File No. 333-187594 CIK 1565340
Securities and Exchange Commission
Washington, D. C. 20549
Post-Effective
Amendment No. 3
to
Form S-6
For Registration under the Securities Act of 1933
of Securities of Unit Investment Trusts Registered
on Form N-8B-2
Advisors Disciplined Trust 1038
Name and executive office address of Depositor:
Advisors Asset Management, Inc.
18925 Base Camp Road
Monument, Colorado 80132
Name and complete address of agents for service:
Advisors Asset Management, Inc.
Attention: Scott Colyer
18925 Base Camp Road
Monument, Colorado 80132
Chapman and Cutler LLP
Attention: Scott R. Anderson
111 West Monroe Street
Chicago, Illinois 60603
( X ) Check box if it is proposed that this filing will become effective on
August 31, 2016 pursuant to paragraph (b) of Rule 485.
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT
COMPANY ("HIMCO") PORTFOLIO
(ADVISORS DISCIPLINED TRUST 1038)
A unit investment trust holding
an unmanaged portfolio
of high yield bonds
(commonly known as "junk bonds")
seeking current income
PROSPECTUS
AUGUST 31, 2016
[LOGO] As with any investment, the Securities
and Exchange Commission has not approved
AAM or disapproved of these securities or
passed upon the adequacy or accuracy of
ADVISORS this prospectus. Any contrary
ASSET MANAGEMENT representation is a criminal offense.
------------------
INVESTMENT SUMMARY
------------------
INVESTMENT OBJECTIVE
The trust seeks to provide current interest income. There is no assurance the
trust will achieve its objective.
PRINCIPAL INVESTMENT STRATEGY
The trust seeks to provide an attractive level of current income by investing
in a portfolio consisting primarily of high yield corporate debt securities
(commonly known as "junk bonds"). The portfolio was selected by Hartford
Investment Management Company ("HIMCO").
To achieve its goal of providing an attractive level of income, HIMCO's "High
Yield Team" used a "bottom-up" analysis in order to determine which specific
issuers and securities it believes have the ability to support a high level of
sustainable yield on debt securities. In this process, HIMCO assessed such
factors as an issuer's business environment, as well as its financial
statements, earnings and cash flow, asset coverage, the quality of its
management team and its capital structure.
As of the trust's inception date, the trust's portfolio includes only debt
securities of domestic and foreign issuers rated below investment grade
(securities rated "Ba" or lower by Moody's Investor Service, "BB" or lower by
Standard & Poor's or "BB" or lower by Fitch Ratings, or securities which, if
unrated, are determined by HIMCO to be of comparable quality). Exposure to any
Global Industry Classification Standard ("GICS") industry was limited to 25% of
the value of the trust's portfolio as of the trust's inception. As of the
trust's inception date, the trust's portfolio includes only bonds rated B- or
higher by Standard & Poor's or B3 or higher by Moody's Investor Service.
Certain bonds held by the trust may meet this criteria by only one credit rating
organization and to the extent that they are rated by both credit organizations,
the higher of the two ratings is applied. These weightings, ratings and
classifications may vary thereafter.
High yield or "junk" bonds 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. High yield bonds are
considered to be speculative and are subject to greater market and credit risks,
and accordingly, the risk of non-payment or default is higher than with
investment-grade securities. Because high yield bonds 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 than investment-grade bonds.
PRINCIPAL RISKS
As with all investments, you can lose money by investing in this trust. The
trust also might not perform as well as you expect. This can happen for reasons
such as these:
* BOND PRICES WILL FLUCTUATE. The value of your investment may fall over time.
* THE TRUST IS CONCENTRATED IN SECURITIES ISSUED BY CONSUMER PRODUCTS AND
SERVICES COMPANIES. Negative developments in this sector will affect the
value of your investment more than would be the case in a more diversified
investment.
* THE VALUE OF THE BONDS WILL GENERALLY FALL IF INTEREST RATES, IN GENERAL,
RISE. No one can predict whether interest rates will rise or fall in the
future.
* A BOND ISSUER MAY BE UNABLE TO MAKE INTEREST AND/OR PRINCIPAL PAYMENTS IN THE
FUTURE.
* THE TRUST INVESTS IN SECURITIES RATED BELOW INVESTMENT GRADE AND ARE
CONSIDERED TO BE "JUNK" SECURITIES. These securities are considered to be
speculative and are subject to greater market and credit risks.
Accordingly, the risk of default is higher than investment grade
securities. In addition, high yield bonds are often callable and may be
more likely to make early returns of principal. Price, yield and the
trust's return may fluctuate more than in an investment in investment grade
securities.
2 Investment Summary
* THE FINANCIAL CONDITION OF AN ISSUER MAY WORSEN OR ITS CREDIT RATINGS MAY
DROP, RESULTING IN A REDUCTION IN THE VALUE OF YOUR UNITS. This may occur
at any point in time, including during the primary offering period.
* A BOND ISSUER MIGHT PREPAY OR "CALL" A BOND BEFORE ITS STATED MATURITY. If
this happens, the trust will distribute the principal to you but future
interest distributions will fall. A bond's call price could be less than
the price the trust paid for the bond. If enough bonds are called, the
trust could terminate earlier than expected.
* THE TRUST PORTFOLIO INCLUDES RESTRICTED BONDS. A significant portion of
restricted bonds are issued under Rule 144A of the Securities Act of 1933,
as amended, and may only be resold to purchasers meeting certain
eligibility requirements in privately negotiated transactions pursuant to
federal securities laws or in a public offering with respect to which a
registration statement is in effect under the Securities Act.
* WE* DO NOT ACTIVELY MANAGE THE PORTFOLIO. Except in limited
circumstances, the trust will hold, and may continue to buy, the same bonds
even if the market value declines.
--------------------
* "AAM," "we" and related terms mean Advisors Asset Management, Inc., the
trust sponsor, unless the context clearly suggests otherwise.
Investment Summary 3
WHO SHOULD INVEST
You should consider this investment if you want:
* to own securities representing interests in corporate bonds in a single
investment.
* the potential to receive monthly distributions of income with capital
preservation potential.
You should not consider this investment if you:
* are uncomfortable with the risks of an unmanaged investment in corporate
bonds.
* want capital appreciation.
------------------------------------------------------------
ESSENTIAL INFORMATION
---------------------
PRINCIPAL AMOUNT OF SECURITIES
PER UNIT* $674.18
PUBLIC OFFERING PRICE PER UNIT* $688.94
ACCRUED INTEREST PER UNIT TO
SETTLEMENT DATE* $3.25
INCEPTION DATE May 17, 2013
ESTIMATED CURRENT RETURN* 7.12%
ESTIMATED LONG-TERM RETURN* 5.36%
ESTIMATED NET ANNUAL INTEREST
INCOME PER UNIT* $49.07
ESTIMATED NORMAL MONTHLY
DISTRIBUTION PER UNIT* $4.08
WEIGHTED AVERAGE MATURITY
OF SECURITIES* 3.16 years
DISTRIBUTION DATES 25th day of each month
RECORD DATES 10th day of each month
CUSIP NUMBER
Standard Accounts 00771K185
Fee Based Accounts 00771K193
TICKER SYMBOL HYBDCX
MINIMUM INVESTMENT 1 unit
------------------------------------------------------------
* As of April 30, 2016 and may vary thereafter.
FEES AND EXPENSES
The amounts below are estimates of the direct and indirect expenses that you
may incur based on the initial unit price. Actual expenses may vary.
AS A % AMOUNT
OF $1,000 PER
SALES FEE INVESTED UNIT
-------------------------
Maximum sales fee 3.00% $20.67
======== =======
AS A % OF AMOUNT
ANNUAL NET PER
OPERATING EXPENSES ASSETS UNIT
-------------------------
Trustee fee & expenses 0.46% $3.11
Supervisory, evaluation
and administration fees 0.15 1.00
-------- -------
Total 0.61% $4.11
======== =======
EXAMPLE
This example helps you compare the cost of this trust with other unit trusts
and mutual funds. In the example we assume that the expenses do not change and
that the trust's annual return is 5%. Your actual returns and expenses will
vary. Based on these assumptions, you would pay these expenses for every
$10,000 you invest in the trust:
1 year $360
3 years $479
5 years $599
10 years $897
These amounts are the same regardless of whether you sell your investment at
the end of a period or continue to hold your investment.
4 Investment Summary
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Unitholders
Advisors Disciplined Trust 1038
Advisors Corporate Trust, High Yield Bond Portfolio, Series 2013-May - A
Hartford Investment Management Company ("HIMCO") Portfolio
We have audited the accompanying statement of assets and liabilities of Advisors
Disciplined Trust 1038, Advisors Corporate Trust, High Yield Bond Portfolio,
Series 2013-May - A Hartford Investment Management Company ("HIMCO")
Portfolio, including the schedule of investments, as of April 30, 2016, and
the related statements of operations and changes in net assets for the year
ended April 30, 2016, 2015 and for the period from May 17, 2013 (initial date
of deposit) through April 30, 2014. These financial statements are the
responsibility of the trust's sponsor. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Trust's internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by the sponsor, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of investments owned as of April 30, 2016, by
correspondence with The Bank of New York Mellon, the trustee. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advisors Disciplined Trust
1038, Advisors Corporate Trust, High Yield Bond Portfolio, Series 2013-May - A
Hartford Investment Management Company ("HIMCO") Portfolio at April 30, 2016,
and the results of its operations and changes in its net assets for the periods
indicated above in conformity with accounting principles generally accepted in
the United States of America.
/s/ Grant Thornton LLP
Chicago, Illinois
August 31, 2016
Investment Summary 5
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO") PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2016
---------------------------------------------------------------------------------
Assets
Investment in securities, at fair value (cost $5,299,425) $ 4,811,933
Interest receivable 78,672
---------------
Total assets 4,890,605
Liabilities and net assets
Cash overdraft 163,915
Accrued liabilities 7,870
---------------
Total liabilities 171,785
Net assets, applicable to 7,053 units outstanding:
Cost of trust assets, exclusive of interest $ 5,299,425
Net unrealized depreciation (487,492)
Distributions in excess (93,113)
--------------- ---------------
Net assets $ 4,718,820
===============
Net asset value per unit at the end of the period $ 669.05
===============
See accompanying notes to financial statements.
6 Investment Summary
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO") PORTFOLIO
STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------
PERIOD FROM
MAY 17, 2013
(INITIAL DATE OF
YEAR ENDED YEAR ENDED DEPOSIT) THROUGH
APRIL 30, APRIL 30, APRIL 30,
2016 2015 2014
----------------- ----------------- ------------------
Investment income:
Interest $ 434,864 $ 514,182 $ 515,024
Expenses:
Trustee's fees and related expenses 9,953 10,081 9,751
Supervisory, evaluation and administrative fees 7,598 7,695 7,443
Tax fees 3,900 4,442 3,329
Audit fees 1,800 1,800 1,800
Licensing fees 2,365 3,648 3,050
Post-effective filing fees 2,310 2,310 2,310
Other expenses 842 111 1,515
--------------- --------------- ---------------
Total expenses 28,768 30,087 29,198
--------------- --------------- ---------------
Net investment income 406,096 484,095 485,826
Realized and unrealized loss on investments:
Realized loss on investments (354,570) (10,257) (3,860)
Net change in unrealized depreciation on investments (172,011) (275,548) (39,933)
--------------- --------------- ---------------
Net loss on investments (526,581) (285,805) (43,793)
--------------- --------------- ---------------
Net increase (decrease) in net assets resulting from operations $ (120,485) $ 198,290 $ 442,033
=============== =============== ===============
See accompanying notes to financial statements.
Investment Summary 7
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO") PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------
PERIOD FROM
MAY 17, 2013
(INITIAL DATE OF
YEAR ENDED YEAR ENDED DEPOSIT) THROUGH
APRIL 30, APRIL 30, APRIL 30,
2016 2015 2014
----------------- ----------------- ------------------
Operations:
Net investment income $ 406,096 $ 484,095 $ 485,826
Realized loss on investments (354,570) (10,257) (3,860)
Net change in unrealized depreciation on investments (172,011) (275,548) (39,933)
--------------- --------------- ---------------
Net increase (decrease) in net assets resulting from operations (120,485) 198,290 442,033
Distributions to unitholders:
Net investment income (424,393) (487,296) (456,715)
Principal from investment transactions (1,028,574) (387,749) -
--------------- --------------- ---------------
Total distributions to unitholders (1,452,967) (875,045) (456,715)
Capital transactions:
Redemption of 587, 83 and 102 units, respectively (397,815) (75,275) (95,135)
--------------- --------------- ---------------
Total increase (decrease) in net assets (1,971,267) (752,030) (109,817)
Net assets:
At the beginning of the period 6,690,087 7,442,117 7,551,934
--------------- --------------- ---------------
At the end of the period (including distributions in excess
applicable to trust units of $(93,113) and distributable
funds of $219,200 and $9,804 at April 30, 2016, 2015
and 2014, respectively) $ 4,718,820 $ 6,690,087 $ 7,442,117
=============== =============== ===============
Trust units outstanding at the end of the period 7,053 7,640 7,723
=============== =============== ===============
See accompanying notes to financial statements.
8 Investment Summary
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO") PORTFOLIO
SCHEDULE OF INVESTMENTS
APRIL 30, 2016
PRINCIPAL NAME OF ISSUER, INTEREST RATE REDEMPTION VALUE OF
AMOUNT AND MATURITY DATE(1) FEATURE(2) SECURITIES(3)
------------------------------------------------------------------------------------ --------------------------------------
CORPORATE BONDS--100.00%
Consumer Discretionary - 31.29%
$275,000 Dish Network Corporation, Senior Unsecured Notes,
7.875% Due 09/01/2019 (4) (6) $303,188
300,000 Landry's Incorporated, Senior Unsecured Notes,
9.375% Due 05/01/2020 (8) 5/1/2016 @ 104.688 315,375
275,000 McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global
Education Finance, First Lien Notes, 9.75% Due 04/01/2021 5/1/2016 @ 107.313 295,111
300,000 MGM Resorts International, Senior Unsecured Notes,
8.625% Due 02/01/2019 (4) 341,250
275,000 Sears Holding Corporation, Senior Secured Notes,
6.625% Due 10/15/2018 (4) 250,937
Consumer Staples - 6.57%
300,000 Post Holdings, Incorporated, Senior Unsecured Notes,
7.375% Due 02/15/2022 2/15/2017 @ 103.688 316,125
Energy - 10.63%
300,000 PBF Holding Company LLC/PBF Finance Corporation,
Senior Secured Notes, 8.25% Due 02/15/2020 5/15/2016 @ 104.125 312,750
215,000 Western Refining Incorporated, 6.25% Due 04/01/2021 (4) 5/15/2016 @ 104.781 198,875
Health Care - 6.38%
300,000 Alere Incorporated, Senior Unsecured Notes,
7.25% Due 07/01/2018 5/15/2016 @ 103.625 306,750
Industrials - 18.27%
300,000 Algeco Scotsman Global Finance PLC, First Lien Notes,
8.50% Due 10/15/2018 (5) (8) 5/15/2016 @ 104.25 242,250
300,000 Mead Products LLC/ACCO Brands Corporation, Senior Unsecured
Notes, 6.75% Due 04/30/2020 (4) 4/30/2017 @ 103.375 318,000
300,000 R.R. Donnelley & Sons Company, Senior Unsecured Notes,
8.25% Due 03/15/2019 (4) 318,750
Continued
Investment Summary 9
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO") PORTFOLIO
SCHEDULE OF INVESTMENTS
APRIL 30, 2016
PRINCIPAL NAME OF ISSUER, INTEREST RATE REDEMPTION VALUE OF
AMOUNT AND MATURITY DATE(1) FEATURE(2) SECURITIES(3)
------------------------------------------------------------------------------------ --------------------------------------
Materials - 13.69%
$300,000 AK Steel Holding Corporation, First Lien Notes,
8.75% Due 12/01/2018 5/1/2016 @ 104.375 $309,750
300,000 Momentive Specialty Chemicals, Incorporated/ Hexion US Finance
Corporation, Senior Secured Notes, 6.625% Due 04/15/2020 5/15/2016 @ 103.313 251,250
115,000 Tronox LLC, Senior Unsecured Notes, 6.375% Due 08/15/2020 5/15/2016 @ 104.781 97,822
Telecommunication Services - 13.17%
300,000 Frontier Communications Corporation, Senior Unsecured Notes,
7.125% Due 03/15/2019 (4) 316,500
300,000 Sprint Nextel Corporation, Senior Unsecured Notes,
9.00% Due 11/15/2018 (4) (8) 317,250
------------- -------------
$4,755,000 Total (Investment cost: $5,299,425) $4,811,933
============= =============
See accompanying notes to Schedule of Investments and notes to financial
statements.
10 Investment Summary
Notes to Schedule of Investments
(1) The bonds may also be subject to redemption without premium at any time
pursuant to extraordinary optional or mandatory redemptions if certain
events occur
(2) This is the year in which each bond is initially or currently callable and
the call price for that year. Each bond continues to be callable at
declining prices thereafter (but not below par value) except for original
issue discount bonds which are redeemable at prices based on the issue
price plus the amount of original issue discount accreted to redemption
date plus, if applicable, some premium, the amount of which will decline in
subsequent years. "S.F." indicates a sinking fund is established with
respect to an issue of bonds. The bonds may also be subject to redemption
without premium at any time pursuant to extraordinary optional or mandatory
redemptions if certain events occur.
(3) See Note 1 to the accompanying financial statements for a description of
the method of determining value.
(4) This security has a "make whole" call option and is redeemable in whole or
in part at any time at the option of the issuer at a redemption price that
is generally equal to the sum of the principal amount of the security, a
"make whole" amount, and any accrued and unpaid interest to the date of
redemption. The "make whole" amount is generally equal to the excess, if
any, of (i) the aggregate present value as of the date of redemption of
principal being redeemed and the amount of interest (exclusive of interest
accrued to the date of redemption) that would have been payable if
redemption had not been made, determined by discounting the remaining
principal and interest at a specified rate (which varies from bond to bond
and is generally equal to an average of yields on U.S. Treasury obligations
with maturities corresponding to the remaining life of the bond plus a
premium rate) from the dates on which the principal and interest would have
been payable if the redemption had not been made, over (ii) the aggregate
principal amount of the bonds being redeemed.
(5) This is a bond issued by a foreign company.
Corporate bonds comprise 100.00% of the investments in the trust, broken
down by country of organization as set forth below:
United Kingdom 5.03%
United States 94.97%
(6) Any bond marked with this note was issued at an original issue discount.
Tax issues related to these bonds are described under "Understanding Your
Investment--Taxes."
(7) This bond is subject to potential interest rate adjustments, not to exceed
2.00 percentage points above the bond's original interest rate, if either
Moody's Investor Service or Standard & Poor's (or, in certain limited
circumstances, another ratings service) downgrades their rating for this
bond (or upgrades the rating after such a downgrade). The interest rate
set forth here represents the current interest rate applicable to the bond.
(8) This security is a restricted security which may only be resold pursuant
to Rule 144A under the Securities Act of 1933, as amended. See
"Understanding Your Investment--Investment Risks--Restricted Bonds."
See accompanying notes to financial statements.
Investment Summary 11
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO")
PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
TRUST SPONSOR AND EVALUATOR
Advisors Asset Management, Inc. is the trust's sponsor and evaluator.
BASIS OF ACCOUNTING
The financial statements are presented on the accrual basis of accounting.
VALUATION OF SECURITIES
The evaluator generally determines the value of securities on the aggregate bid
side evaluations of the securities determined (a) on the basis of current bid
prices of the securities, (b) if bid prices are not available for any particular
security, on the basis of current bid prices for comparable securities, (c) by
determining the value of securities on the bid side of the market by appraisal,
or (d) by any combination of the above. Accounting Standards Codification 820,
"Fair Value Measurements" establishes a framework for measuring fair value and
expands disclosure about fair value measurements in financial statements for the
trust. The framework under the standard is comprised of a fair value hierarchy,
which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in
active markets that the trust has the ability to access as of the
measurement date.
Level 2: Significant observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities, quoted prices in markets
that are not active, and other inputs that are observable or can be
corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a trust's own
assumptions about the assumptions that market participants would use in
pricing an asset or liability.
The inputs or methodologies used for valuing securities are not necessarily an
indication of the risk associated with investing those securities.
Changes in valuation techniques may result in transfers in or out of an
investment's assigned level as described above.
The following table summarizes the trust's investments as of April 30, 2016,
based on inputs used to value them:
VALUATION INPUTS INVESTMENTS IN SECURITIES
--------------------------------------------------
Level 1 $ -
Level 2 4,811,933
Level 3 -
--------------------------------------------------
Total $ 4,811,933
==================================================
12 Investment Summary
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO")
PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
INVESTMENT TRANSACTIONS
Securities transactions are accounted for on a trade basis. Net realized gain
and losses from sales of securities are determined on the specific
identification cost method.
Interest income consists of amortization of premiums, accretion of discounts and
interest accrued as earned on the fixed rate obligations. As required, the
trust has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and is amortizing premiums or accreting discounts on debt
securities.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the trust's sponsor to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from such
estimates.
ORGANIZATION COSTS
Organization costs are expensed as incurred.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to current
period presentation.
2. UNREALIZED APPRECIATION AND DEPRECIATION
Following is an analysis of net unrealized depreciation at April 30, 2016:
Gross unrealized appreciation $ -
Gross unrealized depreciation (487,492)
------------
Net unrealized depreciation $ (487,492)
============
Investment Summary 13
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO")
PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
3. FEDERAL INCOME TAXES
The trust is organized as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). It is the trust's
policy to comply with the special provisions of the Code available to regulated
investment companies. Such provisions were complied with and, therefore, no
federal income tax provision is required.
The trust accounts for uncertain tax positions under FASB ASC Topic 740, "Income
Taxes", ("ASC 740"). The trust has recognized no liabilities in connection with
ASC 740 in the accompanying financial statements.
As of December 31, 2015, the components of accumulated deficit on a tax basis
were as follows:
Undistributed ordinary income $ -
Undistributed long-term capital gains -
------------
Accumulated earnings -
Accumulated capital and other losses* -
Unrealized appreciation (921,632)
------------
Total accumulated deficit $ (921,632)
============
* On December 31, 2015, the trust had no net capital loss carryforwards. To the
extent future capital gains are offset by capital loss carryforward, such gains
will not be distributed. The aggregate cost, for federal income tax purposes,
of the portfolio of investments is $5,822,743 the gross unrealized appreciation
and depreciation for the investments on a tax basis is $0 and $(921,632),
respectively.
4. OTHER INFORMATION
COST TO INVESTORS
The cost to original investors of units of the trust was based on the net asset
value per unit on the date of an investor's purchase, plus a pro rata share of
the daily accrued interest, plus organization costs, plus a sales fee of 3.00%
of the public offering price. This sales fee consisted of (1) an initial sales
fee equal to the difference between the total sales fee (maximum of 3.00% of the
public offering price) and the total creation and development fee and (2) a
creation and development fee of $7.50 per unit. The cost to investors of units
of the trust for secondary market transactions is the public offering price of
units plus a pro rata share of the daily accrued interest. The public offering
price for secondary market transactions is based on the net asset value per unit
on the date of an investor's purchase, plus sales fee of 3.00% of the public
offering price.
DISTRIBUTIONS
Distributions of net investment income to unitholders are declared and paid
monthly. In addition, distribution of principal related to sales or calls of
securities is $135.88 and $50.22 per unit for the years ended April 30, 2016
and 2015, respectively.
14 Investment Summary
ADVISORS DISCIPLINED TRUST 1038
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO,
SERIES 2013-MAY - A HARTFORD INVESTMENT MANAGEMENT COMPANY ("HIMCO")
PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date these financial
statements were issued. There were no subsequent events since April 30, 2016
that would require adjustment to or additional disclosure in these financial
statements.
6. FINANCIAL HIGHLIGHTS
PERIOD FROM
MAY 17, 2013
(INITIAL DATE OF
YEAR ENDED YEAR ENDED DEPOSIT) THROUGH
APRIL 30, 2016 APRIL 30, 2015 APRIL 30, 2014
------------------ ------------------ -------------------
PER UNIT OPERATING PERFORMANCE:
Net asset value, beginning of period $ 875.67 $ 963.63 $ 965.10
------------- ------------- -------------
Income from investment operations:
Net investment income 54.35 63.10 62.72
Net realized and unrealized loss
on investment transactions (68.53) (37.29) (5.17)
------------- ------------- -------------
Total from investment operations (14.18) 25.81 57.55
Distributions to unitholders:
Net investment income (56.56) (63.55) (59.02)
Principal from investment transactions (135.88) (50.22) -
------------- ------------- -------------
Total distributions (192.44) (113.77) (59.02)
------------- ------------- -------------
Net asset value, end of period
(including accrued interest) $ 669.05 $ 875.67 $ 963.63
============= ============= =============
TOTAL RETURN (A): (0.79)% 2.93% 5.90%
RATIO OF ITEMS BELOW TO AVERAGE NET ASSETS (B):
Expenses 0.52% 0.44% 0.40%
Net investment income 7.33% 7.01% 6.67%
(a) Not annualized for periods less than one full year.
(b) Annualized for periods less than one full year.
Investment Summary 15
-----------------------------
UNDERSTANDING YOUR INVESTMENT
-----------------------------
HOW TO BUY UNITS
You can buy units of the trust on any business day the New York Stock
Exchange is open by contacting your financial professional. Unit prices are
available daily on the Internet at WWW.AAMLIVE.COM. When you buy units, you pay
the public offering price of units plus accrued interest, if any. The public
offering price of units includes:
* the net asset value per unit plus
* the sales fee.
The "net asset value per unit" is the value of the securities, cash and other
assets in the trust reduced by the liabilities of the trust divided by the total
units outstanding. We often refer to the public offering price of units as the
"offer price" or "purchase price." The offer price will be effective for all
orders received prior to the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern time). If we receive your order prior to
the close of regular trading on the New York Stock Exchange or authorized
financial professionals receive your order prior to that time and properly
transmit the order to us by the time that we designate, then you will receive
the price computed on the date of receipt. If we receive your order after the
close of regular trading on the New York Stock Exchange, if authorized financial
professionals receive your order after that time or if orders are received by
such persons and are not transmitted to us by the time that we designate, then
you will receive the price computed on the date of the next determined offer
price provided that your order is received in a timely manner on that date. It
is the responsibility of the authorized financial professional to transmit the
orders that they receive to us in a timely manner. Certain broker-dealers may
charge a transaction or other fee for processing unit purchase orders.
Accrued interest represents unpaid interest on a security from the last day
it paid interest. Accrued interest on the trust units consists of two elements.
The first element arises as a result of accrued interest which is the
accumulation of unpaid interest on bonds in the trust from the last day on which
interest was paid on the bonds. Interest on the bonds is generally paid semi-
annually, although the trust accrues such interest daily. Because your trust
always has an amount of interest earned but not yet collected, the public
offering price of units will have added to it the proportionate share of accrued
interest to the date of settlement. The second element of accrued interest
arises because of the structure of the trust's interest account. The trustee
has no cash for distribution to unitholders until it receives interest payments
on the bonds in the trust and may be required to advance its own funds to make
trust interest distributions. As a result, interest account balances are
established to limit the need for the trustee to advance funds in connection
with such interest distributions. If you sell or redeem your units you will be
entitled to receive your proportionate share of the accrued interest from the
purchaser of your units.
VALUE OF THE SECURITIES. We determine the value of the securities as of the
close of regular trading on the New York Stock Exchange on each day that
exchange is open. We generally determine the value of securities based on the
aggregate bid side evaluations of the securities determined (a) on the basis of
current bid prices of the securities, (b) if bid prices are not available for
any particular security, on the basis of current bid prices for comparable
securities, (c) by determining the value of securities on the bid side of the
16 Understanding Your Investment
market by appraisal, or (d) by any combination of the above. The offering side
price generally represents the price at which investors in the market are
willing to sell a security and the bid side evaluation generally represents the
price that investors in the market are willing to pay to buy a security. The
bid side evaluation is lower than the offering side evaluation.
SALES FEE. You pay a fee in connection with purchasing units. We refer to
this fee as the "sales fee." The maximum sales fee equals 3.00% of the public
offering price per unit at the time of purchase. You pay the sales fee at the
time you buy units.
MINIMUM PURCHASE. The minimum amount you can purchase of the trust appears
on page 4 under "Essential Information", but such amounts may vary depending on
your selling firm.
REDUCING YOUR SALES FEE. We offer a variety of ways for you to reduce the
fee you pay. It is your financial professional's responsibility to alert us of
any discount when you order units.
FEE ACCOUNTS. Investors may purchase units through registered investment
advisers, certified financial planners or registered broker-dealers who in each
case either charge investor accounts ("Fee Accounts") periodic fees for
brokerage services, financial planning, investment advisory or asset management
services, or provide such services in connection with an investment account for
which a comprehensive "wrap fee" charge ("Wrap Fee") is imposed. You should
consult your financial professional to determine whether you can benefit from
these accounts. If units of the trust are purchased for a Fee Account and the
units are subject to a Wrap Fee in such Fee Account (i.e., the trust is "Wrap
Fee Eligible"), then investors may be eligible to purchase units of the trust in
these Fee Accounts at the public offering price less the regular underwriter or
dealer concession.
Certain Fee Account investors may be assessed transaction or other fees on
the purchase and/or redemption of units by their broker-dealer or other
processing organizations for providing certain transaction or account
activities. We reserve the right to limit or deny purchases of units in Fee
Accounts by investors or selling firms whose frequent trading activity is
determined to be detrimental to the trust.
Employees. We waive a portion of the sales fee for purchases made by
officers, directors and employees (and immediate family members) of the sponsor
and its affiliates. We also waive a portion of the sales fee for purchases made
by officers, directors and employees (and immediate family members) of selling
firms. These purchases are made at the public offering price per unit less the
applicable dealer concession. Immediate family members for the purposes of this
section include your spouse, children (including step-children) under the age of
21 living in the same household, and parents (including step-parents). All
employee discounts are subject to the policies of the related selling firm,
including but not limited to, householding policies or limitations. Only
officers, directors and employees (and their immediate family members) of
selling firms that allow such persons to participate in this employee discount
program are eligible for the discount.
RETIREMENT ACCOUNTS. The portfolio may be suitable for purchase in tax-
advantaged retirement accounts. You should contact your financial professional
about the accounts offered and any additional fees imposed.
Understanding Your Investment 17
HOW TO SELL YOUR UNITS
You can sell or redeem your units on any business day the New York Stock
Exchange is open by contacting your financial professional. Unit prices are
available daily on the Internet at WWW.AAMLIVE.COM or through your financial
professional. The sale and redemption price of units is equal to the net asset
value per unit. The sale and redemption price is sometimes referred to as the
"liquidation price". Certain broker-dealers may charge a transaction or other
fee for processing unit redemption or sale requests.
SELLING UNITS. We may maintain a secondary market for units. This means
that if you want to sell your units, we may buy them at the current net asset
value. We may then resell the units to other investors at the public offering
price or redeem them for the redemption price. Our secondary market repurchase
price is the same as the redemption price. Certain broker-dealers might also
maintain a secondary market in units. You should contact your financial
professional for current repurchase prices to determine the best price
available. We may discontinue our secondary market at any time without notice.
Even if we do not make a market, you will be able to redeem your units with the
trustee on any business day for the current redemption price.
REDEEMING UNITS. You may also redeem your units directly with the trustee,
The Bank of New York Mellon, on any day the New York Stock Exchange is open.
The redemption price that you will receive for units is equal to the net asset
value per unit. You will receive the net asset value for a particular day if
the trustee receives your completed redemption request prior to the close of
regular trading on the New York Stock Exchange. Redemption requests received by
authorized financial professionals prior to the close of regular trading on the
New York Stock Exchange that are properly transmitted to the trustee by the time
designated by the trustee, are priced based on the date of receipt. Redemption
requests received by the trustee after the close of regular trading on the New
York Stock Exchange, redemption requests received by authorized financial
professionals after that time or redemption requests received by such persons
that are not transmitted to the trustee until after the time designated by the
trustee, are priced based on the date of the next determined redemption price
provided they are received in a timely manner by the trustee on such date. It
is the responsibility of authorized financial professionals to transmit
redemption requests received by them to the trustee so they will be received in
a timely manner. If your request is received after that time or is incomplete
in any way, you will receive the next net asset value computed after the trustee
receives your completed request.
If you redeem your units, the trustee will generally send you a payment for
your units no later than seven days after it receives all necessary
documentation (this will usually only take three business days). The only time
the trustee can delay your payment is if the New York Stock Exchange is closed
(other than weekends or holidays), the Securities and Exchange Commission
determines that trading on that exchange is restricted or an emergency exists
making sale or evaluation of the securities not reasonably practicable, and for
any other period that the Securities and Exchange Commission permits.
To redeem your units, you must send the trustee any certificates for your
units. You must properly endorse your certificates or sign a written transfer
instrument with a signature guarantee. The trustee may require additional
documents
18 Understanding Your Investment
such as a certificate of corporate authority, trust documents, a death
certificate, or an appointment as executor, administrator or guardian. The
trustee cannot complete your redemption or send your payment to you until it
receives all of these documents in complete form.
EXCHANGE OPTION. You may be able to exchange your units for units of our
other unit trusts at a reduced sales fee. You can contact your financial
professional for more information about trusts currently available for
exchanges. Before you exchange units, you should read the prospectus carefully
and understand the risks and fees. You should then discuss this option with
your financial professional to determine whether your investment goals have
changed, whether current trusts suit you and to discuss tax consequences. We
may discontinue this option upon sixty days notice.
DISTRIBUTIONS
MONTHLY DISTRIBUTIONS. Your trust generally pays interest from its net
investment income (pro-rated on an annual basis) along with any available
principal paid on the securities on each monthly distribution date to
unitholders of record on the preceding record date. The record and distribution
dates are shown under "Essential Information" in the "Investment Summary"
section of this prospectus. In some cases, your trust might pay a special
distribution if it holds an excessive amount of cash pending distribution. The
amount of your distributions will vary from time to time as interest and
principal payments change or trust expenses change.
Interest received by the trust, including that part of the proceeds of any
disposition of bonds which represents accrued interest, is credited by the
trustee to the trust's "interest account". Other receipts are credited to the
"principal account". After deduction of amounts sufficient to reimburse the
trustee, without interest, for any amounts advanced and paid to the sponsor as
the unitholder of record as of the first settlement date, interest received will
be distributed on each distribution date to unitholders of record as of the
preceding record date. All distributions will be net of estimated expenses.
Funds in the principal account will be distributed on each distribution date to
unitholders of record as of the preceding record date provided that the amount
available for distribution therein shall equal at least $1.00 per unit.
Because interest payments are not received by the trust at a constant rate
throughout the year, interest distributions may be more or less than the amount
credited to the interest account as of the record date. For the purpose of
minimizing fluctuations in interest distributions, the trustee is authorized to
advance amounts necessary to provide interest distributions of approximately
equal amounts. The trustee is reimbursed for these advances from funds in the
interest account on the next record date. Investors who purchase units between
a record date and a distribution date will receive their first distribution on
the second distribution date after the purchase.
ESTIMATED DISTRIBUTIONS. The estimated net annual interest income per unit
and estimated normal monthly distribution per unit are shown under "Essential
Information" in the "Investment Summary" section of this prospectus as of the
date set forth herein. We base these amounts on the estimated cash flows of the
bonds per unit. The actual distributions that you receive will vary from these
estimates with changes in expenses, interest rates and maturity, call, default
or sale of bonds. You may request the estimated cash flows from the sponsor.
The estimated cash flows are
Understanding Your Investment 19
computed based on factors described under "Understanding Your Investment--How
the Trust Works--Estimated Current and Long-Term Returns".
REPORTS. The trustee or your financial professional will make available to
you a statement showing income and other receipts of your trust for each
distribution. Each year the trustee or your financial professional will also
provide an annual report on your trust's activity and certain tax information.
You can request copies of security evaluations to enable you to complete your
tax forms and audited financial statements for your trust, if available.
INVESTMENT RISKS
All investments involve risk. This section describes the main risks that can
impact the value of the securities in your portfolio. You should understand
these risks before you invest. If the value of the securities falls, the value
of your units will also fall. We cannot guarantee that your trust will achieve
its objective or that your investment return will be positive over any period.
MARKET RISK. Market risk is the risk that the value of the securities in
your trust will fluctuate. This could cause the value of your units to fall
below your original purchase price or below the principal value. Market value
fluctuates in response to various factors. These can include changes in
interest rates, inflation, the financial condition of a security's issuer,
perceptions of the issuer, or ratings on a security. Even though we supervise
your portfolio, you should remember that we do not manage your portfolio. Your
trust will not sell a security solely because the market value falls as is
possible in a managed fund.
INTEREST RATE RISK. Interest rate risk is the risk that the value of
securities will fall if interest rates increase. The securities in your trust
typically fall in value when interest rates rise and rise in value when interest
rates fall. Securities with longer periods before maturity are often more
sensitive to interest rate changes. The securities in your trust may be subject
to greater risk of rising interest rates than would normally be the case due to
the current period of hisorically low rates.
CREDIT RISK. Credit risk is the risk that a security's issuer or insurer is
unable to meet its obligation to pay principal or interest on the security.
CONCENTRATION RISK. Concentration risk is the risk that the value of your
trust is more susceptible to fluctuations based on factors that impact a
particular sector because the portfolio concentrates in companies within that
sector. A portfolio "concentrates" in a sector when securities in a particular
sector make up 25% or more of the portfolio.
The trust invests significantly in bonds issued by CONSUMER PRODUCTS AND
SERVICES companies. These companies manufacture or sell various consumer
products and/or services. General risks of these companies include the general
state of the economy, intense competition and consumer spending trends. A
decline in the economy which results in a reduction of consumers' disposable
income can negatively impact spending habits. Competitiveness in the retail
industry will require large capital outlays for the installation of automated
checkout equipment to control inventory, track the sale of items and gauge the
success of sales campaigns. Retailers who sell their products and services over
the internet have the potential to access more consumers, but will require
sophisticated technology to remain competitive.
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 interest rate or if it no longer needs the money for
the original
20 Understanding Your Investment
purpose. If an issuer calls a bond, your trust will distribute the principal to
you but your future interest distributions will fall. You might not be able to
reinvest this principal at as high a yield. A bond's call price could be less
than the price your trust paid for the bond and could be below the bond's par
value. This means that you could receive less than the amount you paid for your
units. If enough bonds in your trust are called, your trust could terminate
early. Some or all of the bonds may also be subject to extraordinary optional
or mandatory redemptions if certain events occur, such as certain changes in tax
laws, the substantial damage or destruction by fire or other casualty of the
project for which the proceeds of the bonds were used, and various other events.
The call provisions are described in general terms in the "Schedule of
Investments".
BOND QUALITY RISK. Bond quality risk is the risk that a bond will fall in
value if a rating agency decreases the bond's rating.
HIGH YIELD BOND RISK. The trust may invest in high yield bonds or unrated
bonds. High yield, high risk bonds are subject to greater market fluctuations
and risk of loss than bonds with higher investment ratings. The value of these
bonds 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 or "junk" bonds, the generic names for bonds rated below "BBB" by
Standard & Poor's or "Baa" by Moody's, are frequently issued by corporations in
the growth stage of their development or by established companies who are highly
leveraged or whose operations or industries are depressed. Bonds rated below
BBB or Baa are considered speculative as these ratings indicate a quality of
less than investment grade. Because high-yield bonds are generally subordinated
obligations and are perceived by investors to be riskier than higher rated
bonds, their prices tend to fluctuate more than higher rated bonds and are
affected by short-term credit developments to a greater degree.
The market for high-yield bonds is smaller and less liquid than that for
investment grade bonds. Due to the smaller, less liquid market for high-yield
bonds, the bid-offer spread on such bonds is generally greater than it is for
investment grade bonds and the purchase or sale of such bonds may take longer to
complete.
RESTRICTED BONDS. The trust portfolio may include bonds that may only be
resold pursuant to Rule 144A under the Securities Act of 1933. Such bonds may
not be readily marketable.
Restricted bonds may be sold only to purchasers meeting certain eligibility
requirements in privately negotiated transactions or in a public offering with
respect to which a registration statement is in effect under the Securities Act.
Where registration of such securities under the Securities Act is required, the
trust may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the trust may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, the trust might obtain a less favorable price than that which
prevailed when it decided to sell.
LIQUIDITY RISK. Liquidity risk is the risk that the value of a security will
fall if trading in the
Understanding Your Investment 21
security is limited or absent. No one can guarantee that a liquid trading
market will exist for any security because these securities generally trade in
the over-the-counter market (they are not listed on a securities exchange).
LITIGATION AND LEGISLATION RISK. Litigation and legislation risk is the risk
that future litigation or legislation could affect the value of your trust.
Litigation could challenge an issuer's authority to issue or make payments on
securities.
FOREIGN ISSUER RISK. An investment in securities of foreign issuers involves
certain risks that are different in some respects from an investment in
securities of domestic issuers. These include risks associated with future
political and economic developments, international trade conditions, foreign
withholding taxes, liquidity concerns, currency fluctuations, volatility,
restrictions on foreign investments and exchange of securities, potential for
expropriation of assets, confiscatory taxation, difficulty in obtaining or
enforcing a court judgment, potential inability to collect when a company goes
bankrupt and economic, political or social instability. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy for
reasons including differences in growth of gross domestic product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments positions. There may be less publicly available information about a
foreign issuer than is available from a domestic issuer as a result of different
accounting, auditing and financial reporting standards. Some foreign markets are
less liquid than U.S. markets which could cause securities to be bought at a
higher price or sold at a lower price than would be the case in a highly liquid
market.
Securities of certain foreign issuers may be denominated or quoted in
currencies other than the U.S. dollar. Foreign issuers also make payments and
conduct business in foreign currencies. Many foreign currencies have fluctuated
widely in value against the U.S. dollar for various economic and political
reasons. Changes in foreign currency exchange rates may affect the value of
foreign securities and dividend payments. Generally, when the U.S. dollar rises
in value against a foreign currency, a security denominated in that currency
loses value because the currency is worth fewer U.S. dollars. Conversely, when
the U.S. dollar decreases in value against a foreign currency, a security
denominated in that currency gains value because the currency is worth more U.S.
dollars. The U.S. dollar value of income payments on foreign securities will
fluctuate similarly with changes in foreign currency values.
Brokerage and other transaction costs on foreign exchanges are often higher
than in the U.S. and there is generally less governmental supervision of
exchanges, brokers and issuers in foreign countries. The increased expense of
investing in foreign markets may reduce the amount an investor can earn on its
investments and typically results in a higher operating expense ratio than
investments in only domestic securities. Custody of certain securities may be
maintained by a global custody and clearing institution. Settlement and
clearance procedures in certain foreign markets differ significantly from those
in the U.S. Foreign settlement and clearance procedures and trade regulations
also may involve certain risks (such as delays in payment for or delivery of
securities) not typically associated with the settlement of domestic securities.
Round lot trading requirements exist in certain foreign securities markets which
could cause the proportional composition and diversification of the portfolio to
vary when the trust buys or sells securities.
"WHEN ISSUED" AND "DELAYED DELIVERY" BONDS. "When, as and if issued" bonds
are bonds that
22 Understanding Your Investment
trade before they are actually issued. Bonds purchased on a "when issued" basis
have not yet been issued by the issuer on the trust's inception date although
such issuer has committed to issue such bonds. This means that the sponsor can
only deliver them to the trust "when, as and if" the bonds are actually issued.
In addition, other bonds may have been purchased by the sponsor on a "delayed
delivery" basis. These bonds are expected to be delivered to the trust after
the trust's first settlement date (normally three business days after the
trust's inception date).
Delivery of these bonds may be delayed or may not occur. Interest on these
bonds does not begin accruing to your trust until the bond is delivered to the
trust. You may have to adjust your tax basis of any bonds delivered after the
expected delivery date. Any adjustment would reflect interest that accrued
between the time you purchased your units and the delivery of the bonds to your
trust. This could lower your first year estimated current return. You may
experience gains or losses on these bonds from the time you purchase units even
though your trust has not yet received them.
ORIGINAL ISSUE DISCOUNT BONDS. Original issue discount bonds were initially
issued at a price below their face (or par) value. These bonds typically pay a
lower interest rate than comparable bonds that were issued at or above their par
value. In a stable interest rate environment, the market value of these bonds
tends to increase more slowly in early years and in greater increments as the
bonds approach maturity. The issuers of these bonds may be able to call or
redeem a bond before its stated maturity date and at a price less than the
bond's par value.
Zero coupon bonds are a type of original issue discount bond. These bonds do
not pay any current interest during their life. If an investor owns this type
of bond, the investor has the right to receive a final payment of the bond's par
value at maturity. The price of these bonds often fluctuates greatly during
periods of changing market interest rates compared to bonds that make current
interest payments. The issuers of these bonds may be able to call or redeem a
bond before its stated maturity date and at a price less than the bond's par
value.
MARKET DISCOUNT. The portfolio of the trust may consist of some bonds whose
current market values were below the principal value on the trust's inception
date or your unit purchase date. A primary reason for the market value of such
bonds being less than the principal value is that the interest rate of such
bonds is at a lower rate than the current market interest rates for comparable
bonds. Bonds selling at market discounts tend to increase in market value as
they approach maturity. A market discount tax-exempt bond held to maturity will
have a larger portion of its total return in the form of taxable ordinary income
and less in the form of tax-exempt income than a comparable bond bearing
interest at current market rates.
PREMIUM BONDS. The portfolio of the trust may consist of some bonds whose
current market values were above the principal value on the trust's inception
date or your unit purchase date. A primary reason for the market value of such
bonds being higher than the principal value is that the interest rate of such
bonds is at a higher rate than the current market interest rates for comparable
bonds. The current returns of bonds trading at a market premium are initially
higher than the current returns of comparable bonds issued at currently
prevailing interest rates because premium bonds tend to decrease in market value
as they approach maturity when the principal
Understanding Your Investment 23
value becomes payable. Because part of the purchase price is effectively
returned not at maturity but through current income payments, early redemption
of a premium bond at par or any other amount below the trust's purchase price
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 bonds have a market value that represents a premium over par or
for original issue discount securities a premium over the accreted value.
HOW THE TRUST WORKS
YOUR TRUST. Your trust is a unit investment trust registered under the
Investment Company Act of 1940. We created the trust under a trust agreement
between Advisors Asset Management, Inc. (as depositor/sponsor, evaluator and
supervisor) and The Bank of New York Mellon (as trustee). To create your trust,
we deposited securities with the trustee (or contracts to purchase securities
along with an irrevocable letter of credit or other consideration to pay for the
securities). In exchange, the trustee delivered units of your trust to us.
Each unit represents an undivided interest in the assets of your trust. These
units remain outstanding until redeemed or until your trust terminates. The
number of units, fractional interest of each unit in a trust, estimated interest
distributions per unit and estimated current and long-term returns will increase
or decrease to the extent of any adjustment.
CHANGING YOUR PORTFOLIO. Your trust is not a managed fund. Unlike a managed
fund, we designed your portfolio to remain relatively fixed. Your trust will
generally buy and sell securities:
* to pay expenses,
* to issue additional units or redeem units,
* in limited circumstances to protect the trust,
* to make required distributions or avoid imposition of taxes on the trust,
or
* as permitted by the trust agreement.
When your trust sells securities, the composition and diversity of the
securities in the portfolio may be altered. Your trust will generally reject
any offer for securities or other property in exchange for the securities in its
portfolio. If your trust receives securities or other property, it will either
hold the securities or property in the portfolio or sell the securities or
property and distribute the proceeds.
We may increase the size of your trust as we sell units. When we create
additional units, we will seek to maintain a portfolio that replicates the
principal amounts of the securities in the portfolio. When your trust buys
securities, it may pay brokerage or other acquisition fees. You could
experience a dilution of your investment because of these fees and fluctuations
in security prices between the time we create units and the time your trust buys
the securities. 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. When your trust buys or sells securities, we may
direct that it place orders with and pay brokerage commissions to brokers that
sell units or are affiliated with your trust or the trustee.
In the event of a failure to deliver any bond that has been purchased for the
trust under a contract ("failed bonds"), the sponsor is authorized to purchase
other bonds ("replacement bonds"). The trustee shall pay for replacement bonds
out of funds held in connection with the
24 Understanding Your Investment
failed bonds and will accept delivery of such bonds to make up the original
principal of the trust. The replacement bonds must be purchased within 20 days
after delivery of the notice of the failed contract, and the purchase price
(exclusive of accrued interest) may not exceed the principal attributable to the
failed bonds. Whenever a replacement bond has been acquired for the trust, the
trustee shall, within five days thereafter, notify all unitholders of the trust
of the acquisition of the replacement bond and shall, on the next distribution
date which is more than 30 days thereafter, make a pro rata distribution of the
amount, if any, by which the cost to the trust of the failed bond exceeded the
cost of the replacement bond. In addition, a replacement bond must (at the time
of purchase):
* have a fixed maturity or disposition date comparable to that of the failed
bond it replaces;
* be purchased at a price that results in a yield to maturity and in a
current return which is approximately equivalent to the yield to maturity
and current return of the failed bond which it replaces; and
* be rated at least in the category of BBB/Baa or the equivalent by a major
rating organization.
If the right of limited substitution described above shall not be used to
acquire replacement bonds in the event of a failed contract, the sponsor will
refund the sales charge attributable to such failed bonds to all unitholders of
the trust, and distribute the principal attributable to such failed bonds on the
next monthly distribution date which is more than 30 days thereafter. In the
event a replacement bond is not acquired by the trust, the estimated net annual
interest income per unit would be reduced and the estimated current and long-
term returns might be lowered.
ESTIMATED CURRENT AND LONG-TERM RETURNS. The estimated current return and
the estimated long-term return are shown under "Essential Information" in the
"Investment Summary" section of this prospectus as of the date set forth herein.
Estimated current return is calculated by dividing the estimated net annual
interest income per unit by the public offering price. The estimated net annual
interest income per unit will vary with changes in fees and expenses of your
trust and with the default, redemption, maturity, exchange or sale of bonds.
The public offering price will vary with changes in the price of the bonds.
Accordingly, there is no assurance that the present estimated current return
will be realized in the future. Estimated long-term return is calculated using
a formula which (1) takes into consideration, and determines and factors in the
relative weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of the bonds and (2) takes into account the expenses and sales
charge associated with units. Since the value and estimated retirements of the
bonds and the expenses of your trust will change, there is no assurance that the
present estimated long-term return will be realized in the future. The
estimated current return and estimated long-term return are expected to differ
because the calculation of estimated long-term return reflects the estimated
date and amount of principal returned while the estimated current return
calculation includes only net annual interest income and public offering price.
In order to acquire certain bonds, it may be necessary for the sponsor or
trustee to pay amounts covering accrued interest on the bonds which exceed the
amounts which will be made
Understanding Your Investment 25
available through cash furnished by the sponsor on the trust's inception date.
This cash may exceed the interest which would accrue to the first settlement
date. The trustee has agreed to pay for any amounts necessary to cover any
excess and will be reimbursed when funds become available from interest payments
on the related bonds.
AMENDING THE TRUST AGREEMENT. The sponsor and the trustee can change the
trust agreement without your consent to correct any provision that may be
defective or to make other provisions that will not adversely affect your
interest (as determined by the sponsor and the trustee). We cannot change this
agreement to reduce your interest in your trust without your consent. Investors
owning two-thirds of the units in your trust may vote to change this agreement.
TERMINATION OF YOUR TRUST. Your trust will terminate upon the maturity,
payment, redemption, sale or other liquidation of all of the securities in the
portfolio. The trustee may terminate your trust early if the value of the trust
is less than 40% of the original value of the securities in the trust at the
time of deposit. At this size, the expenses of your trust may create an undue
burden on your investment. Investors owning two-thirds of the units in your
trust may also vote to terminate the trust early. The trustee will liquidate
the trust in the event that a sufficient number of units not yet sold to the
public are tendered for redemption so that the net worth of the trust would be
reduced to less than 40% of the value of the securities at the time they were
deposited in the trust. If this happens, we will refund any sales charge that
you paid.
The trustee will notify you of any termination and sell any remaining
securities. The trustee will send your final distribution to you within a
reasonable time following liquidation of all the securities after deducting
final expenses. Your termination distribution may be less than the price you
originally paid for your units.
THE SPONSOR. The sponsor of the trust is Advisors Asset Management, Inc. We
are a broker-dealer specializing in providing trading and support services to
broker-dealers, registered representatives, investment advisers and other
financial professionals. Our headquarters are located at 18925 Base Camp Road,
Monument, Colorado 80132. You can contact our unit investment trust division at
8100 East 22nd Street North, Building 800, Suite 102, Wichita, Kansas 67226 or
by using the contacts listed on the back cover of this prospectus. AAM is a
registered broker-dealer and investment adviser, a member of the Financial
Industry Regulatory Authority, Inc. (FINRA) and Securities Investor Protection
Corporation (SIPC) and a registrant of the Municipal Securities Rulemaking Board
(MSRB). If we fail to or cannot perform our duties as sponsor or become
bankrupt, the trustee may replace us, continue to operate your trust without a
sponsor, or terminate your trust.
We and your trust have adopted a code of ethics requiring our employees who
have access to information on trust transactions to report personal securities
transactions. The purpose of the code is to avoid potential conflicts of
interest and to prevent fraud, deception or misconduct with respect to your
trust.
The sponsor or an affiliate may use the list of securities in the trust in
its independent capacity (which may include acting as an investment adviser or
broker-dealer) and distribute this information to various individuals and
entities. The sponsor or an affiliate may recommend or effect transactions in
the securities. This may also have an impact on the price your trust pays for
the securities and the price received upon unit redemption or trust termination.
The sponsor may act as agent or principal in connection with the purchase and
sale of
26 Understanding Your Investment
securities, including those held by the trust, and may act as a specialist
market maker in the securities. The sponsor may also issue reports and make
recommendations on the securities in the trust. The sponsor or an affiliate may
have participated in a public offering of one or more of the securities in the
trust. The sponsor, an affiliate or their employees may have a long or short
position in these securities or related securities. An officer, director or
employee of the sponsor or an affiliate may be an officer or director for the
issuers of the securities.
THE TRUSTEE. The Bank of New York Mellon is the trustee of your trust with
its principal unit investment trust division offices located at 2 Hanson Place,
12th Floor, Brooklyn, New York 11217. You can contact the trustee by calling
the telephone number on the back cover of this prospectus or by writing to its
unit investment trust office. We may remove and replace the trustee in some
cases without your consent. The trustee may also resign by notifying us and
investors.
PORTFOLIO CONSULTANT. The portfolio consultant, Hartford Investment
Management Company, is a registered investment adviser.
HIMCO is not an affiliate of the sponsor. HIMCO selected a list of
securities to be included in the portfolio based on the criteria provided by the
sponsor. HIMCO makes no representations that the portfolio will achieve the
investment objectives or will be profitable or suitable for any particular
potential investor. The sponsor did not select the securities for the trust.
HIMCO may use the list of securities in its independent capacity as an
investment adviser and distribute this information to various individuals and
entities. HIMCO may recommend to other clients or otherwise effect transactions
in the securities held by the trust. This may have an adverse effect on the
prices of the securities. This also may have an impact on the price the trust
pays for the securities and the price received upon unit redemptions or
liquidation of the securities. HIMCO also issues reports and makes
recommendations on securities, which may include the securities in the trust.
Neither HIMCO nor the sponsor manages the trust. Opinions expressed by HIMCO
are not necessarily those of the sponsor, and may not actually prove correct.
HIMCO is being compensated for its portfolio consulting services, including
selection of the trust portfolio.
HOW WE DISTRIBUTE UNITS. We sell units to the public through broker-dealers
and other firms. These distribution firms each pay part of the sales fee when
they sell units. The broker-dealer concession or agency commission for
broker-dealers and other firms is equal to 2.50% of the public offering price
per unit at the time of purchase.
We currently provide, at our own expense and out of our own profits,
additional compensation and benefits to broker-dealers who sell units of this
trust and our other products. This compensation is intended to result in
additional sales of our products and/or compensate broker-dealers and financial
advisors for past sales. A number of factors are considered in determining
whether to pay these additional amounts. Such factors may include, but are not
limited to, the level or type of services provided by the intermediary, the
level or expected level of sales of our products by the intermediary or its
agents, the placing of our products on a preferred or recommended product list
and access to an intermediary's personnel. We may make these payments for
marketing, promotional or related expenses, including, but not limited to,
expenses of
Understanding Your Investment 27
entertaining retail customers and financial advisors, advertising, sponsorship
of events or seminars, obtaining information about the breakdown of unit sales
among an intermediary's representatives or offices, obtaining shelf space in
broker-dealer firms and similar activities designed to promote the sale of our
products. We make such payments to a substantial majority of intermediaries
that sell our products. We may also make certain payments to, or on behalf of,
intermediaries to defray a portion of their costs incurred for the purpose of
facilitating unit sales, such as the costs of developing or purchasing trading
systems to process unit trades. Payments of such additional compensation
described in this paragraph and the volume concessions described above, some of
which may be characterized as "revenue sharing," may create an incentive for
financial intermediaries and their agents to sell or recommend our products,
including this trust, over other products. These arrangements will not change
the price you pay for your units.
We generally register units for sale in various states in the U.S. We do not
register units for sale in any foreign country. This prospectus does not
constitute an offer of units in any state or country where units cannot be
offered or sold lawfully. We may reject any order for units in whole or in
part.
We may gain or lose money when we hold units in the primary or secondary
market due to fluctuations in unit prices. The gain or loss is equal to the
difference between the price we pay for units and the price at which we sell or
redeem them. We may also gain or lose money when we deposit securities to
create units.
TAXES
This section summarizes some of the main U.S. federal income tax consequences
of owning units of the trust. This section is current as of the date of this
prospectus. Tax laws and interpretations change frequently, and these summaries
do not describe all of the tax consequences to all taxpayers. For example,
these summaries generally do not describe your situation if you are a
corporation, a non-U.S. person, a broker/dealer, or other investor with special
circumstances. In addition, this section does not describe your state, local or
foreign tax consequences.
This federal income tax summary is based in part on the advice of counsel to
the sponsor. The Internal Revenue Service could disagree with any conclusions
set forth in this section. In addition, our counsel was not asked to review,
and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the trust. This may not be
sufficient for you to use for the purpose of avoiding penalties under federal
tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.
TRUST STATUS. The trust intends to qualify as a "regulated investment
company" under the federal tax laws. If the trust qualifies as a regulated
investment company and distributes its income as required by the tax law, the
trust generally will not pay federal income taxes. An adverse federal income
tax audit of a partnership that the trust invests in could result in the trust
being required to pay federal income tax or pay a deficiency dividend (without
having received additional cash).
DISTRIBUTIONS. Trust distributions are generally taxable. After the end of
each year, you will receive a tax statement that separates your trust's
distributions into three categories, ordinary
28 Understanding Your Investment
income distributions, capital gain dividends and return of capital. Ordinary
income distributions are generally taxed at your ordinary tax rate, however, as
further discussed below, certain ordinary income distributions received from the
trust may be taxed at the capital gains tax rates. Generally, you will treat
all capital gain dividends as long-term capital gains regardless of how long you
have owned your units. To determine your actual tax liability for your capital
gain dividends, you must calculate your total net capital gain or loss for the
tax year after considering all of your other taxable transactions, as described
below. In addition, the trust may make distributions that represent a return of
capital for tax purposes and thus will generally not be taxable to you. A
return of capital, although not initially taxable to you, will result in a
reduction in the basis in your units and subsequently result in higher levels of
taxable capital gains in the future. In addition, if the non-dividend
distribution exceeds your basis in your units, you will have long-term or short-
term gain depending upon your holding period. The tax status of your
distributions from your trust is not affected by whether you reinvest your
distributions in additional units or receive them in cash. The income from your
trust that you must take into account for federal income tax purposes is not
reduced by amounts used to pay a deferred sales fee, if any. The tax laws may
require you to treat distributions made to you in January as if you had received
them on December 31 of the previous year. Income from the trust may also be
subject to a 3.8 percent "medicare tax". This tax generally applies to your net
investment income if your adjusted gross income exceeds certain threshold
amounts, which are $250,000 in the case of married couples filing joint returns
and $200,000 in the case of single individuals.
DIVIDENDS RECEIVED DEDUCTION. A corporation that owns units generally will
not be entitled to the dividends received deduction with respect to many
dividends received from the trust because the dividends received deduction is
generally not available for distributions from regulated investment companies.
However, certain ordinary income dividends on units that are attributable to
qualifying dividends received by the trust from certain corporations may be
reported by the trust as being eligible for the dividends received deduction.
SALE OR REDEMPTION OF UNITS. If you sell or redeem your units, you will
generally recognize a taxable gain or loss. To determine the amount of this
gain or loss, you must subtract your tax basis in your units from the amount you
receive in the transaction. Your tax basis in your units is generally equal to
the cost of your units, generally including sales charges. In some cases,
however, you may have to adjust your tax basis after you purchase your units.
CAPITAL GAINS AND LOSSES. If you are an individual, the maximum marginal
stated federal tax rate for net capital gain is generally 20% for taxpayers in
the 39.6% tax bracket, 15% for taxpayers in the 25%, 28%, 33% and 35% tax
brackets and 0% for taxpayers in the 10% and 15% tax brackets. Capital gains
may also be subject to the "medicare tax" discussed above.
Net capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if the
holding period for the asset is more than one year and is short-term if the
holding period for the asset is one year or less. You must exclude the date you
purchase your units to determine your holding period. However, if you receive a
capital gain dividend from your trust and sell your unit at a loss after holding
it for six months or less, the loss will be recharacterized as long-term capital
Understanding Your Investment 29
loss to the extent of the capital gain dividend received. The tax rates for
capital gains realized from assets held for one year or less are generally the
same as for ordinary income. The Internal Revenue Code treats certain capital
gains as ordinary income in special situations.
EXCHANGES. If you elect to have your proceeds from your trust rolled over
into a future series of the trust, the exchange would generally be considered a
sale for federal income tax purposes.
DEDUCTIBILITY OF TRUST EXPENSES. Expenses incurred and deducted by your
trust will generally not be treated as income taxable to you. In some cases,
however, you may be required to treat your portion of these trust expenses as
income. In this case you may be able to take a deduction for these expenses.
However, certain miscellaneous itemized deductions, such as investment expenses,
may be deducted by individuals only to the extent that all of these deductions
exceed 2% of the individual's adjusted gross income. Some individuals may also
be subject to further limitations on the amount of their itemized deductions,
depending on their income.
FOREIGN TAX CREDIT. If your trust invests in any foreign securities, the tax
statement that you receive may include an item showing foreign taxes your trust
paid to other countries. In this case, dividends taxed to you will include your
share of the taxes your trust paid to other countries. You may be able to
deduct or receive a tax credit for your share of these taxes.
FOREIGN INVESTORS. If you are a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership, estate or
trust), you should be aware that, generally, subject to applicable tax treaties,
distributions from the trust will be characterized as dividends for federal
income tax purposes (other than dividends which the trust properly reports as
capital gain dividends) and will be subject to U.S. income taxes, including
withholding taxes, subject to certain exceptions described below. However,
distributions received by a foreign investor from the trust that are properly
reported by the trust as capital gain dividends may not be subject to U.S.
federal income taxes, including withholding taxes, provided that the trust makes
certain elections and certain other conditions are met. In the case of
dividends with respect to taxable years of the trust beginning prior to 2015,
distributions from the trust that are properly reported by the trust as an
interest-related dividend attributable to certain interest income received by
the trust or as a short-term capital gain dividend attributable to certain net
short-term capital gain income received by the trust may not be subject to U.S.
federal income taxes, including withholding taxes when received by certain
foreign investors, provided that the trust makes certain elections and certain
other conditions are met. In addition, distributions in respect of units may be
subject to a U.S. withholding tax of 30% in the case of distributions to (i)
certain non-U.S. financial institutions that have not entered into an agreement
with the U.S. Treasury to collect and disclose certain information and are not
resident in a jurisdiction that has entered into such an agreement with the
U.S. Treasury and (ii) certain other non-U.S. entities that do not provide
certain certifications and information about the entity's U.S. owners.
Dispositions of units by such persons may be subject to such withholding after
December 31, 2018. You should also consult your tax advisor with respect to
other U.S. tax withholding and reporting requirements.
EXPENSES
Your trust will pay various expenses to conduct its operations. The "Fees
and Expenses"
30 Understanding Your Investment
section of the "Investment Summary" in this prospectus shows the estimated
amount of these expenses.
Your trust will pay a fee to the trustee for its services. The trustee also
benefits when it holds cash for your trust in non-interest bearing accounts.
Your trust will reimburse us as supervisor, evaluator and sponsor for providing
portfolio supervisory services, for evaluating your portfolio and for providing
bookkeeping and administrative services. Our reimbursements may exceed the
costs of the services we provide to your trust but will not exceed the costs of
services provided to all of our unit investment trusts in any calendar year.
All of these fees may adjust for inflation without your approval.
Your trust will also pay its general operating expenses. Your trust may pay
expenses such as trustee expenses (including legal and auditing expenses),
various governmental charges, fees for extraordinary trustee services, costs of
taking action to protect your trust, costs of indemnifying the trustee and the
sponsor, legal fees and expenses and expenses incurred in contacting you. Your
trust may pay the costs of updating its registration statement each year. Your
trust will pay a license fee for the use of certain service marks, trademarks,
trade names and/or other property of Hartford Investment Management Company.
The trustee will generally pay trust expenses from interest income and principal
payments received on the securities but in some cases may sell securities to pay
trust expenses.
EXPERTS
LEGAL MATTERS. Chapman and Cutler LLP acts as counsel for the trust and has
given an opinion that the units are validly issued. Dorsey & Whitney LLP acts
as counsel for the trustee.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Grant Thornton LLP,
independent registered public accounting firm, audited the financial statements
in this prospectus.
ADDITIONAL INFORMATION
This prospectus does not contain all the information in the registration
statement that your trust filed with the Securities and Exchange Commission.
The Information Supplement, which was filed with the Securities and Exchange
Commission, includes more detailed information about the securities in your
portfolio, investment risks and general information about your trust. You can
obtain the Information Supplement by contacting us or the Securities and
Exchange Commission as indicated on the back cover of this prospectus. This
prospectus incorporates the Information Supplement by reference (it is legally
considered part of this prospectus).
Understanding Your Investment 31
CONTENTS
INVESTMENT SUMMARY
-----------------------------------------------------------------------
A concise description 2 Investment Objective
of essential information 2 Principal Investment Strategy
about the portfolio 2 Principal Risks
4 Who Should Invest
4 Essential Information
4 Fees and Expenses
5 Financial Statements
UNDERSTANDING YOUR INVESTMENT
-----------------------------------------------------------------------
Detailed information to 16 How to Buy Units
help you understand 18 How to Sell Your Units
your investment 19 Distributions
20 Investment Risks
24 How the Trust Works
28 Taxes
30 Expenses
31 Experts
31 Additional Information
WHERE TO LEARN MORE
-----------------------------------------------------------------------
You can contact us for VISIT US ON THE INTERNET
free information about http://www.AAMlive.com
this and other investments, CALL ADVISORS ASSET MANAGEMENT, INC.
including the Information (877) 858-1773
Supplement CALL THE BANK OF NEW YORK MELLON
(800) 848-6468
ADDITIONAL INFORMATION
-----------------------------------------------------------------------
This prospectus does not contain all information filed with the
Securities and Exchange Commission. To obtain or copy this
information including the Information Supplement (a duplication
fee may be required):
E-MAIL: [email protected]
WRITE: Public Reference Section
Washington, D.C. 20549
VISIT: http://www.sec.gov
(EDGAR Database)
CALL: 1-202-551-8090
(only for information on the operation of the
Public Reference Section)
REFER TO:
ADVISORS DISCIPLINED TRUST 1038
Securities Act file number: 333-187594
Investment Company Act file number: 811-21056
ADVISORS CORPORATE TRUST,
HIGH YIELD BOND
PORTFOLIO,
SERIES 2013-MAY -
A HARTFORD INVESTMENT
MANAGEMENT COMPANY
("HIMCO")
PORTFOLIO
PROSPECTUS
AUGUST 31, 2016
[LOGO]
AAM
ADVISORS
ASSET MANAGEMENT
ADVISORS DISCIPLINED TRUST
ADVISORS CORPORATE TRUST, HIGH YIELD BOND PORTFOLIO - A HARTFORD INVESTMENT
MANAGEMENT COMPANY ("HIMCO") PORTFOLIO
INFORMATION SUPPLEMENT
JANUARY 2016
This Information Supplement provides additional information concerning
each trust described in the prospectus for the unit investment trust identified
above. This Information Supplement should be read in conjunction with the
prospectus. It is not a prospectus. It does not include all of the information
that an investor should consider before investing in a trust. It may not be
used to offer or sell units of a trust without the prospectus. This Information
Supplement is incorporated into the prospectus by reference and has been filed
as part of the registration statement with the Securities and Exchange
Commission. Investors should obtain and read the prospectus prior to purchasing
units of a trust. You can obtain the prospectus without charge by contacting
your financial professional or by contacting the unit investment trust division
of Advisors Asset Management, Inc. at 18925 Base Camp Road, Suite 203, Monument,
Colorado 80132, at 8100 East 22nd Street North, Building 800, Suite 102,
Wichita, Kansas 67226 or by calling (877) 858-1773. This Information Supplement
is dated as of the date set forth above.
CONTENTS
General Information 2
Investment Objective and Policies 3
Risk Factors 7
Administration of the Trust 11
Purchase, Redemption and Pricing of Units 18
Performance Information 23
Description of Securities Ratings 24
GENERAL INFORMATION
Each trust is one of a series of separate unit investment trusts created
under the name Advisors Disciplined Trust and registered under the Investment
Company Act of 1940. Each trust was created as a common law trust on the
inception date described in the prospectus under the laws of the state of
New York. Each trust was created under a trust agreement among Advisors Asset
Management, Inc. (as sponsor, evaluator and supervisor) and The Bank of New York
Mellon (as trustee). The sponsor provides services to unit investment trusts
through its Advisor's Asset Management division.
When your trust was created, the sponsor delivered to the trustee
securities or contracts for the purchase thereof for deposit in the trust and
the trustee delivered to the sponsor documentation evidencing the ownership of
units of the trust. Additional units of each trust may be issued from time to
time by depositing in the trust additional securities (or contracts for the
purchase thereof together with cash or irrevocable letters of credit) or cash
(including a letter of credit or the equivalent) with instructions to purchase
additional securities. As additional units are issued by a trust as a result of
the deposit of additional securities by the sponsor, the aggregate value of the
securities in the trust will be increased and the fractional undivided interest
in the trust represented by each unit will be decreased. The sponsor may
continue to make additional deposits of securities into a trust, provided that
such additional deposits will be in principal amounts which will generally
maintain the same original percentage relationship among the principal amounts
of the securities in such trust established by the initial deposit of the
securities. Thus, although additional units will be issued, each unit will
generally continue to represent the same principal amount of each security, and
the percentage relationship among the principal amount of each security in the
related trust will generally remain the same. If the sponsor deposits cash to
purchase additional securities, existing and new investors may experience a
dilution of their investments and a reduction in their anticipated income
because of fluctuations in the prices of the securities between the time of the
cash deposit and the purchase of the securities and because the trust will pay
any associated brokerage fees.
The trustee has not participated in the selection of the securities
deposited in the trust and has no responsibility for the composition of the
trust portfolio.
Each unit initially offered represents an undivided interest in the related
trust. To the extent that any units are redeemed by the trustee or additional
units are issued as a result of additional securities being deposited by the
sponsor, the fractional undivided interest in a trust represented by each
unredeemed unit will increase or decrease accordingly, although the actual
interest in such trust represented by such fraction will remain unchanged.
Units will remain outstanding until redeemed upon tender to the trustee by
unitholders, which may include the sponsor, or until the termination of the
trust agreement.
A trust consists of (a) the securities listed under the "Schedule of
Investments" in the prospectus as may continue to be held from time to time in
the trust, (b) any additional securities acquired and held by the trust pursuant
to the provisions of the trust agreement and (c) any cash held in the accounts
of the trust. Neither the sponsor nor the trustee shall be liable in any way
for any failure in any of the securities. However, should any contract for the
purchase of any of the
-2-
securities initially deposited in a trust fail, the sponsor will, unless
substantially all of the moneys held in the trust to cover such purchase are
reinvested in substitute securities in accordance with the trust agreement,
refund the cash and sales charge attributable to such failed contract to all
unitholders on the next distribution date.
INVESTMENT OBJECTIVE AND POLICIES
The trust seeks to provide current interest income by investing in a
portfolio consisting primarily of high yield corporate debt securities (commonly
known as "junk bonds"). There is, of course, no guarantee that the trust will
achieve its objective. The prospectus provides additional information regarding
the trust's objective and investment strategy.
The trust is a unit investment trust and is not an "actively managed" fund.
Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analysis. The portfolio of a trust, however, will not be
actively managed and therefore the adverse financial condition of an issuer will
not necessarily require the sale of its securities from a portfolio.
The sponsor may not alter the portfolio of a trust by the purchase, sale or
substitution of securities, except in the special circumstances discussed herein
regarding the substitution of replacement securities for any failed securities.
Thus, with the exception of the redemption or maturity of securities in
accordance with their terms, the assets of a trust will remain unchanged under
normal circumstances.
The sponsor may direct the trustee to dispose of securities the value of
which has been affected by certain adverse events including institution of
certain legal proceedings or decline in price or the occurrence of other market
factors, including advance refunding, so that in the opinion of the sponsor the
retention of such securities in a trust would be detrimental to the interest of
the unitholders. The proceeds from any such sales, exclusive of any portion
which represents accrued interest, will be credited to the Principal Account of
such trust for distribution to the unitholders.
The sponsor is required to instruct the trustee to reject any offer made by
an issuer of securities to issue new securities, or to exchange securities, for
trust securities, the trustee shall reject such offer. However, should any
issuance, exchange or substitution be effected notwithstanding such rejection or
without an initial offer, any securities or property received shall be deposited
in the trust and shall be promptly sold by the trustee unless the sponsor
advises the trustee to keep such securities or properties. The excess cash
proceeds of any such sales will be distributed to unitholders.
If a public tender offer has been made for a security or a merger,
acquisition or similar transaction has been announced affecting a security, the
trustee may either sell the security or accept a tender offer if the supervisor
determines that the action is in the best interest of unitholders. The trustee
will distribute any excess cash proceeds to unitholders. If your trust receives
securities or other property, it will either hold the securities or property in
the portfolio or sell the securities or property and distribute the proceeds.
The sponsor may direct the
-3-
reinvestment of security sale proceeds if the sale is the direct result of
serious adverse credit factors which, in the opinion of the sponsor, would make
retention of the securities detrimental to the trust. In such a case, the
sponsor may, but is not obligated to, direct the reinvestment of sale proceeds
in any other securities that meet the criteria for inclusion in the trust on the
trust's inception date. The sponsor may also instruct the trustee to take action
necessary to ensure that the portfolio continues to satisfy the qualifications
of a regulated investment company for federal tax purposes if the trust has
elected to be taxed as a regulated investment company.
The trustee may sell securities, designated by the sponsor, from a trust
for the purpose of redeeming units of such trust tendered for redemption and the
payment of expenses.
In addition, if a trust has elected to be taxed as a regulated investment
company, the trustee may dispose of certain securities and take such further
action as may be needed from time to time to ensure that a trust continues to
satisfy the qualifications of a regulated investment company, including the
requirements with respect to diversification under Section 851 of the Internal
Revenue Code, and as may be needed from time to time to avoid the imposition of
any tax on a trust or undistributed income of a trust as a regulated investment
company.
Proceeds from the sale of securities (or any securities or other property
received by a trust in exchange for securities) are credited to the Principal
Account of a trust for distribution to unitholders or to meet redemptions.
Except for failed securities and as provided herein, in the prospectus or in the
trust agreement, the acquisition by a trust of any securities other than the
portfolio securities is prohibited.
Because certain of the securities in certain of the trusts may from time to
time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to unitholders and will not be reinvested, no assurance can be given
that a trust will retain for any length of time its present size and
composition. Neither the sponsor nor the trustee shall be liable in any way for
any default, failure or defect in any security. In the event of a failure to
deliver any security that has been purchased for a trust under a contract,
including those securities purchased on a "when, as and if issued" basis
("Failed Securities"), the sponsor is authorized under the trust agreement to
direct the trustee to acquire other securities ("Replacement Securities") to
make up the original corpus of such trust.
Securities in certain of the trusts may have been purchased on a "when, as
and if issued" or delayed delivery basis with delivery expected to take place
after the first settlement date. Accordingly, the delivery of such securities
may be delayed or may not occur. Interest on these securities begins accruing
to the benefit of unitholders on their respective dates of delivery.
Unitholders of all trusts will be "at risk" with respect to any "when, as and if
issued" or "delayed delivery" securities included in their respective trust
(i.e., may derive either gain or loss from fluctuations in the evaluation of
such securities) from the date they commit for units.
The Replacement Securities must be purchased within 20 days after delivery
of the notice that a contract to deliver a security will not be honored and the
purchase price may not exceed the amount of funds reserved for the purchase of
the Failed Securities. The purchase price of the
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Replacement Securities (exclusive of accrued interest) shall not exceed the
principal attributable to the Failed Securities. In addition, no substitution of
Replacement Securities will be made without an opinion of counsel that such
substitution will not adversely affect the federal income tax status of the
related trust. Whenever a Replacement Security is acquired for a trust, the
trustee shall, within five days thereafter, notify all unitholders of the trust
of the acquisition of the Replacement Security and shall, on the next monthly
distribution date which is more than 30 days thereafter, make a pro rata
distribution of the amount, if any, by which the cost to the trust of the Failed
Security exceeded the cost of the Replacement Security. Once all of the
securities in a trust are acquired, the trustee will have no power to vary the
investments of the trust, i.e., the trustee will have no managerial power to
take advantage of market variations to improve a unitholder's investment.
If the right of limited substitution described in the preceding paragraphs
is not utilized to acquire Replacement Securities in the event of a failed
contract, the sponsor will refund the sales fee attributable to such Failed
Securities to all unitholders of the trust and the trustee will distribute the
principal and accrued interest attributable to such Failed Securities not more
than 30 days after the date on which the trustee would have been required to
purchase a Replacement Security. In addition, unitholders should be aware that,
at the time of receipt of such principal, they may not be able to reinvest such
proceeds in other securities at a yield equal to or in excess of the yield which
such proceeds would have earned for unitholders of such trust.
Whether or not a Replacement Security is acquired, an amount equal to the
accrued interest (at the coupon rate of the Failed Securities) will be paid to
unitholders of the trust to the date the sponsor removes the Failed Securities
from the trust if the sponsor determines not to purchase a Replacement Security
or to the date of substitution if a Replacement Security is purchased. All such
interest paid to unitholders which accrued after the date of settlement for a
purchase of units will be paid by the sponsor. In the event a Replacement
Security could not be acquired by a trust, the net annual interest income per
unit for such trust would be reduced and the estimated current return and
estimated long-term return might be lowered.
Subsequent to the trust's inception, a security may cease to be rated or
its rating may be reduced below any minimum required as of the trust's
inception. Neither event requires the elimination of such investment from a
trust, but may be considered in the sponsor's determination to direct the
trustee to dispose of such investment.
The sponsor may not alter the portfolio of a trust except upon the
happening of certain extraordinary circumstances. Certain of the securities may
be subject to optional call or mandatory redemption pursuant to sinking fund
provisions, in each case prior to their stated maturity. A bond subject to
optional call is one which is subject to redemption or refunding prior to
maturity at the option of the issuer, often at a premium over par. A refunding
is a method by which a bond issue is redeemed, at or before maturity, by the
proceeds of a new bond issue. A bond subject to sinking fund redemption is one
which is subject to partial call from time to time at par with proceeds from a
fund accumulated for the scheduled retirement of a portion of an issue to
maturity. Special or extraordinary redemption provisions may provide for
redemption at par of all or a portion of an issue upon the occurrence of certain
circumstances. Redemption pursuant to optional call provisions is more likely
to occur, and redemption pursuant to special or
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extraordinary redemption provisions may occur, when the securities have an
offering side evaluation which represents a premium over par, that is, when they
are able to be refinanced at a lower cost. The proceeds from any such call or
redemption pursuant to sinking fund provisions, as well as proceeds from the
sale of securities and from securities which mature in accordance with their
terms from a trust, unless utilized to pay for units tendered for redemption,
will be distributed to unitholders of such trust and will not be used to
purchase additional securities for such trust. Accordingly, any such call,
redemption, sale or maturity will reduce the size and diversity of a trust and
the net annual interest income of such trust and may reduce the estimated
current return and the estimated long-term return. The call, redemption, sale
or maturity of securities also may have tax consequences to a unitholder.
Certain of the securities in certain of the trusts may have been acquired
at a market discount from par value at maturity. The coupon interest rates on
the discount securities at the time they were purchased and deposited in the
trusts were lower than the current market interest rates for newly issued bonds
of comparable rating and type. If such interest rates for newly issued
comparable 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 taxable
income and capital gain and loss in the form of tax-exempt 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.
Certain of the securities in the trust may be "zero coupon" bonds, i.e., an
original issue discount bond that does not provide for the payment of current
interest. Zero coupon bonds are purchased at a deep discount because the buyer
receives only the right to receive a final payment at the maturity of the bond
and does not receive any periodic interest payments. The effect of owning deep
discount bonds which do not make current interest payments (such as the zero
coupon bonds) is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount earned during the life of such
obligation. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest the income on such obligation at a rate as
high as the implicit yield on the discount obligation, but at the same time
eliminates the holder's ability to reinvest at higher rates in the future. For
this reason, zero coupon bonds are subject to substantially greater price
fluctuations during periods of changing market interest rates than are
securities of comparable quality which pay interest currently.
To the best of the sponsor's knowledge, there is no litigation pending as
of the trust's inception in respect of any security which might reasonably be
expected to have a material adverse effect on the trust. At any time after the
trust's inception, litigation may be instituted on
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a variety of grounds with respect to the securities. The sponsor is unable to
predict whether any such litigation may be instituted, or if instituted, whether
such litigation might have a material adverse effect on the trust. The sponsor
and the trustee shall not be liable in any way for any default, failure or
defect in any security.
RISK FACTORS
MARKET RISK. There is a risk that the value of the securities in your
trust will fluctuate. This could cause the value of your units to fall below
your original purchase price or below the principal value. Market value
fluctuates in response to various factors. These can include changes in interest
rates, inflation, the financial condition of a security's issuer, perceptions of
the issuer, or ratings on a security. Even though we supervise your portfolio,
you should remember that we do not manage your portfolio. Your trust will not
sell a security solely because the market value falls as is possible in a
managed fund.
INTEREST RATE RISK. There is the risk that the value of securities will
fall if interest rates, in general, increase. The securities in your trust
typically fall in value when interest rates, in general, rise and rise in value
when interest rates, in general, fall. Securities with longer periods before
maturity are often more sensitive to general interest rate changes. Certain
bonds in the portfolio may be subject to interest rate adjustments if either
Moody's Investor Services or Standard & Poor's (or, in certain limited
circumstances, another ratings service) downgrades the rating for such bond (or
upgrades the rating after such a downgrade). The interest rates payable on
certain bonds in the portfolio may have already been increased due to past
ratings downgrades. Any future credit rating improvements on such bonds may
result in decreases to the interest rates payable on such bonds and,
consequently, may adversely affect both the income you receive from the
securities in your trust and the value of your units. On the other hand,
increases in a bond's interest rate related to decreases in such bond's credit
rating may place additional financial strain on the bond's issuer which could
result in further decreases in financial condition and further credit rating
decreases. Additionally, an increase in a bond's interest rate may increase the
risk that the bond's issuer will prepay or "call" the bond before the stated
maturity.
CREDIT RISK. Securities held by the trust are subject to the risk that
their issuer or insurer is unable to meet its obligation to pay principal or
interest on the security.
MARKET DISCOUNT. Certain of the bonds may have been acquired at a market
discount from par value at maturity. The coupon interest rates on discount bonds
at the time they were purchased and deposited in a trust were lower than the
current market interest rates for newly issued bonds of comparable rating and
type. If such interest rates for newly issued comparable bonds increase, the
market discount of previously issued bonds will become greater, and if such
interest rates for newly issued comparable bonds decline, the market discount of
previously issued bonds will be reduced, other things being equal. Investors
should also note that the value of bonds purchased at a market discount will
increase in value faster than bonds purchased at a market premium if interest
rates decrease. Conversely, if interest rates increase, the value of bonds
purchased at a market discount will decrease faster than bonds purchased at a
market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium bonds and the prepayment benefit for lower yielding,
discount bonds will be reduced. Market
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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 bonds.
HIGH YIELD SECURITY RISK. The trust invests in high yield securities. High
yield securities are subject to greater market fluctuations and risk of loss
than securities with higher investment ratings. The value of these securities
may decline significantly with increases in interest rates. 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 or "junk" securities, the generic
names for securities rated below "BBB" by Standard & Poor's or "Baa" by Moody's,
are frequently issued by corporations in the growth stage of their development
or by established companies who are highly leveraged or whose operations or
industries are depressed. Securities rated below BBB or Baa are considered
speculative as these ratings indicate a quality of less than investment grade.
Because high-yield securities 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.
PREMIUM BONDS. Certain of the bonds held by the trust may have been
acquired at a market premium from par value at maturity. The coupon interest
rates on the premium bonds at the time they were purchased by the trust were
higher than the current market interest rates for newly issued bonds of
comparable rating and type. If such interest rates for newly issued and
otherwise comparable bonds decrease, the market premium of previously issued
bonds will be increased, and if such interest rates for newly issued comparable
bonds increase, the market premium of previously issued bonds will be reduced,
other things being equal. The current returns of bonds trading at a market
premium are initially higher than the current returns of comparable bonds of a
similar type issued at currently prevailing interest rates because premium bonds
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 bond
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 bonds have an
offering side valuation which represents a premium over par or for original
issue discount bonds a premium over the accreted value.
ORIGINAL ISSUE DISCOUNT BONDS. Certain of the bonds may be "zero coupon"
bonds. Zero coupon bonds are purchased at a deep discount because the buyer
receives only the right to receive a final payment at the maturity of the bond
and does not receive any periodic interest payments. The effect of owning deep
discount bonds which do not make current interest payments (such as the zero
coupon bonds) is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount earned during the life of such
obligation. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest
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the income on such obligation at a rate as high as the implicit yield on the
discount obligation, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, zero coupon bonds are
subject to substantially greater price fluctuations during periods of changing
market interest rates than are securities of comparable quality which pay
interest.
"WHEN ISSUED" AND "DELAYED DELIVERY" BONDS. Certain of the bonds may have
been purchased on a "when, as and if issued" or "delayed delivery" basis. See
"Notes to Portfolio" in the prospectus. The delivery of any such bonds may be
delayed or may not occur. Interest on these Bonds begins accruing to the benefit
of unitholders on their respective dates of delivery. To the extent any bonds
are actually delivered to a trust after their respective expected dates of
delivery, unitholders who purchase their unit prior to the date such bonds are
actually delivered to the trustee would be required to adjust their tax basis in
their unit for a portion of the interest accruing on such bonds during the
interval between their purchase of unit and the actual delivery of such bonds.
As a result of any such adjustment, the Estimated Current Returns during the
first year would be slightly lower than those stated in the Prospectus which
would be the returns after the first year, assuming the portfolio of a trust and
estimated annual expenses other than that of the trustee (which may be reduced
in the first year only) do not vary from that set forth in the prospectus.
Unitholders will be "at risk" with respect to all bonds in the portfolios
including "when, as and if issued" and "delayed delivery" bonds (i.e., may
derive either gain or loss from fluctuations in the evaluation of such bonds)
from the date they commit for unit.
CALL RISK. The bonds held by the trust are subject to the risk that the
issuer prepays or "calls" a bond before its stated maturity. An issuer might
call a bond if interest rates, in general fall and the bond pays a higher
interest rate or if it no longer needs the money for the original purpose. If an
issuer calls a bond, your trust will distribute the principal to you but your
future interest distributions will fall. You might not be able to reinvest this
principal at as high a yield. A bond's call price could be less than the price
your trust paid for the bond and could be below the bond's par value. This means
that you could receive less than the amount you paid for your units. If enough
bonds in the trust are called, your trust could terminate early. Some or all of
the bonds may also be subject to extraordinary optional or mandatory redemptions
if certain events occur, such as certain changes in tax laws, the substantial
damage or destruction by fire or other casualty of the project for which the
proceeds of the bond were used, and various other events. The call provisions
are described in general terms in the "Portfolio."
BOND QUALITY RISK. Bonds held by the trust are subject to the risk that
their value will fall if a rating agency decreases the bond's rating.
EVENT RISK. There is a risk that corporate issuers may undergo
restructurings, such as mergers, leveraged buyouts, takeovers or similar events
financed by increased debt. As a result of the added debt, the credit quality
and market quality of an issuer's bonds may decline significantly.
LIQUIDITY RISK. There is a risk that the value of a security will fall if
trading in the security is limited or absent. No one can guarantee that a liquid
trading market will exist for any security because these securities generally
trade in the over-the-counter market (they are not
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listed on a securities exchange). Certain bonds in the portfolio may not have
been registered by the issuer under the Securities Act of 1933.
RESTRICTED BONDS. The trust portfolio may include bonds that may only be
resold pursuant to Rule 144A under the Securities Act of 1933. Such bonds may
not be readily marketable. Restricted bonds may be sold only to purchasers
meeting certain eligibility requirements in privately negotiated transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act. Where registration of such securities under the
Securities Act is required, the trust may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the trust may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the trust may obtain a less favorable price
than that which prevailed when it decided to sell.
CONCENTRATION RISK. The value of the trust is more susceptible to
fluctuations based on factors that impact a particular industry because the
portfolio concentrates in securities issued by companies within that industry.
A portfolio "concentrates" in an industry when securities in a particular
industry make up 25% or more of the portfolio.
CONSUMER PRODUCTS AND SERVICES. The trust invests significantly in bonds
issued by consumer products and services companies. These companies manufacture
or sell various consumer products and/or services. General risks of these
companies include the general state of the economy, intense competition and
consumer spending trends. A decline in the economy which results in a reduction
of consumers' disposable income can negatively impact spending habits.
Competitiveness in the retail industry will require large capital outlays for
the installation of automated checkout equipment to control inventory, track the
sale of items and gauge the success of sales campaigns. Retailers who sell
their products and services over the internet have the potential to access more
consumers, but will require sophisticated technology to remain competitive.
FOREIGN ISSUER RISK. Because the trust invests in securities of foreign
companies, the trust involves additional risks that differ from an investment
exclusively in securities of domestic issuers. These risks include the risk of
losses due to future political and economic developments, international trade
conditions, foreign withholding taxes and restrictions on foreign investments
and exchange of securities. The trust also involves the risk that fluctuations
in exchange rates between the U.S. dollar and foreign currencies may negatively
affect the value of the securities. The trust involves the risk that
information about the securities is not publicly available or is inaccurate due
to the absence of uniform accounting and financial reporting standards. In
addition, some foreign securities markets are less liquid than U.S. markets.
This could cause the trust to buy securities at a higher price or sell
securities at a lower price than would be the case in a highly liquid market.
Foreign securities markets are often more volatile and involve higher trading
costs than U.S. markets, and foreign companies, securities markets and brokers
are also generally not subject to the same level of supervision and regulation
as in the U.S.
MATERIALS. The trust may invest significantly in companies involved in the
materials industry. Companies in the materials sector are engaged in the
manufacture, mining, processing,
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or distribution of raw materials and intermediate goods used in the industrial
sector. These may include materials and products such as chemicals, commodities,
forestry products, paper products, copper, iron ore, nickel, steel, aluminum,
precious metals, textiles, cement, and gypsum. Materials companies may be
affected by the volatility of commodity prices, exchange rates, import controls,
worldwide competition, depletion of resources, and mandated expenditures for
safety and pollution control devices. In addition, they may be adversely
affected by technical progress, labor relations, and governmental regulation.
These companies are also at risk for environmental damage and product liability
claims. Production of industrial materials often exceeds demand as a result of
over-building or economic downturns, which may lead to poor investment returns.
LITIGATION AND LEGISLATION RISK. It is possible that future litigation or
legislation could affect the value of your trust. Litigation could challenge an
issuer's authority to issue or make payments on securities.
ADDITIONAL DEPOSITS. The trust agreement authorizes the sponsor to
increase the size of a trust and the number of units thereof by the deposit of
additional securities, or cash (including a letter of credit or the equivalent)
with instructions to purchase additional securities, in such trust and the
issuance of a corresponding number of additional units. In connection with
these deposits, existing and new investors may experience a dilution of their
investments and a reduction in their anticipated income because of fluctuations
in the prices of the securities between the time of the cash deposit and the
purchase of the securities and because a trust will pay the associated brokerage
fees and other acquisition costs.
ADDITIONAL DEPOSITS. The trust agreement authorizes the sponsor to
increase the size of a trust and the number of units thereof by the deposit of
additional securities, or cash (including a letter of credit or the equivalent)
with instructions to purchase additional securities, in such trust and the
issuance of a corresponding number of additional units. In connection with
these deposits, existing and new investors may experience a dilution of their
investments and a reduction in their anticipated income because of fluctuations
in the prices of the securities between the time of the cash deposit and the
purchase of the securities and because a trust will pay the associated brokerage
fees and other acquisition costs.
ADMINISTRATION OF THE TRUST
DISTRIBUTIONS TO UNITHOLDERS. Interest received by a trust, including any
portion of the proceeds from a disposition of securities which represents
accrued interest, is credited by the trustee to the Interest Account for the
trust. All other receipts are credited by the trustee to a separate Principal
Account for the trust. The trustee normally has no cash for distribution to
unitholders until it receives interest payments on the securities in the trust.
On the dates set forth under "Essential Information" in the prospectus, the
trustee will commence distributions, in part from funds advanced by the trustee.
Thereafter, assuming the trust retains its original size and composition,
after deduction of the fees and expenses and reimbursements (without interest)
to the trustee for any amounts advanced to a trust, the trustee will normally
distribute any income and principal received by the
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trust on each distribution date or shortly thereafter to unitholders of record
on the preceding Record Date. Unitholders will receive an amount substantially
equal to their pro rata share of the balance of the Interest Account. However,
interest earned at any point in time will generally be greater than the amount
actually received by the trustee. Therefore, there will generally remain an
item of accrued interest that is added to the daily value of the units. If
unitholders sell or redeem all or a portion of their units, they will be paid
their proportionate share of the accrued interest to, but not including, the
third business day after the date of a sale or to the date of tender in the case
of a redemption.
Unitholders of record on the first record date will receive an interest
distribution on the first distribution date. Because the period of time between
the first distribution date and the regular distribution dates may not be a full
period, the first regular distributions may be partial distributions.
Persons who purchase units between a record date and a distribution date
will receive their first distribution on the second distribution date following
their purchase of units. Since interest on securities in the trust is payable
at varying intervals and distributions are made to unitholders at different
intervals from receipt of interest, the interest accruing to a trust may not be
equal to the amount of money received and available for distribution from the
Interest Account. Therefore, on each distribution date the amount of interest
actually deposited in the Interest Account and available for distribution may be
slightly more or less than the interest distribution made. In order to
eliminate fluctuations in interest distributions resulting from such variances,
the trustee is authorized by the trust agreement to advance such amounts as may
be necessary to provide interest distributions of approximately equal amounts.
The trustee will be reimbursed, without interest, for any such advances from
funds available in the Interest Account.
The trustee will distribute on each distribution date or shortly
thereafter, to each unitholder of record on the preceding record date, an amount
substantially equal to such holder's pro rata share of the available cash
balance, if any, in the Principal Account computed as of the close of business
on the preceding record date. However, no distribution will be required if the
balance in the Principal Account is less than $1.00 per unit.
STATEMENTS TO UNITHOLDERS. With each distribution, the trustee will
furnish to each unitholder a statement of the amount of income and the amount of
other receipts, if any, which are being distributed, expressed in each case as a
dollar amount per unit.
The accounts of a trust are required to be audited annually, at the related
trust's expense, by independent public accountants designated by the sponsor,
unless the sponsor determines that such an audit would not be in the best
interest of the unitholders of the trust. The accountants' report will be
furnished by the trustee to any unitholder upon written request. Within a
reasonable period of time after the end of each calendar year, the trustee shall
furnish to each person who at any time during the calendar year was a unitholder
of a trust a statement, covering the calendar year, setting forth for the trust:
(A) As to the Interest Account:
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(1) Income received;
(2) Deductions for applicable taxes and for fees and expenses of the trust
and for redemptions of units, if any; and
(3) The balance remaining after such distributions and deductions,
expressed in each case both as a total dollar amount and as a dollar
amount representing the pro rata share of each unit outstanding on the
last business day of such calendar year; and
(B) As to the Principal Account:
(1) The dates of disposition of any securities and the net proceeds
received therefrom;
(2) Deductions for payment of applicable taxes and fees and expenses of
the trust and for redemptions of units, if any; and
(3) The balance remaining after such distributions and deductions expressed
both as a total dollar amount and as a dollar amount representing the
pro rata share of each unit outstanding on the last business day of
such calendar year; and
(C) The following information:
(1) A list of the securities as of the last business day of such calendar
year;
(2) The number of units outstanding on the last business day of such
calendar year;
(3) The redemption price based on the last evaluation made during such
calendar year;
(4) The amount actually distributed during such calendar year from the
Interest and Principal Accounts separately stated, expressed both as
total dollar amounts and as dollar amounts per unit outstanding on the
record dates for each such distribution.
RIGHTS OF UNITHOLDERS. A unitholder may at any time tender units to the
trustee for redemption. The death or incapacity of any unitholder will not
operate to terminate a trust nor entitle legal representatives or heirs to claim
an accounting or to bring any action or proceeding in any court for partition or
winding up of a trust. No unitholder shall have the right to control the
operation and management of a trust in any manner, except to vote with respect
to the amendment of the trust agreement or termination of a trust.
AMENDMENT AND TERMINATION. The trust agreement may be amended from time to
time by the sponsor and trustee or their respective successors, without the
consent of any of the unitholders, (i) to cure any ambiguity or to correct or
supplement any provision which may be defective or inconsistent with any other
provision contained in the trust agreement, (ii) to make such other provision in
regard to matters or questions arising under the trust agreement as shall not
materially adversely affect the interests of the unitholders or (iii) to make
such amendments as may be necessary (a) for the trust to continue to qualify as
a regulated investment company for
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federal income tax purposes if the trust has elected to be taxed as such under
the United States Internal Revenue Code of 1986, as amended, or (b) to prevent
the trust from being deemed an association taxable as a corporation for federal
income tax purposes if the trust has not elected to be taxed as a regulated
investment company under the United States Internal Revenue Code of 1986, as
amended. The trust agreement may not be amended, however, without the consent
of all unitholders then outstanding, so as (1) to permit, except in accordance
with the terms and conditions thereof, the acquisition hereunder of any
securities other than those specified in the schedules to the trust agreement or
(2) to reduce the percentage of units the holders of which are required to
consent to certain of such amendments. The trust agreement may not be amended
so as to reduce the interest in a trust represented by units without the consent
of all affected unitholders. Except for the amendments, changes or
modifications described above, neither the sponsor nor the trustee may consent
to any other amendment, change or modification of the trust agreement without
the giving of notice and the obtaining of the approval or consent of unitholders
representing at least 66 2/3% of the units then outstanding of the affected
trust. No amendment may reduce the aggregate percentage of units the holders of
which are required to consent to any amendment, change or modification of the
trust agreement without the consent of the unitholders of all of the units then
outstanding of the affected trust and in no event may any amendment be made
which would (1) alter the rights to the unitholders as against each other, (2)
provide the trustee with the power to engage in business or investment
activities other than as specifically provided in the trust agreement, (3)
adversely affect the tax status of the trust for federal income tax purposes or
result in the units being deemed to be sold or exchanged for federal income tax
purposes or (4) unless the trust has elected to be taxed as a regulated
investment company for federal income tax purposes, result in a variation of the
investment of unitholders in the trust. The trustee will notify unitholders of
the substance of any such amendment.
The trust agreement provides that a trust shall terminate upon the
maturity, liquidation, redemption or other disposition of the last of the
securities held in the trust but in no event is it to continue beyond the
mandatory termination date. If the value of a trust shall be less than the
applicable minimum value stated in the prospectus (generally 40% of the total
value of securities deposited in the trust during the initial offering period),
the trustee may, in its discretion, and shall, when so directed by the sponsor,
terminate the trust. A trust may be terminated at any time by the holders of
units representing 66 2/3% of the units thereof then outstanding. A trust
will be liquidated by the trustee in the event that a sufficient number of units
of the trust not yet sold are tendered for redemption by the sponsor, so that
the net worth of the trust would be reduced to less than 40% of the value of the
securities at the time they were deposited in the trust. If a trust is
liquidated because of the redemption of unsold units by the sponsor, the sponsor
will refund to each purchaser of units the entire sales fee paid by such
purchaser.
Within a reasonable period after termination, the trustee will sell any
securities remaining in a trust and, after paying all expenses and charges
incurred by the trust, will distribute to unitholders thereof (upon surrender
for cancellation of certificates for units, if issued) their pro rata share of
the balances remaining in the Interest and Principal Accounts of 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
principal unit investment
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trust division offices at 2 Hanson Place, 12th Floor, Brooklyn, New York 11217,
(800) 848-6468. The Bank of New York Mellon is subject to supervision and
examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law.
The trustee, whose duties are ministerial in nature, has not participated
in selecting the portfolio of any trust. In accordance with the trust
agreement, the trustee shall keep records of all transactions at its office.
Such records shall include the name and address of, and the number of units held
by, every unitholder of a trust. Such books and records shall be open to
inspection by any unitholder at all reasonable times during usual business
hours. The trustee shall make such annual or other reports as may from time to
time be required under any applicable state or federal statute, rule or
regulation. The trustee shall keep a certified copy or duplicate original of
the trust agreement on file in its office available for inspection at all
reasonable times during usual business hours by any unitholder, together with a
current list of the securities held in each trust. Pursuant to the trust
agreement, the trustee may employ one or more agents for the purpose of custody
and safeguarding of securities comprising a trust.
Under the trust agreement, the trustee or any successor trustee may resign
and be discharged of a trust created by the trust agreement by executing an
instrument in writing and filing the same with the sponsor.
The trustee or successor trustee must mail a copy of the notice of
resignation to all unitholders then of record, not less than sixty days before
the date specified in such notice when such resignation is to take effect. The
sponsor upon receiving notice of such resignation is obligated to appoint a
successor trustee promptly. If, upon such resignation, no successor trustee has
been appointed and has accepted the appointment within thirty days after
notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. In case at any time the
trustee shall not meet the requirements set forth in the trust agreement, or
shall become incapable of acting, or if a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of the trustee in
an involuntary case, or the trustee shall commence a voluntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or any receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) for the trustee or for any substantial part of its
property shall be appointed, or the trustee shall generally fail to pay its
debts as they become due, or shall fail to meet such written standards for the
trustee's performance as shall be established from time to time by the sponsor,
or if the sponsor determines in good faith that there has occurred either (1) a
material deterioration in the creditworthiness of the trustee or (2) one or more
grossly negligent acts on the part of the trustee with respect to a trust, the
sponsor, upon sixty days' prior written notice, may remove the trustee and
appoint a successor trustee, as hereinafter provided, by written instrument, in
duplicate, one copy of which shall be delivered to the trustee so removed and
one copy to the successor trustee. Notice of such removal and appointment shall
be mailed to each unitholder by the sponsor. Upon execution of a written
acceptance of such appointment by such successor trustee, all the rights,
powers, duties and obligations of the original trustee shall vest in the
successor. The trustee must be a corporation organized under the laws of the
United States,
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or any state thereof, be authorized under such laws to exercise trust powers and
have at all times an aggregate capital, surplus and undivided profits of not
less than $5,000,000.
THE SPONSOR. The sponsor of the trust is Advisors Asset Management, Inc.
The sponsor is a broker-dealer specializing in providing services to broker-
dealers, registered representatives, investment advisers and other financial
professionals. The sponsor's headquarters are located at 18925 Base Camp Road,
Monument, Colorado 80132. You can contact the Advisor's Asset Management
division at 8100 East 22nd Street North, Building 800, Suite 102, Wichita,
Kansas 67226 or by using the contacts listed on the back cover of the
prospectus. The sponsor is a registered broker-dealer and investment adviser and
a member of the Financial Industry Regulatory Authority, Inc. (FINRA) and the
Securities Investor Protection Corporation (SIPC), and a registrant of the
Municipal Securities Rulemaking Board (MSRB).
If at any time the sponsor shall fail to perform any of its duties under
the trust agreement or shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, (b) terminate the trust agreement and liquidate any trust as
provided therein, or (c) continue to act as trustee without terminating the
trust agreement.
THE EVALUATOR AND SUPERVISOR. Advisors Asset Management, Inc., the
sponsor, also serves as evaluator and supervisor. The evaluator and supervisor
may resign or be removed by the sponsor and trustee in which event the sponsor
or trustee is to use its best efforts to appoint a satisfactory successor. Such
resignation or removal shall become effective upon acceptance of appointment by
the successor evaluator. If upon resignation of the evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
evaluator may apply to a court of competent jurisdiction for the appointment of
a successor. Notice of such resignation or removal and appointment shall be
mailed by the trustee to each unitholder.
LIMITATIONS ON LIABILITY. The sponsor, evaluator, and supervisor are
liable for the performance of their obligations arising from their
responsibilities under the trust agreement but will be under no liability to the
unitholders for taking any action or refraining from any action in good faith
pursuant to the trust agreement or for errors in judgment, except in cases of
its own gross negligence, bad faith or willful misconduct or its reckless
disregard for its duties thereunder. The sponsor shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any securities.
The trust agreement provides that the trustee shall be under no liability
for any action taken in good faith in reliance upon prima facie properly
executed documents or for the disposition of moneys, securities or certificates
except by reason of its own gross negligence, bad faith or willful misconduct,
or its reckless disregard for its duties under the trust agreement, nor shall
the trustee be liable or responsible in any way for depreciation or loss
incurred by reason of the sale by the trustee of any securities. In the event
that the sponsor shall fail to act, the trustee may act and shall not be liable
for any such action taken by it in good faith. The trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of
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the securities or upon the interest thereof. In addition, the trust agreement
contains other customary provisions limiting the liability of the trustee.
The trustee and unitholders may rely on any evaluation furnished by the
evaluator and shall have no responsibility for the accuracy thereof. The trust
agreement provides that the determinations made by the evaluator shall be made
in good faith upon the basis of the best information available to it, provided,
however, that the evaluator shall be under no liability to the trustee or
unitholders for errors in judgment, but shall be liable for its gross
negligence, bad faith or willful misconduct or its reckless disregard for its
obligations under the trust agreement.
EXPENSES OF THE TRUST. The sponsor will not charge a trust any fees for
services performed as sponsor. The sponsor will receive a portion of the sale
commissions paid in connection with the purchase of units and will share in
profits, if any, related to the deposit of securities in the trust.
The trustee receives for its services that fee set forth in the prospectus.
The trustee's fee which is calculated and paid monthly is based on the total
number of units of the related trust outstanding as of January 1 for any annual
period, except during the initial offering period the fee will be based on the
units outstanding at the end of each month. The trustee benefits to the extent
there are funds for future distributions, payment of expenses and redemptions in
the Principal and Interest Accounts since these Accounts are non-interest
bearing and the amounts earned by the trustee are retained by the trustee. Part
of the trustee's compensation for its services to a trust is expected to result
from the use of these funds.
The supervisor will charge a trust a surveillance fee for services
performed for the trust in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation received from other unit investment trusts for which the sponsor
both acts as sponsor and provides portfolio surveillance, exceed the aggregate
cost to the sponsor of providing such services. Such fee shall be based on the
total number of units of the related trust outstanding as of January 1 for any
annual period, except during the initial offering period the fee will be based
on the units outstanding at the end of each month.
For evaluation of the securities in a trust, the evaluator shall receive an
evaluation fee in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation from other unit investment trusts for which the sponsor acts as
sponsor and provides evaluation services, exceed the aggregate cost of providing
such services. Such fee shall be based on the total number of units of the
related trust outstanding as of January 1 for any annual period, except during
the initial offering period the fee will be based on the units outstanding at
the end of each month.
For providing bookkeeping and administrative services to a trust, the
sponsor shall receive an administration fee in an amount not to exceed that
amount set forth in the prospectus but in no event will such compensation, when
combined with all compensation from other unit investment trusts for which the
sponsor acts as sponsor and provides evaluation services, exceed the aggregate
cost of providing such services. Such fee shall be based on the total number of
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units of the related trust outstanding as of January 1 for any annual period,
except during the initial offering period the fee will be based on the units
outstanding at the end of each month.
The trustee's fee, sponsor's fee for providing bookkeeping and
administrative services to the trust, supervisor's fee and evaluator's fee are
deducted from the Interest Account of the related trust to the extent funds are
available and then from the Principal Account. Each such fee may be increased
without approval of unitholders by amounts not exceeding a proportionate
increase in the Consumer Price Index or any equivalent index substituted
therefor.
The following additional charges are or may be incurred by the trust:
(a) fees for the trustee's extraordinary services; (b) expenses of the trustee
(including legal and auditing expenses and reimbursement of the cost of advances
to the trust for payment of expenses and distributions, but not including any
fees and expenses charged by an agent for custody and safeguarding of
securities) and of counsel, if any; (c) various governmental charges;
(d) expenses and costs of any action taken by the trustee to protect the trust
or the rights and interests of the unitholders; (e) indemnification of the
trustee for any loss, liability or expense incurred by it in the administration
of the trust not resulting from negligence, bad faith or willful misconduct on
its part or its reckless disregard of its obligations under the trust agreement;
(f) indemnification of the sponsor for any loss, liability or expense incurred
in acting in that capacity without gross negligence, bad faith or willful
misconduct or its reckless disregard for its obligations under the trust
agreement; (g) expenditures incurred in contacting unitholders upon termination
of the trust. The fees and expenses set forth herein are payable out of a trust
and, when owing to the trustee, are secured by a lien on the trust. If the
balances in the Interest and Principal Accounts are insufficient to provide for
amounts payable by the trust, the trustee has the power to sell securities to
pay such amounts. These sales may result in capital gains or losses to
unitholders. A trust may pay the costs of updating its registration statement
each year.
PURCHASE, REDEMPTION AND PRICING OF UNITS
PUBLIC OFFERING PRICE. Units of a trust are offered at the public offering
price thereof. During the initial offering period, the public offering price
per unit is equal to the net asset value per unit (generally based on the
offering side evaluations of the securities) plus the applicable sales fee
referred to in the prospectus. The public offering price for secondary market
transactions is based on the net asset value per unit (generally based on the
bid side evaluations of the securities). Certain broker-dealers may charge a
transaction fee for processing unit purchases.
The evaluator will appraise or cause to be appraised daily the value of the
underlying securities as of the close of regular trading on the New York Stock
Exchange on days the New York Stock Exchange is open and will adjust the public
offering price of the units commensurate with such valuation. Such public
offering price will be effective for all orders received at or prior to the
close of regular trading on the New York Stock Exchange on each such day.
Orders received by the trustee, sponsor or any dealer for purchases, sales or
redemptions after that time, or on a day when the New York Stock Exchange is
closed, will be held until the next determination of price.
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The public offering price per unit of the trust as shown under "Essential
Information" in the prospectus as of the date stated therein or on any
subsequent date will vary from the amount stated under "Essential Information"
in the prospectus in accordance with fluctuations in the prices of the
underlying securities and the amount of accrued interest on the units. Net
asset value per unit is determined by dividing the value of a trust's portfolio
securities (including any accrued interest), cash and other assets, less all
liabilities (including accrued expenses), by the total number of units
outstanding. The portfolio securities are valued at their current market value
or their fair value as determined in good faith by the Evaluator. The aggregate
bid and offering side evaluations of the securities shall be determined (a) on
the basis of current bid or offering prices of the securities, (b) if bid or
offering prices are not available for any particular security, on the basis of
current bid or offering prices for comparable securities, (c) by determining the
value of securities on the bid or offer side of the market by appraisal, or
(d) by any combination of the above.
The interest on the securities deposited in a trust, less the related
estimated fees and expenses, will accrue daily. The amount of net interest
income which accrues per unit may change as securities mature or are redeemed,
exchanged or sold, or as the expenses of a trust change or the number of
outstanding units of a trust changes.
Although payment is normally made three business days following the order
for purchase, payments may be made prior thereto. A person will become the
owner of units on the date of settlement provided payment has been received.
Cash, if any, made available to the sponsor prior to the date of settlement for
the purchase of units may be used in the sponsor's business and may be deemed to
be a benefit to the sponsor, subject to the limitations of the Securities
Exchange Act of 1934. If a unitholder desires to have certificates representing
units purchased, such certificates will be delivered as soon as possible
following his written request therefor.
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest
on a security from the last day on which interest thereon was paid. Interest on
securities generally is paid monthly or semi-annually although a trust accrues
such interest daily. Because of this, a trust always has an amount of interest
earned but not yet collected by the trustee. For this reason, the public
offering price of units of a trust will have added to it the proportionate share
of accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of a trust the amount, if any, of accrued interest paid
on their units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the public offering price in the sale of units to
the public, the trustee will advance the amount of accrued interest as of the
first settlement date and the same will be distributed to the sponsor as the
unitholder of record as of the first settlement date. Consequently, the amount
of accrued interest to be added to the public offering price of units will
include only accrued interest from the first settlement date to the date of
settlement, less any distributions from the Interest Account subsequent to the
first settlement date.
Because of the varying interest payment dates of securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the applicable trusts and distributed to unitholders.
Therefore, there will always remain an item of accrued interest that is
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added to the value of the units. If a unitholder sells or redeems all or a
portion of his units, he will be entitled to receive his proportionate share of
the accrued interest from the purchaser of his units. Since the trustee has the
use of the funds held in the Interest Account for distributions to unitholders
and since such account is non-interest-bearing to unitholders, the trustee
benefits thereby.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. The net asset
value of units will generally be determined on the basis of the current bid
prices of the securities.
PUBLIC DISTRIBUTION OF UNITS. The sponsor intends to qualify the units for
sale in a number of states. Units will be sold through dealers who are members
of the National Association of Securities Dealers, Inc. and through others.
Sales may be made to or through dealers at prices which represent discounts from
the public offering price as set forth in the prospectus. Certain commercial
banks may be making units available to their customers on an agency basis. The
sponsor reserves the right to change the discounts from time to time.
We may provide, at our own expense and out of our own profits, additional
compensation and benefits to broker-dealers who sell shares of units of this
trust and our other products. This compensation is intended to result in
additional sales of our products and/or compensate broker-dealers and financial
advisors for past sales. We may make these payments for marketing, promotional
or related expenses, including, but not limited to, expenses of entertaining
retail customers and financial advisors, advertising, sponsorship of events or
seminars, obtaining shelf space in broker-dealer firms and similar activities
designed to promote the sale of the our products. These arrangements will not
change the price you pay for your units.
The sponsor reserves the right to reject, in whole or in part, any order
for the purchase of units.
PROFITS OF SPONSOR. The sponsor will receive gross sales fees equal to the
percentage of the offering price of the units of such trusts stated in the
prospectus and will pay a portion of such sales fees to dealers and agents. In
addition, the sponsor may realize a profit or a loss resulting from the
difference between the purchase prices of the securities to the sponsor and the
cost of such securities to a trust, which is based on the offering side
evaluation of the securities. The sponsor may also realize profits or losses
with respect to securities deposited in a trust which were acquired from
underwriting syndicates of which the sponsor was a member. An underwriter or
underwriting syndicate purchases securities from the issuer on a negotiated or
competitive bid basis, as principal, with the motive of marketing such
securities to investors at a profit. The sponsor may realize additional profits
or losses on unsold units as a result of changes in the daily evaluation of the
securities in a trust.
MARKET FOR UNITS. After the initial offering period, while not obligated
to do so, the sponsor may, subject to change at any time, maintain a market for
units of the trust offered hereby and to continuously offer to purchase said
units at the net asset value, determined by the evaluator based on the aggregate
bid prices of the underlying securities in the trust, together with any accrued
interest to the expected dates of settlement. Unitholders who wish to dispose
of their
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units should inquire of their broker as to current market prices in order to
determine whether there is in existence any price in excess of the redemption
price and, if so, the amount thereof.
The offering price of any units resold by the sponsor will be in accord
with that described in the currently effective prospectus describing such units.
Any profit or loss resulting from the resale of such units will belong to the
sponsor. If the sponsor decides to maintain a secondary market, it may suspend
or discontinue purchases of units of the trust if the supply of units exceeds
demand, or for other business reasons.
REDEMPTION. A unitholder who does not dispose of units in the secondary
market described above may cause units to be redeemed by the trustee by making a
written request to the trustee at its unit investment trust division office and,
in the case of units evidenced by a certificate, by tendering such certificate
to the trustee properly endorsed or accompanied by a written instrument or
instruments of transfer in form satisfactory to the trustee. Unitholders must
sign the request, and such certificate or transfer instrument, exactly as their
names appear on the records of the trustee and on any certificate representing
the units to be redeemed. If the amount of the redemption is $500 or less and
the proceeds are payable to the unitholder(s) of record at the address of
record, no signature guarantee is necessary for redemptions by individual
account owners (including joint owners). Additional documentation may be
requested, and a signature guarantee is always required, from corporations,
executors, administrators, trustees, guardians or associations. The signatures
must be guaranteed by a participant in the Securities Transfer Agents Medallion
Program ("STAMP") or such other signature guaranty program in addition to, or in
substitution for, STAMP, as may be accepted by the trustee. A certificate
should only be sent by registered or certified mail for the protection of the
unitholder. Since tender of the certificate is required for redemption when one
has been issued, units represented by a certificate cannot be redeemed until the
certificate representing such units has been received by the purchasers.
Redemption shall be made by the trustee no later than the seventh day
following the day on which a tender for redemption is received (the "Redemption
Date") by payment of cash equivalent to the redemption price, determined as set
forth below under "Computation of Redemption Price," as of the close of regular
trading on the New York Stock Exchange next following such tender, multiplied by
the number of units being redeemed. Any units redeemed shall be canceled and
any undivided fractional interest in the related trust extinguished. The price
received upon redemption might be more or less than the amount paid by the
unitholder depending on the value of the securities in the trust at the time of
redemption. Certain broker-dealers may charge a transaction fee for processing
redemption requests.
Under regulations issued by the Internal Revenue Service, the trustee is
required to withhold a specified percentage of the principal amount of a unit
redemption if the trustee has not been furnished the redeeming unitholder's tax
identification number in the manner required by such regulations. Any amount so
withheld is transmitted to the Internal Revenue Service and may be recovered by
the unitholder only when filing a tax return. Under normal circumstances the
trustee obtains the unitholder's tax identification number from the selling
broker. However, any time a unitholder elects to tender units for redemption,
such unitholder should make sure that the trustee has been provided a certified
tax identification number in order to avoid this possible
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"back-up withholding." In the event the trustee has not been previously provided
such number, one must be provided at the time redemption is requested. Any
amounts paid on redemption representing interest shall be withdrawn from the
Interest Account of a trust to the extent that funds are available for such
purpose. All other amounts paid on redemption shall be withdrawn from the
Principal Account for a trust.
The trustee is empowered to sell securities in order to make funds
available for the redemption of units. To the extent that securities are sold,
the size of a trust will be, and the diversity of a trust may be, reduced but
each remaining unit will continue to represent approximately the same
proportional interest in each security. Sales may be required at a time when
securities would not otherwise be sold and may result in lower prices than might
otherwise be realized. The price received upon redemption may be more or less
than the amount paid by the unitholder depending on the value of the securities
in the portfolio at the time of redemption.
The trustee is irrevocably authorized in its discretion, if the sponsor
does not elect to purchase any unit tendered for redemption, in lieu of
redeeming such units, to sell such units in the over-the-counter market for the
account of tendering unitholders at prices which will return to the unitholders
amounts in cash, net after brokerage commissions, transfer taxes and other
charges, equal to or in excess of the redemption price for such units. In the
event of any such sale, the trustee shall pay the net proceeds thereof to the
unitholders on the day they would otherwise be entitled to receive payment of
the redemption price.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or during which (as determined by the Securities
and Exchange Commission) trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of which
disposal by the trustee of securities is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the underlying
securities in accordance with the trust agreement; or (3) for such other period
as the Securities and Exchange Commission may by order permit. The trustee is
not liable to any person in any way for any loss or damage which may result from
any such suspension or postponement.
COMPUTATION OF REDEMPTION PRICE. The redemption price for units (the net
asset value) of each trust is computed by the evaluator as of the evaluation
time stated in the prospectus next occurring after the tendering of a unit for
redemption and on any other business day desired by it, by:
A. adding: (1) the cash on hand in the trust other than cash deposited in the
trust to purchase securities not applied to the purchase of such
securities; (2) the aggregate value of each issue of the securities
(including "when issued" contracts, if any) held in the trust as determined
by the evaluator on the basis of bid prices therefor; and (3) interest
accrued and unpaid on the securities in the trust as of the date of
computation;
B. deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the trust and for which no deductions
have been previously made for the purpose of additions to the Reserve
Account; (2) an amount representing
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estimated accrued expenses of the trust, including but not limited to fees
and expenses of the trustee (including legal and auditing fees and any
insurance costs), the evaluator, the sponsor and counsel, if any; (3) cash
held for distribution to unitholders of record as of the business day prior
to the evaluation being made; and (4) other liabilities incurred by the
trust; and
C. finally dividing the results of such computation by the number of units of
the trust outstanding as of the date thereof.
RETIREMENT PLANS. A trust may be suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other qualified retirement
plans. Generally, capital gains and income received under each of the foregoing
plans are deferred from Federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax-deferred rollover treatment. Investors
considering participation in any such plan should review specific tax laws
related thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan. Such plans are offered
by brokerage firms and other financial institutions. The trust may lower the
minimum investment requirement for IRA accounts. Fees and charges with respect
to such plans may vary.
OWNERSHIP OF UNITS. Ownership of units will not be evidenced by
certificates unless a unitholder, the unitholder's registered broker/dealer or
the clearing agent for such broker/dealer makes a written request to the
trustee. Units are transferable by making a written request to the trustee and,
in the case of units evidenced by a certificate, by presenting and surrendering
such certificate to the trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent by registered or
certified mail for the protection of the unitholder. Unitholders must sign such
written request, and such certificate or transfer instrument, exactly as their
names appear on the records of the trustee and on any certificate representing
the units to be transferred. Such signatures must be guaranteed as described
above.
Units may be purchased and certificates, if requested, will be issued in
denominations of one unit or any multiple thereof, subject to the minimum
investment requirement. Fractions of units, if any, will be computed to three
decimal places. Any certificate issued will be numbered serially for
identification, issued in fully registered form and will be transferable only on
the books of the trustee. The trustee may require a unitholder to pay a
reasonable fee, to be determined in the sole discretion of the trustee, for each
certificate re-issued or transferred and to pay any governmental charge that may
be imposed in connection with each such transfer or interchange. The trustee at
the present time does not intend to charge for the normal transfer or
interchange of certificates. Destroyed, stolen, mutilated or lost certificates
will be replaced upon delivery to the trustee of satisfactory indemnity
(generally amounting to 3% of the market value of the units), affidavit of loss,
evidence of ownership and payment of expenses incurred.
PERFORMANCE INFORMATION
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN. As of
the close of business on the business day before the trust's inception date, the
estimated long-term return
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and the estimated current return, if applicable, for each trust were as set
forth in the "Essential Information" for each trust in the prospectus.
Estimated current return is calculated by dividing the estimated net annual
interest income per unit by the public offering price. The estimated net annual
interest income per unit will vary with changes in fees and expenses of the
trustee, the sponsor and the evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of the securities while the public
offering price will vary with changes in the offering price of the underlying
securities and accrued interest; therefore, there is no assurance that the
present estimated current return will be realized in the future. Estimated
long-term return is calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums and
the accretion of discounts) and estimated retirements or average life of all of
the securities in a trust and (2) takes into account the expenses and sales fee
associated with each trust unit. Since the market values and estimated
retirements of the securities and the expenses of a trust will change, there is
no assurance that the present estimated long-term return will be realized in the
future. Estimated current return and estimated long-term return are expected to
differ because the calculation of estimated long-term return reflects the
estimated date and amount of principal returned while estimated current return
calculations include only net annual interest income and public offering price.
GENERAL. Information contained in this Information Supplement or in the
prospectus, as it currently exists or as further updated, may also be included
from time to time in other prospectuses or in advertising material. Information
on the performance of a trust strategy or the actual performance of a trust may
be included from time to time in other prospectuses or advertising material and
may reflect sales fees and expenses of a trust. The performance of a trust may
also be compared to the performance of money managers as reported in SEI Fund
Evaluation Survey or of mutual funds as reported by Lipper Analytical Services
Inc. (which calculates total return using actual dividends on ex-dates
accumulated for the quarter and reinvested at quarter end), Money Magazine Fund
Watch (which rates fund performance over a specified time period after sales fee
and assuming all dividends reinvested) or Wiesenberger Investment Companies
Service (which states fund performance annually on a total return basis) or of
the New York Stock Exchange Composite Index, the American Stock Exchange Index
(unmanaged indices of stocks traded on the New York and American Stock
Exchanges, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks) or the Standard & Poor's 500 Index (an
unmanaged diversified index of 500 stocks) or similar measurement standards
during the same period of time.
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES. A Standard &
Poor's issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The issue credit rating is not a
recommendation to purchase, sell, or hold a
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financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
credit rating and may, on occasion, rely on unaudited financial information.
Credit ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long term or short term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days, including commercial paper. Short-
term ratings are also used to indicate the creditworthiness of an obligor with
respect to put features on long-term obligations. The result is a dual rating,
in which the short-term rating addresses the put feature, in addition to the
usual long-term rating. Medium-term notes are assigned long-term ratings.
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
* Likelihood of payment capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
* Nature of and provisions of the obligation;
* Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.
AAA--An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA--An obligation rated 'AA' differs from the highest-rated obligations only to
a small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A--An obligation rated 'A' is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher-
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
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BBB--An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB--An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B--An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC--An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC--An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C--A subordinated debt or preferred stock obligation rated 'C' is currently
highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A 'C' also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D--An obligation rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
Plus (+) or minus (-)--The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories.
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N.R.--This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
Active Qualifiers (Currently applied and/or outstanding)
i--This subscript is used for issues in which the credit factors, terms, or
both, that determine the likelihood of receipt of payment of interest are
different from the credit factors, terms or both that determine the likelihood
of receipt of principal on the obligation. The 'i' subscript indicates that the
rating addresses the interest portion of the obligation only. The 'i' subscript
will always be used in conjunction with the 'p' subscript, which addresses
likelihood of receipt of principal. For example, a rated obligation could be
assigned ratings of "AAAp N.R.i" indicating that the principal portion is rated
"AAA" and the interest portion of the obligation is not rated.
L--Ratings qualified with 'L' apply only to amounts invested up to federal
deposit insurance limits.
p--This subscript is used for issues in which the credit factors, the terms, or
both, that determine the likelihood of receipt of payment of principal are
different from the credit factors, terms or both that determine the likelihood
of receipt of interest on the obligation. The 'p' subscript indicates that the
rating addresses the principal portion of the obligation only. The 'p' subscript
will always be used in conjunction with the 'i' subscript, which addresses
likelihood of receipt of interest. For example, a rated obligation could be
assigned ratings of "AAAp N.R.i" indicating that the principal portion is rated
"AAA" and the interest portion of the obligation is not rated.
pi--Ratings with a 'pi' subscript are based on an analysis of an issuer's
published financial information, as well as additional information in the public
domain. They do not, however, reflect in-depth meetings with an issuer's
management and are therefore based on less comprehensive information than
ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed
annually based on a new year's financial statements, but may be reviewed on an
interim basis if a major event occurs that may affect the issuer's credit
quality.
pr--The letters 'pr' indicate that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful, timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
t--This symbol indicates termination structures that are designed to honor their
contracts to full maturity or, should certain events occur, to terminate and
cash settle all their contracts before their final maturity date.
MOODY'S INVESTORS SERVICE, INC. Long-Term Obligation Ratings
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Moody's long-term obligation ratings are opinions of the relative credit
risk of fixed-income obligations with an original maturity of one year or more.
They address the possibility that a financial obligation will not be honored as
promised. Such ratings reflect both the likelihood of default and any financial
loss suffered in the event of default.
Long-Term Rating Definitions:
Aaa--Obligations rated Aaa are judged to be of the highest quality, with minimal
credit risk.
Aa--Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.
A--Obligations rated A are considered upper-medium grade and are subject to low
credit risk.
Baa--Obligations rated Baa are subject to moderate credit risk. They are
considered medium-grade and as such may possess certain speculative
characteristics.
Ba--Obligations rated Ba are judged to have speculative elements and are subject
to substantial credit risk.
B--Obligations rated B are considered speculative and are subject to high credit
risk.
Caa--Obligations rated Caa are judged to be of poor standing and are subject to
very high credit risk.
Ca--Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
C--Obligations rated C are the lowest rated class of bonds and are typically in
default, with little prospect for recovery of principal or interest.
Note: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
Medium-Term Note Ratings
Moody's assigns long-term ratings to individual debt securities issued from
medium-term note (MTN) programs, in addition to indicating ratings to MTN
programs themselves. Notes issued under MTN programs with such indicated ratings
are rated at issuance at the rating applicable to all pari passu notes issued
under the same program, at the program's relevant indicated rating, provided
such notes do not exhibit any of the characteristics listed below:
* Notes containing features that link interest or principal to the credit
performance of any third party or parties
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* Notes allowing for negative coupons, or negative principal
* Notes containing any provision that could obligate the investor to make any
additional payments
* Notes containing provisions that subordinate the claim.
For notes with any of these characteristics, the rating of the individual
note may differ from the indicated rating of the program.
Market participants must determine whether any particular note is rated,
and if so, at what rating level. Moody's encourages market participants to
contact Moody's Ratings Desks or visit www.moodys.com directly if they have
questions regarding ratings for specific notes issued under a medium-term note
program. Unrated notes issued under an MTN program may be assigned an NR symbol.
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Contents of Post-Effective Amendment
To Registration Statement
This Post-Effective Amendment to the Registration Statement comprises the
following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Registered
Public Accounting Firm
S-1
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Advisors Disciplined Trust 1038, certifies that it meets all of the requirements
for effectiveness of this registration statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Post Effective Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wichita, and State of Kansas, on the
31st day of August, 2016.
Advisors Disciplined Trust 1038
Registrant
By: Advisors Asset Management, Inc.
Depositor
By: /s/ ALEX R. MEITZNER
-----------------------------
Alex R. Meitzner
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 on August 31, 2016 by the
following persons in the capacities indicated:
SIGNATURE TITLE DATE
Scott I. Colyer Director of ) /s/ Alex Meitzner
Advisors Asset ) ----------------------
Management, Inc. ) Alex Meitzner
) Attorney-in-Fact*
Lisa Colyer Director of ) August 31, 2016
Advisors Asset )
Management, Inc. )
James R. Costas Director of )
Advisors Asset )
Management, Inc. )
Christopher T. Genovese Director of )
Advisors Asset )
Management, Inc. )
Randy J. Pegg Director of )
Advisors Asset )
Management, Inc. )
R. Scott Roberg Director of )
Advisors Asset )
Management, Inc. )
Jack Simkin Director of )
Advisors Asset )
Management, Inc. )
Andrew Williams Director of )
Advisors Asset )
Management, Inc. )
Bart P. Daniel Director of )
Advisors Asset )
Management, Inc. )
* An executed copy of the related power of attorney was filed with the
Securities and Exchange Commission as Exhibit 7.1 to the Registration
Statement on Form S-6 for Advisor's Disciplined Trust 1485
(File No. 333-203629) as filed on May 15, 2015 and the same is hereby
incorporated herein by reference.
S-3
EXHIBIT 1.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated August 31, 2016, with respect to the
financial statements of Advisors Disciplined Trust 1038, comprising Advisors
Corporate Trust, High Yield Bond Portfolio, Series 2013-May - A Hartford
Investment Management Company ("HIMCO") Portfolio contained in Post-Effective
Amendment No. 3 to the Registration Statement on Form S-6 (File No. 333-187594)
and related Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ Grant Thornton LLP
Chicago, Illinois
August 31, 2016