Form S-6 FT 10247
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
For Registration Under the Securities Act of 1933 of Securities of Unit Investment Trusts Registered on Form N-8B-2
| A. | Exact Name of Trust: |
FT 10247
| B. | Name of Depositor: |
FIRST TRUST PORTFOLIOS L.P.
| C. | Complete Address of Depositor's Principal Executive Offices: |
120 East Liberty Drive
Suite 400
Wheaton, Illinois 60187
| D. | Name and Complete Address of Agents for Service: |
| FIRST TRUST PORTFOLIOS L.P. | CHAPMAN AND CUTLER LLP |
| Attention: James A. Bowen | Attention: Eric F. Fess |
| Suite 400 | 320 South Canal Street |
| 120 East Liberty Drive | 27th Floor |
| Wheaton, Illinois 60187 | Chicago, Illinois 60606 |
| E. | Title and Amount of Securities Being Registered: |
An indefinite number of Units pursuant to Rule 24f-2 promulgated under the Investment Company Act of 1940, as amended.
| F. | Approximate Date of Proposed Sale to the Public: |
_____Check if it is proposed that this filing will become effective on _____ at ____ p.m. pursuant to Rule 487.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED JUNE 30, 2022
Inflation Hedge Portfolio, Series 50
FT 10247
FT 10247 is a series of a unit investment trust, the FT Series. FT 10247
consists of a single portfolio known as Inflation Hedge Portfolio, Series 50
(the "Trust"). The Trust invests in a diversified portfolio of common stocks
of agriculture companies, energy companies and materials companies (including
metals and mining companies) ("Common Stocks"), shares issued by exchange-
traded funds ("ETFs" or "Funds"), which invest in government bonds, senior
corporate loans and real estate investment trusts and shares issued by
exchange-traded products ("ETPs"), which invest in commodities, such as gold
and silver. Collectively, the Common Stocks, Funds and ETPs are referred to as
the "Securities." The Securities were selected for the Trust because they
typically react favorably in an inflationary environment; however, there can
be no assurance that the Trust will achieve its objective or provide a
positive return during an inflationary period. An investment can be made in
the underlying Funds and ETPs directly rather than through the Trust. These
direct investments can be made without paying the sales charge, operating
expenses and organizational costs of the Trust. The Trust seeks above-average
total return.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
FIRST TRUST(R)
800-621-1675
The date of this prospectus is August __, 2022
Page 1
Table of Contents
Summary of Essential Information 3
Fee Table 4
Report of Independent Registered Public Accounting Firm 5
Statement of Net Assets 6
Schedule of Investments 7
The FT Series 9
Portfolio 10
Risk Factors 10
Public Offering 18
Distribution of Units 20
The Sponsor's Profits 21
The Secondary Market 22
How We Purchase Units 22
Expenses and Charges 22
Tax Status 23
Retirement Plans 25
Rights of Unit Holders 26
Income and Capital Distributions 26
Redeeming Your Units 27
Removing Securities from the Trust 28
Amending or Terminating the Indenture 29
Information on the Sponsor, Trustee and Evaluator 29
Other Information 30
Page 2
Summary of Essential Information (Unaudited)
Inflation Hedge Portfolio, Series 50
FT 10247
At the Opening of Business on the Initial Date of Deposit-August __, 2022
Sponsor: First Trust Portfolios L.P.
Trustee: The Bank of New York Mellon
Evaluator: First Trust Advisors L.P.
Initial Number of Units (1)
Fractional Undivided Interest in the Trust per Unit (1) 1/
Public Offering Price:
Public Offering Price per Unit (2) $ 10.000
Less Initial Sales Charge per Unit (3) (.000)
_________
Aggregate Offering Price Evaluation of Securities per Unit (4) 10.000
Less Deferred Sales Charge per Unit (3) (.225)
_________
Redemption Price per Unit (5) 9.775
Less Creation and Development Fee per Unit (3) (5) (.050)
Less Organization Costs per Unit (5) (.048)
_________
Net Asset Value per Unit $ 9.677
=========
Cash CUSIP Number
Reinvestment CUSIP Number
Fee Account Cash CUSIP Number
Fee Account Reinvestment CUSIP Number
Pricing Line Product Code
Ticker Symbol
First Settlement Date August __, 2022
Mandatory Termination Date (6) August 23, 2024
Distribution Record Date Tenth day of each month, commencing September 10, 2022.
Distribution Date (7) Twenty-fifth day of each month, commencing September 25, 2022.
______________
(1) As of the Evaluation Time on the Initial Date of Deposit, we may adjust
the number of Units of the Trust so that the Public Offering Price per Unit
will equal approximately $10.00. If we make such an adjustment, the fractional
undivided interest per Unit will vary from the amount indicated above.
(2) The Public Offering Price shown above reflects the value of the Securities
on the business day prior to the Initial Date of Deposit. No investor will
purchase Units at this price. The price you pay for your Units will be based
on their valuation at the Evaluation Time on the date you purchase your Units.
On the Initial Date of Deposit, the Public Offering Price per Unit will not
include any accumulated dividends on the Securities. After this date a pro
rata share of any accumulated dividends on the Securities will be included.
(3) You will pay a maximum sales charge of 2.75% of the Public Offering Price
per Unit (equivalent to 2.75% of the net amount invested) which consists of an
initial sales charge, a deferred sales charge and a creation and development
fee. The sales charges are described in the "Fee Table."
(4) Each listed Security is valued at its last closing sale price on the
relevant stock exchange at the Evaluation Time on the business day prior to
the Initial Date of Deposit. If a Security is not listed, or if no closing
sale price exists, it is valued at its closing ask price on such date. See
"Public Offering-The Value of the Securities." Evaluations for purposes of
determining the purchase, sale or redemption price of Units are made as of the
close of trading on the New York Stock Exchange ("NYSE") (generally 4:00 p.m.
Eastern time) on each day on which it is open (the "Evaluation Time").
(5) The creation and development fee per Unit will be deducted from the assets
of the Trust at the end of the initial offering period, and estimated
organization costs per Unit will be deducted from the assets of the Trust at
the earlier of six months after the Initial Date of Deposit or the end of the
initial offering period. If Units are redeemed prior to any such reduction,
these fees will not be deducted from the redemption proceeds. See "Redeeming
Your Units."
(6) See "Amending or Terminating the Indenture."
(7) The Trustee will distribute money from the Income and Capital Accounts, as
determined at the monthly Record Date, monthly on the twenty-fifth day of each
month to Unit holders of record on the tenth day of such month provided the
aggregate amount, exclusive of sale proceeds, in the Income and Capital
Accounts available for distribution equals at least 0.1% of the net asset
value of the Trust. Undistributed money in the Income and Capital Accounts
will be distributed in the next month in which the aggregate amount available
for distribution, exclusive of sale proceeds, equals or exceeds 0.1% of the
net asset value of the Trust. Distributions of sale proceeds from the Capital
Account will be made monthly on the twenty-fifth day of the month to Unit
holders of record on the tenth day of such month if the amount available for
distribution equals at least $1.00 per 100 Units. See "Income and Capital
Distributions."
Page 3
Fee Table (Unaudited)
This Fee Table describes the fees and expenses that you may, directly or
indirectly, pay if you buy and hold Units of the Trust. See "Public Offering"
and "Expenses and Charges." Although the Trust has a term of approximately two
years and is a unit investment trust rather than a mutual fund, this
information allows you to compare fees.
Amount
per Unit
________
Unit Holder Sales Fees (as a percentage of public offering price)
Maximum Sales Charge
Initial sales charge 0.00%(a) $.000
Deferred sales charge 2.25%(b) $.225
Creation and development fee 0.50%(c) $.050
_____ _____
Maximum sales charge (including creation and development fee) 2.75% $.275
===== =====
Organization Costs (as a percentage of public offering price)
Estimated organization costs .480%(d) $.0480
===== ======
Estimated Annual Trust Operating Expenses(e)
(as a percentage of average net assets)
Portfolio supervision, bookkeeping, administrative and evaluation fees % $
Trustee's fee and other operating expenses %(f) $
Acquired Fund fees and expenses %(g) $
_____ ______
Total % $
===== ======
Example
This example is intended to help you compare the cost of investing in the
Trust with the cost of investing in other investment products. The example
assumes that you invest $10,000 in the Trust for the periods shown. The
example also assumes a 5% return on your investment each year and that the
Trust's operating expenses stay the same. The example does not take into
consideration transaction fees which may be charged by certain broker/dealers
for processing redemption requests. Although your actual costs may vary, based
on these assumptions your costs, assuming you sell or redeem your Units at the
end of each period, would be:
1 Year 2 Years
______ _______
$ $
The example will not differ if you hold rather than sell your Units at the end
of each period.
_____________
(a) The combination of the initial and deferred sales charge comprises what we
refer to as the "transactional sales charge." The initial sales charge is
actually equal to the difference between the maximum sales charge of 2.75% and
the sum of any remaining deferred sales charge and creation and development
fee. When the Public Offering Price per Unit equals $10, there is no initial
sales charge. If the price you pay for your Units exceeds $10 per Unit, you
will pay an initial sales charge.
(b) The deferred sales charge is a fixed dollar amount equal to $.225 per Unit
which, as a percentage of the Public Offering Price, will vary over time. The
deferred sales charge will be deducted in three monthly installments
commencing December 20, 2022.
(c) The creation and development fee compensates the Sponsor for creating and
developing the Trust. The creation and development fee is a charge of $.050
per Unit collected at the end of the initial offering period, which is
expected to be approximately three months from the Initial Date of Deposit. If
the price you pay for your Units exceeds $10 per Unit, the creation and
development fee will be less than 0.50%; if the price you pay for your Units
is less than $10 per Unit, the creation and development fee will exceed 0.50%.
If you purchase Units after the initial offering period, you will not be
assessed the creation and development fee.
(d) Estimated organization costs will be deducted from the assets of the Trust
at the earlier of six months after the Initial Date of Deposit or the end of
the initial offering period. Estimated organization costs are assessed on a
fixed dollar amount per Unit basis which, as a percentage of average net
assets, will vary over time.
(e) With the exception of the underlying Fund and ETP expenses, each of the
fees listed herein is assessed on a fixed dollar amount per Unit basis which,
as a percentage of average net assets, will vary over time.
(f) Other operating expenses do not include brokerage costs and other
portfolio transaction fees. In certain circumstances the Trust may incur
additional expenses not set forth above. See "Expenses and Charges."
(g) Although not actual Trust operating expenses, the Trust, and therefore
Unit holders, will indirectly bear similar operating expenses of the Funds and
ETPs in which the Trust invests in the estimated amounts set forth in the
table. These expenses are estimated based on the actual Fund and ETP expenses
disclosed in a Fund's most recent SEC filing but are subject to change in the
future. An investor in the Trust will therefore indirectly pay higher expenses
than if the underlying Fund or ETP shares were held directly.
Page 4
Report of Independent
Registered Public Accounting Firm
Page 5
Statement of Net Assets
Inflation Hedge Portfolio, Series 50
FT 10247
At the Opening of Business on the Initial Date of Deposit-August __, 2022
NET ASSETS
Investment in Securities represented by purchase contracts (1) (2) $
Less liability for reimbursement to Sponsor for organization costs (3) ( )
Less liability for deferred sales charge (4) ( )
Less liability for creation and development fee (5) ( )
________
Net assets $
========
Units outstanding
Net asset value per Unit (6) $ 9.677
ANALYSIS OF NET ASSETS
Cost to investors (7) $
Less maximum sales charge (7) ( )
Less estimated reimbursement to Sponsor for organization costs (3) ( )
________
Net assets $
========
_____________
NOTES TO STATEMENT OF NET ASSETS
The Trust is registered as a unit investment trust under the Investment
Company Act of 1940. The Sponsor is responsible for the preparation of
financial statements in accordance with accounting principles generally
accepted in the United States which require the Sponsor to make estimates and
assumptions that affect amounts reported herein. Actual results could differ
from those estimates. The Trust intends to comply in its initial fiscal year
as a grantor trust under federal tax laws. In grantor trusts, investors are
deemed for federal tax purposes, to own the underlying assets of the trust
directly. All taxability issues are taken into account at the Unit holder
level. Income passes through to Unit holders as realized by the Trust.
(1) The Trust invests in a diversified portfolio of Common Stocks, ETFs and
ETPs. Aggregate cost of the Securities listed under "Schedule of Investments"
for the Trust is based on their aggregate underlying value. The Trust has a
Mandatory Termination Date of August 23, 2024.
(2) An irrevocable letter of credit issued by The Bank of New York Mellon, of
which approximately $300,000 has been allocated to the Trust, has been
deposited with the Trustee as collateral, covering the monies necessary for
the purchase of the Securities according to their purchase contracts.
(3) A portion of the Public Offering Price consists of an amount sufficient to
reimburse the Sponsor for all or a portion of the costs of establishing the
Trust. These costs have been estimated at $.0480 per Unit. A payment will be
made at the earlier of six months after the Initial Date of Deposit or the end
of the initial offering period to an account maintained by the Trustee from
which the obligation of the investors to the Sponsor will be satisfied. To the
extent that actual organization costs of the Trust are greater than the
estimated amount, only the estimated organization costs added to the Public
Offering Price will be reimbursed to the Sponsor and deducted from the assets
of the Trust.
(4) Represents the amount of mandatory deferred sales charge distributions of
$.225 per Unit, payable to the Sponsor in three equal monthly installments
beginning on December 20, 2022 and on the twentieth day of each month
thereafter (or if such date is not a business day, on the preceding business
day) through February 17, 2023. If Unit holders redeem Units before February
17, 2023, they will have to pay the remaining amount of the deferred sales
charge applicable to such Units when they redeem them.
(5) The creation and development fee ($.050 per Unit) is payable by the Trust
on behalf of Unit holders out of assets of the Trust at the end of the initial
offering period. If Units are redeemed prior to the close of the initial
offering period, the fee will not be deducted from the proceeds.
(6) Net asset value per Unit is calculated by dividing the Trust's net assets
by the number of Units outstanding. This figure includes organization costs
and the creation and development fee, which will only be assessed to Units
outstanding at the earlier of six months after the Initial Date of Deposit or
the end of the initial offering period in the case of organization costs or
the close of the initial offering period in the case of the creation and
development fee.
(7) The aggregate cost to investors in the Trust includes a maximum sales
charge (comprised of an initial and a deferred sales charge and the creation
and development fee) computed at the rate of 2.75% of the Public Offering
Price (equivalent to 2.75% of the net amount invested, exclusive of the
deferred sales charge and the creation and development fee), assuming no
reduction of the maximum sales charge as set forth under "Public Offering."
Page 6
Schedule of Investments
Inflation Hedge Portfolio, Series 50
FT 10247
At the Opening of Business on the Initial Date of Deposit-August __, 2022
Percentage Market Cost of
Ticker Symbol and of Aggregate Number Value per Securities to
Name of Issuer of Securities (1)(3) Offering Price of Shares Share the Trust (2)
___________________________________ ______________ _________ _________ _____________
COMMON STOCKS (XX.XX%):
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
Page 7
Schedule of Investments (cont'd.)
Inflation Hedge Portfolio, Series 50
FT 10247
At the Opening of Business on the Initial Date of Deposit-August __, 2022
Percentage Market Cost of
Ticker Symbol and of Aggregate Number Value per Securities to
Name of Issuer of Securities (1) Offering Price of Shares Share the Trust (2)
________________________________ ______________ _________ _________ _____________
EXCHANGE-TRADED FUNDS (XX.XX%):
% $ $
%
%
%
%
%
EXCHANGE-TRADED PRODUCTS (XX.XX%):
%
%
_______ _______
Total Investments 100.00% $
======= =======
_____________
(1) All Securities are represented by regular way contracts to purchase such
Securities which are backed by an irrevocable letter of credit deposited with
the Trustee. The Sponsor entered into purchase contracts for the Securities on
August __, 2022. Such purchase contracts are expected to settle within two
business days.
(2) The cost of the Securities to the Trust represents the aggregate
underlying value with respect to the Securities acquired (generally determined
by the closing sale prices of the listed Securities and the ask prices of over-
the-counter traded Securities at the Evaluation Time on the business day prior
to the Initial Date of Deposit). The cost of Securities to the Trust may not
compute due to rounding the market value per share. The valuation of the
Securities has been determined by the Evaluator, an affiliate of the Sponsor.
In accordance with Financial Accounting Standards Board Accounting Standards
Codification 820, "Fair Value Measurement," the Trust's investments are
classified as Level 1, which refers to securities traded in an active market.
The cost of the Securities to the Sponsor and the Sponsor's profit or loss
(which is the difference between the cost of the Securities to the Sponsor and
the cost of the Securities to the Trust) are $______ and $______, respectively.
(3) Common Stocks comprise approximately ____% of the investments of the
Trust, broken down by country as set forth below:
% %
% %
% %
% %
% %
+ This Security represents the common stock of a foreign company which trades
directly or through an American Depositary Receipt/ADR on the over-the-counter
market or on a U.S. national securities exchange.
* This Security represents a non-income producing security.
Page 8
The FT Series
The FT Series Defined.
We, First Trust Portfolios L.P. (the "Sponsor"), have created hundreds of
similar yet separate series of a unit investment trust which we have named the
FT Series. The series to which this prospectus relates, FT 10247, consists of
a single portfolio known as Inflation Hedge Portfolio, Series 50.
The Trust was created under the laws of the State of New York by a Trust
Agreement (the "Indenture") dated the Initial Date of Deposit. This agreement,
entered into among First Trust Portfolios L.P., as Sponsor, The Bank of New
York Mellon as Trustee and First Trust Advisors L.P. as Portfolio Supervisor
and Evaluator, governs the operation of the Trust.
YOU MAY GET MORE SPECIFIC DETAILS CONCERNING THE NATURE, STRUCTURE AND RISKS
OF THIS PRODUCT IN AN "INFORMATION SUPPLEMENT" BY CALLING THE SPONSOR AT 800-
621-1675, DEPT. CODE 2.
How We Created the Trust.
On the Initial Date of Deposit, we deposited a portfolio of Common Stocks,
ETFs and ETPs with the Trustee and, in turn, the Trustee delivered documents
to us representing our ownership of the Trust in the form of units ("Units").
After the Initial Date of Deposit, we may deposit additional Securities in the
Trust, or cash (including a letter of credit or the equivalent) with
instructions to buy more Securities in order to create new Units for sale. If
we create additional Units, we will attempt, to the extent practicable, to
maintain the percentage relationship established among the Securities on the
Initial Date of Deposit (as set forth under "Schedule of Investments"),
adjusted to reflect the sale, redemption or liquidation of any of the
Securities or any stock split or merger or other similar event affecting the
issuer of the Securities.
Since the prices of the Securities will fluctuate daily, the ratio of
Securities in the Trust, on a market value basis, will also change daily. The
portion of Securities represented by each Unit will not change as a result of
the deposit of additional Securities or cash in the Trust. If we deposit cash,
you and new investors may experience a dilution of your investment. This is
because prices of Securities will fluctuate between the time of the cash
deposit and the purchase of the Securities, and because the Trust pays the
associated brokerage fees. To reduce this dilution, the Trust will try to buy
the Securities as close to the Evaluation Time and as close to the evaluation
price as possible. In addition, because the Trust pays the brokerage fees
associated with the creation of new Units and with the sale of Securities to
meet redemption and exchange requests, frequent redemption and exchange
activity will likely result in higher brokerage expenses.
An affiliate of the Trustee may receive these brokerage fees or the Trustee
may retain and pay us (or our affiliate) to act as agent for the Trust to buy
Securities. If we or an affiliate of ours act as agent to the Trust, we will
be subject to the restrictions under the Investment Company Act of 1940, as
amended (the "1940 Act"). When acting in an agency capacity, we may select
various broker/dealers to execute securities transactions on behalf of the
Trust, which may include broker/dealers who sell Units of the Trust. We do not
consider sales of Units of the Trust or any other products sponsored by First
Trust as a factor in selecting such broker/dealers.
We cannot guarantee that the Trust will keep its present size and composition
for any length of time. Securities may be periodically sold under certain
circumstances to satisfy Trust obligations, to meet redemption requests and,
as described in "Removing Securities from the Trust," to maintain the sound
investment character of the Trust, and the proceeds received by the Trust will
be used to meet Trust obligations or distributed to Unit holders, but will not
be reinvested. However, Securities will not be sold to take advantage of
market fluctuations or changes in anticipated rates of appreciation or
depreciation, or if they no longer meet the criteria by which they were
selected. You will not be able to dispose of or vote any of the Securities in
the Trust. As the holder of the Securities, the Trustee will vote the
Securities and, except as described in "Removing Securities from the Trust,"
will endeavor to vote the Securities such that the Securities are voted as
closely as possible in the same manner and the same general proportion as are
the Securities held by owners other than such Trust.
Neither we nor the Trustee will be liable for a failure in any of the
Securities. However, if a contract for the purchase of any of the Securities
initially deposited in the Trust fails, unless we can purchase substitute
Securities ("Replacement Securities"), we will refund to you that portion of
the purchase price and transactional sales charge resulting from the failed
contract on the next Distribution Date. Any Replacement Security the Trust
acquires will be identical to those from the failed contract.
Page 9
Portfolio
Objective.
The Trust seeks above-average total return. The Trust is concentrated (i.e.,
invests more than 25% of Trust assets) in stocks of companies within each of
the energy and materials sectors.
Portfolio Selection Process.
The Trust is a professionally-selected unit investment trust which invests in
ETFs which invest in real estate investment trusts ("REITs"), senior loans or
government bonds, ETPs which invest in commodities, such as gold and silver,
and in common stocks of agriculture companies, energy companies and materials
companies (including precious metals and mining companies).
The Common Stocks were selected by first examining the historical financial
results of the stocks from the initial universe of agriculture, energy and
materials companies. The stocks are then evaluated by a team of equity
analysts using several factors to provide a current comparison of the stocks
to each other. These factors include fundamental factors such as sales,
earnings and cash flow growth; valuation factors such as price/earnings,
price/cash flow, price/sales and price/book; technical factors such as price
momentum and earnings surprises; and qualitative factors such as competitive
advantages, new products and quality of management.
The equity analysts also consider how the stocks will perform in the future by
calculating an estimated value for each of the companies utilizing a Cash Flow
Return on Investment ("CFROI") method. The CFROI method compares an estimate
of a company's internal rate of return against an estimate of a company's cost
of capital. Companies that generate returns in excess of their capital costs
are favored over companies that do not. A secondary valuation is also made
employing a concept called Economic Margin ("EM"). EM measures the return a
company earns versus its cost of capital to determine if a company is
generating wealth. The analysts use the estimated valuations calculated by the
CFROI and EM methods to determine which companies are trading at an attractive
market price relative to their estimated value. These companies are favored
for inclusion in the Trust over companies that do not.
The factors and valuations above are not specifically weighted, but rather are
considered in combination with each other to provide a comparison of the
stocks to each other. The equity analysts ultimately select the stocks with
the best prospects to meet the investment objective, that trade at attractive
valuations, and, in the opinion of the analysts, are likely to exceed market
expectations of future cash flows.
The Funds and ETPs were selected by our research department based on a number
of factors including, but not limited to, the size and liquidity of the Fund
and ETP (requiring a minimum market capitalization of $50,000,000); the
current dividend yield of the Fund (prioritizing Funds with the highest
dividend yield, however dividend yield is not a consideration for the ETPs in
the Trust's portfolio); the quality and character of the securities held by
the Fund and ETP (considering the consistency and reliability of the dividend
and focusing on those that are efficient in offsetting the effects of
inflation); and the expense ratio of the Fund and ETP, with a preference for
lower expenses, particularly when the underlying assets are substantially
similar.
Additional Portfolio Contents.
In addition to the investments described above, the Trust invests in, or the
Funds held by the Trust invest in: covenant-lite loans, foreign securities
(including American Depositary Receipts, Global Depositary Receipts and New
York Registry Shares) and companies with various market capitalizations.
As with any similar investments, there can be no guarantee that the objective
of the Trust will be achieved. See "Risk Factors" for a discussion of the
risks of investing in the Trust.
Risk Factors
Principal Risks.
The following is a discussion of the principal risks of investing in the Trust.
Price Volatility. The Trust invests in Common Stocks, ETFs and ETPs. The value
of the Trust's Units will fluctuate with changes in the value of these
Securities. The value of a security fluctuates for several reasons including
changes in investors' perceptions of the financial condition of an issuer or
the general condition of the relevant stock market, such as market volatility,
or when political or economic events affecting the issuers occur.
Because the Trust is not managed, the Trustee will not sell Securities in
response to or in anticipation of market fluctuations, as is common in managed
investments. As with any investment, we cannot guarantee that the performance
of the Trust will be positive over any period of time or that you won't lose
money. Units of the Trust are not deposits of any bank and are not insured or
Page 10
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Market Risk. Market risk is the risk that a particular security, or Units of
the Trust in general, may fall in value. Securities are subject to market
fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in
securities prices. Units of the Trust could decline in value or underperform
other investments. In addition, local, regional or global events such as war,
acts of terrorism, spread of infectious diseases or other public health
issues, recessions, political turbulence or other events could have a
significant negative impact on the Trust and its investments. Such events may
affect certain geographic regions, countries, sectors and industries more
significantly than others. Such events could adversely affect the prices and
liquidity of the Trust's portfolio securities and could result in disruptions
in the trading markets. Any such circumstances could have a materially
negative impact on the value of the Trust's Units and result in increased
market volatility.
In February 2022, Russia commenced a military attack on Ukraine. In response,
various countries, including the United States, issued broad-ranging sanctions
on Russia and certain Russian companies and individuals. The hostilities
between the two countries may escalate and any existing or future sanctions
could have a severe adverse effect on Russia's economy, currency, companies
and region as well as negatively impact other regional and global economic
markets of the world, companies in such countries and various sectors,
industries and markets for securities and commodities globally, such as oil
and natural gas, and may have a negative effect on a Trust's investments and
performance beyond any direct exposure to Russian issuers or those of
adjoining geographic regions. Russia may also take retaliatory actions or
countermeasures, such as cyberattacks and espionage, which may negatively
impact the countries and companies in which the Trust may invest. The extent
and duration of the military action or future escalation of such hostilities;
the extent and impact of existing and any future sanctions, market disruptions
and volatility; and the result of any diplomatic negotiations cannot be
predicted. These and any related events could have a significant negative
impact on certain of the Trust's investments as well as the Trust's
performance, and the value or liquidity of certain Securities held by the
Trust may decline significantly.
An outbreak of a respiratory disease designated as COVID-19 was first detected
in China in December 2019 and has resulted in a global pandemic and major
disruptions to economies and markets around the world. The transmission of
COVID-19 and efforts to contain its spread have resulted in international
border closings, enhanced health screenings, expanded healthcare services and
expenses, quarantines and other restrictions on business and personal
activities, cancellations, disruptions to supply chains and consumer activity,
as well as general public concern and uncertainty. Financial markets have
experienced extreme volatility and severe losses, negatively impacting global
economic growth prospects. The duration of the COVID-19 outbreak and its
effects cannot be determined with certainty and may exacerbate other pre-
existing political, social and economic risks.
Governments and central banks, including the Federal Reserve, have taken
extraordinary and unprecedented actions to support local and global economies
and financial markets. These measures have included, among other policy
responses, a $700 billion quantitative easing program, a reduction of the
Federal funds rate to near-zero, and numerous economic stimulus packages. The
impact of these and additional measures taken in the future, and whether they
will be effective in mitigating economic and market disruptions, including
upward pressure on prices, will not be known for some time. As a means to
fight inflation, the Federal Reserve has raised interest rates and expects to
continue to do so and has announced that it intends to reverse previously
implemented quantitative easing.
Distributions. As stated under "Summary of Essential Information," the Trust
will generally make monthly distributions of income. The Funds held by the
Trust make distributions on a monthly or quarterly basis. As a result of
changing interest rates, refundings, sales or defaults on the underlying
securities held by the Funds, and other factors, there is no guarantee that
distributions will either remain at current levels or increase over time.
Certain of the Common Stocks held by the Trust may currently pay dividends,
but there is also no guarantee that the issuers of the Common Stocks will
declare dividends in the future or that, if declared, they will either remain
at current levels or increase over time.
Exchange-Traded Funds. The Trust invests in shares of ETFs. The Trust is
subject to substantially the same risks as those associated with the direct
ownership of the securities represented by the underlying ETFs in which it
invests. In addition, the Trust may be affected by losses of the ETFs and the
level of risk arising from the investment practices of the ETFs (such as the
use of leverage by the ETFs). The Trust has no control over the investments
and related risks taken by the ETFs in which it invests. The Trust and the
underlying funds have management and operating expenses. You will bear not
Page 11
only your share of your Trust's expenses, but also the expenses of the
underlying funds. By investing in other funds, the Trust incurs greater
expenses than you would incur if you invested directly in the funds.
Shares of ETFs may trade at a discount from their net asset value in the
secondary market. This risk is separate and distinct from the risk that the
net asset value of the ETF shares may decrease. The amount of such discount
from net asset value is subject to change from time to time in response to
various factors.
Exchange-Traded Products. The Trust invests in shares of ETPs. ETPs are
investment vehicles that either directly invest in, or track the performance
of an underlying asset, such as commodities (e.g., gold and silver) or an
asset index, and typically provide exposure to commodities without trading
futures or taking physical delivery. ETPs may also invest in other types of
financial instruments that are not securities and are not regulated under the
1940 Act. ETPs themselves are not registered investment companies under the
1940 Act, and investors in ETPs do not benefit from the protections provided
under the 1940 Act. Through its investments in ETPs, the Trust is subject to
the risks associated with the ETPs' investments or reference assets/benchmark
components, including the possibility that the value of the securities or
assets held by or linked to an ETP could decrease. Additionally, an ETP's lack
of liquidity can result in its value being more volatile than the underlying
asset or reference asset/benchmark component. The Trust's exposure to a
particular risk will be proportionate to the Trust's overall allocation and
each ETP's asset allocation.
Investment in Other Investment Companies Risk. Because the Trust holds Funds,
Unit holders are subject to the risk that the securities selected by the
Funds' investment advisors will underperform the markets, the relevant indices
or the securities selected by other funds. Further, Funds may in the future
invest in other types of securities which involve risk which may differ from
those set forth below. In addition, because the Trust holds Funds, Unit
holders bear both their proportionate share of the expenses of the Trust and,
indirectly the expenses of the Funds. Certain of the Funds held by the Trust
may invest a relatively high percentage of their assets in a limited number of
issuers. As a result, these Funds may be more susceptible to a single adverse
economic or regulatory occurrence affecting one or more of these issuers,
experience increased volatility and be highly concentrated in certain issuers.
Index Correlation Risk. Index correlation risk is the risk that the
performance of an index-based ETF will vary from the actual performance of the
fund's target index, known as "tracking error." This can happen due to
transaction costs, market impact, corporate actions (such as mergers and spin-
offs) and timing variances. Some index-based ETFs use a technique called
"representative sampling," which means that the ETF invests in a
representative sample of securities in its target index rather than all of the
index securities. This could increase the risk of a tracking error.
Common Stocks. A percentage of the Trust consists of Common Stocks, and
certain of the Funds held by the Trust invest in common stocks. Common stocks
represent a proportional share of ownership in a company. Common stock prices
fluctuate for several reasons including changes in investors' perceptions of
the financial condition of an issuer or the general condition of the relevant
stock market, such as market volatility, or when political or economic events
affecting the issuers occur. Common stock prices may also be particularly
sensitive to rising interest rates, as the cost of capital rises and borrowing
costs increase, negatively impacting issuers.
Concentration Risk. When at least 25% of a trust's portfolio is invested in
securities issued by companies within a single sector, the trust is considered
to be concentrated in that particular sector. A portfolio concentrated in one
or more sectors may present more risks than a portfolio broadly diversified
over several sectors.
The Trust is concentrated in stocks of companies within each of the energy and
materials sectors.
Energy. Energy companies include those companies that explore for, produce,
refine, distribute or sell petroleum or gas products, or provide parts or
services to petroleum or gas companies. General problems of the energy sector
include volatile fluctuations in price and supply of energy fuels, reduced
demand as a result of regional or global economic recessions and increases in
energy efficiency and conservation, the success of exploration projects, clean-
up and litigation costs relating to environmental damage, international
politics, terrorist attacks, and tax and other regulatory policies of various
governments. Energy companies are subject to extensive federal, state and
local environmental laws and regulations. Friction with certain oil producing
countries, and between the governments of the United States and other major
exporters of oil to the United States, or policy shifts by governmental
entities and intergovernmental entities, could put oil and other energy
exports at risk. In addition, falling energy prices may negatively impact the
profitability and business prospects of certain energy companies.
Page 12
Materials. General risks of the basic materials sector include the general
state of the economy, consolidation, domestic and international politics and
excess capacity. In addition, basic materials companies may also be
significantly affected by volatility of commodity prices, import controls,
worldwide competition, liability for environmental damage, depletion of
resources, and mandated expenditures for safety and pollution control devices.
Precious Metals. The Trust also invests in precious metals companies which
include companies involved in the materials sector. Precious metals companies
are subject to risks associated with the exploration, development and
production of precious metals including competition for land, difficulties in
obtaining required governmental approval to mine land, inability to raise
adequate capital, increases in production costs and political unrest in
nations where sources of precious metals are located. In addition, the price
of gold and other precious metals is subject to wide fluctuations and may be
influenced by limited markets, fabricator demand, expected inflation, return
on assets, central bank demand and availability of substitutes.
Agriculture. The Trust also invests in agriculture companies. Agriculture
companies are those companies engaged in the growing, processing, and
merchandising of raw agricultural commodities. Companies involved in
agriculture are subject to numerous risks, including cyclicality of revenues
and earnings, currency fluctuations, international politics, volatility in
commodity prices, changing consumer tastes, extensive competition, severe
weather conditions and climate change. Government policies and regulations,
including taxes, tariffs, duties, quotas, subsidies and import and export
restrictions can significantly impact the costs and profitability of such
companies. Additional or more restrictive environmental laws and regulations
could be enacted in the future which could increase costs, lead to additional
potential liability for environmental damage or otherwise have an adverse
effect on the agriculture industry. An increase in demand for ethanol or other
biofuels might also impact companies in this industry. The agriculture
industry is affected generally by the economic strength of consumers.
Commodities. Certain of the ETPs held by the Trust invest in commodities.
Commodities include building materials, aluminum, forest products, non-ferrous
metals, paper products, precious metals such as gold and silver, petroleum,
natural gas and foreign currencies. Several factors may affect the prices of
commodities, including but not limited to: global supply and demand, excess
capacity, production costs, economic recession, domestic and international
politics, currency exchange rates, government regulations, volatile interest
rates, consumer spending trends and overall capital spending levels. In
addition, commodity prices may be affected by import controls, worldwide
competition, investors' expectations with respect to inflation, investment and
trading activities of hedge funds and commodity funds, commodity producers'
liability for environmental damage, and depletion of natural resources. The
price of certain commodities has fluctuated widely over the past several years
and there can be no assurance that the commodities held by the ETPs held by
the Trust will maintain their long-term value.
Gold, Silver and Other Precious Metals. Certain of the ETPs held by the Trust
invest in gold, silver and other precious metals (together, "precious
metals"). Generally, precious metals prices reflect the supply and demand of
available precious metals. In the event that the price of a precious metal
declines, the value of an investment in the ETPs, and by extension the Trust,
will also decline. Global supply and demand is influenced by factors such as
forward selling by producers of precious metals, central bank purchases and
sales, and production and cost levels in major precious metal-producing
countries. Substantial sales of precious metals by the official sector, which
consists of central banks, governmental agencies and other related
institutions that buy, sell and hold precious metals as part of their reserve
assets, could adversely affect an investment in the Trust. The official sector
holds a significant amount of precious metals, most of which is "static,"
meaning that it is held in vaults and is not bought, sold, leased, swapped or
otherwise mobilized in the open market. In the event that future economic,
political or social conditions or pressures require members of the official
sector to liquidate their precious metals assets all at once or in an
uncoordinated manner, the demand for precious metals might not be sufficient
to accommodate the sudden increase in the supply of precious metals to the
market. Consequently, the price of precious metals could decline significantly
and could adversely affect an investment in the Trust.
Additionally, the possibility of large-scale distress sales of precious metals
in times of crisis may have a negative impact on the price of precious metals
and adversely affect an investment in the Trust. An adverse development with
respect to one or more factors such as investors' inflation expectations,
exchange rate volatility and interest rate volatility may also lead to a
decrease in precious metals bullion trading prices.
Page 13
The ETPs held by the Trust will sell precious metals bullion to pay expenses
on an as-needed basis irrespective of precious metals prices. The result of
these sales is a decrease in the amount of precious metals represented by each
share of an ETP, meaning that the price of the share may decrease even if the
price of precious metals has not changed.
An investment in the ETPs may be adversely affected by competition from other
methods of investing in precious metals, including traditional debt and equity
securities issued by companies in the precious metals industry and other
securities backed by or linked to precious metals, and direct investments in
precious metals. Market and financial conditions may make it more attractive
to invest in other financial vehicles or to invest in precious metals
directly, which could limit the market for an ETP's shares and reduce its
liquidity.
Custody Risk. The Trust's investment in ETPs which hold commodities exposes
the Trust to custody risk. The ETPs rely on custodians for the safekeeping of
commodities with such custodian generally facilitating the transfer of the
commodities into and out of an ETP. As a result, failure by a custodian to
exercise due care in the safekeeping of the commodities could result in a loss
to an ETP.
The liability of a custodian is generally limited under the applicable custody
agreement. If a custodian becomes insolvent, its assets may not be adequate to
satisfy a claim by an ETP. The commodities held by the ETPs are generally not
insured by the ETPs, and the custodian may not carry adequate insurance to
cover claims against it, which could adversely affect the value of an ETP's
assets, and in turn the value of the Trust.
REITs. Certain of the Funds held by the Trust invest in REITs. REITs are
financial vehicles that pool investors' capital to purchase or finance real
estate. REITs may concentrate their investments in specific geographic areas
or in specific property types, i.e., hotels, shopping malls, residential
complexes, office buildings and timberlands. The value of REITs and the
ability of REITs to distribute income may be adversely affected by several
factors, including rising interest rates, changes in the national, state and
local economic climate and real estate conditions, perceptions of prospective
tenants of the safety, convenience and attractiveness of the properties, the
ability of the owner to provide adequate management, maintenance and
insurance, the cost of complying with the Americans with Disabilities Act,
increased competition from new properties, the impact of present or future
environmental legislation and compliance with environmental laws, changes in
real estate taxes and other operating expenses, adverse changes in
governmental rules and fiscal policies, adverse changes in zoning laws, and
other factors beyond the control of the issuers of REITs. Certain of the REITs
may also be mortgage real estate investment trusts ("Mortgage REITs").
Mortgage REITs are companies that provide financing for real estate by
purchasing or originating mortgages and mortgage-backed securities and earn
income from the interest on these investments. Mortgage REITs are also subject
to many of the same risks associated with investments in other REITs and to
real estate market conditions.
Senior Loans. Certain of the Funds held by the Trust invest in senior loans
issued by banks, other financial institutions, and other investors to
corporations, partnerships, limited liability companies and other entities to
finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock
repurchases, debt refinancings and, to a lesser extent, for general operating
and other purposes. An investment in senior loans involves risk that the
borrowers under senior loans may default on their obligations to pay principal
or interest when due. Although senior loans may be secured by specific
collateral, there can be no assurance that liquidation of collateral would
satisfy the borrower's obligation in the event of non-payment or that such
collateral could be readily liquidated. Senior loans are typically structured
as floating-rate instruments in which the interest rate payable on the
obligation fluctuates with interest rate changes. As a result, the yield on
Funds investing in senior loans will generally decline in a falling interest
rate environment and increase in a rising interest rate environment. Senior
loans are generally below investment grade quality and may be unrated at the
time of investment; are generally not registered with the SEC or state
securities commissions; and are generally not listed on any securities
exchange. Transactions in senior loans may take longer than seven days to
settle which could affect an underlying Fund's ability to manage the liquidity
of its portfolio. Because senior loans are generally not registered with the
SEC under the Securities Act of 1933, as amended, they may not be subject to
the protections afforded under the federal securities laws. See "Risk Factors-
High-Yield Securities" for a description of the risks involved in investing in
below investment grade securities. In addition, the amount of public
information available on senior loans is generally less extensive than that
available for other types of assets.
Covenant-Lite Loans. Certain of the Funds held by the Trust invest
significantly in "covenant-lite" loans, which are loans made with minimal
protections for the lender. Because covenant-lite loans are less restrictive
Page 14
on borrowers and provide less protection for lenders than typical corporate
loans, the risk of default may be significantly higher. Covenant-lite loans
contain fewer maintenance covenants, or no maintenance covenants at all, than
traditional loans and may not include terms that allow the lender to monitor
the financial performance of the borrower and declare a default if certain
criteria are breached. This may hinder the Funds' ability to reprice credit
risk associated with the borrower and reduce the Funds' ability to restructure
a problematic loan and mitigate potential loss. As a result, the Funds'
exposure to losses on such investments is increased, especially during a
downturn in the credit cycle.
U.S. Treasury Obligations. Certain of the Funds held by the Trust invest in
U.S. Treasury obligations. U.S. Treasury obligations are direct obligations of
the United States which are backed by the full faith and credit of the United
States. U.S. Treasury obligations are generally not affected by credit risk
but are subject to changes in market value resulting from changes in interest
rates. The value of U.S. Treasury obligations will be adversely affected by
decreases in bond prices and increases in interest rates, not only because
increases in interest rates generally decrease values, but also because
increased interest rates may indicate an economic slowdown.
Foreign Securities. Certain of the Common Stocks held by the Trust are issued
by, and certain of the Funds held by the Trust invest in, foreign entities,
which makes the Trust subject to more risks than if it only invested in
domestic securities and Funds which invest solely in domestic securities.
Risks of foreign securities include higher brokerage costs; different
accounting standards; expropriation, nationalization or other adverse
political or economic developments; currency devaluations, blockages or
transfer restrictions; restrictions on foreign investments and exchange of
securities; inadequate financial information; lack of liquidity of certain
foreign markets; and less government supervision and regulation of exchanges,
brokers, and issuers in foreign countries. Certain foreign markets have
experienced heightened volatility due to recent negative political or economic
developments or natural disasters. Securities issued by non-U.S. issuers may
pay interest and/or dividends in foreign currencies and may be principally
traded in foreign currencies. Therefore, there is a risk that the U.S. dollar
value of these interest and/or dividend payments and/or securities will vary
with fluctuations in foreign exchange rates. Investments in debt securities of
foreign governments present special risks, including the fact that issuers may
be unable or unwilling to repay principal and/or interest when due in
accordance with the terms of such debt, or may be unable to make such
repayments when due in the currency required under the terms of the debt.
Political, economic and social events also may have a greater impact on the
price of debt securities issued by foreign governments than on the price of
U.S. securities.
American Depositary Receipts/ADRs, Global Depositary Receipts/GDRs, New York
Registry Shares and similarly structured securities may be less liquid than
the underlying shares in their primary trading market. Any distributions paid
to the holders of depositary receipts are usually subject to a fee charged by
the depositary. Issuers of depositary receipts are not obligated to disclose
information that is considered material in the United States. As a result,
there may be less information available regarding such issuers. Holders of
depositary receipts may have limited voting rights, and investment
restrictions in certain countries may adversely impact the value of depositary
receipts because such restrictions may limit the ability to convert shares
into depositary receipts and vice versa. Such restrictions may cause shares of
the underlying issuer to trade at a discount or premium to the market price of
the depositary receipts.
Brexit Risk. Approximately one year after the United Kingdom officially
departed the European Union (commonly referred to as "Brexit"), the United
Kingdom and the European Union reached a trade agreement that became effective
on December 31, 2020. Under the terms of the trade deal, there are no tariffs
or quotas on the movement of goods between the United Kingdom and Europe.
Brexit led to volatility in global financial markets, in particular those of
the United Kingdom and across Europe, and the weakening in political,
regulatory, consumer, corporate and financial confidence in the United Kingdom
and Europe. There can be no assurance that the trade agreement will improve
the instability in global financial markets caused by Brexit. Given the size
and importance of the United Kingdom's economy, uncertainty or
unpredictability about its legal, political and/or economic relationships with
Europe has been, and may continue to be, a source of instability and could
lead to significant currency fluctuations and other adverse effects on
international markets and international trade even under the post-Brexit trade
guidelines.
It is not currently possible to determine the extent of the impact the Brexit
trade agreement may have on the Trust's investments and this uncertainty could
negatively impact current and future economic conditions in the United Kingdom
and other countries, which could negatively impact the value of the Trust's
investments.
Page 15
Small and/or Mid Capitalization Companies. Certain of the Common Stocks held
by the Trust are issued by, and certain of the Funds held by the Trust invest
in, small and/or mid capitalization companies. Investing in stocks of such
companies may involve greater risk than investing in larger companies. For
example, such companies may have limited product lines, as well as shorter
operating histories, less experienced management and more limited financial
resources than larger companies. Securities of such companies generally trade
in lower volumes and are generally subject to greater and less predictable
changes in price than securities of larger companies. In addition, small and
mid-cap stocks may not be widely followed by the investment community, which
may result in low demand.
Large Capitalization Companies. Certain of the Common Stocks held by the Trust
are issued by, and certain of the Funds held by the Trust invest in, large
capitalization companies. The return on investment in stocks of large
capitalization companies may be less than the return on investment in stocks
of small and/or mid capitalization companies. Large capitalization companies
may also grow at a slower rate than the overall market.
Interest Rate Risk. Interest rate risk is the risk that the value of the
securities held by the Funds held by the Trust will fall if interest rates
increase. Securities typically fall in value when interest rates rise and rise
in value when interest rates fall. Securities with longer periods before
maturity are often more sensitive to interest rate changes. The Federal
Reserve has recently raised interest rates and expects to continue to do so in
response to inflation. Therefore, risks associated with rising rates are
heightened for the securities held by the Funds.
Credit Risk. Credit risk is the risk that a security's issuer is unable or
unwilling to make dividend, interest or principal payments when due and the
related risk that the value of a security may decline because of concerns
about the issuer's ability or willingness to make such payments.
Call Risk. Call risk is the risk that the issuer prepays or "calls" a bond
before its stated maturity. An issuer might call a bond if interest rates fall
and the bond pays a higher than market interest rate or if the issuer no
longer needs the money for its original purpose. A bond's call price could be
less than the price the Fund paid for the bond and could be below the bond's
par value. This means a Fund could receive less than the amount paid for the
bond and may not be able to reinvest the proceeds in securities with as high a
yield as the called bond. A Fund may contain bonds that have "make whole" call
options that generally cause the bonds to be redeemable at any time at a
designated price. Such bonds are generally more likely to be subject to early
redemption and may result in the reduction of income received by the Fund.
Extension Risk. If interest rates rise, certain obligations may be paid off by
the obligor at a slower rate than expected, which will cause the value of such
obligations to fall.
Liquidity Risk. Liquidity risk is the risk that the value of a fixed-income
security held by a Fund will fall if trading in the security is limited or
absent. No one can guarantee that a liquid trading market will exist for any
fixed-income security because these securities generally trade in the over-the-
counter market (they are not listed on a securities exchange). During times of
reduced market liquidity, the Funds held by the Trust may not be able to sell
the underlying securities readily at prices reflecting the values at which the
underlying securities are carried on a Fund's books. Sales of large blocks of
securities by market participants that are seeking liquidity can further
reduce security prices in an illiquid market. Further, the bid/ask spread may
widen depending on market conditions and the liquidity of the underlying
investments held by a Fund.
Prepayment Risk. Many types of debt instruments are subject to prepayment
risk, which is the risk that the issuer will repay principal prior to the
maturity date. Debt instruments allowing prepayment may offer less potential
for gains during a period of declining interest rates.
Valuation Risk. Unlike publicly traded securities that trade on national
securities exchanges, there is no central place or exchange for trading most
debt securities. Debt securities generally trade on an "over-the-counter"
market. Due to the lack of centralized information and trading, the valuation
of debt securities may carry more uncertainty and risk than that of publicly
traded securities. Accordingly, determinations of the fair value of debt
securities may be based on infrequent and dated information. Also, because the
available information is less reliable and more subjective, elements of
judgment may play a greater role in valuation of debt securities than for
other types of securities.
Authorized Participant Concentration Risk. Only an authorized participant may
engage in creation or redemption transactions directly with an ETF. ETFs have
a limited number of institutions that act as authorized participants. To the
extent that these institutions exit the business or are unable to proceed with
creation and/or redemption orders with respect to an ETF and no other
authorized participant is able to step forward to create or redeem, in either
Page 16
of these cases, ETF shares may trade at a discount to the ETF's net asset
value and possibly face delisting and the bid/ask spread on the ETF shares may
widen.
Fluctuation of Net Asset Value Risk. The net asset value of shares of a Fund
will generally fluctuate with changes in the market value of the Fund's
holdings. The market prices of shares will generally fluctuate in accordance
with changes in net asset value as well as the relative supply of and demand
for shares on the exchange on which they trade. The bid/ask spread may also
widen depending on market conditions and the liquidity of the underlying
investments held by a Fund. The Trust cannot predict whether shares will trade
below, at or above their net asset value because the shares trade on an
exchange at market prices and not at net asset value. Price differences may be
due, in large part, to the fact that supply and demand forces at work in the
secondary trading market for shares will be closely related to, but not
identical to, the same forces influencing the prices of the holdings of a Fund
trading individually or in the aggregate at any point in time.
Management Risk. Actively managed Funds are subject to management risk. In
managing a Fund's investment portfolio, the Fund's investment advisor will
apply investment techniques and risk analyses that may not have the desired
result. There can be no guarantee that the Funds will meet their investment
objectives.
Market Maker Risk. If a Fund has lower average daily trading volumes, it may
rely on a small number of third-party market makers to provide a market for
the purchase and sale of shares. Any trading halt or other problem relating to
the trading activity of these market makers could result in a dramatic change
in the spread between a Fund's net asset value and the price at which the
Fund's shares are trading on the exchange, which could result in a decrease in
value of the Fund's shares. In addition, decisions by market makers to reduce
their role or step away from these activities in times of market stress could
inhibit the effectiveness of the arbitrage process in maintaining the
relationship between the underlying values of a Fund's portfolio securities
and the Fund's market price. This reduced effectiveness could result in a
Fund's shares trading at a discount to net asset value and also in greater
than normal intraday bid-ask spreads for Fund shares.
Trading Issues Risk. Although the shares of a Fund are listed for trading on a
securities exchange, there can be no assurance that an active trading market
for such shares will develop or be maintained. Trading in shares on such
exchanges may be halted due to market conditions or for reasons that, in the
view of an exchange, make trading in shares inadvisable. In addition, trading
in shares on an exchange is subject to trading halts caused by extraordinary
market volatility pursuant to the exchange's "circuit breaker" rules. Market
makers are under no obligation to make a market in a Fund's shares. There can
be no assurance that the requirements of the exchange necessary to maintain
the listing of a Fund will continue to be met or will remain unchanged. In
particular, if a Fund does not comply with any provision of the listing
standards of an exchange that are applicable to the Fund, and cannot bring
itself into compliance within a reasonable period after discovering the
matter, the exchange may remove the shares of the Fund from listing. The Funds
may have difficulty maintaining their listing on an exchange in the event that
a Fund's assets are small or the Fund does not have enough shareholders.
Cybersecurity Risk. As the use of Internet technology has become more
prevalent in the course of business, the Trust has become more susceptible to
potential operational risks through breaches in cybersecurity. A breach in
cybersecurity refers to both intentional and unintentional events that may
cause the Trust to lose proprietary information, suffer data corruption or
lose operational capacity. Such events could cause the Sponsor of the Trust to
incur regulatory penalties, reputational damage, additional compliance costs
associated with corrective measures and/or financial loss. Cybersecurity
breaches may involve unauthorized access to digital information systems
utilized by the Trust through "hacking" or malicious software coding, but may
also result from outside attacks such as denial-of-service attacks through
efforts to make network services unavailable to intended users. In addition,
cybersecurity breaches of the Trust's third-party service providers, or
issuers in which the Trust invests, can also subject the Trust to many of the
same risks associated with direct cybersecurity breaches. The Sponsor of, and
third-party service provider to, the Trust have established risk management
systems designed to reduce the risks associated with cybersecurity. However,
there is no guarantee that such efforts will succeed, especially because the
Trust does not directly control the cybersecurity systems of issuers or third-
party service providers.
Legislation/Litigation. From time to time, various legislative initiatives are
proposed in the United States and abroad which may have a negative impact on
certain of the Trust's investments. In addition, litigation regarding any of
the issuers of the Securities, or the industries represented by these issuers,
may negatively impact the value of these Securities. We cannot predict what
Page 17
impact any pending or proposed legislation or pending or threatened litigation
will have on the value of the Trust's investments.
Public Offering
The Public Offering Price.
Units will be purchased at the Public Offering Price, the price per Unit of
which is comprised of the following:
- The aggregate underlying value of the Securities;
- The amount of any cash in the Income and Capital Accounts;
- Dividends receivable on Securities; and
- The maximum sales charge (which combines an initial upfront sales charge, a
deferred sales charge and the creation and development fee).
The price you pay for your Units will differ from the amount stated under
"Summary of Essential Information" due to various factors, including
fluctuations in the prices of the Securities and changes in the value of the
Income and/or Capital Accounts.
Although you are not required to pay for your Units until two business days
following your order (the "date of settlement"), you may pay before then. You
will become the owner of Units ("Record Owner") on the date of settlement if
payment has been received. If you pay for your Units before the date of
settlement, we may use your payment during this time and it may be considered
a benefit to us, subject to the limitations of the Securities Exchange Act of
1934, as amended.
Organization Costs. Securities purchased with the portion of the Public
Offering Price intended to be used to reimburse the Sponsor for the Trust's
organization costs (including costs of preparing the registration statement,
the Indenture and other closing documents, registering Units with the SEC and
states, the initial audit of the Trust's statement of net assets, legal fees
and the initial fees and expenses of the Trustee) will be purchased in the
same proportionate relationship as all the Securities contained in the Trust.
Securities will be sold to reimburse the Sponsor for the Trust's organization
costs at the earlier of six months after the Initial Date of Deposit or the
end of the initial offering period (a significantly shorter time period than
the life of the Trust). During the period ending with the earlier of six
months after the Initial Date of Deposit or the end of the initial offering
period, there may be a decrease in the value of the Securities. To the extent
the proceeds from the sale of these Securities are insufficient to repay the
Sponsor for Trust organization costs, the Trustee will sell additional
Securities to allow the Trust to fully reimburse the Sponsor. In that event,
the net asset value per Unit of the Trust will be reduced by the amount of
additional Securities sold. Although the dollar amount of the reimbursement
due to the Sponsor will remain fixed and will never exceed the per Unit amount
set forth for the Trust in "Notes to Statement of Net Assets," this will
result in a greater effective cost per Unit to Unit holders for the
reimbursement to the Sponsor. To the extent actual organization costs are less
than the estimated amount, only the actual organization costs will ultimately
be charged to the Trust. When Securities are sold to reimburse the Sponsor for
organization costs, the Trustee will sell Securities, to the extent
practicable, which will maintain the same proportionate relationship among the
Securities contained in the Trust as existed prior to such sale.
Minimum Purchase.
The minimum amount per account you can purchase of the Trust is generally
$1,000 worth of Units ($500 if you are purchasing Units for your Individual
Retirement Account or any other qualified retirement plan), but such amounts
may vary depending on your selling firm.
Maximum Sales Charge.
The maximum sales charge of 2.75% per Unit is comprised of a transactional
sales charge and a creation and development fee. After the initial offering
period the maximum sales charge will be reduced by 0.50%, to reflect the
amount of the previously charged creation and development fee.
Transactional Sales Charge.
The transactional sales charge you will pay has both an initial and a deferred
component.
Initial Sales Charge. The initial sales charge, which you will pay at the time
of purchase, is equal to the difference between the maximum sales charge of
2.75% of the Public Offering Price and the sum of the maximum remaining
deferred sales charge and creation and development fee (initially $.275 per
Unit). On the Initial Date of Deposit, and any other day the Public Offering
Price per Unit equals $10.00, there is no initial sales charge. Thereafter,
you will pay an initial sales charge when the Public Offering Price per Unit
exceeds $10.00 and as deferred sales charge and creation and development fee
payments are made.
Monthly Deferred Sales Charge. In addition, three monthly deferred sales
charges of $.075 per Unit will be deducted from the Trust's assets on
approximately the twentieth day of each month from December 20, 2022 through
February 17, 2023. If you buy Units at a price of less than $10.00 per Unit,
the dollar amount of the deferred sales charge will not change, but the
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deferred sales charge on a percentage basis will be more than 2.25% of the
Public Offering Price.
If you purchase Units after the last deferred sales charge payment has been
assessed, your transactional sales charge will consist of a one-time initial
sales charge of 2.25% of the Public Offering Price (equivalent to 2.302% of
the net amount invested).
Creation and Development Fee.
As Sponsor, we will also receive, and the Unit holders will pay, a creation
and development fee. See "Expenses and Charges" for a description of the
services provided for this fee. The creation and development fee is a charge
of $.050 per Unit collected at the end of the initial offering period. If you
buy Units at a price of less than $10.00 per Unit, the dollar amount of the
creation and development fee will not change, but the creation and development
fee on a percentage basis will be more than 0.50% of the Public Offering Price.
Discounts for Certain Persons.
The maximum sales charge is 2.75% per Unit and the maximum dealer concession
is 2.00% per Unit.
If you are purchasing Units for an investment account, the terms of which
provide that your registered investment advisor or registered broker/dealer
(a) charges periodic fees in lieu of commissions; (b) charges for financial
planning, investment advisory or asset management services; or (c) charges a
comprehensive "wrap fee" or similar fee for these or comparable services ("Fee
Accounts"), you will not be assessed the transactional sales charge described
above on such purchases. These Units will be designated as Fee Account Units
and, depending upon the purchase instructions we receive, assigned either a
Fee Account Cash CUSIP Number, if you elect to have distributions paid to you,
or a Fee Account Reinvestment CUSIP Number, if you elect to have distributions
reinvested into additional Units of the Trust. Certain Fee Account Unit
holders may be assessed transaction or other account fees on the purchase
and/or redemption of such Units by their registered investment advisor,
broker/dealer or other processing organizations for providing certain
transaction or account activities. Fee Account Units are not available for
purchase in the secondary market. We reserve the right to limit or deny
purchases of Units not subject to the transactional sales charge by investors
whose frequent trading activity we determine to be detrimental to the Trust.
Employees, officers and directors (and immediate family members) of the
Sponsor, our related companies, and dealers and their affiliates will purchase
Units at the Public Offering Price less the applicable dealer concession,
subject to the policies of the related selling firm. Immediate family members
include spouses, or the equivalent if recognized under local law, children or
step-children under the age of 21 living in the same household, parents or
step-parents and trustees, custodians or fiduciaries for the benefit of such
persons. Only employees, officers and directors of companies that allow their
employees to participate in this employee discount program are eligible for
the discounts.
You will be charged the deferred sales charge per Unit regardless of the price
you pay for your Units or whether you are eligible to receive any discounts.
However, if the purchase price of your Units was less than $10.00 per Unit or
if you are eligible to receive a discount such that the maximum sales charge
you must pay is less than the applicable maximum deferred sales charge,
including Fee Account Units, you will be credited additional Units with a
dollar value equal to the difference between your maximum sales charge and the
maximum deferred sales charge at the time you buy your Units. If you elect to
have distributions reinvested into additional Units of the Trust, in addition
to the reinvestment Units you receive you will also be credited additional
Units with a dollar value at the time of reinvestment sufficient to cover the
amount of any remaining deferred sales charge and creation and development fee
to be collected on such reinvestment Units. The dollar value of these
additional credited Units (as with all Units) will fluctuate over time, and
may be less on the dates deferred sales charges or the creation and
development fee are collected than their value at the time they were issued.
The Value of the Securities.
The Evaluator will determine the aggregate underlying value of the Securities
in the Trust as of the Evaluation Time on each business day and will adjust
the Public Offering Price of the Units according to this valuation. This
Public Offering Price will be effective for all orders received before the
Evaluation Time on each such day. If we or the Trustee receive orders for
purchases, sales or redemptions after that time, or on a day which is not a
business day, they will be held until the next determination of price. The
term "business day" as used in this prospectus shall mean any day on which the
NYSE is open. For purposes of Securities and Unit settlement, the term
business day does not include days on which U.S. financial institutions are
closed.
The aggregate underlying value of the Securities in the Trust will be
determined as follows: if the Securities are listed on a national or foreign
securities exchange or The NASDAQ Stock Market, LLC(R), their value shall
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generally be based on the closing sale price on the exchange or system which
is the principal market therefore ("Primary Exchange"), which shall be deemed
to be the NYSE if the Securities are listed thereon (unless the Evaluator
deems such price inappropriate as the basis for evaluation). In the event a
closing sale price on the Primary Exchange is not published, the Securities
will be valued based on the last trade price on the Primary Exchange. If no
trades occur on the Primary Exchange for a specific trade date, the value will
be based on the closing sale price from, in the opinion of the Evaluator, an
appropriate secondary exchange, if any. If no trades occur on the Primary
Exchange or any appropriate secondary exchange on a specific trade date, the
Evaluator will determine the value of the Securities using the best
information available to the Evaluator, which may include the prior day's
evaluated price. If the Security is an American Depositary Receipt/ADR, Global
Depositary Receipt/GDR or other similar security in which no trade occurs on
the Primary Exchange or any appropriate secondary exchange on a specific trade
date, the value will be based on the evaluated price of the underlying
security, determined as set forth above, after applying the appropriate
ADR/GDR ratio, the exchange rate and such other information which the
Evaluator deems appropriate. For purposes of valuing Securities traded on The
NASDAQ Stock Market, LLC(R), closing sale price shall mean the Nasdaq(R)
Official Closing Price as determined by The NASDAQ Stock Market, LLC(R). If
the Securities are not so listed or, if so listed and the principal market
therefore is other than on the Primary Exchange or any appropriate secondary
exchange, the value shall generally be based on the current ask price on the
over-the-counter market (unless the Evaluator deems such price inappropriate
as a basis for evaluation). If current ask prices are unavailable, the value
is generally determined (a) on the basis of current ask prices for comparable
securities, (b) by appraising the value of the Securities on the ask side of
the market, or (c) any combination of the above. If such prices are in a
currency other than U.S. dollars, the value of such Security shall be
converted to U.S. dollars based on current exchange rates (unless the
Evaluator deems such prices inappropriate as a basis for evaluation). If the
Evaluator deems a price determined as set forth above to be inappropriate as
the basis for evaluation, the Evaluator shall use such other information
available to the Evaluator which it deems appropriate as the basis for
determining the value of a Security.
After the initial offering period is over, the aggregate underlying value of
the Securities will be determined as set forth above, except that bid prices
are used instead of ask prices when necessary.
Distribution of Units
We intend to qualify Units of the Trust for sale in a number of states. All
Units will be sold at the then current Public Offering Price.
The Sponsor compensates intermediaries, such as broker/dealers and banks, for
their activities that are intended to result in sales of Units of the Trust.
This compensation includes dealer concessions described in the following
section and may include additional concessions and other compensation and
benefits to broker/dealers and other intermediaries.
Dealer Concessions.
Dealers and other selling agents can purchase Units at prices which represent
a concession or agency commission of 2.00% of the Public Offering Price per
Unit, subject to reductions set forth in "Public Offering-Discounts for
Certain Persons."
Eligible dealer firms and other selling agents who, during the previous
consecutive 12-month period through the end of the most recent month, sold
primary market units of unit investment trusts sponsored by us in the dollar
amounts shown below will be entitled to up to the following additional sales
concession on primary market sales of units during the current month of unit
investment trusts sponsored by us:
Total sales Additional
(in millions) Concession
______________________________________________________
$25 but less than $100 0.035%
$100 but less than $150 0.050%
$150 but less than $250 0.075%
$250 but less than $1,000 0.100%
$1,000 but less than $5,000 0.125%
$5,000 but less than $7,500 0.150%
$7,500 or more 0.175%
Dealers and other selling agents will not receive a concession on the sale of
Units which are not subject to a transactional sales charge, but such Units
will be included in determining whether the above volume sales levels are met.
Eligible dealer firms and other selling agents include clearing firms that
place orders with First Trust and provide First Trust with information with
respect to the representatives who initiated such transactions. Eligible
dealer firms and other selling agents will not include firms that solely
provide clearing services to other broker/dealer firms or firms who place
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orders through clearing firms that are eligible dealers. We reserve the right
to change the amount of concessions or agency commissions from time to time.
Certain commercial banks may be making Units of the Trust available to their
customers on an agency basis. A portion of the transactional sales charge paid
by these customers is kept by or given to the banks in the amounts shown above.
Other Compensation and Benefits to Broker/Dealers.
The Sponsor, at its own expense and out of its own profits, currently provides
additional compensation and benefits to broker/dealers who sell Units of this
Trust and other First Trust products. This compensation is intended to result
in additional sales of First Trust products and/or compensate broker/dealers
and financial advisors for past sales. A number of factors are considered in
determining whether to pay these additional amounts. Such factors may include,
but are not limited to, the level or type of services provided by the
intermediary, the level or expected level of sales of First Trust products by
the intermediary or its agents, the placing of First Trust products on a
preferred or recommended product list, access to an intermediary's personnel,
and other factors. The Sponsor makes these payments for marketing, promotional
or related expenses, including, but not limited to, expenses of entertaining
retail customers and financial advisors, advertising, sponsorship of events or
seminars, obtaining information about the breakdown of unit sales among an
intermediary's representatives or offices, obtaining shelf space in
broker/dealer firms and similar activities designed to promote the sale of the
Sponsor's products. The Sponsor makes such payments to a substantial majority
of intermediaries that sell First Trust products. The Sponsor may also make
certain payments to, or on behalf of, intermediaries to defray a portion of
their costs incurred for the purpose of facilitating Unit sales, such as the
costs of developing or purchasing trading systems to process Unit trades.
Payments of such additional compensation described in this and the preceding
paragraph, some of which may be characterized as "revenue sharing," create a
conflict of interest by influencing financial intermediaries and their agents
to sell or recommend a First Trust product, including the Trust, over products
offered by other sponsors or fund companies. These arrangements will not
change the price you pay for your Units.
Advertising and Investment Comparisons.
Advertising materials regarding the Trust may discuss several topics,
including: developing a long-term financial plan; working with your financial
professional; the nature and risks of various investment strategies and unit
investment trusts that could help you reach your financial goals; the
importance of discipline; how the Trust operates; how securities are selected;
various unit investment trust features such as convenience and costs; and
options available for certain types of unit investment trusts. These materials
may include descriptions of the principal businesses of the companies
represented in the Trust, research analysis of why they were selected and
information relating to the qualifications of the persons or entities
providing the research analysis. In addition, they may include research
opinions on the economy and industry sectors included and a list of investment
products generally appropriate for pursuing those recommendations.
From time to time we may compare the estimated returns of the Trust (which may
show performance net of the expenses and charges the Trust would have
incurred) and returns over specified periods of other similar trusts we
sponsor in our advertising and sales materials, with (1) returns on other
taxable investments such as the common stocks comprising various market
indexes, corporate or U.S. Government bonds, bank CDs and money market
accounts or funds, (2) performance data from Morningstar, Inc. or (3)
information from publications such as Money, The New York Times, U.S. News and
World Report, Bloomberg Businessweek, Forbes or Fortune. The investment
characteristics of the Trust differ from other comparative investments. You
should not assume that these performance comparisons will be representative of
the Trust's future performance. We may also, from time to time, use
advertising which classifies trusts or portfolio securities according to
capitalization and/or investment style.
The Sponsor's Profits
We will receive a gross sales commission equal to the maximum transactional
sales charge per Unit less any reduction as stated in "Public Offering." We
will also receive the amount of any collected creation and development fee.
Also, any difference between our cost to purchase the Securities and the price
at which we sell them to the Trust is considered a profit or loss (see Note 2
of "Schedule of Investments"). During the initial offering period, dealers and
others may also realize profits or sustain losses as a result of fluctuations
in the Public Offering Price they receive when they sell the Units.
In maintaining a market for the Units, any difference between the price at
which we purchase Units and the price at which we sell or redeem them will be
a profit or loss to us.
Page 21
The Secondary Market
Although not obligated, we may maintain a market for the Units after the
initial offering period and continuously offer to purchase Units at prices
based on the Redemption Price per Unit.
We will pay all expenses to maintain a secondary market, except the Evaluator
fees and Trustee costs to transfer and record the ownership of Units. We may
discontinue purchases of Units at any time. IF YOU WISH TO DISPOSE OF YOUR
UNITS, YOU SHOULD ASK US FOR THE CURRENT MARKET PRICES BEFORE MAKING A TENDER
FOR REDEMPTION TO THE TRUSTEE. If you sell or redeem your Units before you
have paid the total deferred sales charge on your Units, you will have to pay
the remainder at that time.
How We Purchase Units
The Trustee will notify us of any tender of Units for redemption. If our bid
at that time is equal to or greater than the Redemption Price per Unit, we may
purchase the Units. You will receive your proceeds from the sale no later than
if they were redeemed by the Trustee. We may tender Units that we hold to the
Trustee for redemption as any other Units. If we elect not to purchase Units,
the Trustee may sell tendered Units in the over-the-counter market, if any.
However, the amount you will receive is the same as you would have received on
redemption of the Units.
Expenses and Charges
The estimated annual expenses of the Trust are listed under "Fee Table." If
actual expenses of the Trust exceed the estimate, the Trust will bear the
excess. The Trustee will pay operating expenses of the Trust from the Income
Account if funds are available, and then from the Capital Account. The Income
and Capital Accounts are non-interest-bearing to Unit holders, so the Trustee
may earn interest on these funds, thus benefiting from their use. In addition,
investors will also indirectly pay a portion of the expenses of the underlying
Funds.
First Trust Advisors L.P., an affiliate of ours, acts as Portfolio Supervisor
and Evaluator and will be compensated for providing portfolio supervisory
services and evaluation services as well as bookkeeping and other
administrative services to the Trust. In providing portfolio supervisory
services, the Portfolio Supervisor may purchase research services from a
number of sources, which may include underwriters or dealers of the Trust. As
Sponsor, we will receive brokerage fees when the Trust uses us (or an
affiliate of ours) as agent in buying or selling Securities. As authorized by
the Indenture, the Trustee may employ a subsidiary or affiliate of the Trustee
to act as broker to execute certain transactions for the Trust. The Trust will
pay for such services at standard commission rates.
The fees payable to First Trust Advisors L.P. and the Trustee are based on the
largest aggregate number of Units of the Trust outstanding at any time during
the calendar year, except during the initial offering period, in which case
these fees are calculated based on the largest number of Units outstanding
during the period for which compensation is paid. These fees may be adjusted
for inflation without Unit holders' approval, but in no case will the annual
fees paid to us or our affiliates for providing services to all unit
investment trusts be more than the actual cost of providing such services in
such year.
As Sponsor, we will receive a fee from the Trust for creating and developing
the Trust, including determining the Trust's objectives, policies, composition
and size, selecting service providers and information services and for
providing other similar administrative and ministerial functions. The
"creation and development fee" is a charge of $.050 per Unit outstanding at
the end of the initial offering period. The Trustee will deduct this amount
from the Trust's assets as of the close of the initial offering period. We do
not use this fee to pay distribution expenses or as compensation for sales
efforts. This fee will not be deducted from your proceeds if you sell or
redeem your Units before the end of the initial offering period.
In addition to the Trust's operating expenses and those fees described above,
the Trust may also incur the following charges:
- All legal expenses of the Trustee according to its responsibilities under
the Indenture;
- The expenses and costs incurred by the Trustee to protect the Trust and your
rights and interests (i.e., participating in litigation concerning a portfolio
security) and the costs of indemnifying the Trustee;
- Fees for any extraordinary services the Trustee performed under the Indenture;
- Payment for any loss, liability or expense the Trustee incurred without
negligence, bad faith or willful misconduct on its part, in connection with
its acceptance or administration of the Trust;
Page 22
- Payment for any loss, liability or expenses we incurred without negligence,
bad faith or willful misconduct in acting as Sponsor of the Trust;
- Foreign custodial and transaction fees (which may include compensation paid
to the Trustee or its subsidiaries or affiliates), if any; and/or
- All taxes and other government charges imposed upon the Securities or any
part of the Trust.
The above expenses and the Trustee's annual fee are secured by a lien on the
Trust. In addition, if there is not enough cash in the Income or Capital
Account, the Trustee has the power to sell Securities to make cash available
to pay these charges which may result in capital gains or losses to you. See
"Tax Status."
Tax Status
Federal Tax Matters.
This section discusses some of the main U.S. federal income tax consequences
of owning Units of the Trust as of the date of this prospectus. Tax laws and
interpretations change frequently, and this summary does not describe all of
the tax consequences to all taxpayers. For example, this summary generally
does not describe your situation if you are a broker/dealer or other investor
with special circumstances. In addition, this section may not describe your
state, local or non-U.S. tax consequences.
This federal income tax summary is based in part on the advice of counsel to
the Sponsor. The Internal Revenue Service ("IRS") could disagree with any
conclusions set forth in this section. In addition, our counsel may not have
been asked to review, and may not have reached a conclusion with respect to
the federal income tax treatment of the assets to be deposited in the Trust.
This summary may not be sufficient for you to use for the purpose of avoiding
penalties under federal tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.
Trust Status.
Unit investment trusts maintain both Income and Capital Accounts, regardless
of tax structure. Please refer to the "Income and Capital Distributions"
section of the prospectus for more information.
The Trust intends to qualify as a grantor trust under the federal tax laws. If
the Trust qualifies as a grantor trust, the Trust will not be taxed as a
corporation for federal income tax purposes and will not pay federal income
taxes. For federal income tax purposes, in grantor trusts you are deemed to
own a pro rata portion of the underlying assets of the Trust directly, and as
such you will be considered to have received a pro rata share of income. All
taxability issues are taken into account at the Unit holder level.
Income from the Trust.
Income realized by the Trust passes through and is treated as income of the
Unit holders. Income is reported without any deduction for expenses. Expenses
are separately reported. Generally, the income paid to Unit holders is net the
expenses of the Trust, but the income reportable by Unit holders is gross the
expenses of the Trust.
You may be required to recognize income for federal income tax purposes in one
year even if you do not receive a corresponding distribution from the Trust,
or do not receive the corresponding distribution from the Trust until a later
year. This is true even if you elect to have your distributions reinvested
into additional Units. In addition, the income that you must take into account
for federal income tax purposes is not reduced by amounts used to pay sales
charges or Trust expenses.
Some income from the Trust assets may have been received as long-term capital
gains, which, if you are an individual, is generally taxed at a lower rate
than your ordinary income and short-term capital gain income. However, capital
gain received from assets held for more than one year that is considered
"unrecaptured section 1250 gain" (which may be the case, for example, with
some capital gains attributable to equity interests in REITs, if any, held by
the Trust (the "REIT Shares") or some capital gains attributable to equity
interests in regulated investment companies ("RICs") which hold REIT Shares,
if any, held by the Trust (the "RIC Shares")) is taxed at a higher rate.
Income from the Trust assets (including capital gain income) may also be
subject to a "Medicare tax" if your adjusted gross income exceeds certain
threshold amounts. Interest that is excluded from gross income, including
exempt-interest dividends, if any, from RIC Shares held by the Trust, are
generally not included in your net investment income for purposes of this tax.
Certain Stock Dividends.
Ordinary income dividends paid on certain stock held by the Trust are
generally taxed at the same rates that apply to long-term capital gains,
provided certain holding period requirements are satisfied and provided the
dividends are attributable to qualifying dividend income ("QDI") received by
the Trust itself. Ordinary income dividends that do not meet these
requirements will generally be taxed at ordinary income tax rates. After the
Page 23
end of the tax year, the Trust will provide a tax statement to its Unit
holders reporting the amount of any distribution which may be taken into
account as a dividend which is eligible for the capital gains tax rates. Some
dividends on the RIC Shares may be reported by the RIC as "capital gain
dividends", generally taxable to you as long-term capital gains. Some
dividends on the RIC Shares may qualify as "exempt-interest dividends", which
generally are excluded from your gross income for federal income tax purposes.
Some or all of the exempt-interest dividends, however may be taken into
account in determining your alternative minimum tax, and may have other tax
consequences (e.g., they may affect the amount of your social security
benefits that are taxed).
Unit holders that are corporations may be eligible for the dividends received
deduction on qualifying dividends received by the Trust from certain
corporations.
Because the Trust holds RIC Shares, some dividends may be designated by the
RIC as capital gain dividends and, therefore, may be taxable to you as capital
gains. If you hold a Unit for six months or less or if the Trust holds an
underlying RIC Share for six months or less, any loss incurred by you related
to the sale of such RIC Share will generally be disallowed to the extent of
any exempt-interest dividends you received. To the extent, if any, it is not
disallowed, it will be treated as a long-term capital loss to the extent of
any long-term capital gain distributions received (or deemed to have been
received) with respect to such RIC Share. Some dividends from the RIC Shares
may be eligible for a deduction for qualified business income.
Sale of Units.
If you sell your Units (whether to a third party or to the Trust), you will
generally recognize a taxable gain or loss. To determine the amount of this
gain or loss, you must subtract your (adjusted) tax basis in your Trust assets
from the amount you receive from the sale. You can generally determine your
original tax basis in each Trust asset by apportioning the cost of your Units,
including sales charges, among the Trust assets ratably according to their
values on the date you acquire your Units. In certain circumstances, however,
you may have to use information provided by the Trustee to adjust your tax
basis after you acquire your Units (for example, in the case of certain
corporate events affecting an issuer, such as stock splits or mergers, or in
the case of certain dividends that exceed a corporation's accumulated earnings
and profits).
The tax statement you receive may contain information to allow you to
calculate and adjust your basis in Trust assets and determine whether any gain
or loss recognized by you should be considered long-term capital gain, short-
term capital gain or return of capital. The information reported to you is
based upon rules that do not take into consideration all of the facts that may
be known to you or to your advisors. You should consult with your tax advisor
about any adjustments that may need to be made to the information reported to
you in determining the amount of your gain or loss.
Under the wash sale rules, all or a portion of any loss you may recognize on a
disposition of your Units or on a disposition of assets by the Trust may be
disallowed if you purchase stocks or other assets that are the same as or
substantially identical to any of the assets held directly or indirectly
through the Trust within 30 days of the disposition.
Distribution Reinvestment Option.
If you elect to reinvest your distributions into additional Units, you will be
treated as if you have received your distribution in an amount equal to the
distribution you are entitled to. Your tax liability will be the same as if
you received the distribution in cash. Also, the reinvestment would generally
be considered a purchase of new Units for federal income tax purposes.
Treatment of Trust Expenses.
Generally, for federal income tax purposes, you must take into account your
full pro rata share of your Trust's income, even if some of that income is
used to pay Trust expenses. You may not be able to take a deduction for some
or all of these expenses even if the cash you receive is reduced by such
expenses. Because some of the RICs may pay exempt-interest dividends, which
are treated as tax-exempt interest for federal income tax purposes, you may
not be able to deduct some of your share of the Trust expenses. In addition,
you may not be able to deduct some of your interest expense for debt that you
incur or continue to purchase or carry your Units.
Investments in Certain Non-U.S. Corporations.
A foreign corporation will generally be treated as a passive foreign
investment company ("PFIC") if 75% or more of its income is passive income or
if 50% or more of its assets are held to produce passive income. If the Trust
purchases shares in PFICs, you may be subject to U.S. federal income tax on a
portion of certain distributions from the PFICs or on gains from the
disposition of such PFIC shares at tax rates that were applicable in prior
years and any gain may be recharacterized as ordinary income that is not
eligible for the lower net capital gains tax rate. Additional charges in the
form of interest may also be imposed on you. Certain elections may be
available with respect to PFICs that would limit these consequences. However,
Page 24
these elections would require you to include certain income of the PFICs in
your taxable income even if not distributed to the Trust or to you, or require
you to annually recognize as ordinary income any increase in the value of the
shares of the PFICs, thus requiring you to recognize income for federal income
tax purposes in excess of your actual distributions from PFICs and proceeds
from dispositions of PFIC stock during a particular year. Dividends paid by
PFICs are not treated as QDI to shareholders of the PFICs.
Non-U.S. Investors.
If you are a non-U.S. investor, distributions from the Trust treated as
dividends will generally be subject to a U.S. withholding tax of 30% of the
distribution. Certain dividends, such as capital gains dividends, short-term
capital gains dividends, and distributions that are attributable to exempt-
interest income or certain other interest income may not be subject to U.S.
withholding taxes. In addition, some non-U.S. investors may be eligible for a
reduction or elimination of U.S. withholding taxes under a treaty. However,
the qualification for those exclusions may not be known at the time of the
distribution.
Separately, the United States, pursuant to the Foreign Account Tax Compliance
Act ("FATCA") imposes a 30% tax on certain non-U.S. entities that receive U.S.
source interest or dividends if the non-U.S. entity does not comply with
certain U.S. disclosure and reporting requirements. This FATCA tax also
currently applies to the gross proceeds from the disposition of securities
that produce U.S. source interest or dividends. However, proposed regulations
may eliminate the requirement to withhold on payments of gross proceeds from
dispositions.
It is the responsibility of the entity through which you hold your Units to
determine the applicable withholding.
Foreign Tax Credit.
If the Trust directly or indirectly invests in non-U.S. stocks, the tax
statement that you receive may include an item showing foreign taxes the Trust
paid to other countries. You may be able to deduct or receive a tax credit for
your share of these taxes. The Trust would have to meet certain IRS
requirements in order to pass through credits to you.
Investments in Commodities.
The Trust is expected to hold shares (the "Grantor Trust Shares") in entities
qualifying as grantor trusts (the "Grantor Trusts") for federal income tax
purposes, which in turn hold various commodities, including gold and silver
(the "Commodities"). You will be treated as the owner of a pro rata portion of
each of the Commodities held by the Grantor Trusts. If (i) you dispose of your
Units or redeem your Units, (ii) the Trust disposes of any Grantor Trust
Shares or (iii) any Grantor Trust disposes of any Commodity, you will
generally recognize gain or loss as if you had sold your pro rata portion of
the Commodities. Any such gain, in the case of Commodities such as silver and
gold, will generally be treated as gain from the sale or exchange of a
collectible, which in the case of individuals is subject to a maximum marginal
federal income tax rate of 28%.
In-Kind Distributions.
If permitted by this prospectus, as described in "Redeeming Your Units," you
may request an In-Kind Distribution of Trust assets when you redeem your Units
at any time prior to 30 business days before the Trust's Mandatory Termination
Date. However, this ability to request an In-Kind Distribution will terminate
at any time that the number of outstanding Units has been reduced to 10% or
less of the highest number of Units issued by the Trust. You will not
recognize gain or loss if you only receive whole Trust assets in exchange for
the identical amount of your pro rata portion of the same Trust assets held by
your Trust. However, if you also receive cash in exchange for a Trust asset or
a fractional portion of a Trust asset, you will generally recognize gain or
loss based on the difference between the amount of cash you receive and your
tax basis in such Trust asset or fractional portion.
State and Local Taxes.
Based on the advice of Carter Ledyard & Milburn, LLP, special counsel to the
Trust for New York tax matters, under the existing income tax laws of the
State and City of New York, assuming that the Trust is not treated as a
corporation for federal income tax purposes, the Trust will not be taxed as a
corporation for New York State and New York City purposes and the income of
the Trust will be treated as the income of the Unit holders in the same manner
as for federal income tax purposes.
You should consult your tax advisor regarding potential foreign, state or
local taxation with respect to your Units.
Retirement Plans
You may purchase Units of the Trust for:
- Individual Retirement Accounts;
- Keogh Plans;
- Pension funds; and
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- Other tax-deferred retirement plans.
Generally, the federal income tax on capital gains and income received in each
of the above plans is deferred until you receive distributions. These
distributions are generally treated as ordinary income but may, in some cases,
be eligible for special averaging or tax-deferred rollover treatment. Before
participating in a plan like this, you should review the tax laws regarding
these plans and consult your attorney or tax advisor. Brokerage firms and
other financial institutions offer these plans with varying fees and charges.
Rights of Unit Holders
Unit Ownership.
Ownership of Units will not be evidenced by certificates. If you purchase or
hold Units through a broker/dealer or bank, your ownership of Units will be
recorded in book-entry form at the Depository Trust Company ("DTC") and
credited on its records to your broker/dealer's or bank's DTC account.
Transfer of Units will be accomplished by book entries made by DTC and its
participants if the Units are registered to DTC or its nominee, Cede & Co. DTC
will forward all notices and credit all payments received in respect of the
Units held by the DTC participants. You will receive written confirmation of
your purchases and sales of Units from the broker/dealer or bank through which
you made the transaction. You may transfer your Units by contacting the
broker/dealer or bank through which you hold your Units.
Unit Holder Reports.
The Trustee will prepare a statement detailing the per Unit amounts (if any)
distributed from the Income Account and Capital Account in connection with
each distribution. In addition, at the end of each calendar year, the Trustee
will prepare a statement which contains the following information:
- A summary of transactions in the Trust for the year;
- A list of any Securities sold during the year and the Securities held at the
end of that year by the Trust;
- The Redemption Price per Unit, computed on the 31st day of December of such
year (or the last business day before); and
- Amounts of income and capital distributed during the year.
By February 15th yearly, the Annual Reports are posted to the Sponsor's
website (www.ftportfolios.com) in the UIT Tax Center and retrievable by CUSIP.
You may also request one be sent to you by calling the Sponsor at 800-621-
1675, dept. code 2. In addition, you may also request from the Trustee copies
of the evaluations of the Securities as prepared by the Evaluator to enable
you to comply with applicable federal and state tax reporting requirements.
Income and Capital Distributions
You will begin receiving distributions on your Units only after you become a
Record Owner. The Trustee will credit dividends received on the Trust's
Securities to the Income Account of the Trust. All other receipts, such as
return of capital or capital gain dividends, are credited to the Capital
Account of the Trust. Dividends received on foreign Securities, if any, are
converted into U.S. dollars at the applicable exchange rate.
The Trustee will distribute money from the Income and Capital Accounts, as
determined at the monthly Record Date, monthly on the twenty-fifth day of each
month to Unit holders of record on the tenth day of such month provided the
aggregate amount, exclusive of sale proceeds, available for distribution in
the Income and Capital Accounts equals at least 0.1% of the net asset value of
the Trust. Undistributed money in the Income and Capital Accounts will be
distributed in the next month in which the aggregate amount available for
distribution, exclusive of sale proceeds, equals or exceeds 0.1% of the net
asset value of the Trust. See "Summary of Essential Information." No income
distribution will be paid if accrued expenses of the Trust exceed amounts in
the Income Account on the Distribution Dates. Distribution amounts will vary
with changes in the Trust's fees and expenses, in dividends received and with
the sale of Securities. The Trustee will distribute sale proceeds in the
Capital Account, net of amounts designated to meet redemptions, pay the
deferred sales charge and creation and development fee or pay expenses, on the
twenty-fifth day of each month to Unit holders of record on the tenth day of
such month provided the amount equals at least $1.00 per 100 Units. If the
Trustee does not have your taxpayer identification number ("TIN"), it is
required to withhold a certain percentage of your distribution and deliver
such amount to the IRS. You may recover this amount by giving your TIN to the
Trustee, or when you file a tax return. However, you should check your
statements to make sure the Trustee has your TIN to avoid this "back-up
withholding."
If an Income or Capital Account distribution date is a day on which the NYSE
is closed, the distribution will be made on the next day the stock exchange is
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open. Distributions are paid to Unit holders of record determined as of the
close of business on the Record Date for that distribution or, if the Record
Date is a day on which the NYSE is closed, the first preceding day on which
the exchange is open.
We anticipate that there will be enough money in the Capital Account of the
Trust to pay the deferred sales charge to the Sponsor. If not, the Trustee may
sell Securities to meet the shortfall.
Within a reasonable time after the Trust is terminated, you will receive the
pro rata share of the money from the sale of the Securities and amounts in the
Income and Capital Accounts. All Unit holders will receive a pro rata share of
any other assets remaining in the Trust, after deducting any unpaid expenses.
The Trustee may establish reserves (the "Reserve Account") within the Trust to
cover anticipated state and local taxes or any governmental charges to be paid
out of the Trust.
Distribution Reinvestment Option. You may elect to have each distribution of
income and/or capital reinvested into additional Units of the Trust by
notifying your broker/dealer or bank within the time period required by such
entities so that they can notify the Trustee of your election at least 10 days
before any Record Date. Each later distribution of income and/or capital on
your Units will be reinvested by the Trustee into additional Units of such
Trust. There is no sales charge on Units acquired through the Distribution
Reinvestment Option, as discussed under "Public Offering." This option may not
be available in all states. Each reinvestment plan is subject to availability
or limitation by the Sponsor and each broker/dealer or selling firm. The
Sponsor or broker/dealers may suspend or terminate the offering of a
reinvestment plan at any time. Because the Trust may begin selling Securities
nine business days prior to the Mandatory Termination Date, reinvestment is
not available during this period. Please contact your financial professional
for additional information. PLEASE NOTE THAT EVEN IF YOU REINVEST
DISTRIBUTIONS, THEY ARE STILL CONSIDERED DISTRIBUTIONS FOR INCOME TAX PURPOSES.
Redeeming Your Units
You may redeem all or a portion of your Units at any time by sending a request
for redemption to your broker/dealer or bank through which you hold your
Units. No redemption fee will be charged, but you are responsible for any
governmental charges that apply. Certain broker/dealers may charge a
transaction fee for processing redemption requests. Two business days after
the day you tender your Units (the "Date of Tender") you will receive cash in
an amount for each Unit equal to the Redemption Price per Unit calculated at
the Evaluation Time on the Date of Tender.
The Date of Tender is considered to be the date on which your redemption
request is received by the Trustee from the broker/dealer or bank through
which you hold your Units (if such day is a day the NYSE is open for trading).
However, if the redemption request is received after 4:00 p.m. Eastern time
(or after any earlier closing time on a day on which the NYSE is scheduled in
advance to close at such earlier time), the Date of Tender is the next day the
NYSE is open for trading.
Any amounts paid on redemption representing income will be withdrawn from the
Income Account if funds are available for that purpose, or from the Capital
Account. All other amounts paid on redemption will be taken from the Capital
Account. The IRS will require the Trustee to withhold a portion of your
redemption proceeds if the Trustee does not have your TIN as generally
discussed under "Income and Capital Distributions."
If you tender for redemption at least 2,500 Units, or such larger amount as
required by your broker/dealer or bank, rather than receiving cash, you may
elect to receive an In-Kind Distribution in an amount equal to the Redemption
Price per Unit by making this request to your broker/dealer or bank at the
time of tender. However, to be eligible to participate in the In-Kind
Distribution option at redemption, Unit holders must hold their Units through
the end of the initial offering period. No In-Kind Distribution requests
submitted during the 30 business days prior to the Trust's Mandatory
Termination Date will be honored. Where possible, the Trustee will make an In-
Kind Distribution by distributing each of the Securities in book-entry form to
your bank's or broker/dealer's account at DTC. The Trustee will subtract any
customary transfer and registration charges from your In-Kind Distribution. As
a tendering Unit holder, you will receive your pro rata number of whole shares
of Securities that make up the portfolio, and cash from the Capital Account
equal to the fractional shares to which you are entitled.
The Trustee may sell Securities to make funds available for redemption. If
Securities are sold, the size and diversification of the Trust will be
reduced. These sales may result in lower prices than if the Securities were
sold at a different time.
Your right to redeem Units (and therefore, your right to receive payment) may
be delayed:
- If the NYSE is closed (other than customary weekend and holiday closings);
Page 27
- If the SEC determines that trading on the NYSE is restricted or that an
emergency exists making sale or evaluation of the Securities not reasonably
practical; or
- For any other period permitted by SEC order.
The Trustee is not liable to any person for any loss or damage which may
result from such a suspension or postponement.
The Redemption Price.
The Redemption Price per Unit is determined by the Trustee by:
adding
1. cash in the Income and Capital Accounts of the Trust not designated to
purchase Securities;
2. the aggregate underlying value of the Securities held in the Trust; and
3. dividends receivable on the Securities trading ex-dividend as of the date
of computation; and
deducting
1. any applicable taxes or governmental charges that need to be paid out of
the Trust;
2. any amounts owed to the Trustee for its advances;
3. estimated accrued expenses of the Trust, if any;
4. cash held for distribution to Unit holders of record of the Trust as of the
business day before the evaluation being made;
5. liquidation costs for foreign Securities, if any; and
6. other liabilities incurred by the Trust; and
dividing
1. the result by the number of outstanding Units of the Trust.
Any remaining deferred sales charge on the Units when you redeem them will be
deducted from your redemption proceeds. In addition, until they are collected,
the Redemption Price per Unit will include estimated organization costs as set
forth under "Fee Table."
Removing Securities from the Trust
The portfolio of the Trust is not managed. However, we may, but are not
required to, direct the Trustee to dispose of a Security in certain limited
circumstances, including situations in which:
- The issuer of the Security defaults in the payment of a declared dividend;
- Any action or proceeding prevents the payment of dividends;
- There is any legal question or impediment affecting the Security;
- The issuer of the Security has breached a covenant which would affect the
payment of dividends, the issuer's credit standing, or otherwise damage the
sound investment character of the Security;
- The issuer has defaulted on the payment of any other of its outstanding
obligations;
- There has been a public tender offer made for a Security or a merger or
acquisition is announced affecting a Security, and that in our opinion the
sale or tender of the Security is in the best interest of Unit holders;
- The sale of Securities is necessary or advisable (i) in order to maintain
the qualification of the Trust as a "regulated investment company" in the case
of the Trust which has elected to qualify as such or (ii) to provide funds to
make any distribution for a taxable year in order to avoid imposition of any
income or excise taxes on undistributed income in the Trust which is a
"regulated investment company";
- The price of the Security has declined to such an extent, or such other
credit factors exist, that in our opinion keeping the Security would be
harmful to the Trust;
- As a result of the ownership of the Security, the Trust or its Unit holders
would be a direct or indirect shareholder of a passive foreign investment
company; or
- The sale of the Security is necessary for the Trust to comply with such
federal and/or state laws, regulations and/or regulatory actions and
interpretations which may be in effect from time to time.
Except in the limited instance in which the Trust acquires Replacement
Securities, as described in "The FT Series," the Trust may not acquire any
securities or other property other than the Securities. The Trustee, on behalf
of the Trust, will reject any offer for new or exchanged securities or
property in exchange for a Security, such as those acquired in a merger or
other transaction. If such exchanged securities or property are nevertheless
acquired by the Trust, at our instruction they will either be sold or held in
the Trust. In making the determination as to whether to sell or hold the
exchanged securities or property we may get advice from the Portfolio
Supervisor. Any proceeds received from the sale of Securities, exchanged
securities or property will be credited to the Capital Account of the Trust
for distribution to Unit holders or to meet redemption requests. The Trustee
may retain and pay us or an affiliate of ours to act as agent for the Trust to
facilitate selling Securities, exchanged securities or property from the
Trust. If we or our affiliate act in this capacity, we will be held subject to
Page 28
the restrictions under the 1940 Act. When acting in an agency capacity, we may
select various broker/dealers to execute securities transactions on behalf of
the Trust, which may include broker/dealers who sell Units of the Trust. We do
not consider sales of Units of the Trust or any other products sponsored by
First Trust as a factor in selecting such broker/dealers. As authorized by the
Indenture, the Trustee may also employ a subsidiary or affiliate of the
Trustee to act as broker in selling such Securities or property. The Trust
will pay for these brokerage services at standard commission rates.
The Trustee may sell Securities designated by us or, absent our direction, at
its own discretion, in order to meet redemption requests or pay expenses. In
designating Securities to be sold, we will try to maintain the proportionate
relationship among the Securities. If this is not possible, the composition
and diversification of the Trust may be changed.
Amending or Terminating the Indenture
Amendments. The Indenture may be amended by us and the Trustee without your
consent:
- To cure ambiguities;
- To correct or supplement any defective or inconsistent provision;
- To make any amendment required by any governmental agency; or
- To make other changes determined not to be adverse to your best interests
(as determined by us and the Trustee).
Termination. As provided by the Indenture, the Trust will terminate on the
Mandatory Termination Date as stated in the "Summary of Essential
Information." The Trust may be terminated earlier:
- Upon the consent of 100% of the Unit holders of the Trust;
- If the value of the Securities owned by the Trust as shown by any evaluation
is less than the lower of $2,000,000 or 20% of the total value of Securities
deposited in the Trust during the initial offering period ("Discretionary
Liquidation Amount"); or
- In the event that Units of the Trust not yet sold aggregating more than 60%
of the Units of the Trust are tendered for redemption by underwriters,
including the Sponsor.
If the Trust is terminated due to this last reason, we will refund your entire
sales charge; however, termination of the Trust before the Mandatory
Termination Date for any other stated reason will result in all remaining
unpaid deferred sales charges on your Units being deducted from your
termination proceeds. For various reasons, the Trust may be reduced below the
Discretionary Liquidation Amount and could therefore be terminated before the
Mandatory Termination Date.
Unless terminated earlier, the Trustee will begin to sell Securities in
connection with the termination of the Trust during the period beginning nine
business days prior to, and no later than, the Mandatory Termination Date. We
will determine the manner and timing of the sale of Securities. Because the
Trustee must sell the Securities within a relatively short period of time, the
sale of Securities as part of the termination process may result in a lower
sales price than might otherwise be realized if such sale were not required at
this time.
You will receive a cash distribution from the sale of the remaining
Securities, along with your interest in the Income and Capital Accounts,
within a reasonable time after the Trust is terminated. The Trustee will
deduct from the Trust any accrued costs, expenses, advances or indemnities
provided for by the Indenture, including estimated compensation of the Trustee
and costs of liquidation and any amounts required as a reserve to pay any
taxes or other governmental charges.
Information on the Sponsor,
Trustee and Evaluator
The Sponsor.
We, First Trust Portfolios L.P., specialize in the underwriting, trading and
wholesale distribution of unit investment trusts under the "First Trust" brand
name and other securities. An Illinois limited partnership formed in 1991, we
took over the First Trust product line and act as Sponsor for successive
series of:
- The First Trust Combined Series
- FT Series (formerly known as The First Trust Special Situations Trust)
- The First Trust Insured Corporate Trust
- The First Trust of Insured Municipal Bonds
- The First Trust GNMA
The First Trust product line commenced with the first insured unit investment
trust in 1974. To date we have deposited more than $545 billion in First Trust
unit investment trusts. Our employees include a team of professionals with
many years of experience in the unit investment trust industry.
We are a member of FINRA and SIPC. Our principal offices are at 120 East
Liberty Drive, Wheaton, Illinois 60187; telephone number 800-621-1675. As of
Page 29
December 31, 2021, the total partners' capital of First Trust Portfolios L.P.
was $125,276,503.
This information refers only to us and not to the Trust or to any series of
the Trust or to any other dealer. We are including this information only to
inform you of our financial responsibility and our ability to carry out our
contractual obligations. We will provide more detailed financial information
on request.
Code of Ethics. The Sponsor and the Trust have adopted a code of ethics
requiring the Sponsor's employees who have access to information on Trust
transactions to report personal securities transactions. The purpose of the
code is to avoid potential conflicts of interest and to prevent fraud,
deception or misconduct with respect to the Trust.
The Trustee.
The Trustee is The Bank of New York Mellon, a trust company organized under
the laws of New York. The Bank of New York Mellon has its unit investment
trust division offices at 240 Greenwich Street, New York, New York 10286,
telephone 800-813-3074. If you have questions regarding your account or your
Trust, please contact the Trustee at its unit investment trust division
offices or your financial advisor. The Sponsor does not have access to
individual account information. The Bank of New York Mellon is subject to
supervision and examination by the Superintendent of the New York State
Department of Financial Services and the Board of Governors of the Federal
Reserve System, and its deposits are insured by the Federal Deposit Insurance
Corporation to the extent permitted by law.
The Trustee has not participated in selecting the Securities for the Trust; it
only provides administrative services.
Limitations of Liabilities of Sponsor and Trustee.
Neither we nor the Trustee will be liable for taking any action or for not
taking any action in good faith according to the Indenture. We will also not
be accountable for errors in judgment. We will only be liable for our own
willful misfeasance, bad faith, gross negligence (ordinary negligence in the
Trustee's case) or reckless disregard of our obligations and duties. The
Trustee is not liable for any loss or depreciation when the Securities are
sold. If we fail to act under the Indenture, the Trustee may do so, and the
Trustee will not be liable for any action it takes in good faith under the
Indenture.
The Trustee will not be liable for any taxes or other governmental charges or
interest on the Securities which the Trustee may be required to pay under any
present or future law of the United States or of any other taxing authority
with jurisdiction. Also, the Indenture states other provisions regarding the
liability of the Trustee.
If we do not perform any of our duties under the Indenture or are not able to
act or become bankrupt, or if our affairs are taken over by public
authorities, then the Trustee may:
- Appoint a successor sponsor, paying them a reasonable rate not more than
that stated by the SEC;
- Terminate the Indenture and liquidate the Trust; or
- Continue to act as Trustee without terminating the Indenture.
The Evaluator.
The Evaluator is First Trust Advisors L.P., an Illinois limited partnership
formed in 1991 and an affiliate of the Sponsor. The Evaluator's address is 120
East Liberty Drive, Wheaton, Illinois 60187.
The Trustee, Sponsor and Unit holders may rely on the accuracy of any
evaluation prepared by the Evaluator. The Evaluator will make determinations
in good faith based upon the best available information, but will not be
liable to the Trustee, Sponsor or Unit holders for errors in judgment.
Other Information
Legal Opinions.
Our counsel is Chapman and Cutler LLP, 320 S. Canal St., Chicago, Illinois
60606. They have passed upon the legality of the Units offered hereby and
certain matters relating to federal tax law. Carter Ledyard & Milburn LLP acts
as the Trustee's counsel, as well as special New York tax counsel for the Trust.
Experts.
The Trust's statement of net assets, including the schedule of investments, as
of the opening of business on the Initial Date of Deposit included in this
prospectus, has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report appearing herein,
and is included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
Supplemental Information.
If you write or call the Sponsor, you will receive free of charge supplemental
information about this Series, which has been filed with the SEC and to which
we have referred throughout. This information states more specific details
concerning the nature, structure and risks of this product. You should be
Page 30
aware that the Trust and the underlying Funds do not necessarily have exposure
to all of the various asset classes described in the Information Supplement.
In addition, the underlying Funds' exposure to the investments described in
the Information Supplement is not fixed and may change over time.
Page 31
FIRST TRUST(R)
Inflation Hedge Portfolio, Series 50
FT 10247
Sponsor:
First Trust Portfolios L.P.
Member SIPC o Member FINRA
120 East Liberty Drive
Wheaton, Illinois 60187
800-621-1675
Trustee:
The Bank of New York Mellon
240 Greenwich Street
New York, New York 10286
800-813-3074
24-Hour Pricing Line:
800-446-0132
Please refer to the "Summary of Essential Information" for the Product Code.
________________________
When Units of the Trust are no longer available, this prospectus may be used
as a preliminary prospectus
for a future series, in which case you should note the following:
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL, OR ACCEPT OFFERS TO BUY, SECURITIES OF A FUTURE SERIES UNTIL THAT
SERIES HAS BECOME EFFECTIVE WITH THE SEC. NO SECURITIES CAN BE SOLD IN ANY
STATE WHERE A SALE WOULD BE ILLEGAL.
________________________
This prospectus contains information relating to the above-mentioned unit
investment trust, but does not contain all of the information about this
investment company as filed with the SEC in Washington, D.C. under the:
- Securities Act of 1933 (file no. 333-______) and
- Investment Company Act of 1940 (file no. 811-05903)
Information about the Trust, including its Codes of Ethics, can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Information
regarding the operation of the SEC's Public Reference Room may be obtained by
calling the SEC at 202-942-8090.
Information about the Trust is available on the EDGAR Database on the SEC's
Internet site at www.sec.gov.
To obtain copies at prescribed rates -
Write: Public Reference Section of the SEC
100 F Street, N.E.
Washington, D.C. 20549
e-mail address: [email protected]
August __, 2022
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
Page 32
FIRST TRUST(R)
The FT Series
Information Supplement
This Information Supplement provides additional information concerning the
structure, operations and risks of the unit investment trust contained in FT
10247 not found in the prospectus for the Trust. However, you should be aware
that the Trust and the underlying Funds do not necessarily have exposure to
all of the various asset classes described in this Information Supplement. In
addition, the underlying Funds' exposure to the investments described below is
not fixed and may change over time. This Information Supplement is not a
prospectus and does not include all of the information you should consider
before investing in the Trust. This Information Supplement should be read in
conjunction with the prospectus for the Trust in which you are considering
investing.
This Information Supplement is dated August __, 2022. Capitalized terms have
been defined in the prospectus.
Table of Contents
Risk Factors
Securities 1
Common Stocks 2
Preferred Stocks 2
Trust Preferred Securities 2
REITs 3
ETFs 4
Closed-End Funds 5
Business Development Companies 5
Convertible Securities 6
Fixed-Income Securities 8
High-Yield Securities 9
Senior Loans 10
Subprime Residential Mortgage Loans 11
TIPS 11
Foreign Issuers 11
Emerging and Developing Markets 12
Small and/or Mid Capitalization Companies 13
Precious Metals 13
Agriculture 13
Commodities 13
Concentrations
Concentration Risk 14
Energy 14
Materials 14
Common Stocks Selected for Inflation Hedge Portfolio, Series 50 14
Risk Factors
Securities. An investment in Units of the Trust should be made with an
understanding of the risks involved in the Trust's exposure to the following
types of securities, either directly or indirectly through the Funds held by
the Trust: common stocks ("Common Stocks"), preferred stock ("Preferred
Stocks"), trust preferred securities ("Trust Preferred Securities"), real
estate investment trusts ("REITs"), exchange-traded funds ("ETFs"), exchange-
traded products ("ETPs"), closed-end funds ("Closed-End Funds") and/or
business development companies. In selecting Closed-End Funds and/or ETFs to
be included in the portfolio, the Sponsor may not be able to include certain
Closed-End Funds and/or ETFs that it previously would have considered due to
Page 1
the investment restrictions imposed by new Rule 12d1-4 under the Investment
Company Act of 1940, as amended.
Common Stocks. An investment in common stocks should be made with an
understanding of the risks which such an investment entails, including the
risk that the financial condition of the issuers of the common stocks or the
general condition of the relevant stock market may worsen, and the value of
the common stocks and therefore the value of the Units may decline. Common
stocks are especially susceptible to general stock market movements and to
volatile increases and decreases of value, as market confidence in and
perceptions of the issuers change. These perceptions are based on
unpredictable factors, including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, and global or regional political, economic or banking crises.
Shareholders of common stocks have rights to receive payments from the issuers
of those common stocks that are generally subordinate to those of creditors
of, or holders of debt obligations or preferred stocks of, such issuers.
Shareholders of common stocks have a right to receive dividends only when and
if, and in the amounts, declared by the issuer's board of directors and have a
right to participate in amounts available for distribution by the issuer only
after all other claims on the issuer have been paid or provided for. Common
stocks do not represent an obligation of the issuer and, therefore, do not
offer any assurance of income or provide the same degree of protection of
capital as do debt securities. The issuance of additional debt securities or
preferred stock will create prior claims for payment of principal, interest
and dividends which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the rights of
holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Cumulative preferred stock dividends must be paid before common
stock dividends, and any cumulative preferred stock dividend omitted is added
to future dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on liquidation
which are senior to those of common stockholders.
Preferred Stocks. An investment in preferred stocks should be made with an
understanding of the risks which such an investment entails, including the
risk that the financial condition of the issuers of the Securities or the
general condition of the preferred stock market may worsen, and the value of
the preferred stocks and therefore the value of the Units may decline.
Preferred stocks may be susceptible to general stock market movements and to
volatile increases and decreases of value as market confidence in and
perceptions of the issuers change. These perceptions are based on
unpredictable factors, including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, market liquidity, and global or regional political, economic
or banking crises. Preferred stocks are also vulnerable to Congressional
reductions in the dividends received deduction which would adversely affect
the after-tax return to the investors who can take advantage of the deduction.
Such a reduction might adversely affect the value of preferred stocks in
general. Holders of preferred stocks, as owners of the entity, have rights to
receive payments from the issuers of those preferred stocks that are generally
subordinate to those of creditors of, or holders of debt obligations or, in
some cases, other senior preferred stocks of, such issuers. Preferred stocks
do not represent an obligation of the issuer and, therefore, do not offer any
assurance of income or provide the same degree of protection of capital as do
debt securities. The issuance of additional debt securities or senior
preferred stocks will create prior claims for payment of principal and
interest and senior dividends which could adversely affect the ability and
inclination of the issuer to declare or pay dividends on its preferred stock
or the rights of holders of preferred stock with respect to assets of the
issuer upon liquidation or bankruptcy. The value of preferred stocks is
subject to market fluctuations for as long as the preferred stocks remain
outstanding, and thus the value of the Securities may be expected to fluctuate
over the life of the Trust to values higher or lower than those prevailing on
the Initial Date of Deposit.
Trust Preferred Securities. An investment in trust preferred securities should
be made with an understanding of the risks which such an investment entails.
Holders of trust preferred securities incur risks in addition to or slightly
different than the typical risks of holding preferred stocks. Trust preferred
securities are limited-life preferred securities that are typically issued by
corporations, generally in the form of interest-bearing notes or preferred
securities, or by an affiliated business trust of a corporation, generally in
the form of beneficial interests in subordinated debentures issued by the
corporation, or similarly structured securities. The maturity and dividend
rate of the trust preferred securities are structured to match the maturity
and coupon interest rate of the interest-bearing notes, preferred securities
or subordinated debentures. Trust preferred securities usually mature on the
stated maturity date of the interest-bearing notes, preferred securities or
subordinated debentures and may be redeemed or liquidated prior to the stated
maturity date of such instruments for any reason on or after their stated call
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date or upon the occurrence of certain extraordinary circumstances at any
time. Trust preferred securities generally have a yield advantage over
traditional preferred stocks, but unlike preferred stocks, distributions on
the trust preferred securities are treated as interest rather than dividends
for Federal income tax purposes. Unlike most preferred stocks, distributions
received from trust preferred securities are not eligible for the dividends-
received deduction. Certain of the risks unique to trust preferred securities
include: (i) distributions on trust preferred securities will be made only if
interest payments on the interest-bearing notes, preferred securities or
subordinated debentures are made; (ii) a corporation issuing the interest-
bearing notes, preferred securities or subordinated debentures may defer
interest payments on these instruments for up to 20 consecutive quarters and
if such election is made, distributions will not be made on the trust
preferred securities during the deferral period; (iii) certain tax or
regulatory events may trigger the redemption of the interest-bearing notes,
preferred securities or subordinated debentures by the issuing corporation and
result in prepayment of the trust preferred securities prior to their stated
maturity date; (iv) future legislation may be proposed or enacted that may
prohibit the corporation from deducting its interest payments on the interest-
bearing notes, preferred securities or subordinated debentures for tax
purposes, making redemption of these instruments likely; (v) a corporation may
redeem the interest-bearing notes, preferred securities or subordinated
debentures in whole at any time or in part from time to time on or after a
stated call date; (vi) trust preferred securities holders have very limited
voting rights; and (vii) payment of interest on the interest-bearing notes,
preferred securities or subordinated debentures, and therefore distributions
on the trust preferred securities, is dependent on the financial condition of
the issuing corporation.
REITs. An investment in REITs should be made with an understanding of the
risks which such an investment entails. Generally, these include economic
recession, the cyclical nature of real estate markets, competitive
overbuilding, unusually adverse weather conditions, changing demographics,
changes in governmental regulations (including tax laws and environmental,
building, zoning and sales regulations), increases in real estate taxes or
costs of material and labor, the inability to secure performance guarantees or
insurance as required, the unavailability of investment capital and the
inability to obtain construction financing or mortgage loans at rates
acceptable to builders and purchasers of real estate. Additional risks include
an inability to reduce expenditures associated with a property (such as
mortgage payments and property taxes) when rental revenue declines, and
possible loss upon foreclosure of mortgaged properties if mortgage payments
are not paid when due.
REITs are financial vehicles that have as their objective the pooling of
capital from a number of investors in order to participate directly in real
estate ownership or financing. REITs are generally fully integrated operating
companies that have interests in income-producing real estate. Equity REITs
emphasize direct property investment, holding their invested assets primarily
in the ownership of real estate or other equity interests. REITs obtain
capital funds for investment in underlying real estate assets by selling debt
or equity securities in the public or institutional capital markets or by bank
borrowing. Thus, the returns on common equities of REITs will be significantly
affected by changes in costs of capital and, particularly in the case of
highly "leveraged" REITs (i.e., those with large amounts of borrowings
outstanding), by changes in the level of interest rates. The objective of an
equity REIT is to purchase income-producing real estate properties in order to
generate high levels of cash flow from rental income and a gradual asset
appreciation, and they typically invest in properties such as office, retail,
industrial, hotel and apartment buildings and healthcare facilities.
REITs are a creation of the tax law. REITs essentially operate as a
corporation or business trust with the advantage of exemption from corporate
income taxes provided the REIT satisfies the requirements of Sections 856
through 860 of the Internal Revenue Code. The major tests for tax-qualified
status are that the REIT (i) be managed by one or more trustees or directors,
(ii) issue shares of transferable interest to its owners, (iii) have at least
100 shareholders, (iv) have no more than 50% of the shares held by five or
fewer individuals, (v) invest substantially all of its capital in real estate
related assets and derive substantially all of its gross income from real
estate related assets and (vi) distributed at least 95% of its taxable income
to its shareholders each year. If a REIT should fail to qualify for such tax
status, the related shareholders (including such Trust) could be adversely
affected by the resulting tax consequences.
The underlying value of REITs and their ability to pay dividends may be
adversely affected by changes in national economic conditions, changes in
local market conditions due to changes in general or local economic conditions
and neighborhood characteristics, increased competition from other properties,
obsolescence of property, changes in the availability, cost and terms of
mortgage funds, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements,
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particularly in older properties, changes in real estate tax rates and other
operating expenses, regulatory and economic impediments to raising rents,
adverse changes in governmental rules and fiscal policies, dependency on
management skill, civil unrest, acts of God, including earthquakes, fires and
other natural disasters (which may result in uninsured losses), acts of war,
adverse changes in zoning laws, and other factors which are beyond the control
of the issuers of REITs. The value of REITs may at times be particularly
sensitive to devaluation in the event of rising interest rates.
REITs may concentrate investments in specific geographic areas or in specific
property types, i.e., hotels, shopping malls, residential complexes, office
buildings and timberlands. The impact of economic conditions on REITs can also
be expected to vary with geographic location and property type. Investors
should be aware that REITs may not be diversified and are subject to the risks
of financing projects. REITs are also subject to defaults by borrowers, self-
liquidation, the market's perception of the REIT industry generally, and the
possibility of failing to qualify for pass-through of income under the
Internal Revenue Code, and to maintain exemption from the Investment Company
Act of 1940. A default by a borrower or lessee may cause a REIT to experience
delays in enforcing its right as mortgagee or lessor and to incur significant
costs related to protecting its investments. In addition, because real estate
generally is subject to real property taxes, REITs may be adversely affected
by increases or decreases in property tax rates and assessments or
reassessments of the properties underlying REITs by taxing authorities.
Furthermore, because real estate is relatively illiquid, the ability of REITs
to vary their portfolios in response to changes in economic and other
conditions may be limited and may adversely affect the value of the Units.
There can be no assurance that any REIT will be able to dispose of its
underlying real estate assets when advantageous or necessary.
Issuers of REITs generally maintain comprehensive insurance on presently owned
and subsequently acquired real property assets, including liability, fire and
extended coverage. However, certain types of losses may be uninsurable or not
be economically insurable as to which the underlying properties are at risk in
their particular locales. There can be no assurance that insurance coverage
will be sufficient to pay the full current market value or current replacement
cost of any lost investment. Various factors might make it impracticable to
use insurance proceeds to replace a facility after it has been damaged or
destroyed. Under such circumstances, the insurance proceeds received by a REIT
might not be adequate to restore its economic position with respect to such
property.
Under various environmental laws, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator caused or knew of the
presence of such hazardous or toxic substances and whether or not the storage
of such substances was in violation of a tenant's lease. In addition, the
presence of hazardous or toxic substances, or the failure to remediate such
property properly, may adversely affect the owner's ability to borrow using
such real property as collateral. No assurance can be given that REITs may not
be presently liable or potentially liable for any such costs in connection
with real estate assets they presently own or subsequently acquire. Certain of
the REITs may also be Mortgage REITs. Mortgage REITs are companies that
provide financing for real estate by purchasing or originating mortgages and
mortgage-backed securities and earn income from the interest on these
investments. Mortgage REITs are also subject to many of the same risks
associated with investments in other REITs and to real estate market conditions.
ETFs. An investment in ETFs should be made with an understanding of the risks
which such an investment entails. ETFs are investment pools that hold other
securities. ETFs are either passively-managed index funds that seek to
replicate the performance or composition of a recognized securities index or
actively-managed funds that seek to achieve a stated investment objective.
ETFs are either open-end management investment companies or unit investment
trusts registered under the Investment Company Act of 1940, as amended. Unlike
typical open-end funds or unit investment trusts, ETFs generally do not sell
or redeem their individual shares at net asset value. ETFs generally sell and
redeem shares in large blocks (often known as "Creation Units"), however, the
Sponsor does not intend to sell or redeem ETFs in this manner. In addition,
securities exchanges list ETF shares for trading, which allow investors to
purchase and sell individual ETF shares among themselves at market prices
throughout the day. The Trust will purchase and sell ETF shares on these
securities exchanges. ETFs therefore possess characteristics of traditional
open-end funds and unit investment trusts, which issue redeemable shares, and
of corporate common stocks or closed-end funds, which generally issue shares
that trade at negotiated prices on securities exchanges and are not redeemable.
ETFs can provide exposure to broad-based indexes, growth and value styles,
market cap segments, sectors and industries, specific countries or regions of
the world or physical commodities. The securities comprising ETFs may be
Page 4
common stocks, fixed-income securities or physical commodities. ETFs contain a
number of securities, anywhere from fewer than 20 securities up to more than
1,000 securities. As a result, investors in ETFs obtain exposure to a much
greater number of securities than an individual investor would typically be
able to obtain on their own. The performance of index-based ETFs is generally
highly correlated with the indices or sectors which they are designed to track.
ETFs are subject to various risks, including management's ability to meet the
fund's investment objective, and to manage the fund's portfolio when the
underlying securities are redeemed or sold, during periods of market turmoil
and as investors' perceptions regarding ETFs or their underlying investments
change.
Shares of ETFs frequently trade at a discount from their net asset value in
the secondary market. This risk is separate and distinct from the risk that
the net asset value of the ETF shares may decrease. The amount of such
discount from net asset value is subject to change from time to time in
response to various factors.
Closed-End Funds. An investment in closed-end funds should be made with an
understanding of the risks which such an investment entails. Closed-end mutual
funds' portfolios are managed and their shares are generally listed on a
securities exchange. The net asset value of closed-end fund shares will
fluctuate with changes in the value of the underlying securities which the
closed-end fund owns. In addition, for various reasons closed-end fund shares
frequently trade at a discount from their net asset value in the secondary
market. The amount of such discount from net asset value is subject to change
from time to time in response to various factors. Closed-end funds' articles
of incorporation may contain certain anti-takeover provisions that may have
the effect of inhibiting a fund's possible conversion to open-end status and
limiting the ability of other persons to acquire control of a fund. In certain
circumstances, these provisions might also inhibit the ability of stockholders
(including the Trust) to sell their shares at a premium over prevailing market
prices. This characteristic is a risk separate and distinct from the risk that
a fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those closed-end
fund shares which were purchased by a Trust at a premium. In the unlikely
event that a closed-end fund converts to open-end status at a time when its
shares are trading at a premium there would be an immediate loss in value to a
Trust since shares of open-end funds trade at net asset value. Certain closed-
end funds may have in place or may put in place in the future plans pursuant
to which the fund may repurchase its own shares in the marketplace. Typically,
these plans are put in place in an attempt by a fund's board of directors to
reduce a discount on its share price. To the extent such a plan was
implemented and shares owned by a Trust are repurchased by a fund, the Trust's
position in that fund would be reduced and the cash would be distributed.
A Trust is prohibited from subscribing to a rights offering for shares of any
of the closed-end funds in which they invest. In the event of a rights
offering for additional shares of a fund, Unit holders should expect that
their Trust will, at the completion of the offer, own a smaller proportional
interest in such fund that would otherwise be the case. It is not possible to
determine the extent of this dilution in share ownership without knowing what
proportion of the shares in a rights offering will be subscribed. This may be
particularly serious when the subscription price per share for the offer is
less than the fund's net asset value per share. Assuming that all rights are
exercised and there is no change in the net asset value per share, the
aggregate net asset value of each shareholder's shares of common stock should
decrease as a result of the offer. If a fund's subscription price per share is
below that fund's net asset value per share at the expiration of the offer,
shareholders would experience an immediate dilution of the aggregate net asset
value of their shares of common stock as a result of the offer, which could be
substantial.
Closed-end funds may utilize leveraging in their portfolios. Leveraging can be
expected to cause increased price volatility for those fund's shares, and as a
result, increased volatility for the price of the Units of a Trust. There can
be no assurance that a leveraging strategy will be successful during any
period in which it is employed.
Business Development Companies. An investment in business development
companies should be made with an understanding of the risks which such an
investment entails. Business development companies' portfolios are managed and
their shares are generally listed on a securities exchange. Business
development companies are closed-end funds which have elected to be treated as
business development companies. The net asset value of business development
company shares will fluctuate with changes in the value of the underlying
securities which the business development company fund owns. In addition, for
various reasons business development company shares frequently trade at a
discount from their net asset value in the secondary market. The amount of
such discount from net asset value is subject to change from time to time in
response to various factors. Business development companies' articles of
incorporation may contain certain anti-takeover provisions that may have the
effect of inhibiting a fund's possible conversion to open-end status and
limiting the ability of other persons to acquire control of a fund. In certain
circumstances, these provisions might also inhibit the ability of stockholders
Page 5
(including the Trust) to sell their shares at a premium over prevailing market
prices. This characteristic is a risk separate and distinct from the risk that
a fund's net asset value will decrease. In particular, this characteristic
would increase the loss or reduce the return on the sale of those business
development company shares which were purchased by the Trust at a premium. In
the unlikely event that a business development company converts to open-end
status at a time when its shares are trading at a premium there would be an
immediate loss in value to a Trust since shares of open-end funds trade at net
asset value. Certain business development companies may have in place or may
put in place in the future plans pursuant to which the fund may repurchase its
own shares in the marketplace. Typically, these plans are put in place in an
attempt by a fund's board of directors to reduce a discount on its share
price. To the extent such a plan was implemented and shares owned by the Trust
are repurchased by a fund, the Trust's position in that fund would be reduced
and the cash would be distributed.
A Trust is prohibited from subscribing to a rights offering for shares of any
of the business development companies in which they invest. In the event of a
rights offering for additional shares of a fund, Unit holders should expect
that their Trust will, at the completion of the offer, own a smaller
proportional interest in such fund that would otherwise be the case. It is not
possible to determine the extent of this dilution in share ownership without
knowing what proportion of the shares in a rights offering will be subscribed.
This may be particularly serious when the subscription price per share for the
offer is less than the fund's net asset value per share. Assuming that all
rights are exercised and there is no change in the net asset value per share,
the aggregate net asset value of each shareholder's shares of common stock
should decrease as a result of the offer. If a fund's subscription price per
share is below that fund's net asset value per share at the expiration of the
offer, shareholders would experience an immediate dilution of the aggregate
net asset value of their shares of common stock as a result of the offer,
which could be substantial.
Business development companies may utilize leveraging in their portfolios.
Leveraging can be expected to cause increased price volatility for those
fund's shares, and as a result, increased volatility for the price of the
Units of a Trust. There can be no assurance that a leveraging strategy will be
successful during any period in which it is employed.
Convertible Securities. The following section applies to individual Trusts
which contain Securities which invest in convertible securities. Convertible
securities include convertible subordinated debentures and corporate bonds
("Convertible Bonds") and cumulative convertible preferred stocks
("Convertible Preferred Stocks"). Convertible securities contain a conversion
privilege which, under specified circumstances, offers the holder the right to
exchange such security for common stock of the issuing corporation.
Convertible Bonds obligate the issuing company to pay a stated annual rate of
interest (or a stated dividend in the case of Convertible Preferred Stocks)
and to return the principal amount after a specified period of time. The
income offered by convertible securities is generally higher than the
dividends received from the underlying common stock, but lower than similar
quality non-convertible debt securities. Convertible securities are usually
priced at a premium to their conversion value, i.e., the value of the common
stock received if the holder were to exchange the convertible security.
The holder of the convertible security may choose at any time to exchange the
convertible security for a specified number of shares of the common stock of
the corporation, or occasionally a subsidiary company, at a specified price,
as defined by the corporation when the security is issued. Accordingly, the
value of the convertible obligation may generally be expected to increase
(decrease) as the price of the associated common stock increases (decreases).
Also, the market value of convertible securities tends to be influenced by the
level of interest rates and tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities rank
senior to common stocks in an issuer's capital structure, but are junior to
non-convertible debt securities. As convertible securities are considered
junior to any non-convertible debt securities issued by the corporation,
convertible securities are typically rated by established credit ratings
agencies at one level below the rating on such corporation's non-convertible
debt.
Convertible securities are hybrid securities, combining the investment
characteristics of both bonds and common stock. Like a bond (or preferred
stock), a convertible security pays interest at a fixed rate (dividend), but
may be converted into common stock at a specified price or conversion rate.
When the conversion price of the convertible security is significantly above
the price of the issuer's common stock, a convertible security takes on the
risk characteristics of a bond. At such times, the price of a convertible
security will vary inversely with changes in the level of interest rates. In
other words, when interest rates rise, prices of convertible securities will
generally fall; conversely, when interest rates fall, prices of convertible
securities will generally rise. This interest rate risk is in part offset by
the income paid by the convertible securities.
Page 6
In contrast, when the conversion price of a convertible security and the
common stock price are close to one another, a convertible security will
behave like a common stock. In such cases, the prices of convertible
securities may exhibit the short-term price volatility characteristic of
common stocks.
For these reasons Unit holders must be willing to accept the market risks of
both bonds and common stocks. However, because convertible securities have
characteristics of both common stocks and bonds, they tend to be less
sensitive to interest rate changes than bonds of comparable maturity and
quality, and less sensitive to stock market changes than fully invested common
stock portfolios. Because of these factors and the hybrid nature of
convertible securities, Unit holders should recognize that convertible
securities are likely to perform quite differently than broadly-based measures
of the stock and bond markets.
The market for convertible securities includes a larger proportion of small-
to medium-size companies than the broad stock market (as measured by such
indices as the Standard & Poor's 500 Composite Stock Price Index). Companies
which issue convertible securities are often lower in credit quality,
typically rated below "Investment Grade." Moreover, the credit rating of a
company's convertible issuance is generally lower than the rating of the
company's conventional debt issues since the convertible security is normally
a "junior" security. Securities with such ratings are considered speculative,
and thus pose a greater risk of default than investment grade securities.
High-risk securities may be thinly traded, which can adversely affect the
prices at which such securities can be sold and can result in high transaction
costs. Judgment plays a greater role in valuing high risk securities than
securities for which more extensive quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect the
ability of outside price services to value securities.
During an economic downturn or a prolonged period of rising interest rates,
the ability of issuers of debt to serve their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Convertible securities are subject to the risk that the financial condition of
the issuers of the convertible securities or the general condition of the
stock market or bond market may worsen and the value of the convertible
securities and therefore the value of the Units may decline. Convertible
securities may be susceptible to general stock market movements and to
increases and decreases of value as market confidence in and perceptions of
the issuers change. These perceptions are based on unpredictable factors
including expectations regarding government, economic, monetary and fiscal
policies, inflation and interest rates, economic expansion or contraction, and
global or regional political, economic or banking crises. Convertible
Preferred Stocks are also subject to Congressional reductions in the dividends-
received deduction which would adversely affect the after-tax return to the
corporate investors who can take advantage of the deduction. Such reductions
also might adversely affect the value of preferred stocks in general. Holders
of preferred stocks have rights to receive payments from the issuers of those
preferred stocks that are generally subordinate to those of creditors of, or
holders of debt obligations or, in some cases, senior preferred stocks of,
such issuers. Convertible Preferred Stocks do not represent an obligation of
the issuer and, therefore, do not offer any assurance of income (since
dividends on a preferred stock must be declared by the issuer's Board of
Directors) or provide the same degree of protection of capital as do debt
securities. Cumulative preferred stock dividends must be paid before common
stock dividends and any cumulative preferred stock dividend omitted is added
to future dividends payable to the holders of cumulative preferred stock. The
issuance of additional debt securities or senior preferred stock will create
prior claims for payment of principal and interest and senior dividends which
could adversely affect the ability and inclination of the issuer to declare or
pay dividends on its preferred stock or the rights of holders of preferred
stock with respect to assets of the issuer upon liquidation or bankruptcy. The
value of preferred stocks is subject to market fluctuations for as long as the
preferred stocks remain outstanding, and thus the value of the Convertible
Preferred Stocks in the Funds may be expected to fluctuate over the life of
the Trust to values higher or lower than those prevailing on the Date of
Deposit. Holders of Convertible Preferred Stocks incur more risk than holders
of debt obligations because preferred stockholders, as owners of the entity,
have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of or holders of debt obligations
issued by the issuer.
Convertible Bonds are typically subordinated debentures and, therefore, the
claims of senior creditors must be settled in full before any payment will be
made to holders of Convertible Bonds in the event of insolvency or bankruptcy.
Senior creditors typically include all other long-term debt issuers and bank
loans. Convertible Bonds do, however, have a priority over common and
preferred stock. Investors in Convertible Bonds pay for the conversion
privilege by accepting a significantly lower yield-to-maturity than that
concurrently offered by non-convertible bonds of equivalent quality.
Page 7
Whether or not the convertible securities are listed on a national securities
exchange, the principal trading market for the convertible securities may be
in the over-the-counter market. As a result, the existence of a liquid trading
market for the convertible securities may depend on whether dealers will make
a market in the convertible securities. There can be no assurance that a
market will be made for any of the convertible securities, that any market for
the convertible securities will be maintained or of the liquidity of the
convertible securities in any markets made.
Issues of Convertible Bonds and Convertible Preferred Stocks generally provide
that the convertible security may be liquidated, either by a partial scheduled
redemption pursuant to a sinking fund or by a refunding redemption pursuant to
which, at the option of the issuer, all or part of the issue can be retired
from any available funds, at prices which may or may not include a premium
over the involuntary liquidation preference, which generally is the same as
the par or stated value of the convertible security. In general, optional
redemption provisions are more likely to be exercised when the convertible
security is valued at a premium over par or stated value than when they are
valued at a discount from par or stated value. Generally, the value of the
convertible security will be at a premium over par when market interest rates
fall below the coupon rate.
Fixed-Income Securities. The following section applies to individual Trusts
which contain Securities which invest in fixed-income securities. Fixed-income
securities, in many cases, do not have the benefit of covenants which would
prevent the issuer from engaging in capital restructurings or borrowing
transactions in connection with corporate acquisitions, leveraged buyouts or
restructurings which could have the effect of reducing the ability of the
issuer to meet its debt obligations and might result in the ratings of the
securities and the value of the underlying Trust portfolio being reduced.
Fixed-income securities may have been acquired at a market discount from par
value at maturity. The coupon interest rates on the discount securities at the
time they were purchased were lower than the current market interest rates for
newly issued securities of comparable rating and type. If such interest rates
for newly issued comparable securities increase, the market discount of
previously issued securities will become greater, and if such interest rates
for newly issued comparable securities decline, the market discount of
previously issued securities will be reduced, other things being equal.
Investors should also note that the value of securities purchased at a market
discount will increase in value faster than securities purchased at a market
premium if interest rates decrease. Conversely, if interest rates increase,
the value of securities purchased at a market discount will decrease faster
than securities purchased at a market premium. In addition, if interest rates
rise, the prepayment risk of higher yielding, premium securities and the
prepayment benefit for lower yielding, discount securities will be reduced. A
discount security held to maturity will have a larger portion of its total
return in the form of capital gain and less in the form of interest income
than a comparable security newly issued at current market rates. Market
discount attributable to interest changes does not indicate a lack of market
confidence in the issue. Neither the Sponsor nor the Trustee shall be liable
in any way for any default, failure or defect in any of the securities.
Fixed-income securities may be original issue discount securities or zero
coupon securities. Under current law, the original issue discount, which is
the difference between the stated redemption price at maturity and the issue
price of the securities, is deemed to accrue on a daily basis and the accrued
portion is treated as interest income for federal income tax purposes. On sale
or redemption, any gain realized that is in excess of the earned portion of
original issue discount will be taxable as capital gain unless the gain is
attributable to market discount in which case the accretion of market discount
is taxable as ordinary income. The current value of an original discount
security reflects the present value of its stated redemption price at
maturity. The market value tends to increase in greater increments as the
securities approach maturity. The effect of owning deep discount zero coupon
Securities which do not make current interest payments is that a fixed yield
is earned not only on the original investment, but also, in effect, on all
earnings during the life of the discount obligation. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable
to reinvest the income on such obligations at a rate as high as the implicit
yield on the discount obligation, but at the same time eliminates the holder's
ability to reinvest at higher rates in the future. For this reason, the zero
coupon securities are subject to substantially greater price fluctuations
during periods of changing interest rates than are securities of comparable
quality which make regular interest payments.
Fixed-income securities may have been acquired at a market premium from par
value at maturity. The coupon interest rates on the premium securities at the
time they were purchased were higher than the current market interest rates
for newly issued securities of comparable rating and type. If such interest
rates for newly issued and otherwise comparable securities decrease, the
market premium of previously issued securities will be increased, and if such
Page 8
interest rates for newly issued comparable securities increase, the market
premium of previously issued securities will be reduced, other things being
equal. The current returns of securities trading at a market premium are
initially higher than the current returns of comparable securities of a
similar type issued at currently prevailing interest rates because premium
securities tend to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price is thus
returned not at maturity but through current income payments, early redemption
of a premium security at par or early prepayments of principal will result in
a reduction in yield. Redemption pursuant to call provisions generally will,
and redemption pursuant to sinking fund provisions may, occur at times when
the redeemed securities have an offering side valuation which represents a
premium over par or for original issue discount securities a premium over the
accreted value. To the extent that the securities were purchased at a price
higher than the price at which they are redeemed, this will represent a loss
of capital.
Certain fixed-income securities may be subject to being called or redeemed in
whole or in part prior to their stated maturities pursuant to optional
redemption provisions, sinking fund provisions or otherwise. A security
subject to optional call is one which is subject to redemption or refunding
prior to maturity at the option of the issuer. A refunding is a method by
which a security issue is redeemed, at or before maturity, by the proceeds of
a new security issue. A security subject to sinking fund redemption is one
which is subject to partial call from time to time at par or from a fund
accumulated for the scheduled retirement of a portion of an issue prior to
maturity. Redemption pursuant to call provisions is more likely to occur, and
redemption pursuant to sinking fund provisions may occur, when the securities
have an offering side valuation which represents a premium over par or for
original issue discount securities a premium over the accreted value.
High-Yield Securities. The following section applies to individual Trusts
which contain Securities which invest in high-yield securities. An investment
in high-yield securities should be made with an understanding of the risks
that an investment in high-yield, high-risk, fixed-rate, domestic and foreign
securities or "junk" bonds may entail, including increased credit risks and
the risk that the value of high-yield securities will decline, and may decline
precipitously, with increases in interest rates. In recent years there have
been wide fluctuations in interest rates and thus in the value of fixed-rate
securities generally. High-yield securities are, under most circumstances,
subject to greater market fluctuations and risk of loss of income and
principal than are investments in lower-yielding, higher-rated securities, and
their value may decline precipitously because of increases in interest rates,
not only because the increases in rates generally decrease values, but also
because increased rates may indicate a slowdown in the economy and a decrease
in the value of assets generally that may adversely affect the credit of
issuers of high-yield, high-risk securities resulting in a higher incidence of
defaults among high-yield, high-risk securities. A slowdown in the economy, or
a development adversely affecting an issuer's creditworthiness, may result in
the issuer being unable to maintain earnings or sell assets at the rate and at
the prices, respectively, that are required to produce sufficient cash flow to
meet its interest and principal requirements. For an issuer that has
outstanding both senior commercial bank debt and subordinated high-yield, high-
risk securities, an increase in interest rates will increase that issuer's
interest expense insofar as the interest rate on the bank debt is fluctuating.
However, many leveraged issuers enter into interest rate protection agreements
to fix or cap the interest rate on a large portion of their bank debt. This
reduces exposure to increasing rates, but reduces the benefit to the issuer of
declining rates. The Sponsor cannot predict future economic policies or their
consequences or, therefore, the course or extent of any similar market
fluctuations in the future.
High-yield securities or "junk" bonds, the generic names for securities rated
below "BBB-" by Standard & Poor's, or below "Baa3" by Moody's, are frequently
issued by corporations in the growth stage of their development, by
established companies whose operations or industries are depressed or by
highly leveraged companies purchased in leveraged buyout transactions. The
market for high-yield securities is very specialized and investors in it have
been predominantly financial institutions. High-yield securities are generally
not listed on a national securities exchange. Trading of high-yield
securities, therefore, takes place primarily in over-the-counter markets which
consist of groups of dealer firms that are typically major securities firms.
Because the high-yield security market is a dealer market, rather than an
auction market, no single obtainable price for a given security prevails at
any given time. Prices are determined by negotiation between traders. The
existence of a liquid trading market for the securities may depend on whether
dealers will make a market in the securities. There can be no assurance that a
market will be made for any of the securities, that any market for the
securities will be maintained or of the liquidity of the securities in any
markets made. Not all dealers maintain markets in all high-yield securities.
Therefore, since there are fewer traders in these securities than there are in
Page 9
"investment grade" securities, the bid-offer spread is usually greater for
high-yield securities than it is for investment grade securities.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a fixed-income security is recharacterized as equity by
the Internal Revenue Service for federal income tax purposes, the issuer's
interest deduction with respect to the security will be disallowed and this
disallowance may adversely affect the issuer's credit rating. Because
investors generally perceive that there are greater risks associated with
lower-rated securities, the yields and prices of these securities tend to
fluctuate more than higher-rated securities with changes in the perceived
quality of the credit of their issuers. In addition, the market value of high-
yield, high-risk, fixed-income securities may fluctuate more than the market
value of higher-rated securities since high-yield, high-risk, fixed-income
securities tend to reflect short-term credit development to a greater extent
than higher-rated securities. Lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities. Issuers of
lower-rated securities may possess fewer creditworthiness characteristics than
issuers of higher-rated securities and, especially in the case of issuers
whose obligations or credit standing have recently been downgraded, may be
subject to claims by debtholders, owners of property leased to the issuer or
others which, if sustained, would make it more difficult for the issuers to
meet their payment obligations. High-yield, high-risk securities are also
affected by variables such as interest rates, inflation rates and real growth
in the economy. Therefore, investors should consider carefully the relative
risks associated with investment in securities which carry lower ratings.
Should the issuer of any security default in the payment of principal or
interest, the Securities in the Trust may incur additional expenses seeking
payment on the defaulted security. Because amounts (if any) recovered by the
Securities in the Trust in payment under the defaulted security may not be
reflected in the value of the Securities until actually received by the
Securities and depending upon when a Unit holder purchases or sells his or her
Units, it is possible that a Unit holder would bear a portion of the cost of
recovery without receiving any portion of the payment recovered.
High-yield, high-risk securities are generally subordinated obligations. The
payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of the
issuer. Senior obligations generally include most, if not all, significant
debt obligations of an issuer, whether existing at the time of issuance of
subordinated debt or created thereafter. Upon any distribution of the assets
of an issuer with subordinated obligations upon dissolution, total or partial
liquidation or reorganization of or similar proceeding relating to the issuer,
the holders of senior indebtedness will be entitled to receive payment in full
before holders of subordinated indebtedness will be entitled to receive any
payment. Moreover, generally no payment with respect to subordinated
indebtedness may be made while there exists a default with respect to any
senior indebtedness. Thus, in the event of insolvency, holders of senior
indebtedness of an issuer generally will recover more, ratably, than holders
of subordinated indebtedness of that issuer.
Obligations that are rated lower than "BBB-" by Standard & Poor's, or "Baa3"
by Moody's, respectively, should be considered speculative as such ratings
indicate a quality of less than investment grade. Investors should carefully
review the objective of the Trust and consider their ability to assume the
risks involved before making an investment in the Trust.
Senior Loans. The following section applies to individual Trusts which contain
Securities which invest in senior loans issued by banks, other financial
institutions, and other investors to corporations, partnerships, limited
liability companies and other entities to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings
and, to a lesser extent, for general operating and other purposes. An
investment by Securities in senior loans involves risk that the borrowers
under senior loans may default on their obligations to pay principal or
interest when due. Although senior loans may be secured by specific
collateral, there can be no assurance that liquidation of collateral would
satisfy the borrower's obligation in the event of non-payment or that such
collateral could be readily liquidated. Senior loans are typically structured
as floating-rate instruments in which the interest rate payable on the
obligation fluctuates with interest rate changes. As a result, the yield on
Securities investing in senior loans will generally decline in a falling
interest rate environment and increase in a rising interest rate environment.
Senior loans are generally below investment grade quality and may be unrated
at the time of investment; are generally not registered with the SEC or state
securities commissions; and are generally not listed on any securities
Page 10
exchange. In addition, the amount of public information available on senior
loans is generally less extensive than that available for other types of assets.
Subprime Residential Mortgage Loans. The following section applies to
individual Trusts which contain Securities which invest in subprime
residential mortgage loans. An investment in subprime residential mortgage
loans should be made with an understanding of the risks which such an
investment entails, including increased credit risks and the risk that the
value of subprime residential mortgage loans will decline, and may decline
precipitously, with increases in interest rates. In a high interest rate
environment, the value of subprime residential mortgage loans may be adversely
affected when payments on the mortgages do not occur as anticipated, resulting
in the extension of the mortgage's effective maturity and the related increase
in interest rate sensitivity of a longer-term investment. The value of
subprime mortgage loans may also change due to shifts in the market's
perception of issuers and regulatory or tax changes adversely affecting the
mortgage securities markets as a whole. Due to current economic conditions,
including fluctuating interest rates, as well as aggressive lending practices,
subprime mortgage loans have in recent periods experienced increased rates of
delinquency, foreclosure, bankruptcy and loss, and they are likely to continue
to experience rates that are higher, and that may be substantially higher,
than those experienced by mortgage loans underwritten in a more traditional
manner. Thus, because of the higher delinquency rates and losses associated
with subprime mortgage loans, risks of investing in Securities which hold
subprime mortgage loans are similar to those which affect high-yield
securities or "junk" bonds, which include less liquidity, greater volatility
and an increased risk of default as compared to higher rated securities.
TIPS. The following section applies to individual Trusts which contain
Securities which invest in TIPS. TIPS are inflation-indexed fixed-income
securities issued by the U.S. Department of Treasury that utilize an inflation
mechanism tied to the Consumer Price Index ("CPI"). TIPS are backed by the
full faith and credit of the United States. TIPS are offered with coupon
interest rates lower than those of nominal rate Treasury securities. The
coupon interest rate remains fixed throughout the term of the securities.
However, each day the principal value of the TIPS is adjusted based upon a pro-
rata portion of the CPI as reported three months earlier. Future interest
payments are made based upon the coupon interest rate and the adjusted
principal value. In a falling inflationary environment, both interest payments
and the value of the TIPS will decline.
Foreign Issuers. The following section applies to individual Trusts which
contain Securities issued by, or invest in securities issued by, foreign
entities. Since certain of the Securities held by the Trust consist of, or
invest in, securities issued by foreign entities, an investment in the Trust
involves certain investment risks that are different in some respects from an
investment in a trust which invests solely in the securities of domestic
entities. These investment risks include future political or governmental
restrictions which might adversely affect the payment or receipt of payment of
dividends on the relevant Securities, the possibility that the financial
condition of the issuers of the Securities may become impaired or that the
general condition of the relevant stock market may worsen (both of which would
contribute directly to a decrease in the value of the Securities and thus in
the value of the Units), the limited liquidity and relatively small market
capitalization of the relevant securities market, expropriation or
confiscatory taxation, economic uncertainties and foreign currency
devaluations and fluctuations. In addition, for foreign issuers that are not
subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended, there may be less publicly available information than is available
from a domestic issuer. Also, foreign issuers are not necessarily subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers. The
securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable domestic issuers. In addition, fixed
brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States and there is
generally less government supervision and regulation of exchanges, brokers and
issuers in foreign countries than there is in the United States. However, due
to the nature of the issuers of the Securities selected for the Trust, the
Sponsor believes that adequate information will be available to allow the
Supervisor to provide portfolio surveillance for the Trust.
Securities issued by non-U.S. issuers may pay interest and/or dividends in
foreign currencies and may be principally traded in foreign currencies.
Therefore, there is a risk that the U.S. dollar value of these interest and/or
dividend payments and/or securities will vary with fluctuations in foreign
exchange rates.
On the basis of the best information available to the Sponsor at the present
time, none of the Securities in the Trust are subject to exchange control
restrictions under existing law which would materially interfere with payment
to the Trust of dividends due on, or proceeds from the sale of, the
Securities. However, there can be no assurance that exchange control
Page 11
regulations might not be adopted in the future which might adversely affect
payment to the Trust. The adoption of exchange control regulations and other
legal restrictions could have an adverse impact on the marketability of
international securities in the Trust and on the ability of the Trust to
satisfy its obligation to redeem Units tendered to the Trustee for redemption.
In addition, restrictions on the settlement of transactions on either the
purchase or sale side, or both, could cause delays or increase the costs
associated with the purchase and sale of the foreign Securities and
correspondingly could affect the price of the Units.
Investors should be aware that it may not be possible to buy all Securities at
the same time because of the unavailability of any Security, and restrictions
applicable to the Trust relating to the purchase of a Security by reason of
the federal securities laws or otherwise.
Foreign securities generally have not been registered under the Securities Act
of 1933 and may not be exempt from the registration requirements of such Act.
Sales of non-exempt Securities by the Trust in the United States securities
markets are subject to severe restrictions and may not be practicable.
Accordingly, sales of these Securities by the Trust will generally be effected
only in foreign securities markets. Although the Sponsor does not believe that
the Trust will encounter obstacles in disposing of the Securities, investors
should realize that the Securities may be traded in foreign countries where
the securities markets are not as developed or efficient and may not be as
liquid as those in the United States. The value of the Securities will be
adversely affected if trading markets for the Securities are limited or absent.
Emerging and Developing Markets. The following section applies to individual
Trusts which contain Securities issued by, or invest in securities from
certain smaller and emerging or developing markets. Compared to more mature
markets, some emerging and developing markets may have a low level of
regulation, enforcement of regulations and monitoring of investors'
activities. Those activities may include practices such as trading on material
non-public information. The securities markets of developing countries are not
as large as the more established securities markets and have substantially
less trading volume, resulting in a lack of liquidity and high price
volatility. There may be a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number of
industries as well as a high concentration of investors and financial
intermediaries. These factors may adversely affect the timing and pricing of
the acquisition or disposal of securities.
In certain emerging and developing markets, registrars are not subject to
effective government supervision nor are they always independent from issuers.
The possibility of fraud, negligence, undue influence being exerted by the
issuer or refusal to recognize ownership exists, which, along with other
factors, could result in the registration of a shareholding being completely
lost. Investors should therefore be aware that the Trust could suffer loss
arising from these registration problems. In addition, the legal remedies in
emerging and developing markets are often more limited than the remedies
available in the United States.
Practices pertaining to the settlement of securities transactions in emerging
and developing markets involve higher risks than those in developed markets,
in large part because of the need to use brokers and counterparties who are
less well capitalized, and custody and registration of assets in some
countries may be unreliable. As a result, brokerage commissions and other fees
are generally higher in emerging and developing markets and the procedures and
rules governing foreign transactions and custody may involve delays in
payment, delivery or recovery of money or investments. Delays in settlement
could result in investment opportunities being missed if the Trust is unable
to acquire or dispose of a security. Certain foreign investments may also be
less liquid and more volatile than U.S. investments, which may mean at times
that such investments are unable to be sold at desirable prices.
Political and economic structures in emerging and developing markets often
change rapidly, which may cause instability. In adverse social and political
circumstances, governments have been involved in policies of expropriation,
confiscatory taxation, nationalization, intervention in the securities market
and trade settlement, and imposition of foreign investment restrictions and
exchange controls, and these could be repeated in the future. In addition to
withholding taxes on investment income, some governments in emerging and
developing markets may impose different capital gains taxes on foreign
investors. Foreign investments may also be subject to the risks of seizure by
a foreign government and the imposition of restrictions on the exchange or
export of foreign currency. Additionally, some governments exercise
substantial influence over the private economic sector and the political and
social uncertainties that exist for many developing countries are considerable.
Another risk common to most developing countries is that the economy is
heavily export oriented and, accordingly, is dependent upon international
trade. The existence of overburdened infrastructures and obsolete financial
systems also presents risks in certain countries, as do environmental
problems. Certain economies also depend, to a large degree, upon exports of
Page 12
primary commodities and, therefore, are vulnerable to changes in commodity
prices which, in turn, may be affected by a variety of factors.
Small and/or Mid Capitalization Companies. The following section applies to
individual Trusts which contain Securities issued by, or invest in Securities
that hold securities issued by, small and/or mid capitalization companies.
While historically stocks of small and mid capitalization companies have
outperformed the stocks of large companies, the former have customarily
involved more investment risk as well. Such companies may have limited product
lines, markets or financial resources; may lack management depth or
experience; and may be more vulnerable to adverse general market or economic
developments than large companies. Some of these companies may distribute,
sell or produce products which have recently been brought to market and may be
dependent on key personnel.
The prices of small and mid cap company securities are often more volatile
than prices associated with large company issues, and can display abrupt or
erratic movements at times, due to limited trading volumes and less publicly
available information. Also, because such companies normally have fewer shares
outstanding and these shares trade less frequently than large companies, it
may be more difficult for the Trusts which contain these Securities to buy and
sell significant amounts of such shares without an unfavorable impact on
prevailing market prices.
Precious Metals. An investment in Units of the Trust should be made with an
understanding of the risks involved in investing in precious metals companies.
These companies are subject to risks associated with the exploration,
development and production of precious metals including competition for land,
difficulties in obtaining required governmental approval to mine land,
inability to raise adequate capital, increases in production costs and
political unrest in nations where sources of precious metals are located. In
addition, the price of gold and other precious metals is subject to wide
fluctuations and may be influenced by limited markets, fabricator demand,
expected inflation, return on assets, central bank demand and availability of
substitutes.
Agriculture. An investment in Units of the Trust should be made with an
understanding of the problems and risks inherent in an investment in
agriculture companies in general. These include the cyclicality of revenues
and earnings, changing consumer demands and product liability litigation.
Further risks include, extensive competition (including that of low-cost
foreign competition), severe weather conditions, global warming, crop health,
bio-terrorism and accidental and malicious contamination. Government policies
and regulations, including taxes, tariffs, duties, quotas, mandated
expenditures for safety and pollution control devices, subsidies and import
and export restrictions, can significantly impact the costs and profitability
of such companies.
The current recession with its consequent effect on consumer spending has had
an adverse effect on agriculture companies. Other factors of particular
relevance to the profitability of the industry are the effects of increasing
environmental regulation on packaging and on waste disposal, inventory
cutbacks by retailers, transportation and distribution costs, health concerns
relating to the consumption of certain products, the effect of demographics on
consumer demand, the availability and cost of raw materials, demand for
ethanol and other biofuels, the ongoing need to develop new products and to
improve productivity. Profitability may also be affected by the continuing
need to conform with foreign regulations governing packaging and the
environment, the outcome of trade negotiations and the effect on foreign
subsidies and tariffs, foreign exchange rates and competition from abroad.
Additionally, the price of oil and its effect on energy costs contribute to
increased production and transportation costs in the agriculture sector.
Agriculture companies may also be affected by the volatility of commodity
prices, exchange rates, import controls and depletion of resources.
Furthermore, they may be adversely affected by environmental damage and
product liability claims.
Commodities. Certain of the ETFs held by the Trust invest in commodities.
Commodities include building materials, aluminum, forest products, non-ferrous
metals, paper products, precious metals such as gold and silver, petroleum and
natural gas. Several factors may affect the prices of commodities, including
but not limited to: global supply and demand, excess capacity, production
costs, economic recession, domestic and international politics, currency
exchange rates, government regulations, volatile interest rates, consumer
spending trends and overall capital spending levels. In addition, commodity
prices may be affected by import controls, worldwide competition, investors'
expectations with respect to inflation, investment and trading activities of
hedge funds and commodity funds, commodity producers' liability for
environmental damage, and depletion of natural resources. The price of certain
commodities has fluctuated widely over the past several years and there can be
no assurance that the commodities held by the ETFs in the Trust will maintain
their long-term value.
Page 13
Concentrations
Concentration Risk. When at least 25% of a trust's portfolio is invested in
securities issued by companies within a single sector, the trust is considered
to be concentrated in that particular sector. A portfolio concentrated in one
or more sectors may present more risks than a portfolio broadly diversified
over several sectors.
The Trust is concentrated in stocks of companies within each of the energy and
materials sectors.
Energy. The business activities of companies held in the Trust may include:
production, generation, transmission, marketing, control, or measurement of
coal, gas and oil; the provision of component parts or services to companies
engaged in the above activities; energy research or experimentation; and
environmental activities related to the solution of energy problems, such as
energy conservation and pollution control.
The success of energy companies may be cyclical and highly dependent on energy
prices. Demand for energy is closely related to general economic growth.
Recessions and periods of low or negative economic growth typically have a
direct unfavorable impact on companies that produce energy. The market value
of securities issued by energy companies may decline for many reasons,
including, among other things, changes in the levels and volatility of global
energy prices, energy supply and demand, capital expenditures on exploration
and production of energy sources, exchange rates, interest rates, economic
conditions, tax treatment, increased competition and technological advances.
Energy companies may also have relatively high levels of debt and may be more
likely than other companies to restructure their businesses if there are
downturns in energy markets or in the global economy. Apart from economic
factors, fluctuations in population, alternative energy sources, seasonal
weather changes and changes in consumer preferences may have an effect on
energy demand.
Energy companies may also be subject to extensive federal, state and local
government regulation and contractual fixed pricing, which may increase the
cost of doing business and limit the earnings of these companies. A
significant portion of the revenues of energy companies may depend on a
relatively small number of customers, including governmental entities and
utilities. As a result, governmental budget constraints may have a material
adverse effect on the stock prices of energy companies. Energy companies may
also operate in, or engage in transactions involving, countries with less
developed regulatory regimes or a history of expropriation, nationalization or
other adverse policies.
Energy companies also face a significant risk of liability from accidents
resulting in injury or loss of life or property, pollution or other
environmental problems, equipment malfunctions or mishandling of materials and
a risk of loss from civil unrest, terrorism, political strife or natural
disasters. As a result of the foregoing, the Securities in the Trust may be
subject to rapid price volatility. The Sponsor is unable to predict what
impact the foregoing factors will have on the Securities during the life of
the Trust.
Materials. Companies in the materials sector are involved in the production of
aluminum, chemicals, commodities, chemicals specialty products, forest
products, non-ferrous mining products, paper products, precious metals and
steel. Basic 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.
Common Stocks Selected for Inflation Hedge Portfolio, Series 50
, headquartered in
, headquartered in
Page 14
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
Page 15
, headquartered in
, headquartered in
, headquartered in
, headquartered in
, headquartered in
We have obtained the foregoing company descriptions from third-party sources
we deem reliable.
Page 16
Undertakings
| 1. | Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. |
| 2. | Insofar as indemnification for liability arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to Rule 484 under the Securities Act, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
CONTENTS OF REGISTRATION STATEMENT
| ITEM A | Bonding Arrangements of Depositor: |
First Trust Portfolios L.P. is covered by a Broker's Fidelity Bond, in the total amount of $2,000,000, the insurer being National Union Fire Insurance Company of Pittsburgh.
| ITEM B | This Registration Statement on Form S-6 comprises the following papers and documents: |
The facing sheet
The Prospectus
The signatures
Exhibits
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, FT 10247 has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wheaton and State of Illinois on June 30, 2022.
FT 10247
(Registrant)
By: FIRST TRUST PORTFOLIOS L.P.
(Depositor)
By: /s/ Elizabeth H. Bull
Senior Vice President
S-2
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated:
| Name | Title* | Date |
| James A. Bowen | Director of The Charger Corporation, the General Partner of First Trust Portfolios L.P., and Chief Executive Officer of First Trust Portfolios L.P. | ) ) ) )By: /s/ Elizabeth H. Bull ) Attorney-in-Fact** ) June 30, 2022 |
| James M. Dykas | Chief Financial Officer of First Trust Portfolios L.P. | ) ) |
| Christina Knierim | Controller of First Trust Portfolios L.P. | ) ) |
| * | The title of the person named herein represents his or her capacity in and relationship to First Trust Portfolios L.P., the Depositor. |
| ** | Executed copies of the related powers of attorney were filed with the Securities and Exchange Commission in connection with the Amendment No. 1 to Form S-6 of FT 10131 (File No. 333-264568) and the same is hereby incorporated herein by this reference. |
S-3
CONSENT OF COUNSEL
The consent of counsel to the use of its name in the Prospectus included in this Registration Statement will be contained in its respective opinion to be filed as Exhibits 3.1, 3.2 and 3.3 of the Registration Statement.
CONSENT OF FIRST TRUST ADVISORS L.P.
The consent of First Trust Advisors L.P. to the use of its name in the Prospectus included in the Registration Statement will be filed as Exhibit 4.1 to the Registration Statement.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The consent of Deloitte & Touche LLP to the use of its name in the Prospectus included in the Registration Statement will be filed as Exhibit 4.2 to the Registration Statement.
S-4
EXHIBIT INDEX
| 1.1 | Standard Terms and Conditions of Trust for FT 4484 and certain subsequent Series among First Trust Portfolios L.P., as Depositor, The Bank of New York Mellon, as Trustee, First Trust Advisors L.P., as Evaluator and Portfolio Supervisor and FTP Services LLC, as FTPS Unit Servicing Agent (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-191558] filed on behalf of FT 4484). |
| 1.1.1* | Trust Agreement for FT 10247 among First Trust Portfolios L.P., as Depositor, The Bank of New York Mellon, as Trustee, First Trust Advisors L.P., as Evaluator and Portfolio Supervisor. |
| 1.2 | Certificate of Limited Partnership of Nike Securities, L.P., predecessor of First Trust Portfolios L.P. (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-230481] filed on behalf of FT 8001). |
| 1.3 | Amended and Restated Limited Partnership Agreement of Nike Securities, L.P., predecessor of First Trust Portfolios L.P. (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-230481] filed on behalf of FT 8001). |
| 1.4 | Articles of Incorporation of Nike Securities Corporation, predecessor to The Charger Corporation, the general partner of First Trust Portfolios L.P., Depositor (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-230481] filed on behalf of FT 8001). |
| 1.5 | By-Laws of The Charger Corporation, the general partner of First Trust Portfolios L.P., Depositor (incorporated by reference to Amendment No. 2 to Form S-6 [File No. 333-169625] filed on behalf of FT 2669). |
| 1.7 | Fund of Funds Agreements (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-261661] filed on behalf of FT 9909, Amendment No. 1 to Form S-6 [File No. 333-261297] filed on behalf of FT 9857, Amendment No. 1 to Form S-6 [File No. 333-262164] filed on behalf of FT 9948, Amendment No. 1 to Form S-6 [File No. 333-262344] filed on behalf of FT 9965 and Amendment No. 1 to Form S-6 [File No. 333-263845] filed on behalf of FT 10083). |
S-5
| 2.2 | Code of Ethics (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-224320] filed on behalf of FT 7359). |
| 3.1* | Opinion of counsel as to legality of securities being registered. |
| 3.2* | Opinion of counsel as to Federal income tax status of securities being registered. |
| 3.3* | Opinion of counsel as to New York (city and state) tax status of securities being registered. |
| 4.1* | Consent of First Trust Advisors L.P. |
| 4.2* | Consent of Independent Registered Public Accounting Firm. |
| 6.1 | List of Principal Officers of the Depositor (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-236093] filed on behalf of FT 8556). |
| 7.1 | Powers of Attorney executed by the Officers listed on page S-3 of this Registration Statement (incorporated by reference to Amendment No. 1 to Form S-6 [File No. 333-264568] filed on behalf of FT 10131). |
___________________________________
* To be filed by amendment.
S-6
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