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INVESCO UNIT TRUSTS, MUNICIPAL SERIESINVESCO UNIT TRUSTS,
TAXABLE INCOME SERIES
INSURED MUNICIPALS INCOME TRUSTINVESTORS' QUALITY TAX-EXEMPT
TRUST
VAN KAMPEN FOCUS PORTFOLIOS, MUNICIPAL SERIESVAN KAMPEN UNIT
TRUSTS, MUNICIPAL SERIES
VAN KAMPEN MERRITT INSURED INCOME TRUSTVAN KAMPEN AMERICAN
CAPITAL INSURED INCOME TRUSTVAN KAMPEN FOCUS PORTFOLIOS INSURED
INCOME TRUSTVAN KAMPEN FOCUS PORTFOLIOS, TAXABLE INCOME SERIES
VAN KAMPEN INSURED INCOME TRUSTVAN KAMPEN UNIT TRUSTS, TAXABLE
INCOME SERIES
Supplement
Notwithstanding anything to the contrary in the Registration
Statement for each Trust, commencing November 1, 2020,
InvescoInvestment Advisers, LLC, an affiliate of the Sponsor,
replaced ICE Data Pricing & Reference Data, LLC, as Evaluator.
InvescoInvestment Advisers, LLC shall be compensated $0.35 per
$1,000 principal amount of securities per Trust annually, in
contrast to theprior compensation of $0.39 per $1,000 principal
amount of securities per Trust annually for ICE Data Pricing &
Reference Data, LLC.
Supplement Dated: October 30, 2020 U-CMSTISSPT103020
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Investment Grade Corporate Trust, 3-7 Year Series 30
Investment Grade Corporate Trust, 3-7 Year Series 30 invests in
a portfolio of investment grade corporatebonds, generally maturing
approximately 3 to 7 years from the Date of Deposit. The Trust
seeks to provide ahigh level of current income and to preserve
capital. The Trust is a unit investment trust included in
InvescoUnit Trusts, Taxable Income Series 634 .
Monthly Distributions _____________ Estimated Current Return:
2.91%
Estimated Long Term Return: 0.88%
Estimated current return shows the estimated cash you should
receive each year divided by the Unit price.Estimated long term
return shows the estimated return over the estimated life of your
Trust. We base thisestimate on an average of the bond yields over
their estimated life. This estimate also reflects the sales
chargeand estimated expenses. We derive the average yield for your
portfolio by weighting each bond’s yield by itsvalue and estimated
life. Unlike estimated current return, estimated long term return
accounts for maturities,discounts and premiums of the bonds. These
estimates show a comparison rather than a prediction ofreturns. No
return calculation can predict your actual return. These estimates
are as of the opening ofbusiness on the Date of Deposit and will
vary thereafter. Your actual return may vary from these
estimates.
September 17, 2020
You should read this prospectus and retain it for future
reference.
The Securities and Exchange Commission has not approved or
disapproved of the TrustUnits or passed upon the adequacy or
accuracy of this prospectus.
Any contrary representation is a criminal offense.
INVESCO
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Investment Objective. The Trust seeks to providea high level of
current income and to preserve capital.
Principal Investment Strategy. The Trust investsin a portfolio
of investment grade corporate bondsmaturing approximately 3 to 7
years from the Date ofDeposit. In selecting bonds for the Trust,
the Sponsorconsidered the following factors, among others:
• all ratings provided for the bonds must be atleast “BBB-” if
issued by either Standard &Poor’s or Fitch Ratings, and at
least “Baa3” ifissued by Moody’s Investors Service, Inc. or,in the
case of a bond with no issued ratings,such a bond has credit
characterist icssufficiently similar to those of comparablebonds
that were so rated as to be acceptablefor acquisition by the Trust
in the opinion ofthe Sponsor;
• the prices of the bonds relative to otherbonds of comparable
quality and maturity;
• the current income provided by the bonds;
• the diversification of bonds as to purpose ofissue and
location of issuer; and
• the probability of early return of principal orhigh legal or
event risk.
The portfolio generally consists of taxable bondsmaturing
approximately 3 to 7 years from the Date ofDeposit. Following the
Date of Deposit, a bond maycease to be rated or its rating may be
reduced, even tobelow “investment grade” (“BBB-” or “Baa3”), and
theTrust could continue to hold such bond. See
“TrustAdministration--Portfolio Administration”.
Principal Risks. As with all investments, you canlose money by
investing in the Trust. The Trust alsomight not perform as well as
you expect. This canhappen for reasons such as these:
• Bond prices will fluctuate. The value ofyour investment may
fall over time.
• The value of the bonds will generallyfall if interest rates,
in general, rise. Ina low interest rate environment risksassociated
with rising rates are heightened.The negative impact on f ixed
incomesecurities from any interest rate increasescould be swift and
significant. No one canpredict whether interest rates will rise or
fall inthe future.
• A bond issuer or insurer may be unableto make interest and/or
principalpayments in the future.
• The financial condition of an issuer mayworsen or its credit
ratings may drop,resulting in a reduction in the value ofyour
Units. This may occur at any point intime, including during the
primary offeringperiod.
• During periods of market turbulence,corporate bonds may
experienceilliquidity and volatility. During suchperiods, there can
be uncertainty in assessingthe financial condition of an issuer. As
a result,the ratings of the bonds in the Trust’s portfoliomay not
accurately reflect an issuer’s currentfinancial condition,
prospects, or the extent ofthe risks associated with investing in
suchissuer’s securities.
• A bond issuer might prepay or “call” abond before its stated
maturity. If thishappens, the Trust wi l l d istr ibute thepr
incipal to you but future interestdistributions will fall. A bond’s
call pricecould be less than the price the Trust paidfor the
bond.
• The Trust is concentrated in bondsissued by companies in the
energy andfinancials sectors. Negative developmentsin these sectors
will affect the value of yourinvestment more than would be the case
in amore diversified investment.
• Bonds of foreign issuers in present risksbeyond those of U.S.
issuers. These risksmay include market and political factors
relatedto an issuer’s foreign market, international
tradeconditions, less regulation, smaller or less liquidmarkets,
increased volatil ity, differingaccounting practices and changes in
the valueof foreign currencies.
• We do not actively manage the Trust’sportfolio. Except in
limited circumstances,the Trust will hold the same bonds even if
themarket value declines.
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(1) Some bonds may mature or be called or sold during your
Trust’s life. This could include a call or sale at a price below
par value. We cannotguarantee that the value of your Units will
equal the principal amount of bonds per Unit when you redeem them
or when your Trust terminates.
(2) During the initial offering period, part of the value of the
Units represents an amount of cash deposited to pay all or a
portion of the costs oforganizing the Trust. The estimated
organization costs per Unit will be deducted from the assets of the
Trust at the earlier of six months after theDate of Deposit or the
end of the initial offering period. If Units are redeemed prior to
any such reduction, these costs will not be deducted from
theredemption proceeds. Organization costs are not included in the
Public Offering Price per Unit for purposes of calculating the
sales charge.
(3) After the first settlement date ( September 21, 2020 ), you
will pay accrued interest from this date to your settlement date
less interestdistributions.
(4) This shows estimated expenses in the first year other than
organization costs. Organization costs are not deducted from
interest income.(5) Your Trust assesses this fee per $1,000
principal amount of bonds. Your Trust assesses other fees per
Unit.(6) We base this amount on estimated cash flows per Unit. This
amount will vary with changes in expenses, interest rates and
maturity, call or
sale of bonds. The Information Supplement includes the estimated
cash flows.
Summary of Essential Financial Information(As of the opening of
business on the Date of Deposit)
General InformationDate of Deposit September 17, 2020 Principal
amount of bonds in Trust $4,800,000Principal amount of bonds per
Unit (1) $1,000.00Number of Units 4,800Weighted average maturity of
bonds 5 years
Unit PriceAggregate offering price of bonds in Trust $
5,243,964Aggregate offering price of bonds per Unit $ 1,092.49
Plus sales charge per Unit $ 21.73Plus organization costs per
Unit (2) $ 8.18
Public offering price per Unit (3) $ 1,122.40Redemption price
per Unit (2)(3) $ 1,098.09
Portfolio Diversification (% of Par Value)Energy 28%Financials
27Information Technology 11Health Care 8Industrials 8Consumer
Staples 7Consumer Discretionary 7Real Estate 4 _____Total 100%
_____ _____
Estimated Annual Income Per UnitEstimated interest income $
35.93
Less estimated expenses (4) $ 3.25Estimated net interest income
$ 32.68
ExpensesSales Charge (% of Unit Price) 1.95%Organizational Costs
per Unit (2) $ 8.18 ___________ ___________Estimated Annual
Expenses per Unit
Trustee’s fee (5) $ 0.92Supervisory, bookkeeping and
administrative services fee $ 0.55Evaluation fee (5) $ 0.39Other
operating expenses $ 1.39 ___________
Total annual expenses per Unit $ 3.25 ___________
___________
Estimated DistributionsInitial interest distribution $ 1.72 on
October 25, 2020Subsequent interest distributions (6) $ 2.72Record
dates 10th day of each monthDistribution dates 25th day of each
month
CUSIP NumbersMonthly 46136J-68-6Monthly Fee Based
46136J-69-4
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PORTFOLIO (as of the opening of business on the Date of Deposit)
Cost ofAggregate Name of Issuer, Title, Interest Rate and
Redemption Bonds ToPrincipal Maturity Date of Bonds (1)(2) Ratings
(3) Feature (4)(5) Trust (2)___________
______________________________________________________
___________________ ________________ ____________ CORPORATE BONDS -
100.00% Consumer Discretionary - 6.74%$ 125,000 TJX Companies, Inc.
#3.50% Due 04/15/2025 . . . . . . . . . . . . . . . . . . . . . . .
. . A A2 2025 @ 100 $ 140,065 200,000 VF Corporation #2.40% Due
04/23/2025 . . . . . . . . . . . . . . . . . . . . . . . . . A A3
2025 @ 100 213,598 Consumer Staples - 7.29% 150,000 Bunge Ltd
Finance Corporation #4.35% Due 03/15/2024 . . . . . . . . . . . . .
. . . . . . . . . . . . BBB Baa3 2024 @ 100 165,399 200,000 Bunge
Limited Finance Corporation #3.25% Due 08/15/2026 . . . . . . . . .
. . . . . . . . . . . . . . . . BBB Baa3 2026 @ 100 216,712 Energy
- 28.27% 215,000 +BP Capital Markets plc 3.216% Due 11/28/2023 . .
. . . . . . . . . . . . . . . . . . . . . . . A- A1 2023 @ 100
229,730 200,000 ConocoPhillips Company #3.35% Due 05/15/2025 . . .
. . . . . . . . . . . . . . . . . . . . . . A A3 2025 @ 100 220,068
235,000 +Schlumberger Finance Canada, Ltd. #1.40% Due 09/17/2025 .
. . . . . . . . . . . . . . . . . . . . . . . . A A2 2025 @ 100
237,131 350,000 Boardwalk Pipelines L.P. #5.95% Due 06/01/2026 . .
. . . . . . . . . . . . . . . . . . . . . . . BBB- Baa3 2026 @ 100
413,865 350,000 +Canadian Natural Resources, Ltd. #3.85% Due
06/01/2027 . . . . . . . . . . . . . . . . . . . . . . . . . BBB
Baa2 2027 @ 100 381,657 Financials - 26.77% 220,000 +HSBC Holdings
plc 3.95% Due 05/18/2024 . . . . . . . . . . . . . . . . . . . . .
. . . . . A- A2 2023 @ 100 237,261 90,000 Capital One Financial
Corporation #3.30% Due 10/30/2024 . . . . . . . . . . . . . . . . .
. . . . . . . . BBB Baa1 2024 @ 100 98,058 200,000 Western Union
Company #2.85% Due 01/10/2025 . . . . . . . . . . . . . . . . . . .
. . . . . . BBB Baa2 2024 @ 100 212,102 200,000 JPMorgan Chase
& Company #3.125% Due 01/23/2025 . . . . . . . . . . . . . . .
. . . . . . . . . A- A2 2024 @ 100 218,230 150,000 +Mitsubishi UFJ
Financial Group, Inc. #3.85% Due 03/01/2026 . . . . . . . . . . . .
. . . . . . . . . . . . . A- A1 ________ 172,777 215,000 +Mizuho
Financial Group, Inc. 2.839% Due 09/13/2026 . . . . . . . . . . . .
. . . . . . . . . . . . . A- A1 ________ 235,423 200,000 Jefferies
Group LLC / Jefferies Group Capital Finance, Inc. #4.85% Due
01/15/2027 . . . . . . . . . . . . . . . . . . . . . . . . . BBB
Baa3 ________ 229,762 Health Care - 7.80% 375,000 +Perrigo Finance
Unlimited Company #3.90% Due 12/15/2024 . . . . . . . . . . . . . .
. . . . . . . . . . . BBB- Baa3 2024 @ 100 409,275 Industrials -
7.48% 150,000 CNH Industrial Capital, LLC #4.20% Due 01/15/2024 . .
. . . . . . . . . . . . . . . . . . . . . . . BBB Baa3 ________
162,230 215,000 General Electric Company #3.45% Due 05/01/2027 . .
. . . . . . . . . . . . . . . . . . . . . . . BBB+ Baa1 2027 @ 100
230,026
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PORTFOLIO (as of the opening of business on the Date of Deposit)
(continued) Cost ofAggregate Name of Issuer, Title, Interest Rate
and Redemption Bonds ToPrincipal Maturity Date of Bonds (1)(2)
Ratings (3) Feature (4)(5) Trust (2)___________
______________________________________________________
___________________ ________________ ____________ Information
Technology - 11.69%$ 165,000 Hewlett Packard Enterprise Company
#4.65% Due 10/01/2024 . . . . . . . . . . . . . . . . . . . . . . .
. . BBB Baa2 2024 @ 100 $ 186,686 175,000 Oracle Corporation #2.95%
Due 11/15/2024 . . . . . . . . . . . . . . . . . . . . . . . . . A
A3 2024 @ 100 191,014 215,000 +Flex, Ltd. #3.75% Due 02/01/2026 . .
. . . . . . . . . . . . . . . . . . . . . . . BBB- Baa3 2026 @ 100
235,326 Real Estate - 3.96% 205,000 Corporate Office Properties
L.P. #2.25% Due 03/15/2026 . . . . . . . . . . . . . . . . . . . .
. . . . . BBB- Baa3 2026 @ 100 207,569___________ ____________$
4,800,000 $ 5,243,964___________ _______________________
____________
For an explanation of the footnotes used on this page, see
“Notes to Portfolio”.
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Notes to Portfolio
(1) The bonds are represented by “regular way” or “when issued”
contracts for the performance of which an irrevocable letterof
credit, obtained from an affiliate of the Trustee, has been
deposited with the Trustee. Contracts to acquire the bondswere
entered into during the period from September 16, 2020 to September
17, 2020.
(2) The Cost of Bonds to Trust is based on the offering side
valuation as of the opening of business on the Date of
Depositdetermined by the Evaluator, a third party valuation
provider, on the basis set forth under “Public Offering--Unit
Price”. Inaccordance with FASB Accounting Standards Codification
(“ASC”), ASC 820, Fair Value Measurements and Disclosures,the
Trust’s investments are classified as Level 2, which refers to
security prices determined using other significantobservable
inputs. Observable inputs are inputs that other market participants
would use in pricing a security. These mayinclude quoted market
prices for similar securities, interest rates, prepayment speeds
and credit risk. The cost of the bondsto the Sponsor for the Trust
is $5,248,589 and the Sponsor’s profit or (loss) is $(4,625).
“+” indicates that the bond was issued by a foreign company.
The Sponsor may have entered into contracts which hedge interest
rate fluctuations on certain bonds. The cost of anysuch contracts
and the corresponding gain or loss as of the evaluation time of the
bonds is included in the Cost toSponsor. Bonds marked by “##”
following the maturity date have been purchased on a “when, as and
if issued” or“delayed delivery” basis. Interest on these bonds
begins accruing to the benefit of Unitholders on their respective
dates ofdelivery. Delivery is expected to take place at various
dates after the first settlement date.
“#” prior to the coupon rate indicates that the bond was issued
at an original issue discount. See “The Trusts--RiskFactors”. The
tax effect of bonds issued at an original issue discount is
described in “Federal Tax Status”.
(3) “o” indicates that the rating is contingent upon receipt by
the rating agency of a policy of insurance obtained by the issuerof
the bonds. All ratings are by Standard & Poor’s and Moody’s,
respectively, unless otherwise indicated. “*” indicates asecurity
rating by Fitch. “NR” indicates that the rating service did not
provide a rating for that bond. For a brief descriptionof the
ratings see “Description of Ratings” in the Information
Supplement.
(4) With respect to any bonds presenting a redemption feature in
this column, this is the year in which each bond is initially
orcurrently callable and the call price for that year. Each bond
continues to be callable at declining prices thereafter (but not
belowpar value) except for original issue discount bonds which are
redeemable at prices based on the issue price plus the amount
oforiginal issue discount accreted to redemption date plus, if
applicable, some premium, the amount of which will decline
insubsequent years. “S.F.” indicates a sinking fund is established
with respect to an issue of bonds. The bonds may also besubject to
redemption without premium at any time pursuant to extraordinary
optional or mandatory redemptions if certainevents occur. See “The
Trusts--Risk Factors”.
(5) Certain bonds have a “make whole” call option and are
redeemable in whole or in part at any time at the option of
theissuer at a redemption price that is generally equal to the sum
of the principal amount of such bond, a “make whole”amount, and any
accrued and unpaid interest to the date of redemption. The “make
whole” amount is generally equal tothe excess, if any, of (i) the
aggregate present value as of the date of redemption of principal
being redeemed and theamount of interest (exclusive of interest
accrued to the date of redemption) that would have been payable if
redemptionhad not been made, determined by discounting the
remaining principal and interest at a specified rate (which varies
frombond to bond and is generally equal to an average of yields on
U.S. Treasury obligations with maturities corresponding tothe
remaining life of the bond plus a premium rate) from the dates on
which the principal and interest would have beenpayable if the
redemption had not been made, over (ii) the aggregate principal
amount of the bonds being redeemed. Inaddition, the bonds may also
be subject to redemption without premium at any time pursuant to
extraordinary optional ormandatory redemptions if certain events
occur. See “The Trusts--Risk Factors”.
Underwriting. No Underwriters have purchased Units from the
Sponsor, the sole and exclusive principal underwriter. See“Public
Offering—Sponsor and Underwriter Compensation”.
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7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Sponsor and Unitholders of Investment Grade Corporate
Trust, 3-7 Year Series 30 (included in Invesco UnitTrusts, Taxable
Income Series 634 ):
Opinion on the Financial Statements
We have audited the accompanying statement of condition
(including the related portfolio schedule) of InvestmentGrade
Corporate Trust, 3-7 Year Series 30 (included in Invesco Unit
Trusts, Taxable Income Series 634 (the “Trust”)) as of September
17, 2020 , and the related notes (collectively referred to as the
“financial statements”). In our opinion, thefinancial statements
present fairly, in all material respects, the financial position of
the Trust as of September 17, 2020 , inconformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of Invesco
Capital Markets, Inc., the Sponsor. Our responsibility is toexpress
an opinion on the Trust’s financial statements based on our audit.
We are a public accounting firm registered withthe Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent withrespect to the Trust in accordance
with the U.S. federal securities laws and the applicable rules and
regulations of theSecurities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan andperform the audit to
obtain reasonable assurance about whether the financial statements
are free of materialmisstatement, whether due to error or fraud.
The Trust is not required to have, nor were we engaged to perform,
an auditof its internal control over financial reporting. As part
of our audit we are required to obtain an understanding of
internalcontrol over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Trust’s
internalcontrol over financial reporting. Accordingly, we express
no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements,whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures includedexamining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements.
Our audit alsoincluded evaluating the accounting principles used
and significant estimates made by the Sponsor, as well as
evaluatingthe overall presentation of the financial statements. Our
procedures included confirmation of cash or an irrevocable letterof
credit deposited for the purchase of securities as shown in the
statement of condition as of September 17, 2020 bycorrespondence
with The Bank of New York Mellon, Trustee. We believe that our
audit provides a reasonable basis forour opinion.
/s/ GRANT THORNTON LLP
We have served as the auditor of one or more of the unit
investment trusts, sponsored by Invesco Capital Markets,Inc. and
its predecessors, since 1976.
New York, New York September 17, 2020
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Statement of ConditionAs of the opening of business on September
17, 2020
INVESTMENT IN BONDS
Contracts to purchase bonds (1)(2) . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,243,964 Accrued interest to the first settlement date (1)(2) . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,875 Cash (3) . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 39,254 __________________ Total . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . $ 5,326,093 __________________
__________________
LIABILITY AND INTEREST OF UNITHOLDERS Liability-- Accrued
interest payable to Sponsor (1)(2) . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . $ 42,875 Organization costs (3) .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 39,254 Interest of Unitholders-- Cost
to investors . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 5,387,510 Less:
Gross underwriting commission . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 104,292 Less: Organization costs
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 39,254 __________________ Net interest to
Unitholders (1)(2) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 5,243,964 __________________
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,326,093 __________________ __________________ Units outstanding .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . 4,800
__________________ __________________ Net asset value per Unit . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . $ 1,092.49 __________________
__________________
(1) The value of the bonds is determined by ICE Data Pricing
& Reference Data, LLC on the bases set forth under “Public
Offering--Unit Price”. The contracts to purchase bonds are
collateralized by an irrevocable letter of credit in an amount
sufficient to satisfysuch contracts.
(2) The Trustee will advance the amount of the net interest
accrued to the first settlement date to the Trust for distribution
to the Sponsor asthe Unitholder of record as of such date.
(3) A portion of the public offering price represents an amount
of cash sufficient to pay for all or a portion of the costs
incurred in establishingthe Trust. The amount of these costs are
set forth under “Summary of Essential Financial
Information--Expenses”. A distribution will bemade as of the
earlier of six months after the Date of Deposit or the close of the
initial offering period to an account maintained by theTrustee from
which the organization expense obligation of the investors will be
satisfied. To the extent that actual organization costs of theTrust
are greater than the estimated amount, only the estimated
organization costs added to the public offering price will be
reimbursedto the Sponsor and deducted from the assets of the
Trust.
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THE TRUST
General. Your Trust was created under the laws ofthe State of
New York pursuant to a Trust Indenture andAgreement (the “Trust
Agreement”), dated the date ofthis prospectus (the “Date of
Deposit”) among InvescoCapital Markets, Inc., as Sponsor, ICE Data
Pricing &Reference Data, LLC, as Evaluator, Invesco
InvestmentAdvisers LLC, as Supervisor, and The Bank of New
YorkMellon, as Trustee.
Your Trust may be an appropriate medium forinvestors who desire
to participate in a portfolio oftaxable bonds with greater
diversification than theymight be able to acquire individually.
Diversification of aTrust’s assets will not eliminate the risk of
loss alwaysinherent in the ownership of bonds. In addition, bondsof
the type initially deposited in the portfolio of a Trustare often
not available in small amounts and may, in thecase of any privately
placed bonds, be available only toinstitutional investors.
On the Date of Deposit, the Sponsor deposited withthe Trustee
the aggregate principal amount of bondsindicated in the “Summary of
Essential FinancialInformation”. The bonds initially consist of
deliverystatements relating to contracts for their purchase
andcash, cash equivalents and/or irrevocable letters of
creditissued by a financial institution. Thereafter, the Trustee,
inexchange for the bonds, delivered to the Sponsorevidence of
ownership of the number of Units indicatedunder “Summary of
Essential Financial Information”. ATrust that holds primarily bonds
within the 3 to 7 yearmaturity range, as described on the cover of
theprospectus, is referred to herein as a “Short-Term Trust”.Unless
otherwise terminated as provided herein, the TrustAgreement will
terminate at the end of the calendar yearprior to the twentieth
anniversary of its execution in thecase of a Short-Term Trust.
Each Unit initially offered represents a fractionalundivided
interest in the principal and net income of theTrust. The number of
Units is determined based upon a$1,000 principal amount of bonds in
the Trust per Unit.To the extent that any Units are redeemed to the
Trustee,the fractional undivided interest in the Trust
representedby each Unit will increase, although the actual interest
inthe Trust will remain unchanged. Units will remainoutstanding
until redeemed by Unitholders or until thetermination of the Trust
Agreement.
Objective and Bond Selection. The objective of aShort-Term Trust
is to provide a high level of currentincome and to preserve capital
by investing in a portfolioprimarily consisting of bonds maturing
approximately 3 to7 years from the Date of Deposit. There is, of
course, noguarantee that a Trust will achieve its objective. Your
Trustmay be an appropriate investment vehicle for investorswho
desire to participate in a portfolio of fixed incomebonds with
greater diversification than they might be ableto acquire
individually.
In selecting bonds for each Trust, the Sponsorconsidered the
following factors, among others: (a) theratings criteria applicable
to your Trust as listed under“Principal Investment Strategy”; (b)
the prices of thebonds relative to other bonds of comparable
quality andmaturity; (c) the current income provided by the
bonds;(d) the diversification of bonds as to purpose of issue
andlocation of issuer and (e) the probability of early return
ofprincipal or high legal or event risk. After the Date ofDeposit,
a bond may cease to be rated or its rating maybe reduced below the
minimum required as of the Dateof Deposit. Neither event requires
elimination of a bondfrom a Trust but may be considered in the
Sponsor’sdetermination as to whether or not to direct the Trusteeto
dispose of the bond (see “Trust Administration--Portfolio
Administration”). In particular, the ratings of thebonds in an
Investment Grade Corporate Trust could fallbelow “investment grade”
(i.e., below “BBB-” or “Baa3”)during the Trust’s life and the Trust
could continue to holdthe bonds. See “The Trusts--Risk
Factors”.
Risk Factors. All investments involve risk. Thissection
describes the main risks that can impact thevalue of bonds in your
Trust. You should understandthese risks before you invest. If the
value of the bondsfalls, the value of your Units will also fall.
You can losemoney by investing in a Trust. No one can guaranteethat
your Trust will achieve its objective or that yourinvestment return
will be positive over any period. TheInformation Supplement, which
is available uponrequest, contains a more detailed discussion of
risksrelated to your investment.
Corporate Bond Risk. Corporate bonds, which aredebt instruments
issued by corporations to raise capital,have priority over
preferred securities and commonstock in an issuer’s capital
structure, but may besubordinated to an issuer’s other debt
instruments. Themarket value of a corporate bond may be affected
byfactors directly related to the issuer, such as investors’
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perceptions of the creditworthiness of the issuer, theissuer’s
financial performance, perceptions of the issuerin the market
place, performance of the issuer’smanagement, the issuer’s capital
structure, the use offinancial leverage and demand for the issuer’s
goodsand services, and by factors not directly related to theissuer
such as general market liquidity. The market valueof corporate
bonds generally may be expected to riseand fall inversely with
interest rates, and as a result,corporate bonds may lose value in a
rising-rateenvironment. To the extent your Trust holds
belowinvestment grade corporate bonds, such bonds areoften high
risk and have speculative characteristics andmay be particularly
susceptible to adverse issuer-specific developments.
Current economic conditions. The economic recessionin the United
States which began in 2007 technically cameto an end in June of
2009, however the U.S. and globaleconomies continue to feel the
effects of this recessionaryperiod, including increased
unemployment and below-average levels of economic activity. The
U.S. and otherforeign governments have taken extraordinary steps
tocombat the effects of the economic crisis, however theultimate
impact of these measures is unknown and cannotbe predicted. While
the U.S. Federal Reserve formallyconcluded its quantitative easing
program, there continuesto be uncertainty concerning potential
future changes tothe federal funds rate. On August 5, 2011,
Standard &Poor’s Rating Services downgraded the
long-termsovereign credit rating of the United States of America
toAA+ from AAA, citing the prolonged controversy overraising the
statutory debt ceiling and the related fiscalpolicy debate. Any
substantial change in general marketconditions may result in sudden
and significant valuationincreases or declines in your Trust’s
holdings.
Furthermore, a recent outbreak of a respiratory diseasecaused by
a novel coronavirus (“COVID-19”), first detectedin China in
December 2019, has spread globally in a shortperiod of time.
COVID-19 has resulted in the disruption of,and delays in,
production and supply chains and thedelivery of healthcare services
and processes, as well asthe cancellation of organized events and
educationalinstitutions, a decline in consumer demand for
certaingoods and services, and general concern and uncertainty.In
response, governments and businesses world-wide,including the
United States, have taken aggressivemeasures, including closing
borders, restrictinginternational and domestic travel, imposing
prolonged
quarantines of large populations, and financial support ofthe
economy and financial markets. COVID-19 and itseffects have
contributed to increased volatility in globalmarkets, severe loses,
liquidity constraints, and loweredyields; the duration of such
effects cannot yet bedetermined but could be present for an
extended periodof time. The effects that COVID-19 may have on
certainsectors and industries are uncertain and may adverselyaffect
the value of your Trust.
Market risk is the risk that the value of the bonds in yourTrust
will fluctuate. This could cause the value of your Unitsto fall
below your original purchase price or below the parvalue. Market
value fluctuates in response to variousfactors. These can include
changes in interest rates,inflation, the financial condition of a
bond’s issuer or insurer,perceptions of the issuer or insurer, or
ratings on a bond.Certain geopolitical and other events,
includingenvironmental events and public health events such
asepidemics and pandemics, may have a global impact andadd to
instability in world economies and marketsgenerally. Changing
economic, political or financial marketconditions in one country or
geographic region couldadversely affect the market value of the
securities held byyour Trust in a different country or geographic
region dueto increasingly interconnected global economies
andfinancial markets. Even though the Supervisor supervisesyour
portfolio, you should remember that no one managesyour portfolio.
Your Trust will not sell a bond solely becausethe market value
falls as is possible in a managed fund.
Foreign securities risk. Investing in foreign
securitiestypically involves more risks than investing in
securities ofUnited States issuers. These risks can increase
thepotential for losses in the Trust and affect its Unit
price.These risks may include risks such as losses due topolitical,
economic and social developments, internationaltrade conditions,
foreign taxes (including withholdingtaxes), restrictions on foreign
investments or exchange ofsecurities, foreign currency fluctuations
or restriction onexchange or repatriation of currencies.
The political, economic and social structures of someforeign
countries may be less stable and more volatilethan those in the
U.S., and investments in these countriesmay be subject to the risks
of internal and externalconflicts, currency devaluations, foreign
ownershiplimitations and tax increases. It is possible that
agovernment may take over the assets or operations of acompany or
impose restrictions on the exchange or
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export of currency or other assets. Some countries alsomay have
different legal systems that may make it difficultfor the Trust to
exercise investor rights, and pursue legalremedies with respect to
its foreign investments.Diplomatic and political developments,
including rapidand adverse political changes, social instability,
regionalconflicts, terrorism and war, could affect the
economies,industries, and securities and currency markets, and
thevalue of the Trust’s investments, in non-U.S. countries. Noone
can predict the impact that these factors could haveon the Trust’s
portfolio securities.
Foreign companies may not be subject to the samedisclosure,
accounting, auditing and financial reportingstandards and practices
as U.S. companies. Thus, theremay be less information publicly
available about foreigncompanies than about most U.S.
companies.
Certain foreign securities may be less liquid (harder tosell)
and more volatile than many U.S. securities. Thismeans the Trust
may at times be unable to sell foreignsecurities in a timely manner
or at favorable prices.
In addition, for foreign securities of European issuers,the
departure of any European Union (“EU”) memberfrom use of the Euro
could lead to serious disruptionsto foreign exchanges, operations
and settlements, whichmay have an adverse effect on European
issuers. Morerecently, there is uncertainty regarding the state of
theEU following the United Kingdom’s (“U.K.”) initiation onMarch
27, 2017 of the process to exit from the EU(“Brexit”). As of
January 31, 2020, the U.K. has officiallyexited the EU, though
trade negotiations are ongoing.The effect that Brexit may have on
European issuers orcompanies with a significant European presence
isuncertain. No one can predict the impact that thesefactors could
have on the securities held by the Trust.
Interest rate risk is the risk that the value of bonds willfall
if interest rates increase. Bonds typically fall in valuewhen
interest rates rise and rise in value when interestrates fall.
Bonds with longer periods before maturity areoften more sensitive
to interest rate changes. In a lowinterest rate environment risks
associated with risingrates are heightened. The negative impact on
fixedincome securities from any interest rate increases couldbe
swift and significant.
Credit risk is the risk that a bond’s issuer or insurer isunable
to meet its obligation to pay principal or intereston the bond.
Call risk is the risk that the issuer prepays or “calls” abond
before its stated maturity. An issuer might call abond if interest
rates fall and the bond pays a higherinterest rate or if it no
longer needs the money for theoriginal purpose. If an issuer calls
a bond, your Trust willdistribute the principal to you but your
future interestdistributions will fall. You might not be able to
reinvestthis principal at as high a yield. A bond’s call price
couldbe less than the price your Trust paid for the bond andcould
be below the bond’s par value. This means thatyou could receive
less than the amount you paid for yourUnits. If enough bonds in
your Trust are called, your Trustcould terminate early.
Some or all of the bonds may also be subject toextraordinary
optional or mandatory redemptions ifcertain events occur, such as
certain changes in taxlaws, the substantial damage or destruction
by fire orother casualty of the project for which the proceeds
ofthe bonds were used, and various other events. The callprovisions
are described in general terms in the“Redemption Feature” column of
the “Portfolio” section,and the notes thereto.
Bond quality risk is the risk that a bond will fall in valueif a
rating agency decreases the bond’s rating.
Bond concentration risk is the risk that your Trust isless
diversified because it concentrates in a particulartype of bond.
When a certain type of bond makes up25% or more of a Trust, the
Trust is considered to be“concentrated” in that bond type. During
the life of yourTrust, the relative weighting or composition of
your Trustmay change for reasons including but not limited tobond
price fluctuations, Unit redemption activity, as wellas the calling
or maturing of bonds. Accordingly, thefluctuations in the relative
weighting or composition ofyour Trust may result in concentrations
(25% or more ofa portfolio’s assets) in bonds of a particular type,
industryand/or geographic region. The different bond types
aredescribed in the following sections.
Reduced diversification risk is the risk that your Trustwill
become smaller and less diversified as bonds aresold, are called or
mature. This could increase your riskof loss and increase your
share of Trust expenses.
Liquidity risk is the risk that the value of a bond will fallif
trading in the bond is limited or absent, therebyadversely
affecting the Trust’s net asset value. The marketfor certain
investments may become less liquid or illiquiddue to adverse
changes in the conditions of a particular
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issuer or due to adverse market or economic conditions.In the
absence of a liquid trading market for a particularsecurity, the
price at which such security may be sold tomeet redemptions, as
well as the value of the Units of yourTrust, may be adversely
affected. No one can guaranteethat a liquid trading market will
exist for any bond becausethese bonds generally trade in the
over-the-countermarket (they are not listed on a securities
exchange).Because of the difficulties currently being experienced
bymany companies in the financial services industry, manymarkets
are experiencing substantially reduced liquidity.As a result of
such illiquidity, the Trustee may have to sellother or additional
bonds if necessary to satisfyredemption requests.
Litigation and legislation risk is the risk that
futurelitigation or legislation could affect the value of your
Trust.Litigation could challenge an issuer’s authority to issueor
make payments on bonds.
Corporate Bond Industry Risks. Your Trust mayinvest
significantly in bonds of certain industries. Anynegative impact on
the related industry will have a greaterimpact on the value of
Units than on a portfolio diversifiedover several industries. You
should understand the risksof these industries before you
invest.
Communications Issuers. Your Trust may investsignificantly in
bonds issued by communicationscompanies, which includes
telecommunicationscompanies. This sector is primarily characterized
byextensive government regulation and intensecompetition.
Companies in the telecommunications industryallocate significant
resources in efforts to comply withapplicable government
regulations. Telecommunicationscompanies operating in the U.S. must
comply withapplicable state and federal regulations, including
thoseof the Federal Communications Commission. The costsof
complying with governmental regulations, delays orfailure to
receive required regulatory approvals or theenactment of new
adverse regulatory requirements maynegatively affect the business
of telecommunicationscompanies. Recent industry consolidation
trends maylead to increased regulation in primary
markets.Internationally, telecommunications companies may
faceregulatory challenges such as securing pre-marketingclearance
of products and prices, which may bearbitrary and unpredictable.
U.S. federal and stategovernments regulate permitted rates of
return and the
kinds of services that a company may offer. U.S.
federallegislation governing the telecommunications industrymay
become subject to judicial review and additionalinterpretation,
which may adversely affect certaintelecommunications issuers.
The competitive landscape in the telecommunicationssector is
intense and constantly evolving. The productsand services of these
companies may become outdatedvery rapidly. A company’s performance
can be hurt if thecompany fails to keep pace with technological
advances.At the same time, demand for some
telecommunicationsservices remains weak, as several key markets
areoversaturated and many customers can choose betweenseveral
service providers and technology platforms. Tomeet increasing
competition, companies may have tocommit substantial capital,
particularly in the formulationof new products and services using
new technologies. Asa result, many companies have been compelled to
cutcosts by reducing their workforce, outsourcing,consolidating
and/or closing existing facilities and divestinglow selling product
lines. Certain telecommunicationscompanies may be engaged in fierce
competition for ashare of the market of their products and may have
highercosts, including liabilities associated with the
medical,pension and postretirement expenses of their workforce,than
their competitors. As a result, competitive pressuresare intense
and the stocks are subject to rapid pricevolatility. Moreover,
continued consolidation in this industrycould create integration
expenses and delay, andconsequent management diversion of attention
away fromongoing operations and related risks, among other
factors,could result in the failure of these companies to
realizeexpected cost savings or synergies.
Several high-profile bankruptcies of largetelecommunications
companies in the past haveillustrated the potentially unstable
condition of thetelecommunications industry. High debt loads
thatwere accumulated during the industry growth spurt ofthe 1990s
caught up to the industry, causing debt andstock prices to trade at
distressed levels for manytelecommunications companies and
increasing thecost of capital for needed additional
investment.Furthermore, certain companies involved in theindustry
have also faced scrutiny for allegedaccounting irregularities that
may have led to theoverstatement of their financial results, and
othercompanies in the industry may face similar scrutiny.Moreover,
some companies have begun the process
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of emerging from bankruptcy and may have reducedlevels of debt
and other competitive advantages overother telecommunications
companies. Due to theseand other factors, the risk level of owning
the securitiesof telecommunications companies remains
substantialand may continue to rise.
Consumer Discretionary and Consumer StaplesIssuers. Your Trust
may invest significantly in bondsissued by companies that
manufacture or sell variousconsumer products. General risks of
these companiesinclude the overall state of the economy,
intensecompetition and consumer spending trends. A decline inthe
economy which results in a reduction of consumers’disposable income
can negatively impact spendinghabits. Global factors including
political developments,imposition of import controls, fluctuations
in oil prices,and changes in exchange rates may adversely
affectissuers of consumer products and services.
Competitiveness in the retail industry may requirelarge capital
outlays for the installation of automatedcheckout equipment to
control inventory, track the saleof items and gauge the success of
sales campaigns.Retailers who sell their products over the Internet
havethe potential to access more consumers, but mayrequire
sophisticated technology to remaincompetitive. Changes in
demographics and consumertastes can also affect the demand for, and
the successof, consumer products and services in themarketplace.
Consumer products and servicescompanies may be subject to
government regulationaffecting their products and operations which
maynegatively impact performance. Tobacco companiesmay be adversely
affected by new laws, regulationsand litigation.
Energy Issuers. Your Trust may invest significantly inbonds
issued by energy companies. Energy companiescan be significantly
impacted by fluctuations in the pricesof energy fuels, such as
crude oil, natural gas, and otherfossil fuels. Extended periods of
low energy fuel prices canhave a material adverse impact on an
energy company’sfinancial condition and results of operations. The
prices ofenergy fuels can be materially impacted by generaleconomic
conditions, demand for energy fuels, industryinventory levels,
production quotas or other actions thatmight be imposed by the
Organization of PetroleumExporting Countries (OPEC),
weather-related disruptionsand damage, competing fuel prices, and
geopolitical risks.Recently, the price of crude oil, natural gas
and other fossil
fuels has declined substantially and experienced
significantvolatility, which has adversely impacted energy
companiesand their stock prices and dividends. The price of
energyfuels may decline further and have further adverse effectson
energy companies.
Some energy companies depend on their ability to findand acquire
additional energy reserves. The explorationand recovery process
involves significant operatinghazards and can be very costly. An
energy company hasno assurance that it will find reserves or that
any reservesfound will be economically recoverable.
The energy industry also faces substantial governmentregulation,
including environmental regulation regarding airemissions and
disposal of hazardous materials. Theseregulations may increase
costs and limit production andusage of certain fuels. Additionally,
governments havebeen increasing their attention to issues related
togreenhouse gas (“GHG”) emissions and climate change,and
regulatory measures to limit or reduce GHG emissionsare currently
in various stages of discussion orimplementation. GHG
emissions-related regulations couldsubstantially harm energy
companies, including byreducing the demand for energy fuels and
increasingcompliance costs. Energy companies also face risksrelated
to political conditions in oil producing regions (suchas the Middle
East). Political instability or war in theseregions could
negatively impact energy companies.
The operations of energy companies can bedisrupted by natural or
human factors beyond thecontrol of the energy company. These
includehurricanes, floods, severe storms, and other weatherevents,
civil unrest, accidents, war, earthquakes, fire,political events,
systems failures, and terrorist attacks,any of which could result
in suspension of operations.Energy companies also face certain
hazards inherent tooperating in their industry, such as accidental
releasesof energy fuels or other hazardous materials,
explosions,and mechanical failures, which can result
inenvironmental damage, loss of life, loss of revenues,legal
liability and/or disruption of operations.
Financials Issuers. Your Trust may invest significantlyin bonds
issued by financial services companies.Companies in the financial
services industry include, butare not limited to, companies
involved in activities suchas banking, mortgage finance, consumer
finance,specialized finance, industrial finance and
leasing,investment banking and brokerage, asset management
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and custody, corporate lending, insurance, and
financialinvestment. In general, financial services issuers
aresubstantially affected by changes in economic andmarket
conditions, including: the liquidity and volatilitylevels in the
global financial markets; interest rates, aswell as currency and
commodities prices; investorsentiment; the rate of corporate and
consumer defaults;inflation and unemployment; the availability and
cost ofcapital and credit; exposure to various geographicmarkets or
in commercial and residential real estate;competition from new
entrants in their fields of business;extensive government
regulation; and the overall healthof the U.S. and international
economies. Due to the widevariety of companies in the financial
services sector, theymay behave and react in different ways in
response tochanges in economic and market conditions.
Companies in the financial services sector are subjectto several
distinct risks. Such companies may be subjectto systematic risk,
which may result due to factorsoutside the control of a particular
financial institution —like the failure of another, significant
financial institutionor material disruptions to the credit markets
— thatcould adversely affect the ability of the financial
institutionto operate normally or may impair its financial
condition.Financial services companies are typically affected
bychanges in interest rates, and may be disproportionallyaffected
as a result of volatile and/ or rising interest rates.
Certain financial services companies may themselveshave
concentrated portfolios, which makes themvulnerable to economic
conditions that affect thatindustry. Companies in this sector are
often subject tocredit risk, meaning they may have exposure
toinvestments or agreements which under certaincircumstances may
lead to losses.
The financial services sector may be adverselyaffected by global
developments including recessionaryconditions, deterioration in the
credit markets andconcerns over sovereign debt. This may increase
thecredit risk, and possibility of default, of bonds issuedby such
institutions faced with these problems. Inaddition, the liquidity
of certain debt instruments maybe reduced or eliminated due to the
lack of availablemarket makers. There can be no assurance that
therisks associated with investment in financial servicesissuers
will decrease even assuming that the U.S.and/or foreign governments
and agencies take stepsto address problems that may arise.
Most financial services companies are subject toextensive
governmental regulation, which limits theiractivities and may
affect their ability to earn a profit froma given line of business.
This also exposes financialservices issuers to regulatory risk,
where certain financialservices companies may suffer setbacks if
regulatorschange the rules under which they operate.
Challengingeconomic and political conditions, along with
increasedpublic scrutiny during the past several years, led to
newlegislation and increased regulation in the U.S. andabroad,
creating additional difficulties for financialinstitutions.
Regulatory initiatives and requirements thatwere proposed around
the world may be inconsistent ormay conflict with previous
regulations to which financialservices issuers were subject,
thereby resulting in highercompliance and legal costs, as well as
the potential forhigher operational, capital and liquidity costs.
Proposedor enacted regulations may further limit the amounts
andtypes of loans and other financial commitments certainfinancial
services issuers can make, and further, maylimit the interest rates
and fees they can charge, theprices they can charge and the amount
of capital theymust maintain. These laws and regulations may
affectthe manner in which a particular financial institution
doesbusiness and the products and services it may provide.Increased
regulation may restrict a company’s ability tocompete in its
current businesses or to enter into oracquire new businesses. New
regulations may reduceor limit a company’s revenue or impose
additional fees,limit the scope of their activities, increase
assessmentsor taxes on those companies and intensify
regulatorysupervision, adversely affecting business operations
orleading to other negative consequences.
Among the most prominent pieces of U.S. legislationfollowing the
2008 financial crisis was the Dodd-FrankWall Street Reform and
Consumer Protection Act (the“Dodd-Frank Act”), enacted into federal
law on July 21,2010. The Dodd-Frank Act included reforms
andrefinements to modernize existing laws to addressemerging risks
and issues in the nation’s evolvingfinancial system. It also
established entirely newregulatory regimes, including in areas such
as systemicrisk regulation, over-the-counter derivatives
marketoversight, and federal consumer protection. The Dodd-Frank
Act intended to cover virtually all participants inthe financial
services industry for years to come,including banks, thrifts,
depository institution holdingcompanies, mortgage lenders,
insurance companies,
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industrial loan companies, broker-dealers and othersecurities
and investment advisory firms, private equityand hedge funds,
consumers, numerous federalagencies and the federal regulatory
structure. Inparticular, certain provisions of the Dodd-Frank
Actincreased the capital requirements of certain financialservices
companies supervised by the Federal Reserve,resulting in such
companies incurring generally higherdeposit premiums. The Economic
Growth, RegulatoryRelief and Consumer Protection Act (the “Relief
Act”),enacted into federal law on May 23, 2018, introducedchanges
to several aspects of the U.S. financial industry.The Relief Act
dilutes some of the stringent regulationsimposed by the Dodd-Frank
Act and aims to makethings easier for small- and medium-sized U.S.
banks –however, all banks will remain regulated. The Relief Actwill
relieve small- and medium-sized banks from majorregulatory
compliance costs linked with stricter scrutiny.
The Relief Act may lead to further deregulation androll-back of
the Dodd-Frank Act and the Sponsor isunable to predict the impact
that such changes mayhave on financial services issuers.
Financial services companies operating in foreigncountries are
also subject to regulatory and interest rateconcerns. In
particular, government regulation in certainforeign countries may
include controls on interest rates,credit availability, prices and
currency transfers. Thedeparture of any EU member from use of the
Euro couldlead to serious disruptions to foreign
exchanges,operations and settlements, which may have an
adverseeffect on financial services issuers. More recently, thereis
uncertainty regarding the state of the EU following theU.K.’s
initiation on March 27, 2017, of the process to exitfrom the EU. As
of January 31, 2020, the U.K. hasofficially exited the EU, though
trade negotiations are stillongoing. The effect that Brexit may
have on the globalfinancial markets or on the financial services
companiesin your Trust is uncertain.
Commercial banks (including “money center”regional and community
banks), savings and loanassociations and holding companies of the
foregoingare especially subject to adverse effects of
volatileinterest rates, concentrations of loans in
particularindustries or classifications (such as real estate,
energy,or sub-prime mortgages), and significant competition.The
profitability of these businesses is to a significantdegree
dependent on the availability and cost of capitalfunds. Economic
conditions in the real estate market
may have a particularly strong effect on certain banksand
savings associations. Commercial banks andsavings associations are
subject to extensive federaland, in many instances, state
regulation. Neither suchextensive regulation nor the federal
insurance ofdeposits ensures the solvency or profitability
ofcompanies in this industry, and there is no assuranceagainst
losses in securities issued by such companies.
Insurance companies are particularly subject togovernment
regulation and rate setting, potentialantitrust and tax law
changes, and industry-wide pricingand competition cycles. Property
and casualty insurancecompanies also may be affected by weather,
terrorism,long-term climate changes, and other catastrophes.
Lifeand health insurance companies may be affected bymortality and
morbidity rates, including the effects ofepidemics. Individual
insurance companies may beexposed to reserve inadequacies, problems
ininvestment portfolios (for example, real estate or “junk”bond
holdings) and failures of reinsurance carriers.
Many of the investment considerations discussed inconnection
with banks and insurance companies alsoapply to other financial
services companies. Thesecompanies are subject to extensive
regulation, rapidbusiness changes, and volatile performance
dependenton the availability and cost of capital and
prevailinginterest rates and significant competition.
Generaleconomic conditions significantly affect thesecompanies.
Credit and other losses resulting from thefinancial difficulty of
borrowers or other third parties havea potentially adverse effect
on companies in this industry.Investment banking, securities
brokerage andinvestment advisory companies are particularly
subjectto government regulation and the risks inherent insecurities
trading and underwriting activities.
The financial condition of customers, clients andcounterparties,
including other financial institutions,could adversely affect
financial services issuers. Financialservices issuers are
interrelated as a result of marketmaking, trading, clearing or
other counterpartyrelationships. Many of these transactions
exposefinancial services issuers to credit risk as a result of
theactions of, or deterioration in, the commercialsoundness of
other counterparty financial institutions.Economic and market
conditions may increase creditexposures due to the increased risk
of customer, clientor counterparty default. Downgrades to the
creditratings of financial services issuers could have a
negative
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effect on liquidity, cash flows, competitive position,financial
condition and results of operations bysignificantly limiting access
to funding or capital markets,increasing borrowing costs or
triggering increasedcollateral requirements. Financial services
issuers facesignificant legal risk, both from regulatory
investigationsand proceedings, as well as private actions.
Profitmargins of these companies continue to shrink due tothe
commoditization of traditional businesses, newcompetitors, capital
expenditures on new technologyand the pressure to compete
globally.
Health Care Issuers. Your Trust may invest significantlyin bonds
issued by health care companies. These issuersinclude companies
involved in advanced medical devicesand instruments, drugs and
biotechnology, managedcare, hospital management/health services and
medicalsupplies. These companies face substantial
governmentregulation and approval procedures. General risks
ofhealth care companies include extensive competition,product
liability litigation and evolving governmentregulation.
On March 30, 2010, the Health Care and EducationReconciliation
Act of 2010 (incorporating the PatientProtection and Affordable
Care Act, collectively the“Act”) was enacted into law. The Act
continues to havea significant impact on the health care sector
throughthe implementation of a number of reforms in a complexand
ongoing process, with varying effective dates.Significant
provisions of the Act include the introductionof required health
care coverage for most Americans,significant expansion in the
number of Americans eligiblefor Medicaid, modification of taxes and
tax credits in thehealth care sector, and subsidized insurance for
low tomiddle income families. The Act also provides for
morethorough regulation of private health insuranceproviders,
including a prohibition on the denial ofcoverage due to
pre-existing conditions. However, thecurrent federal administration
is seeking to repeal the Actand many aspects of it are therefore in
flux. In late 2017,along with the passage of sweeping tax
reform,legislation was passed which eliminated the
individualmandate (a penalty for failure to obtain a minimum
levelof health insurance coverage) beginning in 2019. It
isestimated that the repeal of the individual mandate willcause a
significant amount of people to be uninsuredwhich may have an
adverse effect on insurancepremiums and federal subsidies. The
Sponsor is unable
to predict the full impact of the Act, or of its potentialrepeal
or modification, on the Securities in your Trust.
As illustrated by the Act, Congress may from time totime propose
legislative action that will impact the healthcare sector. The
proposals may span a wide range oftopics, including cost and price
controls (which mayinclude a freeze on the prices of prescription
drugs),incentives for competition in the provision of health
careservices, promotion of pre-paid health care plans andadditional
tax incentives and penalties aimed at the healthcare sector. The
government could also reduce fundingfor health care related
research.
Drug and medical products companies also face therisk of
increasing competition from new products orservices, generic drug
sales, product obsolescence,increased government regulation,
termination of patentprotection for drug or medical supply products
and therisk that a product will never come to market. Theresearch
and development costs of bringing a new drugor medical product to
market are substantial. Thisprocess involves lengthy government
review with noguarantee of approval. These companies may havelosses
and may not offer proposed products for severalyears, if at all.
The failure to gain approval for a new drugor product can have a
substantial negative effect on acompany and its stock. The goods
and services of healthcare issuers are also subject to risks of
malpracticeclaims, product liability claims or other
litigation.
Health care facility operators face risks related todemand for
services, the ability of the facility to providerequired services,
an increased emphasis on outpatientservices, confidence in the
facility, managementcapabilities, competitive forces that may
result in pricediscounting, efforts by insurers and government
agenciesto limit rates, expenses, the cost and
possibleunavailability of malpractice insurance, and terminationor
restriction of government financial assistance (such asMedicare,
Medicaid or similar programs).
Industrials Issuers. Your Trust may invest significantlyin bonds
issued by industrials companies. General risksof industrials
companies include the general state of theeconomy, intense
competition, imposition of importcontrols, volatility in commodity
prices, currencyexchange rate fluctuation, consolidation, labor
relations,domestic and international politics, excess capacity
andconsumer spending trends. Companies in the industrialssector may
be adversely affected by liability for
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environmental damage and product liability claims.Capital goods
companies may also be significantlyaffected by overall capital
spending and leverage levels,economic cycles, technical
obsolescence, delays inmodernization, limitations on supply of key
materials,depletion of resources, government regulations,government
contracts and e-commerce initiatives.
Industrials companies may also be affected by factorsmore
specific to their individual industries. Industrialmachinery
manufacturers may be subject to declines incommercial and consumer
demand and the need formodernization. Aerospace and defense
companies maybe influenced by decreased demand for new
equipment,aircraft order cancellations, disputes over or ability
toobtain or retain government contracts, changes ingovernment
budget priorities, changes in aircraft-leasingcontracts and
cutbacks in profitable business travel. Thenumber of housing
starts, levels of public and non-residential construction including
weakening demand fornew office and retail space, and overall
constructionspending may adversely affect construction materials
andequipment manufacturers. Stocks of transportationcompanies are
cyclical and can be significantly affectedby economic changes, fuel
prices and insurance costs.Transportation companies in certain
countries may alsobe subject to significant government regulation
andoversight, which may negatively impact their businesses.
Materials Issuers. Your Trust may invest significantly inbonds
issued by companies in the materials industry.Companies in the
materials sector could be adverselyaffected by commodity price
volatility, exchange rates,import controls and increased
competition. Production ofmaterials often exceeds demand as a
result ofoverbuilding or economic downturns, leading to
poorinvestment returns. Companies in the materials sector areat
risk for environmental damage and product liabilityclaims.
Companies in the materials sector may beadversely affected by
depletion of resources, technicalprogress, labor relations, and
governmental regulations.
Real Estate Issuers. Your Trust may invest significantlyin bonds
issued by real estate companies. You shouldunderstand the risks of
real estate companies before youinvest. Many factors can have an
adverse impact on theperformance of a particular real estate
company, includingits cash available for distribution, the credit
quality of aparticular company or the real estate industry
generally.The success of real estate companies depends on
variousfactors, including the occupancy and rent levels,
appreciation of the underlying property and the ability toraise
rents on those properties. Economic recession,overbuilding, tax law
changes, higher interest rates orexcessive speculation can all
negatively impact thesecompanies, their future earnings and share
prices.
Risks associated with real estate companies include,among other
factors,
• general U.S. and global as well as localeconomic
conditions,
• decline in real estate values,
• the financial health of tenants,
• over-building and increased competition fortenants,
• over-supply of properties for sale,
• changing demographics,
• changes in interest rates, tax rates and otheroperating
expenses,
• changes in government regulations,
• faulty construction and the ongoing need forcapital
improvements,
• regulatory and judicial requirements,including relating to
liability for environmentalhazards,
• changes in neighborhood values and buyerdemand, and
• the unavailability of construction financing ormortgage loans
at rates acceptable todevelopers.
Variations in rental income and space availability andvacancy
rates in terms of supply and demand areadditional factors affecting
real estate generally and realestate companies in particular.
Properties owned by acompany may not be adequately insured against
certainlosses and may be subject to significant
environmentalliabilities, including remediation costs.
You should also be aware that real estate companiesmay not be
diversified and are subject to the risks offinancing projects.
Because of the structure of certain real estatecompanies, and
legal requirements in many countries thatthese companies distribute
a certain minimum amount oftheir taxable income to shareholders
annually, real estatecompanies often require frequent amounts of
new funding,
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through both borrowing money and issuing stock. Thus,many real
estate companies historically have frequentlyissued substantial
amounts of new equity shares (orequivalents) to purchase or build
new properties. This mayhave adversely affected security market
prices. Bothexisting and new share issuances may have an
adverseeffect on these prices in the future, especially
whencompanies continue to issue stock when real estate pricesare
relatively high and stock prices are relatively low.
Information Technology Issuers. Your Trust may
investsignificantly in bonds issued by companies in thetechnology
sector which includes information technologycompanies. The
information technology sector includescompanies that are involved
in computer and businessservices, enterprise software/technical
software, Internetand computer software, Internet-related
services,networking and telecommunications
equipment,telecommunications services, electronics products,
serverhardware, computer hardware and peripherals,semiconductor
capital equipment and semiconductors.These companies face risks
related to rapidly changingtechnology, rapid product obsolescence,
cyclical marketpatterns, evolving industry standards and frequent
newproduct introductions.
Companies in this sector face risks from rapid changesin
technology, competition, dependence on certainsuppliers and
supplies, rapid obsolescence of productsor services, patent
termination, frequent new productsand government regulation. These
companies can alsobe adversely affected by interruption or
reduction insupply of components or loss of key customers
andfailure to comply with certain industry standards.
An unexpected change in technology can have asignificant
negative impact on a company. The failure of acompany to introduce
new products or technologies orkeep pace with rapidly changing
technology can have anegative impact on the company’s results.
Certaintechnology companies may also be smaller and/or
lessexperienced companies with limited product lines, marketsor
resources. Stocks of some Internet companies havehigh
price-to-earnings ratios with little or no earningshistories.
Technology stocks tend to experiencesubstantial price volatility
and speculative trading.Announcements about new products,
technologies,operating results or marketing alliances can cause
stockprices to fluctuate dramatically. At times, however,
extremeprice and volume fluctuations are unrelated to theoperating
performance of a company. This can impact
your ability to redeem your Units at a price equal to orgreater
than what you paid.
Utility Issuers. The Trust may invest significantly inbonds
issued by utility companies or in companies relatedto the utility
industry. Many utility companies, especiallyelectric and gas and
other energy related utility companies,are subject to various
uncertainties, including:
• Risks of increases in fuel and other operatingcosts;
• Restrictions on operations and increasedcosts and delays as a
result of environmental,nuclear safety and other regulations;
• Regulatory restrictions on the ability to passincreasing
wholesale costs along to the retailand business customer;
• Coping with the general effects of energyconservation;
• Technological innovations which may renderexisting plants,
equipment or productsobsolete;
• The effects of unusual, unexpected orabnormal local
weather
• Maturing markets and difficulty in expandingto new markets due
to regulatory and otherfactors;
• The potential impact of natural or manmadedisasters;
• Difficulty obtaining adequate returns oninvested capital, even
if frequent rateincreases are approved by public
servicecommissions;
• The high cost of obtaining financing duringperiods of
inflation;
• Difficulties of the capital markets in absorbingutility debt
and equity securities;
• Increased competition; and
• International politics.
Any of these factors, or a combination of thesefactors, could
affect the supply of or demand for energy,such as electricity or
natural gas, or water, or the abilityof the issuers to pay for such
energy or water whichcould adversely affect the profitability of
the issuers of thebonds and the performance of the Trust.
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Utility companies are subject to extensive regulationat the
federal level in the United States, and many areregulated at the
state level as well. The value of utilitycompany stocks may decline
because governmentalregulation affecting the utilities industry can
change. Thisregulation may prevent or delay the utility company
frompassing along cost increases to its customers, whichcould
hinder the utility company’s ability to meet itsobligations to its
suppliers and could lead to the takingof measures, including the
acceleration of obligations orthe institution of involuntary
bankruptcy proceedings, byits creditors against such utility
company. Furthermore,regulatory authorities, which may be subject
to politicaland other pressures, may not grant future rate
increases,or may impose accounting or operational policies, anyof
which could adversely affect a company’s profitabilityand its stock
price.
Certain utility companies have experienced full orpartial
deregulation in recent years. These utilitycompanies are frequently
more similar to industrialcompanies in that they are subject to
greatercompetition and have been permitted by regulators
todiversify outside of their original geographic regions andtheir
traditional lines of business. These opportunitiesmay permit
certain utility companies to earn more thantheir traditional
regulated rates of return. Somecompanies, however, may be forced to
defend their corebusiness and may be less profitable. While
regulatedproviders tend to have regulated returns,
non-regulatedproviders’ returns are not regulated and generally
aremore volatile. These developments have reducedstability of cash
flows in those states with non-regulatedproviders and could impact
the short-term earningspotential of some in this industry. These
trends have alsomade shares of some utility companies less
sensitive tointerest rate changes but more sensitive to changes
inrevenue and earnings and caused them to reduce theratio of their
earnings they pay out as dividends.
Certain utilities companies face risks associated withthe
operation of nuclear facilities for electric generation,including,
among other considerations, litigation, theproblems associated with
the use of radioactive materialsand the effects of natural or
man-made disasters. Ingeneral, certain utility companies may face
additionalregulation and litigation regarding their power
plantoperations, increased costs from new or greaterregulation of
these operations, and expenses related tothe purchase of emissions
control equipment.
More About the Bonds. In addition to describingthe purpose of
the bonds, other information about thebonds is also included in the
“Portfolio” and notesthereto. This information relates to other
characteristicsof the bonds. This section briefly describes some
ofthese characteristics.
Original issue discount bonds were initially issued ata price
below their face (or par) value. These bondstypically pay a lower
interest rate than comparablebonds that were issued at or above
their par value. In astable interest rate environment, the market
value ofthese bonds tends to increase more slowly in early yearsand
in greater increments as the bonds approachmaturity. The issuers of
these bonds may be able to callor redeem a bond before its stated
maturity date and ata price less than the bond’s par value.
Zero coupon bonds are a type of original issue discountbond.
These bonds do not pay any current interest duringtheir life. If an
investor owns this type of bond, the investorhas the right to
receive a final payment of the bond’s parvalue at maturity. The
price of these bonds often fluctuatesgreatly during periods of
changing market interest ratescompared to bonds that make current
interest payments.The issuers of these bonds may be able to call or
redeema bond before its stated maturity date and at a price
lessthan the bond’s par value.
“When, as and if issued” bonds are bonds that tradebefore they
are actually issued. This means that theSponsor can only deliver
them to your Trust “when, asand if” the bonds are actually issued.
Delivery of thesebonds may be delayed or may not occur. Interest
onthese bonds does not begin accruing to your Trust untilthe
Sponsor delivers the bond to the Trust. You mayhave to adjust your
tax basis if the Sponsor delivers anyof these bonds after the
expected delivery date. Anyadjustment would reflect interest that
accrued betweenthe time you purchased your Units and the delivery
ofthe bonds to your Trust. This could lower your first
yearestimated current return. You may experience gains orlosses on
these bonds from the time you purchase Unitseven though your Trust
has not yet received them.
In order to acquire certain bonds, it may be necessaryfor the
Sponsor or Trustee to pay amounts coveringaccrued interest on the
bonds which exceed theamounts which will be made available through
cashfurnished by the Sponsor on the Date of Deposit. Thiscash may
exceed the interest which would accrue to the
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First Settlement Date. The Trustee has agreed to pay forany
amounts necessary to cover any excess and will bereimbursed when
funds become available from interestpayments on the related bonds.
Also, since interest onany “when, as and if issued” bonds does not
beginaccruing to the benefit of Unitholders until the date
ofdelivery, the Trustee may reduce its fee and pay Trustexpenses in
order to maintain or approach the sameestimated net annual interest
income during the first yearof the Trust’s operations as described
under “Summaryof Essential Financial Information”.
No FDIC Guarantee. An investment in your Trustis not a deposit
of any bank and is not insured orguaran