for such shares will develop or be maintained. Trading in shares on such
exchanges may be halted due to market conditions or for reasons that, in the
view of an exchange, make trading in shares inadvisable. In addition, trading
in shares on an exchange is subject to trading halts caused by extraordinary
market volatility pursuant to the exchange's "circuit breaker" rules. Market
makers are under no obligation to make a market in a Fund's shares. There can
be no assurance that the requirements of the exchange necessary to maintain
the listing of a Fund will continue to be met or will remain unchanged. In
particular, if a Fund does not comply with any provision of the listing
standards of an exchange that are applicable to the Fund, and cannot bring
itself into compliance within a reasonable period after discovering the
matter, the exchange may remove the shares of the Fund from listing. The Funds
may have difficulty maintaining their listing on an exchange in the event that
a Fund's assets are small or the Fund does not have enough shareholders.
Cybersecurity Risk. As the use of Internet technology has become more
prevalent in the course of business, the Trust has become more susceptible to
potential operational risks through breaches in cybersecurity. A breach in
cybersecurity refers to both intentional and unintentional events that may
cause the Trust to lose proprietary information, suffer data corruption or
lose operational capacity. Such events could cause the Sponsor of the Trust to
incur regulatory penalties, reputational damage, additional compliance costs
associated with corrective measures and/or financial loss. Cybersecurity
breaches may involve unauthorized access to digital information systems
utilized by the Trust through "hacking" or malicious software coding, but may
also result from outside attacks such as denial-of-service attacks through
efforts to make network services unavailable to intended users. In addition,
cybersecurity breaches of the Trust's third-party service providers, or
issuers in which the Trust invests, can also subject the Trust to many of the
same risks associated with direct cybersecurity breaches. The Sponsor of, and
third-party service provider to, the Trust have established risk management
systems designed to reduce the risks associated with cybersecurity. However,
there is no guarantee that such efforts will succeed, especially because the
Trust does not directly control the cybersecurity systems of issuers or third-
party service providers.
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 Trust's investments. In addition, litigation regarding any of
the issuers of the Securities, or the industries represented by these issuers,
may negatively impact the value of these Securities. We cannot predict what
impact any pending or proposed legislation or pending or threatened litigation
will have on the value of the Trust's investments.
Non-Principal Risks.
The following is a discussion of non-principal risks of investing in the Trust.
Business Development Companies ("BDCs"). Certain of the Funds held by the
Trust invest in BDCs. BDCs invest in and lend to private middle-market
businesses. BDCs are publicly-traded mezzanine/private equity funds that are
subject to regulatory oversight by the SEC. BDCs are unique in that at least
70% of their investments must be made to private U.S. businesses that do not
have marginable securities and they are required to provide managerial
assistance to portfolio companies. An investment in BDCs is 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 periods of market turmoil and as investors' perceptions
regarding the funds or their underlying investments change. BDCs are not
redeemable at the option of the shareholder and they may trade in the market
at a discount to their net asset value.
Derivative Instruments. Certain of the Funds held by the Trust invest in
derivative instruments, the performance of which is derived from the
performance of a reference security, index, currency, or interest rate.
Derivative instruments, including options, swaps, caps, floors, collars,
futures and forwards, can be used to hedge a Fund's investment in other
Page 16
securities or for investment purposes. The use of derivatives can lead to
losses because of adverse movements in the price or value of the underlying
asset, index, currency or rate, which may be magnified by certain features of
the derivatives. The ability to successfully use derivatives depends on a Fund
investment advisor's ability to predict pertinent market movements, which
cannot be assured, and may result in losses greater than if they had not been
used. Derivatives are also subject to counterparty risk. If a counterparty
becomes bankrupt or otherwise fails to perform its obligations due to
financial difficulties, the value of the Funds held by the Trust may decline.
The derivatives markets are a focus of recent legislation. The extent and
impact of such regulation is not yet known. Recent legislation may make
derivatives more costly, may limit the availability of derivatives and may
affect the value or performance of derivatives.
Emerging and Developing Markets. Certain of the Funds held by the Trust invest
in companies headquartered or incorporated in countries considered to be
emerging or developing markets or have significant business operations in
emerging or developing markets. Risks of investing in emerging and developing
countries are even greater than the risks associated with foreign investments
in general. These increased risks include, among other risks, the possibility
of investment and trading limitations, greater liquidity concerns, higher
price volatility, greater delays and disruptions in settlement transactions,
greater political uncertainties and greater dependence on international trade
or development assistance. In addition, less information about emerging and
developing market companies is publicly available due to differences in
regulatory, accounting, audit and financial recordkeeping standards and
information that is available may be unreliable or outdated. Moreover, the
rights and remedies associated with emerging and developing market investment
securities may be different than those available for investments in more
developed markets. Furthermore, emerging and developing market countries may
be subject to overburdened infrastructures, obsolete financial systems and
environmental problems. For these reasons, investments in emerging and
developing markets are often considered speculative.
Floating-Rate Securities. Certain of the Funds held by the Trust invest in
floating-rate securities. A floating-rate security is an instrument in which
the interest rate payable on the obligation fluctuates on a periodic basis
based upon changes in an interest rate benchmark. As a result, the yield on
such a security will generally decline in a falling interest rate environment,
causing the Trust to experience a reduction in the income it receives from
such securities. A sudden and significant increase in market interest rates
may increase the risk of payment defaults and cause a decline in the value of
this investment and the value of the Units.
Master Limited Partnerships ("MLPs"). Certain of the Funds held by the Trust
invest in MLPs. MLPs are limited partnerships or limited liability companies
that are taxed as partnerships and whose interests (limited partnership units
or limited liability company units) are traded on securities exchanges like
shares of common stock. An MLP consists of a general partner and limited
partners. The general partner manages the partnership, has an ownership stake
in the partnership and is eligible to receive an incentive distribution. The
limited partners provide capital to the partnership, have a limited (if any)
role in the operation and management of the partnership and receive cash
distributions. The Trust's investment in Funds that hold MLPs, which are
required to distribute substantially all of their income to investors in order
to not be subject to entity level taxation, often offers a yield advantage
over other types of securities. Currently, most MLPs operate in the energy,
natural resources or real estate sectors. Investments in MLP interests are
subject to the risks generally applicable to companies in the energy and
natural resources sectors, including commodity pricing risk, supply and demand
risk, depletion risk and exploration risk. There are certain tax risks
associated with MLPs in which the Funds held by the Trust may invest,
including the risk that U.S. taxing authorities could challenge the treatment
for federal income tax purposes of the MLPs in which the Funds held by the
Trust invest. Recent changes in Treasury Regulations have limited the types of
income which an MLP treated as a partnership may earn and maintain the MLP's
partnership classification. In addition, tax law changes in 2017 have limited
the amount of deductions which an MLP and investors in an MLP may take. These
tax risks, and any adverse determination with respect thereto, could have a
negative impact on the after-tax income available for distribution by the MLPs
and/or the value of the Trust's investments.
Money Market Securities. Certain of the Funds held by the Trust invest in
money market or similar securities as a defensive measure when the Fund's
investment advisor anticipates unusual market or other conditions. If market
conditions improve while a Fund has temporarily invested some or all of its
assets in high quality money market securities, the potential gain from the
market upswing may be reduced, thus limiting the Fund's opportunity to achieve
its investment objective.
Page 17
Real Estate Investment Trusts ("REITs"). Certain of the Funds held by the
Trust invest in REITs. REITs are financial vehicles that pool investors'
capital to purchase or finance real estate. REITs may concentrate their
investments in specific geographic areas or in specific property types, i.e.,
hotels, shopping malls, residential complexes, office buildings and
timberlands. The value of REITs and the ability of REITs to distribute income
may be adversely affected by several factors, including rising interest rates,
changes in the national, state and local economic climate and real estate
conditions, perceptions of prospective tenants of the safety, convenience and
attractiveness of the properties, the ability of the owner to provide adequate
management, maintenance and insurance, the cost of complying with the
Americans with Disabilities Act, increased competition from new properties,
the impact of present or future environmental legislation and compliance with
environmental laws, changes in real estate taxes and other operating expenses,
adverse changes in governmental rules and fiscal policies, adverse changes in
zoning laws, and other factors beyond the control of the issuers of REITs.
Certain of the REITs may also be mortgage real estate investment trusts
("Mortgage REITs"). Mortgage REITs are companies that provide financing for
real estate by purchasing or originating mortgages and mortgage-backed
securities and earn income from the interest on these investments. Mortgage
REITs are also subject to many of the same risks associated with investments
in other REITs and to real estate market conditions.
Short Sales Risk. A Fund may engage in "short sale" transactions. A Fund will
lose value if the security or instrument that is the subject of a short sale
increases in value. A Fund also may enter into a short derivative position
through a futures contract. If the price of the security or derivative that is
the subject of a short sale increases, then the Fund will incur a loss equal
to the increase in price from the time that the short sale was entered into
plus any premiums and interest paid to a third party in connection with the
short sale. Therefore, short sales involve the risk that losses may be
exaggerated, potentially losing more money than the actual cost of the
investment. Also, there is the risk that the third party to the short sale may
fail to honor its contract terms, causing a loss to the Fund.
Subprime Residential Mortgage Loans. Certain of the Funds held by the Trust
invest in subprime residential mortgage loans. "Subprime" mortgage loans refer
to mortgage loans that have been originated using underwriting standards that
are less restrictive than the underwriting requirements used as standards for
other first and junior lien mortgage loan purchase programs, such as the
programs of Fannie Mae and Freddie Mac. These lower standards include mortgage
loans made to borrowers having imperfect or impaired credit histories
(including outstanding judgments or prior bankruptcies), mortgage loans where
the amount of the loan at origination is 80% or more of the value of the
mortgaged property, mortgage loans made to borrowers with low credit scores,
mortgage loans made to borrowers who have other debt that represents a large
portion of their income and mortgage loans made to borrowers whose income is
not required to be disclosed or verified.
Due to current economic conditions, including fluctuating interest rates, as
well as aggressive lending practices, subprime mortgage loans have in recent
periods experienced increased rates of delinquency, foreclosure, bankruptcy
and loss, and they are likely to continue to experience rates that are higher,
and that may be substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. Thus, because of the higher
delinquency rates and losses associated with subprime mortgage loans, risks of
investing in subprime mortgage loans are similar to those which affect high-
yield securities or "junk" bonds, which include less liquidity, greater
volatility and an increased risk of default as compared to higher rated
securities.
Public Offering
The Public Offering Price.
Units will be purchased at the Public Offering Price, the price per Unit of
which is comprised of the following:
- The aggregate underlying value of the Securities;
- The amount of any cash in the Income and Capital Accounts;
- Dividends receivable on Securities; and
- The maximum sales charge (which combines an initial upfront sales charge and
a deferred sales charge).
The price you pay for your Units will differ from the amount stated under
"Summary of Essential Information" due to various factors, including
fluctuations in the prices of the Securities and changes in the value of the
Income and/or Capital Accounts.
Although you are not required to pay for your Units until one business day
following your order (the "date of settlement"), you may pay before then. You
will become the owner of Units ("Record Owner") on the date of settlement if
payment has been received. If you pay for your Units before the date of
Page 18
settlement, we may use your payment during this time and it may be considered
a benefit to us, subject to the limitations of the Securities Exchange Act of
1934, as amended.
Organization Costs. Securities purchased with the portion of the Public
Offering Price intended to be used to reimburse the Sponsor for the Trust's
organization costs (including costs of preparing the registration statement,
the Indenture and other closing documents, registering Units with the SEC and
states, the initial audit of the Trust's statement of net assets, legal fees
and the initial fees and expenses of the Trustee) will be purchased in the
same proportionate relationship as all the Securities contained in the Trust.
Securities will be sold to reimburse the Sponsor for the Trust's organization
costs at the end of the initial offering period (a significantly shorter time
period than the life of the Trust). During the initial offering period, there
may be a decrease in the value of the Securities. To the extent the proceeds
from the sale of these Securities are insufficient to repay the Sponsor for
Trust organization costs, the Trustee will sell additional Securities to allow
the Trust to fully reimburse the Sponsor. In that event, the net asset value
per Unit of the Trust will be reduced by the amount of additional Securities
sold. Although the dollar amount of the reimbursement due to the Sponsor will
remain fixed and will never exceed the per Unit amount set forth for the Trust
in "Notes to Statement of Net Assets," this will result in a greater effective
cost per Unit to Unit holders for the reimbursement to the Sponsor. To the
extent actual organization costs are less than the estimated amount, only the
actual organization costs will ultimately be charged to the Trust. When
Securities are sold to reimburse the Sponsor for organization costs, the
Trustee will sell Securities, to the extent practicable, which will maintain
the same proportionate relationship among the Securities contained in the
Trust as existed prior to such sale.
Minimum Purchase.
The minimum amount per account you can purchase of the Trust is generally
$1,000 worth of Units ($500 if you are purchasing Units for your Individual
Retirement Account or any other qualified retirement plan), but such amounts
may vary depending on your selling firm.
Maximum Sales Charge.
The maximum sales charge of 1.50% per Unit is comprised of a transactional
sales charge.
Transactional Sales Charge.
The transactional sales charge you will pay has both an initial and a deferred
component.
Initial Sales Charge. The initial sales charge, which you will pay at the time
of purchase, is equal to the difference between the maximum sales charge of
1.50% of the Public Offering Price and the sum of the maximum remaining
deferred sales charge (initially $.150 per Unit). On the Initial Date of
Deposit, and any other day the Public Offering Price per Unit equals $10.00,
there is no initial sales charge. Thereafter, you will pay an initial sales
charge when the Public Offering Price per Unit exceeds $10.00 and as deferred
sales charge payments are made.
Monthly Deferred Sales Charge. In addition, three monthly deferred sales
charges of $.050 per Unit will be deducted from the Trust's assets on
approximately the twentieth day of each month from October 18, 2024 through
December 20, 2024. If you buy Units at a price of less than $10.00 per Unit,
the dollar amount of the deferred sales charge will not change, but the
deferred sales charge on a percentage basis will be more than 1.50% of the
Public Offering Price.
Discounts for Certain Persons.
The maximum sales charge is 1.50% per Unit and the maximum dealer concession
is 1.25% per Unit.
If you are purchasing Units for an investment account, the terms of which
provide that your registered investment advisor or registered broker/dealer
(a) charges periodic fees in lieu of commissions; (b) charges for financial
planning, investment advisory or asset management services; or (c) charges a
comprehensive "wrap fee" or similar fee for these or comparable services ("Fee
Accounts"), you will not be assessed the transactional sales charge described
above on such purchases. These Units will be designated as Fee Account Units
and, depending upon the purchase instructions we receive, assigned either a
Fee Account Cash CUSIP Number, if you elect to have distributions paid to you,
or a Fee Account Reinvestment CUSIP Number, if you elect to have distributions
reinvested into additional Units of the Trust. Certain Fee Account Unit
holders may be assessed transaction or other account fees on the purchase
and/or redemption of such Units by their registered investment advisor,
broker/dealer or other processing organizations for providing certain
transaction or account activities. Fee Account Units are not available for
purchase in the secondary market. We reserve the right to limit or deny
purchases of Units not subject to the transactional sales charge by investors
whose frequent trading activity we determine to be detrimental to the Trust.
Employees, officers and directors (and immediate family members) of the
Sponsor, our related companies, and dealers and their affiliates will purchase
Page 19
Units at the Public Offering Price less the applicable dealer concession,
subject to the policies of the related selling firm. Immediate family members
include spouses, or the equivalent if recognized under local law, children or
step-children under the age of 21 living in the same household, parents or
step-parents and trustees, custodians or fiduciaries for the benefit of such
persons. Only employees, officers and directors of companies that allow their
employees to participate in this employee discount program are eligible for
the discounts.
You will be charged the deferred sales charge per Unit regardless of the price
you pay for your Units or whether you are eligible to receive any discounts.
However, if the purchase price of your Units was less than $10.00 per Unit or
if you are eligible to receive a discount such that the maximum sales charge
you must pay is less than the applicable maximum deferred sales charge,
including Fee Account Units, you will be credited additional Units with a
dollar value equal to the difference between your maximum sales charge and the
maximum deferred sales charge at the time you buy your Units. If you elect to
have distributions reinvested into additional Units of the Trust, in addition
to the reinvestment Units you receive you will also be credited additional
Units with a dollar value at the time of reinvestment sufficient to cover the
amount of any remaining deferred sales charge to be collected on such
reinvestment Units. The dollar value of these additional credited Units (as
with all Units) will fluctuate over time, and may be less on the dates
deferred sales charges are collected than their value at the time they were
issued.
The Value of the Securities.
The Sponsor will determine the aggregate underlying value of the Securities in
the Trust as of the Evaluation Time on each business day and will adjust the
Public Offering Price of the Units according to this valuation. This Public
Offering Price will be effective for all orders received before the Evaluation
Time on each such day. If we or the Trustee receive orders for purchases,
sales or redemptions after that time, or on a day which is not a business day,
they will be held until the next determination of price. The term "business
day" as used in this prospectus shall mean any day on which the NYSE is open.
For purposes of Securities and Unit settlement, the term business day does not
include days on which U.S. financial institutions are closed.
The aggregate underlying value of the Securities in the Trust will be
determined as follows: if the Securities are listed on a national or foreign
securities exchange or Nasdaq, Inc., their value shall generally be based on
the closing sale price on the exchange or system which is the principal market
therefore ("Primary Exchange"), which shall be deemed to be the NYSE if the
Securities are listed thereon (unless the Sponsor deems such price
inappropriate as the basis for evaluation). In the event a closing sale price
on the Primary Exchange is not published, the Securities will be valued based
on the last trade price on the Primary Exchange. If no trades occur on the
Primary Exchange for a specific trade date, the value will be based on the
closing sale price from, in the opinion of the Sponsor, an appropriate
secondary exchange, if any. If no trades occur on the Primary Exchange or any
appropriate secondary exchange on a specific trade date, the Sponsor will
determine the value of the Securities using the best information available to
the Sponsor, which may include the prior day's evaluated price. If the
Security is an American Depositary Receipt/ADR, Global Depositary Receipt/GDR
or other similar security in which no trade occurs on the Primary Exchange or
any appropriate secondary exchange on a specific trade date, the value will be
based on the evaluated price of the underlying security, determined as set
forth above, after applying the appropriate ADR/GDR ratio, the exchange rate
and such other information which the Sponsor deems appropriate. For purposes
of valuing Securities traded on Nasdaq, Inc., closing sale price shall mean
the Nasdaq(R) Official Closing Price as determined by Nasdaq, Inc. If the
Securities are not so listed or, if so listed and the principal market
therefore is other than on the Primary Exchange or any appropriate secondary
exchange, the value shall generally be based on the current ask price on the
over-the-counter market (unless the Sponsor deems such price inappropriate as
a basis for evaluation). If current ask prices are unavailable, the value is
generally determined (a) on the basis of current ask prices for comparable
securities, (b) by appraising the value of the Securities on the ask side of
the market, or (c) any combination of the above. If such prices are in a
currency other than U.S. dollars, the value of such Security shall be
converted to U.S. dollars based on current exchange rates (unless the Sponsor
deems such prices inappropriate as a basis for evaluation). If the Sponsor
deems a price determined as set forth above to be inappropriate as the basis
for evaluation, the Sponsor shall use such other information available to the
Sponsor which it deems appropriate as the basis for determining the value of a
Security.
After the initial offering period is over, the aggregate underlying value of
the Securities will be determined as set forth above, except that bid prices
are used instead of ask prices when necessary.
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Distribution of Units
We intend to qualify Units of the Trust for sale in a number of states. All
Units will be sold at the then current Public Offering Price.
The Sponsor compensates intermediaries, such as broker/dealers and banks, for
their activities that are intended to result in sales of Units of the Trust.
This compensation includes dealer concessions described in the following
section and may include additional concessions and other compensation and
benefits to broker/dealers and other intermediaries.
Dealer Concessions.
Dealers and other selling agents can purchase Units at prices which represent
a concession or agency commission of 1.25% of the Public Offering Price per
Unit, subject to reductions set forth in "Public Offering-Discounts for
Certain Persons."
Eligible dealer firms and other selling agents who, during the previous
consecutive 12-month period through the end of the most recent month, sold
primary market units of unit investment trusts sponsored by us in the dollar
amounts shown below will be entitled to up to the following additional sales
concession on primary market sales of units during the current month of unit
investment trusts sponsored by us:
Total sales Additional
(in millions) Concession
______________________________________________________
$25 but less than $100 0.035%
$100 but less than $150 0.050%
$150 but less than $250 0.075%
$250 but less than $1,000 0.100%
$1,000 but less than $5,000 0.125%
$5,000 but less than $7,500 0.150%
$7,500 or more 0.175%
Dealers and other selling agents will not receive a concession on the sale of
Units which are not subject to a transactional sales charge, but such Units
will be included in determining whether the above volume sales levels are met.
Eligible dealer firms and other selling agents include clearing firms that
place orders with First Trust and provide First Trust with information with
respect to the representatives who initiated such transactions. Eligible
dealer firms and other selling agents will not include firms that solely
provide clearing services to other broker/dealer firms or firms who place
orders through clearing firms that are eligible dealers. We reserve the right
to change the amount of concessions or agency commissions from time to time.
Certain commercial banks may be making Units of the Trust available to their
customers on an agency basis. A portion of the transactional sales charge paid
by these customers is kept by or given to the banks in the amounts shown above.
Other Compensation and Benefits to Broker/Dealers.
The Sponsor, at its own expense and out of its own profits, currently provides
additional compensation and benefits to broker/dealers who sell Units of this
Trust and other First Trust products. This compensation is intended to result
in additional sales of First Trust 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 First Trust products by
the intermediary or its agents, the placing of First Trust products on a
preferred or recommended product list, access to an intermediary's personnel,
and other factors. The Sponsor makes 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 the
Sponsor's products. The Sponsor makes such payments to a substantial majority
of intermediaries that sell First Trust products. The Sponsor 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 and the preceding
paragraph, some of which may be characterized as "revenue sharing," create a
conflict of interest by influencing financial intermediaries and their agents
to sell or recommend a First Trust product, including the Trust, over products
offered by other sponsors or fund companies. These arrangements will not
change the price you pay for your Units.
Advertising and Investment Comparisons.
Advertising materials regarding the Trust may discuss several topics,
including: developing a long-term financial plan; working with your financial
professional; the nature and risks of various investment strategies and unit
investment trusts that could help you reach your financial goals; the
importance of discipline; how the Trust operates; how securities are selected;
Page 21
various unit investment trust features such as convenience and costs; and
options available for certain types of unit investment trusts. These materials
may include descriptions of the principal businesses of the companies
represented in the Trust, research analysis of why they were selected and
information relating to the qualifications of the persons or entities
providing the research analysis. In addition, they may include research
opinions on the economy and industry sectors included and a list of investment
products generally appropriate for pursuing those recommendations.
From time to time we may compare the estimated returns of the Trust (which may
show performance net of the expenses and charges the Trust would have
incurred) and returns over specified periods of other similar trusts we
sponsor in our advertising and sales materials, with (1) returns on other
taxable investments such as the common stocks comprising various market
indexes, corporate or U.S. Government bonds, bank CDs and money market
accounts or funds, (2) performance data from Morningstar, Inc. or (3)
information from publications such as Money, The New York Times, U.S. News and
World Report, Bloomberg Businessweek, Forbes or Fortune. The investment
characteristics of the Trust differ from other comparative investments. You
should not assume that these performance comparisons will be representative of
the Trust's future performance. We may also, from time to time, use
advertising which classifies trusts or portfolio securities according to
capitalization and/or investment style.
The Sponsor's Profits
We will receive a gross sales commission equal to the maximum transactional
sales charge per Unit less any reduction as stated in "Public Offering." Also,
any difference between our cost to purchase the Securities and the price at
which we sell them to the Trust is considered a profit or loss (see Note 2 of
"Schedule of Investments"). During the initial offering period, dealers and
others may also realize profits or sustain losses as a result of fluctuations
in the Public Offering Price they receive when they sell the Units.
In maintaining a market for the Units, any difference between the price at
which we purchase Units and the price at which we sell or redeem them will be
a profit or loss to us.
The Secondary Market
Although not obligated, we may maintain a market for the Units after the
initial offering period and continuously offer to purchase Units at prices
based on the Redemption Price per Unit.
We will pay all expenses to maintain a secondary market, except fees to value
Trust Securities and Trustee costs to transfer and record the ownership of
Units. We may discontinue purchases of Units at any time. IF YOU WISH TO
DISPOSE OF YOUR UNITS, YOU SHOULD ASK US FOR THE CURRENT MARKET PRICES BEFORE
MAKING A TENDER FOR REDEMPTION TO THE TRUSTEE. If you sell or redeem your
Units before you have paid the total deferred sales charge on your Units, you
will have to pay the remainder at that time.
How We Purchase Units
The Trustee will notify us of any tender of Units for redemption. If our bid
at that time is equal to or greater than the Redemption Price per Unit, we may
purchase the Units. You will receive your proceeds from the sale no later than
if they were redeemed by the Trustee. We may tender Units that we hold to the
Trustee for redemption as any other Units. If we elect not to purchase Units,
the Trustee may sell tendered Units in the over-the-counter market, if any.
However, the amount you will receive is the same as you would have received on
redemption of the Units.
Expenses and Charges
The estimated annual expenses of the Trust are listed under "Fee Table." If
actual expenses of the Trust exceed the estimate, the Trust will bear the
excess. The Trustee will pay operating expenses of the Trust from the Income
Account if funds are available, and then from the Capital Account. The Income
and Capital Accounts are non-interest-bearing to Unit holders, so the Trustee
may earn interest on these funds, thus benefiting from their use. In addition,
investors will also indirectly pay a portion of the expenses of the underlying
Funds. The Bank of New York Mellon may act as custodian, fund accountant
and/or transfer agent for the underlying Funds and may receive compensation
for such services.
First Trust Advisors L.P., an affiliate of ours, acts as Portfolio Supervisor
and will be compensated for providing portfolio supervisory services as well
as bookkeeping and other administrative services to the Trust. In providing
Page 22
portfolio supervisory services, the Portfolio Supervisor may purchase research
services from a number of sources, which may include underwriters or dealers
of the Trust. As Sponsor, we will be compensated for providing evaluation
services and we will receive brokerage fees when the Trust uses us (or an
affiliate of ours) as agent in buying or selling Securities. As authorized by
the Indenture, the Trustee may employ a subsidiary or affiliate of the Trustee
to act as broker to execute certain transactions for the Trust. The Trust will
pay for such services at standard commission rates.
The fees payable to the Sponsor, First Trust Advisors L.P. and the Trustee are
based on the largest aggregate number of Units of the Trust outstanding at any
time during the calendar year, except during the initial offering period, in
which case these fees are calculated based on the largest number of Units
outstanding during the period for which compensation is paid. These fees may
be adjusted for inflation without Unit holders' approval, but in no case will
the annual fees paid to us or our affiliates for providing services to all
unit investment trusts be more than the actual cost of providing such services
in such year.
In addition to the Trust's operating expenses and those fees described above,
the Trust may also incur the following charges:
- All legal expenses of the Trustee according to its responsibilities under
the Indenture;
- The expenses and costs incurred by the Trustee to protect the Trust and your
rights and interests (i.e., participating in litigation concerning a portfolio
security) and the costs of indemnifying the Trustee;
- Fees for any extraordinary services the Trustee performed under the Indenture;
- Payment for any loss, liability or expense the Trustee incurred without
negligence, bad faith or willful misconduct on its part, in connection with
its acceptance or administration of the Trust;
- Payment for any loss, liability or expenses we incurred without negligence,
bad faith or willful misconduct in acting as Sponsor of the Trust;
- Foreign custodial and transaction fees (which may include compensation paid
to the Trustee or its subsidiaries or affiliates), if any; and/or
- All taxes and other government charges imposed upon the Securities or any
part of the Trust.
The above expenses and the Trustee's annual fee are secured by a lien on the
Trust. In addition, if there is not enough cash in the Income or Capital
Account, the Trustee has the power to sell Securities to make cash available
to pay these charges which may result in capital gains or losses to you. See
"Tax Status."
Tax Status
Federal Tax Matters.
This section discusses some of the main U.S. federal income tax consequences
of owning Units of the Trust as of the date of this prospectus. Tax laws and
interpretations change frequently, and this summary does not describe all of
the tax consequences to all taxpayers. For example, this summary generally
does not describe your situation if you are a broker/dealer or other investor
with special circumstances. In addition, this section may not describe your
state, local or non-U.S. tax consequences.
This federal income tax summary is based in part on the advice of counsel to
the Sponsor. The Internal Revenue Service ("IRS") could disagree with any
conclusions set forth in this section. In addition, our counsel may not have
been asked to review, and may not have reached a conclusion with respect to
the federal income tax treatment of the assets to be deposited in the Trust.
This summary 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.
Unit investment trusts maintain both Income and Capital Accounts, regardless
of tax structure. Please refer to the "Income and Capital Distributions"
section of the prospectus for more information.
The Trust intends to qualify as a "regulated investment company," commonly
known as a "RIC," under the federal tax laws. If the Trust qualifies as a RIC
and distributes its income as required by the tax law, the Trust generally
will not pay federal income taxes. For federal income tax purposes, you are
treated as the owner of the Trust Units and not of the assets held by the
Trust.
Income from the Trust.
Trust distributions are generally taxable. After the end of each year, you
will receive a tax statement that separates the Trust's distributions into
ordinary income dividends, capital gain dividends, exempt-interest dividends
and return of capital. Income reported is generally net of expenses (but see
"Treatment of Trust Expenses" below). Ordinary income dividends are generally
taxed at your ordinary income tax rate, however, certain dividends received
Page 23
from the Trust may be taxed at the capital gains tax rates. Generally, all
capital gain dividends are treated as long-term capital gains regardless of
how long you have owned your Units. Exempt-interest dividends generally are
excluded from your gross income for federal income tax purposes. Some or all
of the exempt-interest dividends may be taken into account in determining the
alternative minimum tax on individuals and may have other tax consequences.
For tax years beginning after December 31, 2022, exempt-interest dividends may
affect the corporate alternative minimum tax for certain corporations. In
addition, the Trust may make distributions that represent a return of capital
for tax purposes and will generally not be currently taxable to you, although
they generally reduce your tax basis in your Units and thus increase your
taxable gain or decrease your loss when you dispose of your Units. 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.
Some distributions from the Trust may qualify as long-term capital gains,
which, if you are an individual, is generally taxed at a lower rate than your
ordinary income and short-term capital gain income. The distributions from the
Trust that you must take into account for federal income tax purposes are not
reduced by the amount used to pay a deferred sales charge, if any.
Distributions from the Trust, including capital gains but not exempt-interest
dividends, may also be subject to a "Medicare tax" if your adjusted gross
income exceeds certain threshold amounts.
Certain Stock Dividends.
Ordinary income dividends received by an individual Unit holder from a RIC
such as the Trust are generally taxed at the same rates that apply to long-
term capital gains, provided certain holding period requirements are satisfied
and provided the dividends are attributable to qualifying dividend income
("QDI") received by the Trust itself. Dividends that do not meet these
requirements will generally be taxed at ordinary income tax rates. After the
end of the tax year, the Trust will provide a tax statement to its Unit
holders reporting the amount of any distribution which may be taken into
account as a dividend which is eligible for the capital gains tax rates.
Unit holders that are corporations may be eligible for the dividends received
deduction with respect to certain ordinary income dividends on Units that are
attributable to qualifying dividends received by the Trust from certain
corporations.
Sale of Units.
If you sell your Units (whether to a third party or to the Trust), you will
generally recognize a taxable gain or loss. To determine the amount of this
gain or loss, you must subtract your (adjusted) tax basis in your Units from
the amount you receive from the sale. Your original tax basis in your Units is
generally equal to the cost of your Units, including sales charges. In some
cases, however, you may have to adjust your tax basis after you purchase your
Units, in which case your gain would be calculated using your adjusted basis.
The tax statement you receive in regard to the sale or redemption of your
Units may contain information about your basis in the Units and whether any
gain or loss recognized by you should be considered long-term or short-term
capital gain. The information reported to you is based upon rules that do not
take into consideration all of the facts that may be known to you or to your
advisors. You should consult with your tax advisor about any adjustments that
may need to be made to the information reported to you in determining the
amount of your gain or loss.
Distribution Reinvestment Option.
If you elect to reinvest your distributions into additional Units, you will be
treated as if you have received your distribution in an amount equal to the
distribution you are entitled to. Your tax liability will be the same as if
you received the distribution in cash. Also, the reinvestment would generally
be considered a purchase of new Units for federal income tax purposes.
Treatment of Trust Expenses.
Expenses incurred and deducted by the 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. You may not be able to take a
deduction for some or all of these expenses even if the cash you receive is
reduced by such expenses.
Investments in Certain Non-U.S. Corporations.
A foreign corporation will generally be treated as a passive foreign
investment company ("PFIC") if 75% or more of its income is passive income or
if 50% or more of its assets are held to produce passive income. If the Trust
holds an equity interest in PFICs, the Trust could be subject to U.S. federal
income tax and additional interest charges on gains and certain distributions
from the PFICs, even if all the income or gain is distributed in a timely
fashion to the Trust Unit holders. Similarly, if the Trust invests in a fund
(a "Portfolio Fund") that invests in PFICs, the Portfolio Fund may be subject
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to such taxes. The Trust will not be able to pass through to its Unit holders
any credit or deduction for such taxes if the taxes are imposed at the Trust
level or on a Portfolio Fund. The Trust (or the Portfolio Fund) may be able to
make an election that could limit the tax imposed on the Trust (or the
Portfolio Fund). In this case, the Trust (or the Portfolio Fund) 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 (or the Portfolio Fund) might be required to
recognize income in excess of its distributions from the 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 determining the application of the 4%
excise tax imposed on RICs that do not meet certain distribution thresholds.
Dividends paid by PFICs are not treated as QDI to shareholders of the PFICs.
Non-U.S. Investors.
If you are a non-U.S. investor, distributions from the Trust treated as
dividends will generally be subject to a U.S. withholding tax of 30% of the
distribution. Certain dividends, such as capital gains dividends, short-term
capital gains dividends, and distributions that are attributable to exempt-
interest income or certain other interest income, may not be subject to U.S.
withholding taxes. In addition, some non-U.S. investors may be eligible for a
reduction or elimination of U.S. withholding taxes under a treaty. However,
the qualification for those exclusions may not be known at the time of the
distribution and some excluded income may be taken into consideration for
alternative minimum tax purposes.
Separately, the United States, pursuant to the Foreign Account Tax Compliance
Act ("FATCA") imposes a 30% tax on certain non-U.S. entities that receive U.S.
source interest or dividends if the non-U.S. entity does not comply with
certain U.S. disclosure and reporting requirements. This FATCA tax also
currently applies to the gross proceeds from the disposition of securities
that produce U.S. source interest or dividends. However, proposed regulations
may eliminate the requirement to withhold on payments of gross proceeds from
dispositions.
It is the responsibility of the entity through which you hold your Units to
determine the applicable withholding.
Foreign Tax Credit.
If the Trust directly or indirectly invests in non-U.S. stocks, the tax
statement that you receive may include an item showing foreign taxes the Trust
paid to other countries. You may be able to deduct or receive a tax credit for
your share of these taxes. The Trust would have to meet certain IRS
requirements in order to pass through credits to you.
In-Kind Distributions.
If permitted by this prospectus, as described in "Redeeming Your Units," you
may request an In-Kind Distribution of Trust assets when you redeem your
Units. This distribution is subject to tax, and you will generally recognize
gain or loss, generally based on the value at that time of the securities and
the amount of cash received.
Rollovers.
If you elect to have your proceeds from the Trust rolled over into a future
series of the Trust, the exchange would generally be considered a sale for
federal income tax purposes.
You should consult your tax advisor regarding potential foreign, state or
local taxation with respect to your Units.
Retirement Plans
You may purchase Units of the Trust for:
- Individual Retirement Accounts;
- Keogh Plans;
- Pension funds; and
- Other tax-deferred retirement plans.
Generally, the federal income tax on capital gains and income received in each
of the above plans is deferred until you receive distributions. These
distributions are generally treated as ordinary income but may, in some cases,
be eligible for special averaging or tax-deferred rollover treatment. Before
participating in a plan like this, you should review the tax laws regarding
these plans and consult your attorney or tax advisor. Brokerage firms and
other financial institutions offer these plans with varying fees and charges.
Rights of Unit Holders
Unit Ownership.
Ownership of Units will not be evidenced by certificates. If you purchase or
hold Units through a broker/dealer or bank, your ownership of Units will be
Page 25
recorded in book-entry form at the Depository Trust Company ("DTC") and
credited on its records to your broker/dealer's or bank's DTC account.
Transfer of Units will be accomplished by book entries made by DTC and its
participants if the Units are registered to DTC or its nominee, Cede & Co. DTC
will forward all notices and credit all payments received in respect of the
Units held by the DTC participants. You will receive written confirmation of
your purchases and sales of Units from the broker/dealer or bank through which
you made the transaction. You may transfer your Units by contacting the
broker/dealer or bank through which you hold your Units.
Unit Holder Reports.
The Trustee will prepare a statement detailing the per Unit amounts (if any)
distributed from the Income Account and Capital Account in connection with
each distribution. In addition, at the end of each calendar year, the Trustee
will prepare a statement which contains the following information:
- A summary of transactions in the Trust for the year;
- A list of any Securities sold during the year and the Securities held at the
end of that year by the Trust;
- The Redemption Price per Unit, computed on the 31st day of December of such
year (or the last business day before); and
- Amounts of income and capital distributed during the year.
By February 15th yearly, the Annual Reports are posted to the Sponsor's
website (www.ftportfolios.com) in the UIT Tax Center and retrievable by CUSIP.
You may also request one be sent to you by calling the Sponsor at 800-621-
1675, dept. code 2. In addition, you may also request from the Trustee copies
of the evaluations of the Securities as prepared by the Sponsor to enable you
to comply with applicable federal and state tax reporting requirements.
Income and Capital Distributions
You will be eligible to receive distributions, if any, on your Units only
after you become a Record Owner. The Trustee will credit dividends received on
the Trust's Securities to the Income Account of the Trust. All other receipts,
such as return of capital or capital gain dividends, are credited to the
Capital Account of the Trust. Dividends received on foreign Securities, if
any, are converted into U.S. dollars at the applicable exchange rate.
The Trustee will make distributions from the Income Account on or near the
Income Account Distribution Dates to Unit holders of record on the preceding
Income Account Distribution Record Date provided the amount equals at least
$1.00 per 100 units. Distributions will consist of an amount substantially
equal to the Unit holder's pro rata share of the balance of the Income Account
calculated on the basis of one-twelfth of the estimated annual dividend
distributions (reset on a quarterly basis) in the Income Account after
deducting estimated expenses. The amount of the initial distribution from the
Income Account will be prorated based on the number of days in the first in
payment period. No Income Account distribution will be paid if accrued
expenses of the Trust exceed amounts in the Income Account on the Distribution
Dates. Distribution amounts will vary with changes in the Trust's fees and
expenses, in dividends received and with the sale of Securities. The Trustee
will distribute amounts in the Capital Account, net of amounts designated to
meet redemptions, pay the deferred sales charge and creation and development
fee or pay expenses, on the twenty-fifth day of each month to Unit holders of
record on the tenth day of each month provided the amount equals at least
$1.00 per 100 Units. In any case, the Trustee may distribute funds in the
Capital Account in December of each year to avoid imposition of any income or
excise taxes on undistributed income in the Trust and will distribute funds as
part of the final liquidation distribution.
If an Income or Capital Account distribution date is a day on which the NYSE
is closed, the distribution will be made on the next day the stock exchange is
open. Distributions are paid to Unit holders of record determined as of the
close of business on the Record Date for that distribution or, if the Record
Date is a day on which the NYSE is closed, the first preceding day on which
the exchange is open.
We anticipate that there will be enough money in the Capital Account of the
Trust to pay the deferred sales charge to the Sponsor. If not, the Trustee may
sell Securities to meet the shortfall.
Within a reasonable time after the Trust is terminated, unless you are a
Rollover Unit holder, you will receive the pro rata share of the money from
the sale of the Securities and amounts in the Income and Capital Accounts. All
Unit holders will receive a pro rata share of any other assets remaining in
the Trust, after deducting any unpaid expenses.
The Trustee may establish reserves (the "Reserve Account") within the Trust to
cover anticipated state and local taxes or any governmental charges to be paid
out of the Trust.
Page 26
Distribution Reinvestment Option. You may elect to have each distribution of
income and/or capital reinvested into additional Units of the Trust by
notifying your broker/dealer or bank within the time period required by such
entities so that they can notify the Trustee of your election at least 10 days
before any Record Date. Each later distribution of income and/or capital on
your Units will be reinvested by the Trustee into additional Units of such
Trust. There is no sales charge on Units acquired through the Distribution
Reinvestment Option, as discussed under "Public Offering." This option may not
be available in all states. Each reinvestment plan is subject to availability
or limitation by the Sponsor and each broker/dealer or selling firm. The
Sponsor or broker/dealers may suspend or terminate the offering of a
reinvestment plan at any time. Because the Trust may begin selling Securities
nine business days prior to the Mandatory Termination Date, reinvestment is
not available during this period. Please contact your financial professional
for additional information. PLEASE NOTE THAT EVEN IF YOU REINVEST
DISTRIBUTIONS, THEY ARE STILL CONSIDERED DISTRIBUTIONS FOR INCOME TAX PURPOSES.
Redeeming Your Units
You may redeem all or a portion of your Units at any time by sending a request
for redemption to your broker/dealer or bank through which you hold your
Units. No redemption fee will be charged, but you are responsible for any
governmental charges that apply. Certain broker/dealers may charge a
transaction fee for processing redemption requests. One business day after the
day you tender your Units (the "Date of Tender") you will receive cash in an
amount for each Unit equal to the Redemption Price per Unit calculated at the
Evaluation Time on the Date of Tender.
The Date of Tender is considered to be the date on which your redemption
request is received by the Trustee from the broker/dealer or bank through
which you hold your Units (if such day is a day the NYSE is open for trading).
However, if the redemption request is received after 4:00 p.m. Eastern time
(or after any earlier closing time on a day on which the NYSE is scheduled in
advance to close at such earlier time), the Date of Tender is the next day the
NYSE is open for trading.
Any amounts paid on redemption representing income will be withdrawn from the
Income Account if funds are available for that purpose, or from the Capital
Account. All other amounts paid on redemption will be taken from the Capital
Account.
If you tender for redemption at least 2,500 Units, or such larger amount as
required by your broker/dealer or bank, rather than receiving cash, you may
elect to receive an In-Kind Distribution in an amount equal to the Redemption
Price per Unit by making this request to your broker/dealer or bank at the
time of tender. However, to be eligible to participate in the In-Kind
Distribution option at redemption, Unit holders must hold their Units through
the end of the initial offering period. No In-Kind Distribution requests
submitted during the 10 business days prior to the Trust's Mandatory
Termination Date will be honored. Where possible, the Trustee will make an In-
Kind Distribution by distributing each of the Securities in book-entry form to
your bank's or broker/dealer's account at DTC. The Trustee will subtract any
customary transfer and registration charges from your In-Kind Distribution. As
a tendering Unit holder, you will receive your pro rata number of whole shares
of Securities that make up the portfolio, and cash from the Capital Account
equal to the fractional shares to which you are entitled.
If you elect to receive an In-Kind Distribution of Securities, you should be
aware that it will be considered a taxable event at the time you receive the
Securities. See "Tax Status" for additional information.
The Trustee may sell Securities to make funds available for redemption. If
Securities are sold, the size and diversification of the Trust will be
reduced. These sales may result in lower prices than if the Securities were
sold at a different time.
Your right to redeem Units (and therefore, your right to receive payment) may
be delayed:
- If the NYSE is closed (other than customary weekend and holiday closings);
- If the SEC determines that trading on the NYSE is restricted or that an
emergency exists making sale or evaluation of the Securities not reasonably
practical; or
- For any other period permitted by SEC order.
The Trustee is not liable to any person for any loss or damage which may
result from such a suspension or postponement.
The Redemption Price.
The Redemption Price per Unit is determined by the Trustee by:
adding
1. cash in the Income and Capital Accounts of the Trust not designated to
purchase Securities;
Page 27
2. the aggregate underlying value of the Securities held in the Trust; and
3. dividends receivable on the Securities trading ex-dividend as of the date
of computation; and
deducting
1. any applicable taxes or governmental charges that need to be paid out of
the Trust;
2. any amounts owed to the Trustee for its advances;
3. estimated accrued expenses of the Trust, if any;
4. cash held for distribution to Unit holders of record of the Trust as of the
business day before the evaluation being made;
5. liquidation costs for foreign Securities, if any; and
6. other liabilities incurred by the Trust; and
dividing
1. the result by the number of outstanding Units of the Trust.
Any remaining deferred sales charge on the Units when you redeem them will be
deducted from your redemption proceeds. In addition, until they are collected,
the Redemption Price per Unit will include estimated organization costs as set
forth under "Fee Table."
Investing in a New Trust
When the Trust is about to terminate, you may have the option to roll your
proceeds into the next series of the Trust (the "New Trust") if one is
available. We intend to create the New Trust in conjunction with the
termination of the Trust and plan to apply the same strategy we used to select
the portfolio for the Trust to the New Trust.
If you wish to have the proceeds from your Units rolled into a New Trust you
must notify the broker/dealer where your Units are held of your election prior
to that firm's cut-off date. If you make this election you will be considered
a "Rollover Unit holder."
Once all of the Securities are sold in connection with the termination of the
Trust, as described in "Amending or Terminating the Indenture," your proceeds,
less any brokerage fees, governmental charges or other expenses involved in
the sales, will be used to buy units of a New Trust or trust with a similar
investment strategy that you have selected, provided such trusts are
registered and being offered. Accordingly, proceeds may be uninvested for up
to several days. Units purchased with rollover proceeds will generally be
purchased subject to the sales charge set forth in the prospectus for such
trust.
We intend to create New Trust units as quickly as possible, depending on the
availability of the securities contained in a New Trust's portfolio. Rollover
Unit holders will be given first priority to purchase New Trust units. We
cannot, however, assure the exact timing of the creation of New Trust units or
the total number of New Trust units we will create. Any proceeds not invested
on behalf of Rollover Unit holders in New Trust units will be distributed
within a reasonable time after such occurrence. Although we believe that
enough New Trust units can be created, monies in a New Trust may not be fully
invested on the next business day.
Please note that there are certain tax consequences associated with becoming a
Rollover Unit holder. See "Tax Status." We may modify, amend or terminate this
rollover option upon 60 days notice.
Removing Securities from the Trust
The portfolio of the Trust is not managed. However, we may, but are not
required to, direct the Trustee to dispose of a Security in certain limited
circumstances, including situations in which:
- The issuer of the Security defaults in the payment of a declared dividend;
- Any action or proceeding prevents the payment of dividends;
- There is any legal question or impediment affecting the Security;
- The issuer of the Security has breached a covenant which would affect the
payment of dividends, the issuer's credit standing, or otherwise damage the
sound investment character of the Security;
- The issuer has defaulted on the payment of any other of its outstanding
obligations;
- There has been a public tender offer made for a Security or a merger or
acquisition is announced affecting a Security, and that in our opinion the
sale or tender of the Security is in the best interest of Unit holders;
- The sale of Securities is necessary or advisable (i) in order to maintain
the qualification of the Trust as a "regulated investment company" in the case
of the Trust which has elected to qualify as such or (ii) to provide funds to
make any distribution for a taxable year in order to avoid imposition of any
income or excise taxes on undistributed income in the Trust which is a
"regulated investment company";
- The price of the Security has declined to such an extent, or such other
credit factors exist, that in our opinion keeping the Security would be
harmful to the Trust;
Page 28
- As a result of the ownership of the Security, the Trust or its Unit holders
would be a direct or indirect shareholder of a passive foreign investment
company; or
- The sale of the Security is necessary for the Trust to comply with such
federal and/or state laws, regulations and/or regulatory actions and
interpretations which may be in effect from time to time.
Except for instances in which the Trust acquires Replacement Securities, as
described in "The FT Series," the Trust will generally not acquire any
securities or other property other than the Securities. The Trustee, on behalf
of the Trust and at the direction of the Sponsor, will vote for or against any
offer for new or exchanged securities or property in exchange for a Security,
such as those acquired in a merger or other transaction. If such exchanged
securities or property are acquired by the Trust, at our instruction, they
will either be sold or held in the Trust. In making the determination as to
whether to sell or hold the exchanged securities or property we may get advice
from the Portfolio Supervisor. Any proceeds received from the sale of
Securities, exchanged securities or property will be credited to the Capital
Account of the Trust for distribution to Unit holders or to meet redemption
requests. The Trustee may retain and pay us or an affiliate of ours to act as
agent for the Trust to facilitate selling Securities, exchanged securities or
property from the Trust. If we or our affiliate act in this capacity, we will
be held subject to the restrictions under the 1940 Act. When acting in an
agency capacity, we may select various broker/dealers to execute securities
transactions on behalf of the Trust, which may include broker/dealers who sell
Units of the Trust. We do not consider sales of Units of the Trust or any
other products sponsored by First Trust as a factor in selecting such
broker/dealers. As authorized by the Indenture, the Trustee may also employ a
subsidiary or affiliate of the Trustee to act as broker in selling such
Securities or property. The Trust will pay for these brokerage services at
standard commission rates.
The Trustee may sell Securities designated by us or, absent our direction, at
its own discretion, in order to meet redemption requests or pay expenses. In
designating Securities to be sold, we will try to maintain the proportionate
relationship among the Securities. If this is not possible, the composition
and diversification of the Trust may be changed.
Amending or Terminating the Indenture
Amendments. The Indenture may be amended by us and the Trustee without your
consent:
- To cure ambiguities;
- To correct or supplement any defective or inconsistent provision;
- To make any amendment required by any governmental agency; or
- To make other changes determined not to be adverse to your best interests
(as determined by us and the Trustee).
Termination. As provided by the Indenture, the Trust will terminate on the
Mandatory Termination Date as stated in the "Summary of Essential
Information." The Trust may be terminated earlier:
- Upon the consent of 100% of the Unit holders of the Trust;
- If the value of the Securities owned by the Trust as shown by any evaluation
is less than the lower of $2,000,000 or 20% of the total value of Securities
deposited in the Trust during the initial offering period ("Discretionary
Liquidation Amount"); or
- In the event that Units of the Trust not yet sold aggregating more than 60%
of the Units of the Trust are tendered for redemption by underwriters,
including the Sponsor.
If the Trust is terminated due to this last reason, we will refund your entire
sales charge; however, termination of the Trust before the Mandatory
Termination Date for any other stated reason will result in all remaining
unpaid deferred sales charges on your Units being deducted from your
termination proceeds. For various reasons, the Trust may be reduced below the
Discretionary Liquidation Amount and could therefore be terminated before the
Mandatory Termination Date.
Unless terminated earlier, the Trustee may begin to sell Securities in
connection with the termination of the Trust as early as nine business days
prior to, but will sell Securities no later than, the Mandatory Termination
Date. We will determine the manner and timing of the sale of Securities.
Because the Trustee must sell the Securities within a relatively short period
of time, the sale of Securities as part of the termination process may result
in a lower sales price than might otherwise be realized if such sale were not
required at this time.
If you do not elect to participate in the rollover option, you will receive a
cash distribution from the sale of the remaining Securities, along with your
Page 29
interest in the Income and Capital Accounts, within a reasonable time after
the Trust is terminated. The Trustee will deduct from the Trust any accrued
costs, expenses, advances or indemnities provided for by the Indenture,
including estimated compensation of the Trustee and costs of liquidation and
any amounts required as a reserve to pay any taxes or other governmental
charges.
Information on the Sponsor and Trustee
The Sponsor.
We, First Trust Portfolios L.P., specialize in the underwriting, trading and
wholesale distribution of unit investment trusts under the "First Trust" brand
name as well as other securities. An Illinois limited partnership formed in
1991, we took over the First Trust product line and act as Sponsor for
successive series of:
- The First Trust Combined Series
- FT Series (formerly known as The First Trust Special Situations Trust)
- The First Trust Insured Corporate Trust
- The First Trust of Insured Municipal Bonds
- The First Trust GNMA
The First Trust product line commenced with the first insured unit investment
trust in 1974. To date we have deposited more than $620 billion in First Trust
unit investment trusts. Our employees include a team of professionals with
many years of experience in the unit investment trust industry.
We are a member of FINRA and SIPC. Our principal offices are at 120 East
Liberty Drive, Wheaton, Illinois 60187; telephone number 800-621-1675. As of
December 31, 2023, the total partners' capital of First Trust Portfolios L.P.
was $76,684,733.
This information refers only to us and not to the Trust or to any series of
the Trust or to any other dealer. We are including this information only to
inform you of our financial responsibility and our ability to carry out our
contractual obligations. We will provide more detailed financial information
on request.
Code of Ethics. The Sponsor and the Trust have adopted a code of ethics
requiring the Sponsor's employees who have access to information on Trust
transactions to report personal securities transactions. The purpose of the
code is to avoid potential conflicts of interest and to prevent fraud,
deception or misconduct with respect to the Trust.
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 unit investment
trust division offices at 240 Greenwich Street, New York, New York 10286,
telephone 800-813-3074. If you have questions regarding your account or your
Trust, please contact the Trustee at its unit investment trust division
offices or your financial advisor. The Sponsor does not have access to
individual account information. The Bank of New York Mellon is subject to
supervision and examination by the Superintendent of the New York State
Department of Financial Services 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 has not participated in selecting the Securities for the Trust; it
only provides administrative services.
Limitations of Liabilities of Sponsor and Trustee.
Neither we nor the Trustee will be liable for taking any action or for not
taking any action in good faith according to the Indenture. We will also not
be accountable for errors in judgment. We will only be liable for our own
willful misfeasance, bad faith, gross negligence (ordinary negligence in the
Trustee's case) or reckless disregard of our obligations and duties. The
Trustee is not liable for any loss or depreciation when the Securities are
sold. If we fail to act under the Indenture, the Trustee may do so, and the
Trustee will not be liable for any action it takes in good faith under the
Indenture.
The Trustee will not be liable for any taxes or other governmental charges or
interest on the Securities which the Trustee may be required to pay under any
present or future law of the United States or of any other taxing authority
with jurisdiction. Also, the Indenture states other provisions regarding the
liability of the Trustee.
If we do not perform any of our duties under the Indenture or are not able to
act or become bankrupt, or if our affairs are taken over by public
authorities, then the Trustee may:
- Appoint a successor sponsor, paying them a reasonable rate not more than
that stated by the SEC;
- Terminate the Indenture and liquidate the Trust; or
- Continue to act as Trustee without terminating the Indenture.
The Trustee and Unit holders may rely on the accuracy of any evaluation
prepared by the Sponsor. The Sponsor will make determinations in good faith
Page 30
based upon the best available information, but will not be liable to the
Trustee or Unit holders for errors in judgment.
Other Information
Legal Opinions.
Our counsel is Chapman and Cutler LLP, 320 S. Canal St., Chicago, Illinois
60606. They have passed upon the legality of the Units offered hereby and
certain matters relating to federal tax law. Carter Ledyard & Milburn LLP acts
as the Trustee's counsel.
Experts.
The Trust's statement of net assets, including the schedule of investments, as
of the opening of business on the Initial Date of Deposit included in this
prospectus, has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report appearing herein,
and is included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
Supplemental Information.
If you write or call the Sponsor, you will receive free of charge supplemental
information about this Series, which has been filed with the SEC and to which
we have referred throughout. This information states more specific details
concerning the nature, structure and risks of this product. You should be
aware that the Trust and the underlying Funds do not necessarily have exposure
to all of the various asset classes described in the Information Supplement.
In addition, the underlying Funds' exposure to the investments described in
the Information Supplement is not fixed and may change over time.
Page 31
FIRST TRUST(R)
FT 60/40 Target Income Portfolio, Series 3
FT 11497
Sponsor:
First Trust Portfolios L.P.
Member SIPC o Member FINRA
120 East Liberty Drive
Wheaton, Illinois 60187
800-621-1675
Trustee:
The Bank of New York Mellon
240 Greenwich Street
New York, New York 10286
800-813-3074
24-Hour Pricing Line:
800-446-0132
________________________
When Units of the Trust are no longer available, this prospectus may be used
as a preliminary prospectus
for a future series, in which case you should note the following:
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL, OR ACCEPT OFFERS TO BUY, SECURITIES OF A FUTURE SERIES UNTIL THAT
SERIES HAS BECOME EFFECTIVE WITH THE SEC. NO SECURITIES CAN BE SOLD IN ANY
STATE WHERE A SALE WOULD BE ILLEGAL.
________________________
This prospectus contains information relating to the above-mentioned unit
investment trust, but does not contain all of the information about this
investment company as filed with the SEC in Washington, D.C. under the:
- Securities Act of 1933 (file no. 333-279412) and
- Investment Company Act of 1940 (file no. 811-05903)
Information about the Trust, including its Codes of Ethics, can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Information
regarding the operation of the SEC's Public Reference Room may be obtained by
calling the SEC at 202-942-8090.
Information about the Trust is available on the EDGAR Database on the SEC's
Internet site at www.sec.gov.
To obtain copies at prescribed rates -
Write: Public Reference Section of the SEC
100 F Street, N.E.
Washington, D.C. 20549
e-mail address: publicinfo@sec.gov
July 2, 2024
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
FIRST TRUST(R)
The FT Series
Information Supplement
This Information Supplement provides additional information concerning the
structure, operations and risks of the unit investment trust contained in FT
11497 not found in the prospectus for the Trust. However, you should be aware
that the Trust and the underlying Funds do not necessarily have exposure to
all of the various asset classes described in this Information Supplement. In
addition, the underlying Funds' exposure to the investments described below is
not fixed and may change over time. This Information Supplement is not a
prospectus and does not include all of the information you should consider
before investing in the Trust. This Information Supplement should be read in
conjunction with the prospectus for the Trust in which you are considering
investing.
This Information Supplement is dated July 2, 2024. Capitalized terms have been
defined in the prospectus.
Table of Contents
Risk Factors
Securities 1
Common Stocks 1
Preferred Stocks 2
Trust Preferred Securities 2
REITs 3
ETFs 4
Closed-End Funds 5
Business Development Companies 5
Convertible Securities 6
Fixed-Income Securities 8
High-Yield Securities 9
Senior Loans 10
Subprime Residential Mortgage Loans 10
TIPS 11
Foreign Issuers 11
Emerging and Developing Markets 11
Small and/or Mid Capitalization Companies 12
Risk Factors
Securities. An investment in Units of the Trust should be made with an
understanding of the risks involved in the Trust's exposure to the following
types of securities, either directly or indirectly through the Funds held by
the Trust: common stocks ("Common Stocks"), preferred stock ("Preferred
Stocks"), trust preferred securities ("Trust Preferred Securities"), real
estate investment trusts ("REITs"), exchange-traded funds ("ETFs"), closed-end
funds ("Closed-End Funds") and/or business development companies. In selecting
Closed-End Funds and/or ETFs to be included in the portfolio, the Sponsor may
not be able to include certain Closed-End Funds and/or ETFs that it previously
would have considered due to the investment restrictions imposed by new Rule
12d1-4 under the Investment Company Act of 1940, as amended.
Common Stocks. An investment in common stocks should be made with an
understanding of the risks which such an investment entails, including the
risk that the financial condition of the issuers of the common stocks or the
general condition of the relevant stock market may worsen, and the value of
the common stocks and therefore the value of the Units may decline. Common
stocks are especially susceptible to general stock market movements and to
volatile increases and decreases of value, as market confidence in and
perceptions of the issuers change. These perceptions are based on
unpredictable factors, including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, and global or regional political, economic or banking crises.
Page 1
Shareholders of common stocks have rights to receive payments from the issuers
of those common stocks that are generally subordinate to those of creditors
of, or holders of debt obligations or preferred stocks of, such issuers.
Shareholders of common stocks have a right to receive dividends only when and
if, and in the amounts, declared by the issuer's board of directors and have a
right to participate in amounts available for distribution by the issuer only
after all other claims on the issuer have been paid or provided for. Common
stocks do not represent an obligation of the issuer and, therefore, do not
offer any assurance of income or provide the same degree of protection of
capital as do debt securities. The issuance of additional debt securities or
preferred stock will create prior claims for payment of principal, interest
and dividends which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the rights of
holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Cumulative preferred stock dividends must be paid before common
stock dividends, and any cumulative preferred stock dividend omitted is added
to future dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on liquidation
which are senior to those of common stockholders.
Preferred Stocks. An investment in preferred stocks should be made with an
understanding of the risks which such an investment entails, including the
risk that the financial condition of the issuers of the Securities or the
general condition of the preferred stock market may worsen, and the value of
the preferred stocks and therefore the value of the Units may decline.
Preferred stocks may be susceptible to general stock market movements and to
volatile increases and decreases of value as market confidence in and
perceptions of the issuers change. These perceptions are based on
unpredictable factors, including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, market liquidity, and global or regional political, economic
or banking crises. Preferred stocks are also vulnerable to Congressional
reductions in the dividends received deduction which would adversely affect
the after-tax return to the investors who can take advantage of the deduction.
Such a reduction might adversely affect the value of preferred stocks in
general. Holders of preferred stocks, as owners of the entity, have rights to
receive payments from the issuers of those preferred stocks that are generally
subordinate to those of creditors of, or holders of debt obligations or, in
some cases, other senior preferred stocks of, such issuers. Preferred stocks
do not represent an obligation of the issuer and, therefore, do not offer any
assurance of income or provide the same degree of protection of capital as do
debt securities. The issuance of additional debt securities or senior
preferred stocks will create prior claims for payment of principal and
interest and senior dividends which could adversely affect the ability and
inclination of the issuer to declare or pay dividends on its preferred stock
or the rights of holders of preferred stock with respect to assets of the
issuer upon liquidation or bankruptcy. The value of preferred stocks is
subject to market fluctuations for as long as the preferred stocks remain
outstanding, and thus the value of the Securities may be expected to fluctuate
over the life of the Trust to values higher or lower than those prevailing on
the Initial Date of Deposit.
Trust Preferred Securities. An investment in trust preferred securities should
be made with an understanding of the risks which such an investment entails.
Holders of trust preferred securities incur risks in addition to or slightly
different than the typical risks of holding preferred stocks. Trust preferred
securities are limited-life preferred securities that are typically issued by
corporations, generally in the form of interest-bearing notes or preferred
securities, or by an affiliated business trust of a corporation, generally in
the form of beneficial interests in subordinated debentures issued by the
corporation, or similarly structured securities. The maturity and dividend
rate of the trust preferred securities are structured to match the maturity
and coupon interest rate of the interest-bearing notes, preferred securities
or subordinated debentures. Trust preferred securities usually mature on the
stated maturity date of the interest-bearing notes, preferred securities or
subordinated debentures and may be redeemed or liquidated prior to the stated
maturity date of such instruments for any reason on or after their stated call
date or upon the occurrence of certain extraordinary circumstances at any
time. Trust preferred securities generally have a yield advantage over
traditional preferred stocks, but unlike preferred stocks, distributions on
the trust preferred securities are treated as interest rather than dividends
for Federal income tax purposes. Unlike most preferred stocks, distributions
received from trust preferred securities are not eligible for the dividends-
received deduction. Certain of the risks unique to trust preferred securities
include: (i) distributions on trust preferred securities will be made only if
interest payments on the interest-bearing notes, preferred securities or
subordinated debentures are made; (ii) a corporation issuing the interest-
bearing notes, preferred securities or subordinated debentures may defer
interest payments on these instruments for up to 20 consecutive quarters and
if such election is made, distributions will not be made on the trust
preferred securities during the deferral period; (iii) certain tax or
regulatory events may trigger the redemption of the interest-bearing notes,
Page 2
preferred securities or subordinated debentures by the issuing corporation and
result in prepayment of the trust preferred securities prior to their stated
maturity date; (iv) future legislation may be proposed or enacted that may
prohibit the corporation from deducting its interest payments on the interest-
bearing notes, preferred securities or subordinated debentures for tax
purposes, making redemption of these instruments likely; (v) a corporation may
redeem the interest-bearing notes, preferred securities or subordinated
debentures in whole at any time or in part from time to time on or after a
stated call date; (vi) trust preferred securities holders have very limited
voting rights; and (vii) payment of interest on the interest-bearing notes,
preferred securities or subordinated debentures, and therefore distributions
on the trust preferred securities, is dependent on the financial condition of
the issuing corporation.
REITs. An investment in REITs should be made with an understanding of the
risks which such an investment entails. Generally, these include economic
recession, the cyclical nature of real estate markets, competitive
overbuilding, unusually adverse weather conditions, changing demographics,
changes in governmental regulations (including tax laws and environmental,
building, zoning and sales regulations), increases in real estate taxes or
costs of material and labor, the inability to secure performance guarantees or
insurance as required, the unavailability of investment capital and the
inability to obtain construction financing or mortgage loans at rates
acceptable to builders and purchasers of real estate. Additional risks include
an inability to reduce expenditures associated with a property (such as
mortgage payments and property taxes) when rental revenue declines, and
possible loss upon foreclosure of mortgaged properties if mortgage payments
are not paid when due.
REITs are financial vehicles that have as their objective the pooling of
capital from a number of investors in order to participate directly in real
estate ownership or financing. REITs are generally fully integrated operating
companies that have interests in income-producing real estate. Equity REITs
emphasize direct property investment, holding their invested assets primarily
in the ownership of real estate or other equity interests. REITs obtain
capital funds for investment in underlying real estate assets by selling debt
or equity securities in the public or institutional capital markets or by bank
borrowing. Thus, the returns on common equities of REITs will be significantly
affected by changes in costs of capital and, particularly in the case of
highly "leveraged" REITs (i.e., those with large amounts of borrowings
outstanding), by changes in the level of interest rates. The objective of an
equity REIT is to purchase income-producing real estate properties in order to
generate high levels of cash flow from rental income and a gradual asset
appreciation, and they typically invest in properties such as office, retail,
industrial, hotel and apartment buildings and healthcare facilities.
REITs are a creation of the tax law. REITs essentially operate as a
corporation or business trust with the advantage of exemption from corporate
income taxes provided the REIT satisfies the requirements of Sections 856
through 860 of the Internal Revenue Code. The major tests for tax-qualified
status are that the REIT (i) be managed by one or more trustees or directors,
(ii) issue shares of transferable interest to its owners, (iii) have at least
100 shareholders, (iv) have no more than 50% of the shares held by five or
fewer individuals, (v) invest substantially all of its capital in real estate
related assets and derive substantially all of its gross income from real
estate related assets and (vi) distributed at least 95% of its taxable income
to its shareholders each year. If a REIT should fail to qualify for such tax
status, the related shareholders (including such Trust) could be adversely
affected by the resulting tax consequences.
The underlying value of REITs and their ability to pay dividends may be
adversely affected by changes in national economic conditions, changes in
local market conditions due to changes in general or local economic conditions
and neighborhood characteristics, increased competition from other properties,
obsolescence of property, changes in the availability, cost and terms of
mortgage funds, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements,
particularly in older properties, changes in real estate tax rates and other
operating expenses, regulatory and economic impediments to raising rents,
adverse changes in governmental rules and fiscal policies, dependency on
management skill, civil unrest, acts of God, including earthquakes, fires and
other natural disasters (which may result in uninsured losses), acts of war,
adverse changes in zoning laws, and other factors which are beyond the control
of the issuers of REITs. The value of REITs may at times be particularly
sensitive to devaluation in the event of rising interest rates.
REITs may concentrate investments in specific geographic areas or in specific
property types, i.e., hotels, shopping malls, residential complexes, office
buildings and timberlands. The impact of economic conditions on REITs can also
be expected to vary with geographic location and property type. Investors
should be aware that REITs may not be diversified and are subject to the risks
of financing projects. REITs are also subject to defaults by borrowers, self-
liquidation, the market's perception of the REIT industry generally, and the
possibility of failing to qualify for pass-through of income under the
Page 3
Internal Revenue Code, and to maintain exemption from the Investment Company
Act of 1940. A default by a borrower or lessee may cause a REIT to experience
delays in enforcing its right as mortgagee or lessor and to incur significant
costs related to protecting its investments. In addition, because real estate
generally is subject to real property taxes, REITs may be adversely affected
by increases or decreases in property tax rates and assessments or
reassessments of the properties underlying REITs by taxing authorities.
Furthermore, because real estate is relatively illiquid, the ability of REITs
to vary their portfolios in response to changes in economic and other
conditions may be limited and may adversely affect the value of the Units.
There can be no assurance that any REIT will be able to dispose of its
underlying real estate assets when advantageous or necessary.
Issuers of REITs generally maintain comprehensive insurance on presently owned
and subsequently acquired real property assets, including liability, fire and
extended coverage. However, certain types of losses may be uninsurable or not
be economically insurable as to which the underlying properties are at risk in
their particular locales. There can be no assurance that insurance coverage
will be sufficient to pay the full current market value or current replacement
cost of any lost investment. Various factors might make it impracticable to
use insurance proceeds to replace a facility after it has been damaged or
destroyed. Under such circumstances, the insurance proceeds received by a REIT
might not be adequate to restore its economic position with respect to such
property.
Under various environmental laws, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator caused or knew of the
presence of such hazardous or toxic substances and whether or not the storage
of such substances was in violation of a tenant's lease. In addition, the
presence of hazardous or toxic substances, or the failure to remediate such
property properly, may adversely affect the owner's ability to borrow using
such real property as collateral. No assurance can be given that REITs may not
be presently liable or potentially liable for any such costs in connection
with real estate assets they presently own or subsequently acquire. Certain of
the REITs may also be Mortgage REITs. Mortgage REITs are companies that
provide financing for real estate by purchasing or originating mortgages and
mortgage-backed securities and earn income from the interest on these
investments. Mortgage REITs are also subject to many of the same risks
associated with investments in other REITs and to real estate market conditions.
ETFs. An investment in ETFs should be made with an understanding of the risks
which such an investment entails. ETFs are investment pools that hold other
securities. ETFs are either passively-managed index funds that seek to
replicate the performance or composition of a recognized securities index or
actively-managed funds that seek to achieve a stated investment objective.
ETFs are either open-end management investment companies or unit investment
trusts registered under the Investment Company Act of 1940, as amended. Unlike
typical open-end funds or unit investment trusts, 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 ETFs in this manner. In addition,
securities exchanges list ETF shares for trading, which allow 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 unit investment trusts, which issue redeemable shares, and
of corporate common stocks or closed-end funds, which generally issue shares
that trade at negotiated prices on securities exchanges and are not redeemable.
ETFs can provide exposure to broad-based indexes, growth and value styles,
market cap segments, sectors and industries, specific countries or regions of
the world or physical commodities. The securities comprising ETFs may be
common stocks, fixed-income securities or physical commodities. ETFs contain a
number of securities, anywhere from fewer than 20 securities up to more than
1,000 securities. As a result, investors in ETFs 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 index-based ETFs is generally
highly correlated with the indices or sectors which they are designed to track.
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 periods of market turmoil
and as investors' perceptions regarding ETFs or their underlying investments
change.
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 the ETF 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.
Page 4
Closed-End Funds. An investment in closed-end funds should be made with an
understanding of the risks which such an investment entails. Closed-end mutual
funds' portfolios are managed and their shares are generally listed on a
securities exchange. The net asset value of closed-end fund shares will
fluctuate with changes in the value of the underlying securities which the
closed-end fund owns. In addition, for various reasons closed-end fund shares
frequently trade at a discount from their net asset value in the secondary
market. The amount of such discount from net asset value is subject to change
from time to time in response to various factors. Closed-end funds' articles
of incorporation may contain certain anti-takeover provisions that may have
the effect of inhibiting a fund's possible conversion to open-end status and
limiting the ability of other persons to acquire control of a fund. In certain
circumstances, these provisions might also inhibit the ability of stockholders
(including the Trust) to sell their shares at a premium over prevailing market
prices. This characteristic is a risk separate and distinct from the risk that
a fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those closed-end
fund shares which were purchased by a Trust at a premium. In the unlikely
event that a closed-end fund converts to open-end status at a time when its
shares are trading at a premium there would be an immediate loss in value to a
Trust since shares of open-end funds trade at net asset value. Certain closed-
end funds may have in place or may put in place in the future plans pursuant
to which the fund may repurchase its own shares in the marketplace. Typically,
these plans are put in place in an attempt by a fund's board of directors to
reduce a discount on its share price. To the extent such a plan was
implemented and shares owned by a Trust are repurchased by a fund, the Trust's
position in that fund would be reduced and the cash would be distributed.
A Trust is prohibited from subscribing to a rights offering for shares of any
of the closed-end funds in which they invest. In the event of a rights
offering for additional shares of a fund, Unit holders should expect that
their Trust will, at the completion of the offer, own a smaller proportional
interest in such fund that would otherwise be the case. It is not possible to
determine the extent of this dilution in share ownership without knowing what
proportion of the shares in a rights offering will be subscribed. This may be
particularly serious when the subscription price per share for the offer is
less than the fund's net asset value per share. Assuming that all rights are
exercised and there is no change in the net asset value per share, the
aggregate net asset value of each shareholder's shares of common stock should
decrease as a result of the offer. If a fund's subscription price per share is
below that fund's net asset value per share at the expiration of the offer,
shareholders would experience an immediate dilution of the aggregate net asset
value of their shares of common stock as a result of the offer, which could be
substantial.
Closed-end funds may utilize leveraging in their portfolios. Leveraging can be
expected to cause increased price volatility for those fund's shares, and as a
result, increased volatility for the price of the Units of a Trust. There can
be no assurance that a leveraging strategy will be successful during any
period in which it is employed.
Business Development Companies. An investment in business development
companies should be made with an understanding of the risks which such an
investment entails. Business development companies' portfolios are managed and
their shares are generally listed on a securities exchange. Business
development companies are closed-end funds which have elected to be treated as
business development companies. The net asset value of business development
company shares will fluctuate with changes in the value of the underlying
securities which the business development company fund owns. In addition, for
various reasons business development company shares frequently trade at a
discount from their net asset value in the secondary market. The amount of
such discount from net asset value is subject to change from time to time in
response to various factors. Business development companies' articles of
incorporation may contain certain anti-takeover provisions that may have the
effect of inhibiting a fund's possible conversion to open-end status and
limiting the ability of other persons to acquire control of a fund. In certain
circumstances, these provisions might also inhibit the ability of stockholders
(including the Trust) to sell their shares at a premium over prevailing market
prices. This characteristic is a risk separate and distinct from the risk that
a fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those business
development company shares which were purchased by the Trust at a premium. In
the unlikely event that a business development company converts to open-end
status at a time when its shares are trading at a premium there would be an
immediate loss in value to a Trust since shares of open-end funds trade at net
asset value. Certain business development companies may have in place or may
put in place in the future plans pursuant to which the fund may repurchase its
own shares in the marketplace. Typically, these plans are put in place in an
attempt by a fund's board of directors to reduce a discount on its share
price. To the extent such a plan was implemented and shares owned by the Trust
are repurchased by a fund, the Trust's position in that fund would be reduced
and the cash would be distributed.
Page 5
A Trust is prohibited from subscribing to a rights offering for shares of any
of the business development companies in which they invest. In the event of a
rights offering for additional shares of a fund, Unit holders should expect
that their Trust will, at the completion of the offer, own a smaller
proportional interest in such fund that would otherwise be the case. It is not
possible to determine the extent of this dilution in share ownership without
knowing what proportion of the shares in a rights offering will be subscribed.
This may be particularly serious when the subscription price per share for the
offer is less than the fund's net asset value per share. Assuming that all
rights are exercised and there is no change in the net asset value per share,
the aggregate net asset value of each shareholder's shares of common stock
should decrease as a result of the offer. If a fund's subscription price per
share is below that fund's net asset value per share at the expiration of the
offer, shareholders would experience an immediate dilution of the aggregate
net asset value of their shares of common stock as a result of the offer,
which could be substantial.
Business development companies may utilize leveraging in their portfolios.
Leveraging can be expected to cause increased price volatility for those
fund's shares, and as a result, increased volatility for the price of the
Units of a Trust. There can be no assurance that a leveraging strategy will be
successful during any period in which it is employed.
Convertible Securities. Convertible securities include convertible
subordinated debentures and corporate bonds ("Convertible Bonds") and
cumulative convertible preferred stocks ("Convertible Preferred Stocks").
Convertible securities contain a conversion privilege which, under specified
circumstances, offers the holder the right to exchange such security for
common stock of the issuing corporation. Convertible Bonds obligate the
issuing company to pay a stated annual rate of interest (or a stated dividend
in the case of Convertible Preferred Stocks) and to return the principal
amount after a specified period of time. The income offered by convertible
securities is generally higher than the dividends received from the underlying
common stock, but lower than similar quality non-convertible debt securities.
Convertible securities are usually priced at a premium to their conversion
value, i.e., the value of the common stock received if the holder were to
exchange the convertible security.
The holder of the convertible security may choose at any time to exchange the
convertible security for a specified number of shares of the common stock of
the corporation, or occasionally a subsidiary company, at a specified price,
as defined by the corporation when the security is issued. Accordingly, the
value of the convertible obligation may generally be expected to increase
(decrease) as the price of the associated common stock increases (decreases).
Also, the market value of convertible securities tends to be influenced by the
level of interest rates and tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities rank
senior to common stocks in an issuer's capital structure, but are junior to
non-convertible debt securities. As convertible securities are considered
junior to any non-convertible debt securities issued by the corporation,
convertible securities are typically rated by established credit ratings
agencies at one level below the rating on such corporation's non-convertible
debt.
Convertible securities are hybrid securities, combining the investment
characteristics of both bonds and common stock. Like a bond (or preferred
stock), a convertible security pays interest at a fixed rate (dividend), but
may be converted into common stock at a specified price or conversion rate.
When the conversion price of the convertible security is significantly above
the price of the issuer's common stock, a convertible security takes on the
risk characteristics of a bond. At such times, the price of a convertible
security will vary inversely with changes in the level of interest rates. In
other words, when interest rates rise, prices of convertible securities will
generally fall; conversely, when interest rates fall, prices of convertible
securities will generally rise. This interest rate risk is in part offset by
the income paid by the convertible securities.
In contrast, when the conversion price of a convertible security and the
common stock price are close to one another, a convertible security will
behave like a common stock. In such cases, the prices of convertible
securities may exhibit the short-term price volatility characteristic of
common stocks.
For these reasons Unit holders must be willing to accept the market risks of
both bonds and common stocks. However, because convertible securities have
characteristics of both common stocks and bonds, they tend to be less
sensitive to interest rate changes than bonds of comparable maturity and
quality, and less sensitive to stock market changes than fully invested common
stock portfolios. Because of these factors and the hybrid nature of
convertible securities, Unit holders should recognize that convertible
securities are likely to perform quite differently than broadly-based measures
of the stock and bond markets.
The market for convertible securities includes a larger proportion of small-
to medium-size companies than the broad stock market (as measured by such
indices as the Standard & Poor's 500 Composite Stock Price Index). Companies
which issue convertible securities are often lower in credit quality,
typically rated below "Investment Grade." Moreover, the credit rating of a
Page 6
company's convertible issuance is generally lower than the rating of the
company's conventional debt issues since the convertible security is normally
a "junior" security. Securities with such ratings are considered speculative,
and thus pose a greater risk of default than investment grade securities.
High-risk securities may be thinly traded, which can adversely affect the
prices at which such securities can be sold and can result in high transaction
costs. Judgment plays a greater role in valuing high risk securities than
securities for which more extensive quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect the
ability of outside price services to value securities.
During an economic downturn or a prolonged period of rising interest rates,
the ability of issuers of debt to serve their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Convertible securities are subject to the risk that the financial condition of
the issuers of the convertible securities or the general condition of the
stock market or bond market may worsen and the value of the convertible
securities and therefore the value of the Units may decline. Convertible
securities may be susceptible to general stock market movements and to
increases and decreases of value as market confidence in and perceptions of
the issuers change. These perceptions are based on unpredictable factors
including expectations regarding government, economic, monetary and fiscal
policies, inflation and interest rates, economic expansion or contraction, and
global or regional political, economic or banking crises. Convertible
Preferred Stocks are also subject to Congressional reductions in the dividends-
received deduction which would adversely affect the after-tax return to the
corporate investors who can take advantage of the deduction. Such reductions
also might adversely affect the value of preferred stocks in general. Holders
of preferred stocks have rights to receive payments from the issuers of those
preferred stocks that are generally subordinate to those of creditors of, or
holders of debt obligations or, in some cases, senior preferred stocks of,
such issuers. Convertible Preferred Stocks do not represent an obligation of
the issuer and, therefore, do not offer any assurance of income (since
dividends on a preferred stock must be declared by the issuer's Board of
Directors) or provide the same degree of protection of capital as do debt
securities. Cumulative preferred stock dividends must be paid before common
stock dividends and any cumulative preferred stock dividend omitted is added
to future dividends payable to the holders of cumulative preferred stock. The
issuance of additional debt securities or senior preferred stock will create
prior claims for payment of principal and interest and senior dividends which
could adversely affect the ability and inclination of the issuer to declare or
pay dividends on its preferred stock or the rights of holders of preferred
stock with respect to assets of the issuer upon liquidation or bankruptcy. The
value of preferred stocks is subject to market fluctuations for as long as the
preferred stocks remain outstanding, and thus the value of the Convertible
Preferred Stocks in the Funds may be expected to fluctuate over the life of
the Trust to values higher or lower than those prevailing on the Date of
Deposit. Holders of Convertible Preferred Stocks incur more risk than holders
of debt obligations because preferred stockholders, as owners of the entity,
have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of or holders of debt obligations
issued by the issuer.
Convertible Bonds are typically subordinated debentures and, therefore, the
claims of senior creditors must be settled in full before any payment will be
made to holders of Convertible Bonds in the event of insolvency or bankruptcy.
Senior creditors typically include all other long-term debt issuers and bank
loans. Convertible Bonds do, however, have a priority over common and
preferred stock. Investors in Convertible Bonds pay for the conversion
privilege by accepting a significantly lower yield to maturity than that
concurrently offered by non-convertible bonds of equivalent quality.
Whether or not the convertible securities are listed on a national securities
exchange, the principal trading market for the convertible securities may be
in the over-the-counter market. As a result, the existence of a liquid trading
market for the convertible securities may depend on whether dealers will make
a market in the convertible securities. There can be no assurance that a
market will be made for any of the convertible securities, that any market for
the convertible securities will be maintained or of the liquidity of the
convertible securities in any markets made.
Issues of Convertible Bonds and Convertible Preferred Stocks generally provide
that the convertible security may be liquidated, either by a partial scheduled
redemption pursuant to a sinking fund or by a refunding redemption pursuant to
which, at the option of the issuer, all or part of the issue can be retired
from any available funds, at prices which may or may not include a premium
over the involuntary liquidation preference, which generally is the same as
the par or stated value of the convertible security. In general, optional
redemption provisions are more likely to be exercised when the convertible
security is valued at a premium over par or stated value than when they are
Page 7
valued at a discount from par or stated value. Generally, the value of the
convertible security will be at a premium over par when market interest rates
fall below the coupon rate.
Fixed-Income Securities. Fixed-income securities, in many cases, do not have
the benefit of covenants which would prevent the issuer from engaging in
capital restructurings or borrowing transactions in connection with corporate
acquisitions, leveraged buyouts or restructurings which could have the effect
of reducing the ability of the issuer to meet its debt obligations and might
result in the ratings of the securities and the value of the underlying Trust
portfolio being reduced.
Fixed-income securities may have been acquired at a market discount from par
value at maturity. The coupon interest rates on the discount securities at the
time they were purchased were lower than the current market interest rates for
newly issued securities of comparable rating and type. If such interest rates
for newly issued comparable securities increase, the market discount of
previously issued securities will become greater, and if such interest rates
for newly issued comparable securities decline, the market discount of
previously issued securities will be reduced, other things being equal.
Investors should also note that the value of securities purchased at a market
discount will increase in value faster than securities purchased at a market
premium if interest rates decrease. Conversely, if interest rates increase,
the value of securities purchased at a market discount will decrease faster
than securities purchased at a market premium. In addition, if interest rates
rise, the prepayment risk of higher yielding, premium securities and the
prepayment benefit for lower yielding, discount securities will be reduced. A
discount security held to maturity will have a larger portion of its total
return in the form of capital gain and less in the form of interest income
than a comparable security newly issued at current market rates. Market
discount attributable to interest changes does not indicate a lack of market
confidence in the issue. Neither the Sponsor nor the Trustee shall be liable
in any way for any default, failure or defect in any of the securities.
Fixed-income securities may be original issue discount securities or zero
coupon securities. Under current law, the original issue discount, which is
the difference between the stated redemption price at maturity and the issue
price of the securities, is deemed to accrue on a daily basis and the accrued
portion is treated as interest income for federal income tax purposes. On sale
or redemption, any gain realized that is in excess of the earned portion of
original issue discount will be taxable as capital gain unless the gain is
attributable to market discount in which case the accretion of market discount
is taxable as ordinary income. The current value of an original discount
security reflects the present value of its stated redemption price at
maturity. The market value tends to increase in greater increments as the
securities approach maturity. The effect of owning deep discount zero coupon
Securities which do not make current interest payments is that a fixed yield
is earned not only on the original investment, but also, in effect, on all
earnings during the life of the discount obligation. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable
to reinvest the income on such obligations at a rate as high as the implicit
yield on the discount obligation, but at the same time eliminates the holder's
ability to reinvest at higher rates in the future. For this reason, the zero
coupon securities are subject to substantially greater price fluctuations
during periods of changing interest rates than are securities of comparable
quality which make regular interest payments.
Fixed-income securities may have been acquired at a market premium from par
value at maturity. The coupon interest rates on the premium securities at the
time they were purchased were higher than the current market interest rates
for newly issued securities of comparable rating and type. If such interest
rates for newly issued and otherwise comparable securities decrease, the
market premium of previously issued securities will be increased, and if such
interest rates for newly issued comparable securities increase, the market
premium of previously issued securities will be reduced, other things being
equal. The current returns of securities trading at a market premium are
initially higher than the current returns of comparable securities of a
similar type issued at currently prevailing interest rates because premium
securities tend to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price is thus
returned not at maturity but through current income payments, early redemption
of a premium security at par or early prepayments of principal will result in
a reduction in yield. Redemption pursuant to call provisions generally will,
and redemption pursuant to sinking fund provisions may, occur at times when
the redeemed securities have an offering side valuation which represents a
premium over par or for original issue discount securities a premium over the
accreted value. To the extent that the securities were purchased at a price
higher than the price at which they are redeemed, this will represent a loss
of capital.
Certain fixed-income securities may be subject to being called or redeemed in
whole or in part prior to their stated maturities pursuant to optional
redemption provisions, sinking fund provisions or otherwise. A security
Page 8
subject to optional call is one which is subject to redemption or refunding
prior to maturity at the option of the issuer. A refunding is a method by
which a security issue is redeemed, at or before maturity, by the proceeds of
a new security issue. A security subject to sinking fund redemption is one
which is subject to partial call from time to time at par or from a fund
accumulated for the scheduled retirement of a portion of an issue prior to
maturity. Redemption pursuant to call provisions is more likely to occur, and
redemption pursuant to sinking fund provisions may occur, when the securities
have an offering side valuation which represents a premium over par or for
original issue discount securities a premium over the accreted value.
High-Yield Securities. An investment in high-yield securities should be made
with an understanding of the risks that an investment in high-yield, high-
risk, fixed-rate, domestic and foreign securities or "junk" bonds may entail,
including increased credit risks and the risk that the value of high-yield
securities will decline, and may decline precipitously, with increases in
interest rates. In recent years there have been wide fluctuations in interest
rates and thus in the value of fixed-rate securities generally. High-yield
securities are, under most circumstances, subject to greater market
fluctuations and risk of loss of income and principal than are investments in
lower-yielding, higher-rated securities, and their value may decline
precipitously because of increases in interest rates, not only because the
increases in rates generally decrease values, but also because increased rates
may indicate a slowdown in the economy and a decrease in the value of assets
generally that may adversely affect the credit of issuers of high-yield, high-
risk securities resulting in a higher incidence of defaults among high-yield,
high-risk securities. A slowdown in the economy, or a development adversely
affecting an issuer's creditworthiness, may result in the issuer being unable
to maintain earnings or sell assets at the rate and at the prices,
respectively, that are required to produce sufficient cash flow to meet its
interest and principal requirements. For an issuer that has outstanding both
senior commercial bank debt and subordinated high-yield, high-risk securities,
an increase in interest rates will increase that issuer's interest expense
insofar as the interest rate on the bank debt is fluctuating. However, many
leveraged issuers enter into interest rate protection agreements to fix or cap
the interest rate on a large portion of their bank debt. This reduces exposure
to increasing rates, but reduces the benefit to the issuer of declining rates.
The Sponsor cannot predict future economic policies or their consequences or,
therefore, the course or extent of any similar market fluctuations in the
future.
High-yield securities or "junk" bonds, the generic names for securities rated
below "BBB-" by Standard & Poor's, or below "Baa3" by Moody's, are frequently
issued by corporations in the growth stage of their development, by
established companies whose operations or industries are depressed or by
highly leveraged companies purchased in leveraged buyout transactions. The
market for high-yield securities is very specialized and investors in it have
been predominantly financial institutions. High-yield securities are generally
not listed on a national securities exchange. Trading of high-yield
securities, therefore, takes place primarily in over-the-counter markets which
consist of groups of dealer firms that are typically major securities firms.
Because the high-yield security market is a dealer market, rather than an
auction market, no single obtainable price for a given security prevails at
any given time. Prices are determined by negotiation between traders. The
existence of a liquid trading market for the securities may depend on whether
dealers will make a market in the securities. There can be no assurance that a
market will be made for any of the securities, that any market for the
securities will be maintained or of the liquidity of the securities in any
markets made. Not all dealers maintain markets in all high-yield securities.
Therefore, since there are fewer traders in these securities than there are in
"investment grade" securities, the bid-offer spread is usually greater for
high-yield securities than it is for investment grade securities.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a fixed-income security is recharacterized as equity by
the Internal Revenue Service for federal income tax purposes, the issuer's
interest deduction with respect to the security will be disallowed and this
disallowance may adversely affect the issuer's credit rating. Because
investors generally perceive that there are greater risks associated with
lower-rated securities, the yields and prices of these securities tend to
fluctuate more than higher-rated securities with changes in the perceived
quality of the credit of their issuers. In addition, the market value of high-
yield, high-risk, fixed-income securities may fluctuate more than the market
value of higher-rated securities since high-yield, high-risk, fixed-income
securities tend to reflect short-term credit development to a greater extent
than higher-rated securities. Lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities. Issuers of
lower-rated securities may possess fewer creditworthiness characteristics than
issuers of higher-rated securities and, especially in the case of issuers
whose obligations or credit standing have recently been downgraded, may be
Page 9
subject to claims by debtholders, owners of property leased to the issuer or
others which, if sustained, would make it more difficult for the issuers to
meet their payment obligations. High-yield, high-risk securities are also
affected by variables such as interest rates, inflation rates and real growth
in the economy. Therefore, investors should consider carefully the relative
risks associated with investment in securities which carry lower ratings.
Should the issuer of any security default in the payment of principal or
interest, the Securities in the Trust may incur additional expenses seeking
payment on the defaulted security. Because amounts (if any) recovered by the
Securities in the Trust in payment under the defaulted security may not be
reflected in the value of the Securities until actually received by the
Securities and depending upon when a Unit holder purchases or sells his or her
Units, it is possible that a Unit holder would bear a portion of the cost of
recovery without receiving any portion of the payment recovered.
High-yield, high-risk securities are generally subordinated obligations. The
payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of the
issuer. Senior obligations generally include most, if not all, significant
debt obligations of an issuer, whether existing at the time of issuance of
subordinated debt or created thereafter. Upon any distribution of the assets
of an issuer with subordinated obligations upon dissolution, total or partial
liquidation or reorganization of or similar proceeding relating to the issuer,
the holders of senior indebtedness will be entitled to receive payment in full
before holders of subordinated indebtedness will be entitled to receive any
payment. Moreover, generally no payment with respect to subordinated
indebtedness may be made while there exists a default with respect to any
senior indebtedness. Thus, in the event of insolvency, holders of senior
indebtedness of an issuer generally will recover more, ratably, than holders
of subordinated indebtedness of that issuer.
Obligations that are rated lower than "BBB-" by Standard & Poor's, or "Baa3"
by Moody's, respectively, should be considered speculative as such ratings
indicate a quality of less than investment grade. Investors should carefully
review the objective of the Trust and consider their ability to assume the
risks involved before making an investment in the Trust.
Senior Loans. Senior loans are generally issued by banks, other financial
institutions, and other investors to corporations, partnerships, limited
liability companies and other entities to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings
and, to a lesser extent, for general operating and other purposes. An
investment by Securities in senior loans involves risk that the borrowers
under senior loans may default on their obligations to pay principal or
interest when due. Although senior loans may be secured by specific
collateral, there can be no assurance that liquidation of collateral would
satisfy the borrower's obligation in the event of non-payment or that such
collateral could be readily liquidated. Senior loans are typically structured
as floating-rate instruments in which the interest rate payable on the
obligation fluctuates with interest rate changes. As a result, the yield on
Securities investing in senior loans will generally decline in a falling
interest rate environment and increase in a rising interest rate environment.
Senior loans are generally below investment grade quality and may be unrated
at the time of investment; are generally not registered with the SEC or state
securities commissions; and are generally not listed on any securities
exchange. In addition, the amount of public information available on senior
loans is generally less extensive than that available for other types of assets.
Subprime Residential Mortgage Loans. An investment in subprime residential
mortgage loans should be made with an understanding of the risks which such an
investment entails, including increased credit risks and the risk that the
value of subprime residential mortgage loans will decline, and may decline
precipitously, with increases in interest rates. In a high interest rate
environment, the value of subprime residential mortgage loans may be adversely
affected when payments on the mortgages do not occur as anticipated, resulting
in the extension of the mortgage's effective maturity and the related increase
in interest rate sensitivity of a longer-term investment. The value of
subprime mortgage loans may also change due to shifts in the market's
perception of issuers and regulatory or tax changes adversely affecting the
mortgage securities markets as a whole. Due to current economic conditions,
including fluctuating interest rates, as well as aggressive lending practices,
subprime mortgage loans have in recent periods experienced increased rates of
delinquency, foreclosure, bankruptcy and loss, and they are likely to continue
to experience rates that are higher, and that may be substantially higher,
than those experienced by mortgage loans underwritten in a more traditional
manner. Thus, because of the higher delinquency rates and losses associated
with subprime mortgage loans, risks of investing in Securities which hold
subprime mortgage loans are similar to those which affect high-yield
Page 10
securities or "junk" bonds, which include less liquidity, greater volatility
and an increased risk of default as compared to higher rated securities.
TIPS. TIPS are inflation-indexed fixed-income securities issued by the U.S.
Department of Treasury that utilize an inflation mechanism tied to the
Consumer Price Index ("CPI"). TIPS are backed by the full faith and credit of
the United States. TIPS are offered with coupon interest rates lower than
those of nominal rate Treasury securities. The coupon interest rate remains
fixed throughout the term of the securities. However, each day the principal
value of the TIPS is adjusted based upon a pro-rata portion of the CPI as
reported three months earlier. Future interest payments are made based upon
the coupon interest rate and the adjusted principal value. In a falling
inflationary environment, both interest payments and the value of the TIPS
will decline.
Foreign Issuers. Since certain of the Securities held by the Trust consist of,
or invest in, securities issued by foreign entities, an investment in the
Trust involves certain investment risks that are different in some respects
from an investment in a trust which invests solely in the securities of
domestic entities. These investment risks include future political or
governmental restrictions which might adversely affect the payment or receipt
of payment of dividends on the relevant Securities, the possibility that the
financial condition of the issuers of the Securities may become impaired or
that the general condition of the relevant stock market may worsen (both of
which would contribute directly to a decrease in the value of the Securities
and thus in the value of the Units), the limited liquidity and relatively
small market capitalization of the relevant securities market, expropriation
or confiscatory taxation, economic uncertainties and foreign currency
devaluations and fluctuations. In addition, for foreign issuers that are not
subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended, there may be less publicly available information than is available
from a domestic issuer. Also, foreign issuers are not necessarily subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers. The
securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable domestic issuers. In addition, fixed
brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States and there is
generally less government supervision and regulation of exchanges, brokers and
issuers in foreign countries than there is in the United States. However, due
to the nature of the issuers of the Securities selected for the Trust, the
Sponsor believes that adequate information will be available to allow the
Supervisor to provide portfolio surveillance for the Trust.
Securities issued by non-U.S. issuers may pay interest and/or dividends in
foreign currencies and may be principally traded in foreign currencies.
Therefore, there is a risk that the U.S. dollar value of these interest and/or
dividend payments and/or securities will vary with fluctuations in foreign
exchange rates.
On the basis of the best information available to the Sponsor at the present
time, none of the Securities in the Trust are subject to exchange control
restrictions under existing law which would materially interfere with payment
to the Trust of dividends due on, or proceeds from the sale of, the
Securities. However, there can be no assurance that exchange control
regulations might not be adopted in the future which might adversely affect
payment to the Trust. The adoption of exchange control regulations and other
legal restrictions could have an adverse impact on the marketability of
international securities in the Trust and on the ability of the Trust to
satisfy its obligation to redeem Units tendered to the Trustee for redemption.
In addition, restrictions on the settlement of transactions on either the
purchase or sale side, or both, could cause delays or increase the costs
associated with the purchase and sale of the foreign Securities and
correspondingly could affect the price of the Units.
Investors should be aware that it may not be possible to buy all Securities at
the same time because of the unavailability of any Security, and restrictions
applicable to the Trust relating to the purchase of a Security by reason of
the federal securities laws or otherwise.
Foreign securities generally have not been registered under the Securities Act
of 1933 and may not be exempt from the registration requirements of such Act.
Sales of non-exempt Securities by the Trust in the United States securities
markets are subject to severe restrictions and may not be practicable.
Accordingly, sales of these Securities by the Trust will generally be effected
only in foreign securities markets. Although the Sponsor does not believe that
the Trust will encounter obstacles in disposing of the Securities, investors
should realize that the Securities may be traded in foreign countries where
the securities markets are not as developed or efficient and may not be as
liquid as those in the United States. The value of the Securities will be
adversely affected if trading markets for the Securities are limited or absent.
Emerging and Developing Markets. Compared to more mature markets, some
emerging and developing markets may have a low level of regulation,
enforcement of regulations and monitoring of investors' activities. Those
Page 11
activities may include practices such as trading on material non-public
information. The securities markets of emerging and developing countries are
not as large as the more established securities markets and have substantially
less trading volume, resulting in a lack of liquidity and high price
volatility. There may be a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number of
industries as well as a high concentration of investors and financial
intermediaries. These factors may adversely affect the timing and pricing of
the acquisition or disposal of securities.
In certain emerging and developing markets, registrars are not subject to
effective government supervision nor are they always independent from issuers.
The possibility of fraud, negligence, undue influence being exerted by the
issuer or refusal to recognize ownership exists, which, along with other
factors, could result in the registration of a shareholding being completely
lost. Investors should therefore be aware that the Trust could suffer loss
arising from these registration problems. In addition, the legal remedies in
emerging and developing markets are often more limited than the remedies
available in the United States.
Practices pertaining to the settlement of securities transactions in emerging
and developing markets involve higher risks than those in developed markets,
in large part because of the need to use brokers and counterparties who are
less well capitalized, and custody and registration of assets in some
countries may be unreliable. As a result, brokerage commissions and other fees
are generally higher in emerging and developing markets and the procedures and
rules governing foreign transactions and custody may involve delays in
payment, delivery or recovery of money or investments. Delays in settlement
could result in investment opportunities being missed if the Trust is unable
to acquire or dispose of a security. Certain foreign investments may also be
less liquid and more volatile than U.S. investments, which may mean at times
that such investments are unable to be sold at desirable prices.
Political and economic structures in emerging and developing markets often
change rapidly, which may cause instability. In adverse social and political
circumstances, governments have been involved in policies of expropriation,
confiscatory taxation, nationalization, intervention in the securities market
and trade settlement, and imposition of foreign investment restrictions and
exchange controls, and these could be repeated in the future. In addition to
withholding taxes on investment income, some governments in emerging and
developing markets may impose different capital gains taxes on foreign
investors. Foreign investments may also be subject to the risks of seizure by
a foreign government and the imposition of restrictions on the exchange or
export of foreign currencies. Additionally, some governments exercise
substantial influence over the private economic sector and the political and
social uncertainties that exist for many emerging and developing countries are
considerable.
Another risk common to most emerging and developing countries is that the
economy is heavily export oriented and, accordingly, is dependent upon
international trade. The existence of overburdened infrastructures and
obsolete financial systems also presents risks in certain countries, as do
environmental problems. Certain economies also depend, to a large degree, upon
exports of primary commodities and, therefore, are vulnerable to changes in
commodity prices which, in turn, may be affected by a variety of factors.
Small and/or Mid Capitalization Companies. While historically stocks of small
and mid capitalization companies have outperformed the stocks of large
companies, the former have customarily involved more investment risk as well.
Such 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 cap 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 such companies normally have fewer shares
outstanding and these shares trade less frequently than large companies, it
may be more difficult for the Trusts which contain these Securities to buy and
sell significant amounts of such shares without an unfavorable impact on
prevailing market prices.
Page 12
Undertakings
| 1. | Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned
registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents,
and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority
conferred in that section. |
| 2. | Insofar as indemnification for liability arising under the Securities Act of 1933 (the “Securities
Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to Rule 484 under the Securities
Act, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
CONTENTS
OF REGISTRATION STATEMENT
| A. | Bonding Arrangements of Depositor: |
First Trust
Portfolios L.P. is covered by a Brokers' Fidelity Bond, in the total amount of $2,000,000, the insurer being National Union Fire Insurance
Company of Pittsburgh.
| B. | This Registration Statement on Form S-6 comprises the following papers and documents: |
The Facing Sheet
The Prospectus
The Signatures
Exhibits
S-1
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant, FT 11497, has duly caused this Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wheaton and State of Illinois on July 2, 2024.
FT 11497
| By: | First Trust Portfolios L.P.
Depositor |
| By: | /s/ Elizabeth H. Bull
Senior Vice President |
S-2
Pursuant to the
requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following person
in the capacity and on the date indicated:
| Name |
Title* |
Date |
| |
|
|
| James A. Bowen |
Director of The Charger Corporation, the General Partner of First Trust Portfolios L.P., and Chief Executive Officer of First Trust Portfolios L.P. |
)
)
)
)By: /s/ Elizabeth H. Bull
) Attorney-in-Fact**
) July 2, 2024 |
| James M. Dykas |
Chief Financial Officer of First Trust Portfolios L.P. |
)
) |
| Christina Knierim |
Controller of First Trust Portfolios L.P. |
)
) |
| * | The title of the person named herein represents his or her capacity in and relationship to First Trust
Portfolios L.P., the Depositor. |
| ** | Executed copies of the related powers
of attorney were filed with the Securities and Exchange Commission in connection with the Amendment No. 1 to Form S-6 of FT 11333
(File No. 333-276837) and the same is hereby incorporated herein by this reference. |
S-3
CONSENT
OF COUNSEL
The consent of counsel
to the use of its name in the Prospectus included in this Registration Statement is contained in its opinion filed as Exhibit 3.1 of the
Registration Statement.
Consent
of Independent Registered Public Accounting Firm
The consent of Deloitte & Touche
LLP to the use of its name in the Prospectus included in the Registration Statement is filed as Exhibit 4.1 to the Registration Statement.
S-4
EXHIBIT
INDEX
| 1.1 | Standard
Terms and Conditions of Trust for FT 10292 and certain subsequent
Series, effective September 7, 2022 among First Trust Portfolios L.P., as Depositor, The Bank of New York Mellon, as Trustee and First
Trust Advisors L.P., as Portfolio Supervisor (incorporated by reference to Amendment No. 1 to Form S-6 [File
No. 333-266325] filed on behalf of FT 10292). |
| 1.1.1 | Trust Agreement for FT 11497, effective July 2, 2024 among First Trust Portfolios L.P., as Depositor,
The Bank of New York Mellon, as Trustee and First Trust Advisors L.P., as Portfolio Supervisor. |
| 1.2 | Certificate
of Limited Partnership of Nike Securities, L.P., predecessor of
First Trust Portfolios L.P. (incorporated by reference to Amendment No. 1 to Form S-6 [File
No. 333-230481] filed on behalf of FT 8001). |
| 1.4 | Articles
of Incorporation of Nike Securities Corporation, predecessor to
The Charger Corporation, the general partner of First Trust Portfolios L.P., Depositor (incorporated by reference to Amendment No. 1 to
Form S-6 [File No. 333-230481] filed
on behalf of FT 8001). |
| 1.5 | By-Laws
of The Charger Corporation, the general partner of First Trust Portfolios L.P.,
Depositor (incorporated by reference to Amendment No. 2 to Form S-6 [File
No. 333-169625] filed on behalf of FT 2669). |
| 1.7 | Fund of Funds Agreements
(incorporated by reference to Amendment No. 1 to Form S-6 [File
No. 333-261661] filed on behalf of FT
9909, Amendment No. 1 to Form S-6 [File
No. 333-261297] filed on behalf of FT
9857, Amendment No. 1 to Form S-6 [File
No. 333-262164] filed on behalf of FT
9948, Amendment No. 1 to Form S-6 [File
No. 333-262344] filed on behalf of FT
9965, Amendment No. 1 to Form S-6 [File
No. 333-263845] filed on behalf of FT
10083 and Amendment No. 1 to Form S-6 [File
No. 333-274281] filed on behalf of FT
11028). |
| 2.2 | Code
of Ethics (incorporated by reference to Amendment No. 1 to Form
S-6 [File No. 333-224320] filed
on behalf of FT 7359). |
S-5
| 6.1 | List
of Principal Officers of the Depositor (incorporated by reference
to Amendment No. 1 to Form S-6 [File No. 333-236093] filed
on behalf of FT 8556). |
| 7.1 | Powers
of Attorney executed by the Officers listed on page S-3 of this
Registration Statement (incorporated by reference to Amendment No. 1 to Form S-6 [File
No. 333-276837] filed on behalf of FT 11333). |
S-6
