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: THE FIRST TRUST SPECIAL
SITUATIONS TRUST, SERIES 137
B. Name of Depositor: NIKE SECURITIES L.P.
C. Complete Address of Depositor's 1001 Warrenville Road
Principal Executive Offices: Lisle, Illinois 60532
D. Name and Complete Address of
Agents for Service: NIKE SECURITIES L.P.
Attention: James A. Bowen
Suite 300
1001 Warrenville Road
Lisle, Illinois 60532
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. Proposed Maximum Offering
Price to the Public of the
Securities Being Registered: Indefinite.
G. Amount of Filing Fee
(as required by Rule 24f-2): $500.00
H. 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.
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 137
Cross-Reference Sheet
(Form N-8B-2 Items required by Instructions as
to the Prospectus in Form S-6)
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust Prospectus front cover
(b) Title of securities issued Summary of Essential
Information
2. Name and address of each Information as to
depositor Sponsor, Trustee and
Evaluator
3. Name and address of Information as to
trustee Sponsor, Trustee and
Evaluator
4. Name and address of Underwriting
principal underwriters
5. State of organization The First Trust Special
of trust Situations Trust
6. Execution and termination The First Trust Special
of trust agreement Situations Trust; Other
Information
7. Changes of name *
8. Fiscal Year *
9. Litigation *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. (a) Registered or bearer Rights of Unit Holders
securities
(b) Cumulative or distributive
securities The First Trust Special
Situations Trust
(c) Redemption Rights of Unit Holders
(d) Conversion, transfer, etc. Rights of Unit Holders
(e) Periodic payment plan
certificates *
(f) Voting rights Rights of Unit Holders;
Other Information
(g) Notice of certificate- Rights of Unit Holders;
holders Other Information
(h) Consents required Rights of Unit Holders;
Other Information
(i) Other provisions The First Trust Special
Situations Trust
11. Types of securities comprising The First Trust Special
units Situations Trust
12. Certain information
regarding periodic payment
plan certificates *
13. (a) Load, fees, expenses, etc. Summary of Essential
Information; Public
Offering; The First Trust
Special Situations Trust
(b) Certain information
regarding periodic payment
plan certificates *
(c) Certain percentages Summary of Essential
Information; The First
Trust Special Situations
Trust; Public Offering
(d) Difference in price offered Public Offering
for any class of transactions
to any class or group of
individuals
(e) Certain other load fees, Rights of Unit Holders
expenses, etc. payable by
holders
(f) Certain profits receivable The First Trust Special
by depositor, principal Situations Trust
underwriters, trustee or
affiliated persons
(g) Ratio of annual charges to
income *
14. Issuance of trust's Rights of Unit Holders
securities
15. Receipt and handling of
payments from purchasers *
16. Acquisition and disposition
of underlying securities The First Trust Special
Situations Trust; Rights
of Unit Holders
17. Withdrawal or redemption The First Trust Special
Situations Trust; Public
Offering; Rights of Unit
Holders
18. (a) Receipt, custody and
disposition of income Rights of Unit Holders
(b) Reinvestment of
distributions Rights of Unit Holders
(c) Reserves or special funds Information as to
Sponsor, Trustee and
Evaluator
(d) Schedule of distributions *
19. Records, accounts and
reports Rights of Unit Holders
20. Certain miscellaneous
provisions of trust
agreement
(a) Amendment Other Information
(b) Termination Other Information
(c) and (d) Trustee, removal and
successor Information as to
Sponsor, Trustee and
Evaluator
(e) and (f) Depositor, removal Information as to
and successor Sponsor, Trustee and
Evaluator
21. Loans to security holders *
22. Limitations on liability The First Trust Special
Situations Trust;
Information as to
Sponsor, Trustee and
Evaluator
23. Bonding arrangements Contents of Registration
Statement
24. Other material provisions
of trust agreement *
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor Information as to
Sponsor, Trustee and
Evaluator
26. Fees received by depositor *
27. Business of depositor Information as to
Sponsor, Trustee and
Evaluator
28. Certain information as to *
officials and affiliated
persons of depositor
29. Voting securities of *
depositor
30. Persons controlling *
depositor
31. Payment by depositor for *
certain services rendered
to trust
32. Payment by depositor for *
certain other services
rendered to trust
33. Remuneration of other *
persons for certain
services rendered to trust
34. Remuneration of other *
persons for certain services
rendered to trust
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of trust's
securities by states Public Offering
36. Suspension of sales of
trust's securities *
37. Revocation of authority
to distribute *
38. (a) Method of distribution Public Offering
(b) Underwriting agreements Public Offering;
Underwriting
(c) Selling agreements Public Offering
39. (a) Organization of principal Information as to
underwriters Sponsor, Trustee and
Evaluator
(b) N.A.S.D. membership of Information as to
principal underwriters Sponsor, Trustee and
Evaluator
40. Certain fee received by See Items 13(a) and 13(e)
principal underwriters
41. (a) Business of principal Information as to
underwriters Sponsor, Trustee and
Evaluator
(b) Branch offices of
principal underwriters *
(c) Salesmen of principal
underwriters *
42. Ownership of trust's
securities by certain
persons *
43. Certain brokerage
commissions received
by principal underwriters *
44. (a) Method of valuation Summary of Essential
Information; The First
Trust Special Situations
Trust; Public Offering
(b) Schedule as to offering
price *
(c) Variation in offering Public Offering
price to certain persons
45. Suspension of redemption
rights *
46. (a) Redemption Valuation Rights of Unit Holders
(b) Schedule as to redemption
price *
47. Maintenance of position Public Offering; Rights
in underlying securities of Unit Holders
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation Information as to
of trustee Sponsor, Trustee and
Evaluator
49. Fees and expenses of trustee The First Trust Special
Situations Trust
50. Trustee's lien The First Trust Special
Situations Trust
VI. INFORMATION CONCERNING THE INSURANCE OF HOLDERS OR
SECURITIES
51. Insurance of holders of *
trust's securities
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust The First Trust Special
agreement with respect Situations Trust; Rights
to selection or elimination of Unit Holders
of underlying securities
(b) Transactions involving
elimination of underlying
securities *
(c) Policy regarding The First Trust Special
substitution or elimination Situations Trust; Rights
of underlying securities of Unit Holders
(d) Fundamental policy not
otherwise covered *
53. Tax status of Trust The First Trust Special
Situations Trust
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during
last ten years *
55. Certain information regarding
periodic payment plan
certificates
56. Certain information regarding
periodic payment plan
certificates
57. Certain information regarding *
periodic payment plan
certificates
58. Certain information regarding
periodic payment plan
certificates
59. Financial statements Report of Independent
(Instruction 1(b) to Auditors; Statement of
Form S-6) Net Assets
__________________________
* Inapplicable, answer negative or not required.
Preliminary Prospectus Dated December 28, 1995
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 137
10,000 Units (A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund
is hereby used as a preliminary Prospectus for the above stated
Series. The narrative information and structure of the attached
final Prospectus will be substantially the same as that of the
final Prospectus for this Series. Information with respect to
pricing, the number of Units, dates and summary information
regarding the characteristics of securities to be deposited in
this Series is not now available and will be different since each
Series has a unique Portfolio. Accordingly the information
contained herein with regard to the previous Series should be
considered as being included for informational purposes only.
Ratings of the securities in this Series are expected to be
comparable to those of the securities deposited in the previous
Series. However, the Estimated Current Return for this Series
will depend on the interest rates and offering prices of the
securities in this Series and may vary materially from that of
the previous Series.
A registration statement relating to the units of this
Series will be filed with the Securities and Exchange Commission
but has not yet become effective. Information contained herein
is subject to completion or amendment. Such Units may not be
sold nor may offer to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall
not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of the Units in any state in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any
such state.
The First Trust (registered trademark) Corporate Income Trust (High Yield)
Intermediate Series 11
The First Trust Special Situations Trust, Series 125 is a unit
investment trust consisting of a portfolio of interest-bearing
corporate debt obligations of domestic and foreign companies (the
"Corporate Bonds") and zero coupon U.S. corporate obligations
(the "Zero Coupon Bonds"), including delivery statements relating
to contracts for the purchase of certain such obligations and an
irrevocable letter of credit. Collectively, the Corporate Bonds and
the Zero Coupon Bonds are referred to herein as the Bonds. The
weighted average maturity of the Bonds in the Trust is 8.75 years.
The Objective of the Trust is a high level of current income through
investment in a fixed portfolio consisting primarily of domestic
high-yield, high-risk corporate debt obligations issued after
July 18, 1984. The Trust also contains high-yield, high-risk dollar
denominated foreign corporate debt obligations, if interest thereon
is U.S. source income, and zero coupon U.S. corporate debt obligations.
The objective of the Trust is dependent upon the continuing ability
of the issuers and/or obligors to meet their respective obligations.
There is, of course, no guarantee that the objective of the Trust
will be achieved. See "What is the First Trust Corporate Income
Trust (High Yield), Intermediate Series 11?" and "Portfolio."
APPROXIMATELY 75% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE BONDS
IN THE TRUST ARE LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS,"
THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE
FOUND IN HIGHER RATED SECURITIES. A PORTION OF THE TRUST'S INVESTMENT
IN JUNK BONDS (REPRESENTING APPROXIMATELY 20% OF THE AGGREGATE
PRINCIPAL AMOUNT OF THE BONDS IN THE TRUST) HAVE BEEN ISSUED BY
FOREIGN ISSUERS WHICH CARRY THE ADDITIONAL RISKS OF UNTIMELY INTEREST
AND PRINCIPAL PAYMENTS AND PRICE VOLATILITY THAN HIGHER RATED
SECURITIES, AND MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION.
INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING.
SEE "BOND PORTFOLIO SELECTION" AND "RISK FACTORS" ON PAGE 5.
Units of the Trust are not deposits of, or guaranteed by, any
bank and Units are not federally insured or otherwise protected
by the Federal Deposit Insurance Corporation and involve investment
risk including loss of principal.
Attention Foreign Investors: Your interest income from the Trust
may be exempt from federal withholding taxes if you are not a
United States citizen or resident and certain conditions are met.
See "What is the Federal Tax Status of Unit Holders?"
Distributions to Unit holders may be reinvested as described herein.
See "How Can Distributions to Unit Holders be Reinvested?"
The Sponsor, although not obligated to do so, intends to maintain
a market for the Units at prices based upon the aggregate bid
price of the Bonds in the portfolio of the Trust. In the absence
of such a market, a Unit holder will nonetheless be able to dispose
of the Units through redemption at prices based upon the bid prices
of the underlying Bonds. See "How May Units be Redeemed?"
The Sponsor may, from time to time during a period of up to approximately
one year after the Initial Date of Deposit, deposit additional
Bonds in the Trust. Such deposits of additional Bonds will, therefore,
be done in such a manner that the original proportionate relationship
amongst the individual issues of the Bonds shall be maintained.
See "What is the First Trust Special Situations Trust?" and "How
May Bonds be Removed from the Trust?"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September 26, 1995
Page 1
The Public Offering Price of the Units during the initial offering
period is equal to the aggregate offering price of the Bonds in
the portfolio divided by the number of Units outstanding, plus
a sales charge equal to 4.5% of the Public Offering Price (4.712%
of the aggregate offering price of the Bonds). For sales charges
in the secondary market, see "Public Offering." During the initial
offering period, the sales charge is reduced on a graduated scale
for sales involving at least 100 Units purchased. The minimum
purchase is 1 Unit.
Portfolio Supervisor's Annual Fee. In performing its duties as
Portfolio Supervisor, First Trust Advisors L.P. may obtain research
and other information from a variety of sources, including Fitch
Investors Service, Inc., an affiliate of the Sponsor. Such information
will consist of comments covering the financial condition and business
prospects of the issuers and an analysis of the respective market
sectors, including economic, tax, currency, political, regulatory
and other similar risks. The Sponsor believes that the information
will be beneficial in the present circumstances due to the complexity
of the high-yield debt markets. First Trust Advisors L.P. will receive
$0.50 per Unit for its supervisory services. The Supervisory Fee is set
forth under "Summary of Essential Information" and is greater for this
Trust than for other trusts of which Nike Securities L.P. acts as Sponsor.
THE SUPERVISORY FEE IS SET FORTH UNDER "SUMMARY OF ESSENTIAL INFORMATION"
AND IS GREATER FOR THIS TRUST THAN FOR OTHER TRUSTS OF WHICH NIKE
SECURITIES L.P. ACTS AS SPONSOR. See "What are the Expenses and Charges?"
Risk Factors. An investment in the Trust should be made with an
understanding of the risks associated therewith, including, among
other factors, loss of principal and/or interest due to changes
in economic conditions, volatile interest rates, lack of liquidity
and changing perceptions regarding junk bonds. See "Risk Factors."
Page 2
Summary of Essential Information
At the Opening of Business on the Initial Date of Deposit
of the Bonds-September 26, 1995
Sponsor: Nike Securities L.P.
Trustee: The Chase Manhattan Bank (National Association)
Evaluator: Muller Data Corporation
<TABLE>
<CAPTION>
General Information
<S> <C>
Principal Amount of Bonds in the Trust $ 1,000,000
Number of Units 1,000
Fractional Undivided Interest in the Trust per Unit 1/1,000
Principal Amount (Par Value) of Bonds per Unit (1) $ 1,000
Public Offering Price
Aggregate Offering Price Evaluation of Bonds in the Portfolio $ 969,087
Aggregate Offering Price Evaluation per Unit $ 969.09
Sales Charge (2) $ 45.66
Public Offering Price per Unit (3) $ 1,014.75
Sponsor's Initial Repurchase Price per Unit (3) $ 969.09
Redemption Price per Unit (4) $ 965.37
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 49.38
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 3.72
</TABLE>
First Settlement Date September 29, 1995
Mandatory Termination Date (5) December 31, 2044
Supervisory Fee (6) Maximum of $.50 per Unit annually (7)
Evaluator's Fee $25 per daily evaluation
Estimated Annual Organizational
Expenses $.70 per Unit (8)
Evaluations for purposes of sale, purchase or redemption of Units
are made as of the close of trading
(4:00 p.m. eastern standard time) on the New York Stock Exchange
on each day on which it is open.
[FN]
__________________
(1) Because certain of the Bonds in the Trust may from time to
time under certain circumstances be sold or redeemed or will be
called or mature in accordance with their terms, there is no guarantee
that the value of each Unit at the Trust's termination will be equal
to the Principal Amount (Par Value) of Bonds per Unit stated above.
(2) The sales charge for the Trust, expressed as a percentage of
the Public Offering Price per Unit and in parenthesis as a percentage
of the Aggregate Offering Price Evaluation per Unit is 4.5% (4.712%).
(3) Anyone ordering Units for settlement after the First Settlement
Date will pay accrued interest from such date to the date of settlement
(normally three business days after order) less distributions from the
Interest Account subsequent to the First Settlement Date. For purchases
settling on the First Settlement Date, no accrued interest will be
added to the Public Offering Price. After the initial offering period,
the Sponsor's Repurchase Price per Unit will be determined as described
under the caption "Will There Be a Secondary Market?"
(4) See "How May Units be Redeemed?"
(5) The Trust may be terminated prior to the Mandatory Termination
Date if the principal value thereof is less than 20% of the original
principal amount of Bonds deposited in the Trust during the primary
offering period.
(6) The Sponsor will also be reimbursed for bookkeeping and other
administrative expenses, currently at a maximum annual rate of
$0.14 per Unit.
(7) Payable to an affiliate of the Sponsor.
(8) The Trust (and therefore Unit holders) will bear all or a
portion of its organizational costs (including costs of preparing
the registration statement, the trust indenture and other closing
documents, registering Units with the Securities and Exchange
Commission and states, the initial audit of the Trust portfolio,
legal fees and the initial fees and expenses of the Trustee but
not including the expenses incurred in the printing of preliminary
and final prospectuses, and expenses incurred in the preparation
and printing of brochures and other advertising materials and
any other selling expenses) as is common for mutual funds. Total
organizational expenses will be amortized over a five-year period.
See "What are the Expenses and Charges?" and "Statement of Net
Assets." Historically, the sponsors of unit investment trusts
have paid all the costs of establishing such trusts.
Page 3
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 11
The First Trust Special Situations Trust, Series 125
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust, Series 125 is one of a
series of investment companies created by the Sponsor under the
name of The First Trust Special Situations Trust, each of which is
separate and is designated by a different series number. This Series
was created under the laws of the State of New York pursuant to a
Trust Agreement (the "Indenture"), dated the Initial Date of Deposit,
with Nike Securities L.P., as Sponsor, The Chase Manhattan Bank
(National Association), as Trustee, Muller Data Corporation as
Evaluator and First Trust Advisors L.P., as Portfolio Supervisor.
On the Initial Date of Deposit, the Sponsor deposited with the
Trustee interest-bearing corporate debt obligations of domestic and
foreign companies (the "Corporate Bonds") and zero coupon bonds of
domestic corporate issuers (the "Zero Coupon Bonds") (collectively
the "Bonds") including delivery statements relating to contracts
for the purchase of certain such obligations and an irrevocable
letter of credit issued by a financial institution in the amount
required for such purchases. The Trustee thereafter credited the
account of the Sponsor for Units of the Trust representing the
entire ownership of the Trust which Units are being offered hereby.
The objective of the Trust is a high level of current income through
investment in a fixed portfolio consisting primarily of domestic
high-yield, high-risk corporate debt obligations issued after
July 18, 1984. The Trust also contains high-yield, high-risk dollar
denominated foreign corporate debt obligations, if interest thereon
is U.S. source income, and zero coupon U.S. corporate obligations.
A majority of the securities included in the Trust are commonly
known as "junk bonds" and are subject to greater market fluctuations
and potential risk of loss of income and principal than are investments
in lower-yielding, higher-rated fixed-income securities. Historically,
high-yield bond investors have received greater returns from their
"high-yield" investments. For the period 1983-1994, for instance,
the high-yield corporate market return averaged 12.03% annually.
Compare that to investment-grade corporates at a 10.63% average
annual return over the same period, and you can see why investors
choose high-yield bonds for a portion of their investment portfolios
despite the additional risks. The above returns represent a comparison
of the compounded average annual returns between the Lehman Brothers
High Yield Corporate Index and the Lehman Brothers Investment Grade
Corporate Index. An investment in the Trust should be made with the
understanding that not only will the Trust's portfolio differ from
that of the Lehman Brothers High Yield Corporate Index, the Trust
was not designed to correlate with these, or any other indexes, nor
are Unit prices expected to correlate with these or any other indexes.
The securities included in this Trust should be viewed as speculative
and an investor should review his ability to assume the risks
associated with speculative corporate bonds. The payment of income
is dependent upon the continuing ability of the issuers and/or obligors
to meet their respective obligations. THERE IS, OF COURSE, NO GUARANTEE
THAT THE TRUST'S OBJECTIVE WILL BE ACHIEVED.
With the deposit of the Bonds on the Initial Date of Deposit,
the Sponsor established a percentage relationship between the
amounts of Bonds in the Trust's portfolio. From time to time following
the Initial Date of Deposit, the Sponsor, pursuant to the Indenture,
may deposit additional Bonds in the Trust and Units may be continuously
offered for sale to the public by means of this Prospectus, resulting
in a potential increase in the outstanding number of Units of
the Trust. Any deposit by the Sponsor of additional Bonds will
duplicate, as nearly as is practicable, the original proportionate
relationship and not the actual proportionate relationship on
the subsequent date of deposit, since the actual proportionate
relationship may be different than the original proportionate
relationship. Any such difference may be due to the sale, redemption
or liquidation of any of the Bonds deposited in the Trust on the
Initial, or any subsequent, Date of Deposit. See "How May Bonds
be Removed from the Trust?" Since the prices of the underlying
Bonds will fluctuate daily, the ratio, on a market value basis,
will also change daily. The portion of Bonds represented by each
Unit will not change as a result of the deposit of additional
Bonds in the Trust.
Page 4
On the Initial Date of Deposit, each Unit of the Trust represented
the undivided fractional interest in the Bonds deposited in the
Trust as set forth under "Summary of Essential Information." To
the extent that Units of the Trust are redeemed, the aggregate
value of the Bonds in the Trust will be reduced and the undivided
fractional interest represented by each outstanding Unit of the
Trust will increase. However, if additional Units are issued by
the Trust in connection with the deposit of additional Bonds by
the Sponsor, the aggregate value of the Bonds in the Trust will
be increased by amounts allocable to additional Units, and the
fractional undivided interest represented by each Unit of the
Trust will be decreased proportionately. See "How May Units be
Redeemed?" The Trust has a Mandatory Termination Date as set forth
herein under "Summary of Essential Information."
Bond Portfolio Selection
The Sponsor of the Trust selected the Bonds for the Portfolio
after considering the Trust's investment objective as well as
the credit quality of the individual Bonds of the Portfolio. The
following facts, among others, were also considered: (a) the price
of the Bonds relative to other issues of similar quality and maturity;
(b) the present rating and credit quality of the issuers of the
Bonds and the potential improvement in the credit quality of such
issuers; (c) the diversification of the Bonds as to location of
issuer; (d) the income to the Unit holders of the Trust; (e) whether
the Bonds were issued after July 18, 1984; and (f) the stated
maturity of the Bonds.
As of the Initial Date of Deposit for the Trust, all of the Bonds
in the Trust were rated "B" or better by Moody's Investors Service,
Inc., ("Moody's"), or Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. ("Standard & Poor's"). See
"Description of Bond Ratings" and "Portfolio." Subsequent to the
Initial Date of Deposit, a Bond may cease to be so rated. If this
should occur, the Trust would not be required to eliminate the
Bond from the Trust, but such event may be considered in the Sponsor's
determination to direct the Trustee to dispose of such investment.
The Trust follows a buy and hold investment strategy in contrast
to the frequent portfolio changes of a managed fund based on economic,
financial and market analyses. The Trust may retain an issuer's
bonds despite adverse financial developments.
Risk Factors
The Trust may consist of Bonds which, 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 Bonds and the value of the underlying Trust portfolio being
reduced. See "Rights of Unit Holders-How May Bonds be Removed
from the Trust?"
Certain of the Bonds in the Trust may have been acquired at a
market discount from par value at maturity. The coupon interest
rates on the discount bonds at the time they were purchased and
deposited in the Trust were lower than the current market interest
rates for newly issued bonds of comparable rating and type. If
such interest rates for newly issued comparable bonds increase,
the market discount of previously issued bonds will become greater,
and if such interest rates for newly issued comparable bonds decline,
the market discount of previously issued bonds will be reduced,
other things being equal. Investors should also note that the
value of bonds purchased at a market discount will increase in
value faster than bonds purchased at a market premium if interest
rates decrease. Conversely, if interest rates increase, the value
of bonds purchased at a market discount will decrease faster than
bonds purchased at a premium. In addition, if interest rates rise,
the prepayment risk of higher yielding, premium bonds and the
prepayment benefit for lower yielding, discount bonds will be
reduced. A discount bond 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 bond 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 Bonds.
Page 5
Certain of the Bonds in the Trust may be original issue discount
bonds or zero coupon bonds. Under current law, the original issue
discount, which is the difference between the stated redemption
price at maturity and the issue price of the Bonds, 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.
See "What is the Federal Tax Status of Unit Holders?" The current
value of an original discount bond reflects the present value
of its stated redemption price at maturity. The market value tends
to increase in greater increments as the Bonds approach maturity.
The effect of owning deep discount zero coupon bonds 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
bonds are subject to substantially greater price fluctuations
during periods of changing interest rates than are securities
of comparable quality which make regular interest payments.
Certain of the Bonds in the Trust may have been acquired at a
market premium from par value at maturity. The coupon interest
rates on the premium bonds at the time they were purchased and
deposited in the Trust were higher than the current market interest
rates for newly issued bonds of comparable rating and type. If
such interest rates for newly issued and otherwise comparable
bonds decrease, the market premium of previously issued bonds
will be increased, and if such interest rates for newly issued
comparable bonds increase, the market premium of previously issued
bonds will be reduced, other things being equal. The current returns
of bonds trading at a market premium are initially higher than
the current returns of comparable bonds of a similar type issued
at currently prevailing interest rates because premium bonds tend
to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price
is thus returned not at maturity but through current income payments,
early redemption of a premium bond at par or early prepayments
of principal will result in a reduction in yield. Redemption pursuant
to call provisions generally will, and redemption pursuant to
sinking fund provisions may, occur at times when the redeemed
Bonds have an offering side valuation which represents a premium
over par or for original issue discount Bonds a premium over the
accreted value. To the extent that the Bonds were deposited in
the Trust at a price higher than the price at which they are redeemed,
this will represent a loss of capital when compared to the original
Public Offering Price of the Units. Because premium bonds generally
pay a higher rate of interest than bonds priced at or below par,
the effect of the redemption of premium bonds would be to reduce
Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of
Bonds in the Trust. Although the actual impact of any such redemptions
that may occur will depend upon the specific Bonds that are redeemed,
it can be anticipated that the Estimated Net Annual Unit Income
will be significantly reduced after the dates on which such Bonds
are eligible for redemption. See "Rights of Unit Holders-How May
Bonds be Removed from the Trust?" and "Other Information-How May
the Indenture be Amended or Terminated?"
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance
with their terms and because the proceeds from such events will
be distributed to Unit holders and will not be reinvested, no
assurance can be given that the Trust will retain for any length
of time its present size and composition. Neither the Sponsor
nor the Trustee shall be liable in any way for any default, failure
or defect in any Bond. Certain of the Bonds contained in the Trust
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 bond 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 bond issue
Page 6
is redeemed, at or before maturity, by the proceeds of a new bond
issue. A bond subject to sinking fund redemption is one which
is subject to partial call from time to time at par or from a
fund accumulated for the scheduled retirement of a portion of
an issue prior to maturity. The exercise of redemption or call
provisions will (except to the extent the proceeds of the called
Bonds are used to pay for Unit redemptions) result in the distribution
of principal and may result in a reduction in the amount of subsequent
interest distributions; it may also affect the Estimated Long-Term
Return and the Estimated Current Return on Units of the Trust.
Redemption pursuant to call provisions is more likely to occur,
and redemption pursuant to sinking fund provisions may occur,
when the Bonds have an offering side valuation which represents
a premium over par or for original issue discount bonds a premium
over the accreted value. Unit holders may recognize capital gain
or loss upon any redemption or call.
The contracts to purchase Bonds delivered to the Trustee represent
obligations by issuers or dealers to deliver Bonds to the Sponsor
for deposit in the Trust. Contracts are typically settled and
the Bonds delivered within a few business days subsequent to the
Initial Date of Deposit. The percentage of the aggregate principal
amount of the Bonds of the Trust relating to "when, as and if
issued" Bonds or other Bonds with delivery dates after the date
of settlement for a purchase made on the Initial Date of Deposit,
if any, is indicated in the section for the Trust entitled "Portfolio."
Interest on "when, as and if issued" and delayed delivery Bonds
begins accruing to the benefit of Unit holders on their dates
of delivery. Because "when, as and if issued" Bonds have not yet
been issued, as of the Initial Date of Deposit the Trust is subject
to the risk that the issuers thereof might decide not to proceed
with the offering of such Bonds or that the delivery of such Bonds
or the delayed delivery Bonds may be delayed. If such Bonds, or
replacement bonds described below, are not acquired by the Trust
or if their delivery is delayed, the Estimated Long-Term Return
and the Estimated Current Return (if applicable) shown in "Special
Trust Information" may be reduced.
In the event of a failure to deliver any Bond that has been purchased
for the Trust under a contract, including those Bonds purchased
on a "when, as and if issued" basis ("Failed Bonds"), the Sponsor
is authorized under the Indenture to direct the Trustee to acquire
other specified bonds ("New Bonds") to make up the original corpus
of the Trust. The New Bonds must be purchased within twenty days
after delivery of the notice of the failed contract and the purchase
price (exclusive of accrued interest) may not exceed the amount
of funds reserved for the purchase of the Failed Bonds. The New
Bonds (i) must satisfy the criteria previously described for Bonds
originally included in the Trust, (ii) must have a fixed maturity
date of at least seven years, but not exceeding the maturity date
of the Failed Bonds, (iii) must be purchased at a price that results
in a yield to maturity and in a current return, in each case as
of the Initial Date of Deposit, at least equal to that of the
Failed Bonds, (iv) shall not be "when, as and if issued" bonds.
Whenever a New Bond has been acquired for the Trust, the Trustee
shall, within five days thereafter, notify all Unit holders of
the Trust of the acquisition of the New Bond and shall, on the
next monthly distribution date which is more than 30 days thereafter,
make a pro rata distribution of the amount, if any, by which the
cost to the Trust of the Failed Bond exceeded the cost of the
New Bond plus accrued interest. Once the original corpus of the
Trust is acquired, the Trustee will have no power to vary the
investment of the Trust, i.e., the Trustee will have no managerial
power to take advantage of market variations to improve a Unit
holder's investment.
If the right of limited substitution described in the preceding
paragraph shall not be utilized to acquire New Bonds in the event
of a failed contract, the Sponsor shall refund the sales charge
attributable to such failed contract to all Unit holders of the
Trust, and the principal and accrued interest (at the coupon rate
of the relevant Bond to the date the Sponsor is notified of the
failure) attributable to such failed contract shall be distributed
not more than thirty days after the determination of such failure
or at such earlier time as the Trustee in its sole discretion deems
to be in the interest of the Unit holders of the Trust. Unit holders
should be aware that at the time of the receipt of such refunded
principal they may not be able to reinvest such principal in other
securities at a yield equal to or in excess of the yield which such
principal would have earned to Unit holders had the Failed Bond been
delivered to the Trust. The portion of such interest paid to a Unit
holder which accrued after the expected date of settlement for
purchase of his Units will be paid by the Sponsor.
To the best knowledge of the Sponsor, there is no litigation pending
as of the Initial Date of Deposit in respect of any Bonds which
might reasonably be expected to have a material adverse effect
Page 7
upon the Trust. At any time after the Initial Date of Deposit,
litigation may be initiated on a variety of grounds with respect
to Bonds in the Trust. Such litigation may affect the validity
of such Bonds. In addition, other factors may arise from time
to time which potentially may impair the ability of issuers to
meet obligations undertaken with respect to the Bonds.
Each Unit initially offered represents that fractional undivided
interest in the Trust as is set forth in the "Summary of Essential
Information" for the Trust. To the extent that any Units of the
Trust are redeemed by the Trustee, the fractional undivided interest
in the Trust represented by each unredeemed Unit will increase,
although the actual interest in the Trust represented by such
fraction will remain substantially unchanged. Units will remain
outstanding until redeemed upon tender to the Trustee by any Unit
holder, which may include the Sponsor, or until the termination
of the Trust Agreement.
High-Yield Obligations. An investment in Units of the Trust should
be made with an understanding of the risks that an investment
in "high-yield, high-risk," fixed-rate, domestic and foreign corporate
debt obligations or "junk bonds" may entail, including increased
credit risks and the risk that the value of the Units 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, debt obligations generally.
Securities such as those included in the Trust 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.
Certain of the Bonds in the Trust consist of "high-yield, high-risk"
foreign and domestic corporate bonds. "High-yield" or "junk" bonds,
the generic names for corporate bonds rated below BBB by Standard
& Poor's, or below Baa 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 bonds is very specialized and investors in it have
been predominantly financial institutions. High-yield bonds are
generally not listed on a national securities exchange. Trading
of high-yield bonds, 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 bond market is
a dealer market, rather than an auction market, no single obtainable
price for a given bond prevails at any given time. Prices are
determined by negotiation between traders. The existence of a
liquid trading market for the Bonds may depend on whether dealers
will make a market in the Bonds. There can be no assurance that
a market will be made for any of the Bonds, that any market for
the Bonds will be maintained or of the liquidity of the Bonds
in any markets made. Not all dealers maintain markets in all high-yield
bonds. Therefore, since there are fewer traders in these bonds
than there are in "investment grade" bonds, the bid-offer spread
is usually greater for high-yield bonds than it is for investment
grade bonds. The price at which the Bonds may be sold to meet
redemptions and the value of the Trust will be adversely affected
if trading markets for the Bonds are limited or absent. If the rate
of redemptions is great, the value of the Trust may decline to a
level that requires liquidation (see "Other Information-How May
the Indenture be Amended or Terminated?").
Page 8
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 Bond is recharacterized
as equity by the Internal Revenue Service for federal income tax
purposes, the issuer's interest deduction with respect to the
Bond 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 the lower-rated securities
in the Trust, 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 bonds 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.
The value of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should the
issuer of any Bond default in the payment of principal or interest,
the Trust may incur additional expenses seeking payment on the
defaulted Bond. Because amounts (if any) recovered by the Trust
in payment under the defaulted Bond may not be reflected in the
value of the Units until actually received by the Trust, and
depending upon when a Unit holder purchases or sells his 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 bonds 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 Baa 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. See "Description of Bond Ratings" for a
description of speculative ratings issued by Standard & Poor's
and Moody's.
Foreign Issuers. Approximately twenty percent of the Bonds in the Trust
are invested in securities of foreign issuers. It is appropriate for
investors in the Trust to consider certain investment risks that
distinguish investments in Bonds of foreign issuers from those of
domestic issuers. Those investment risks include future political
and economic developments, the possible imposition of withholding
taxes on interest income payable on the Bonds held in the Portfolio,
the possible seizure or nationalization of foreign deposits,
Page 9
the possible establishment of exchange controls or the adoption
of other foreign governmental restrictions (including expropriation,
burdensome or confiscatory taxation and moratoriums) which might
adversely affect the payment or receipt of payment of amounts
due on the Bonds. Investors should realize that, although the
Trust invests in U.S. dollar denominated investments, the foreign
issuers which operate internationally are subject to currency
risks. The value of Bonds can be adversely affected by political
or social instability and unfavorable diplomatic or other negative
developments. In addition, because many foreign issuers are not
subject to the reporting requirements of the Securities Exchange
Act of 1934, there may be less publicly available information
about the foreign issuer than a U.S. domestic issuer. Foreign
issuers also are not necessarily subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. domestic issuers. However,
the Sponsor anticipates that adequate information will be available
to allow the Portfolio Supervisor to provide portfolio surveillance.
Liquidity. The Bonds in the Trust may not have been registered
under the Securities Act of 1933 and may not be exempt from the
registration requirements of the Act. Most of the Bonds will not
be listed on a securities exchange. Whether or not the Bonds are
listed, the principal trading market for the Bonds will generally
be in the over-the-counter market. As a result, the existence
of a liquid trading market for the Bonds may depend on whether
dealers will make a market in the Bonds. There can be no assurance
that a market will be made for any of the Bonds, that any market
for the Bonds will be maintained or of the liquidity of the Bonds
in any markets made. The price at which the Bonds may be sold
to meet redemptions and the value of the Trust will be adversely
affected if trading markets for the Bonds are limited or absent.
The Trust may also contain non-exempt Bonds in registered form
which have been purchased on a private placement basis. Sales
of these Bonds may not be practicable outside the United States,
but can generally be made to U.S. institutions in the private
placement market which may not be as liquid as the general U.S.
securities market. Since the private placement market is less
liquid, the prices received may be less than would have been received
had the markets been broader.
Exchange Controls. On the basis of the best information available
to the Sponsor at the present time none of the Bonds is subject
to exchange control restrictions under existing law which would
materially interfere with payment to the Trust of amounts due
on the Bonds. However, there can be no assurance that exchange
control regulations might not be adopted in the future which might
adversely affect payments to the Trust. In addition, the adoption
of exchange control regulations and other legal restrictions could
have an adverse impact on the marketability of the Bonds in the
Trust and on the ability of the Trust to satisfy its obligation
to redeem Units tendered to the Trustee for redemption.
Jurisdiction Over, and U.S. Judgments Concerning, Foreign Obligors.
Non-U.S. issuers of the Bonds will generally not have submitted
to the jurisdiction of U.S. courts for purposes of lawsuits relating
to those Bonds. If the Trust contains Bonds of such an issuer,
the Trust as a holder of those obligations may not be able to
assert its rights in U.S. courts under the documents pursuant
to which the Bonds are issued. Even if the Trust obtains a U.S.
judgment against a foreign obligor, there can be no assurance
that the judgment will be enforced by a court in the country in
which the foreign obligor is located. In addition, a judgment
for money damages by a court in the United States if obtained,
will ordinarily be rendered only in U.S. dollars. It is not clear,
however, whether, in granting a judgment, the rate of conversion
of the applicable foreign currency into U.S. dollars would be
determined with reference to the due date or the date the judgment
is rendered. Courts in other countries may have rules that are
similar to, or different from, the rules of U.S. courts.
What are Estimated Long-Term Return and Estimated Current Return?
At the opening of business on the Initial Date of Deposit, the
Estimated Current Return (if applicable) and the Estimated Long-Term
Return are as set forth in "Special Trust Information." Estimated
Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price. Any change
in either the Estimated Net Annual Interest Income per Unit or
the Public Offering Price will result in a change in the Estimated
Current Return. The Public Offering Price will vary in accordance
with fluctuations in the prices of the underlying Bonds and the
Net Annual Interest Income per Unit will change as Bonds
Page 10
are redeemed, paid, sold or exchanged in certain refundings or
as the expenses of the Trust change. Therefore, there is no assurance
that the Estimated Current Return (if applicable) indicated in
"Special Trust Information" will be realized in the future. Estimated
Long-Term Return is calculated using a formula which (1) takes
into consideration and determines and factors in the relative
weightings of the market values, yields (which takes into account
the amortization of premiums and the accretion of discounts) and
estimated retirements of all of the Bonds in the Trust; and (2)
takes into account a compounding factor and the expenses and sales
charge associated with each Unit of the Trust. Since the market
values and estimated retirements of the Bonds and the expenses
of the Trust will change, there is no assurance that the Estimated
Long-Term Return indicated in "Special Trust Information" will
be realized in the future. Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation
of Estimated Long-Term Return reflects the estimated date and
amount of principal returned while Estimated Current Return calculations
include only Net Annual Interest Income and Public Offering Price
as of the Initial Date of Deposit. Neither rate reflects the true
return to Unit holders, which is lower, because neither includes
the effect of certain delays in the distributions to Unit holders.
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with
the Distribution Dates being the last day of the month in which
the related Record Date occurs. It is anticipated that an amount
equal to approximately one-half of the amount of net annual interest
income per Unit will be distributed on or shortly after each Distribution
Date to Unit holders of record on the preceding Record Date. See
"Special Trust Information" for the Trust.
Record Dates for monthly distributions of interest are the fifteenth
day of each month. The Distribution Dates for distributions of
interest under the monthly plan is the last day of each month
in which the related Record Date occurs. All Unit holders will
receive the first distribution of interest regardless of the plan
of distribution chosen and all Unit holders will receive such
distributions, if any, from the Principal Account as are made
as of the Record Dates for monthly distributions.
How is Accrued Interest Treated?
Accrued interest is the accumulation of unpaid interest on a bond
from the last day on which interest thereon was paid. Interest
on Bonds generally is paid semi-annually, although the Trust accrues
such interest daily. Because of this, the Trust always has an
amount of interest earned but not yet collected by the Trustee.
For this reason, with respect to sales settling subsequent to
the First Settlement Date, the Public Offering Price of Units
will have added to it the proportionate share of accrued interest
to the date of settlement. Unit holders will receive on the next
distribution date of the Trust the amount, if any, of accrued
interest paid on their Units.
In an effort to reduce the amount of accrued interest which would
otherwise have to be paid in addition to the Public Offering Price
in the sale of Units to the public, the Trustee will advance the
amount of accrued interest as of the First Settlement Date and
the same will be distributed to the Sponsor as the Unit holder
of record as of the First Settlement Date. Consequently, the amount
of accrued interest to be added to the Public Offering Price of
Units will include only accrued interest from the First Settlement
Date to the date of settlement, less any distributions from the
Interest Account subsequent to the First Settlement Date. See
"Rights of Unit Holders-How are Interest and Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount
of interest actually received by the Trust and distributed to
Unit holders. Therefore, there will always remain an item of accrued
interest that is added to the value of the Units. If a Unit holder
sells or redeems all or a portion of his Units, he will be entitled
to receive his proportionate share of the accrued interest from
the purchaser of his Units. Since the Trustee has the use of the
funds held in the Interest Account for distributions to Unit holders
and since such Account is non-interest-bearing to Unit holders,
the Trustee benefits thereby.
Are Unit Holders Compensated for Foreign Withholding Tax Risks?
Certain of the Bonds are subject to non-U.S. ("foreign") withholding
taxes. Certain issuers of Bonds which are subject to foreign withholding
taxes have generally agreed, subject to certain exceptions, to make
Page 11
additional payments ("Additional Payments") which together with
other payments are intended to compensate the holder of the Bond
for the imposition of certain withholding taxes. However, both
the calculation of the Additional Payment and whether the Additional
Payment compensates the holder of the Bond for any related penalties,
interest or other charges imposed in connection with any applicable
foreign withholding taxes are likely to differ from Bond to Bond.
Moreover, the Additional Payment is itself treated as taxable
income to Unit holders for U.S. income tax purposes. The Additional
Payment may not be based upon a "gross-up" formula which would
otherwise compensate an investor for the tax liability triggered
by the receipt of the Additional Payment. For any of these reasons,
an investor may not be adequately compensated for the actual foreign
withholding tax liabilities incurred. If the Trust obtains a certificate
from an issuer evidencing payment of foreign withholding taxes
with respect to a Bond, the Trust will so notify Unit holders.
A Unit holder is required to include in his gross income the entire
amount of interest paid on his pro rata portion of the Bond including
the amount of tax withheld therefrom and the amount of any Additional
Payment. However, if the foreign tax withheld constitutes an income
tax for which U.S. foreign tax credits may be taken, the Unit
holder may be able to obtain applicable foreign tax credits (subject
to statutory limitations) or deductions. (See "What is the Federal
Tax Status of Unit Holders?")
What is the Federal Tax Status of Unit Holders?
In the opinion of Chapman and Cutler, Counsel for the Sponsor,
under existing law:
(1) The Trust is not an association taxable as a corporation
for Federal income tax purposes.
(2) Each Unit holder of the Trust is considered to be the owner
of a pro rata portion of the Trust under subpart E, subchapter J of
chapter 1 of the Internal Revenue Code of 1986 (hereinafter the "Code").
Each Unit holder will be considered to have received his pro rata
share of income derived from each Trust asset when such income is
received by the Trust. Each Unit holder will also be required to
include in taxable income for Federal income tax purposes, original
issue discount with respect to his interest in any Bonds held by the
Trust at the same time and in the same manner as though the Unit
holder were the direct owner of such interest.
(3) Each Unit holder will have a taxable event when the Trust
disposes of a Bond, or when the Unit holder redeems or sells his
Units. Unit holders must reduce the tax basis of their Units for
their share of accrued interest received, if any, on Bonds delivered
after the date the Unit holders pay for their Units and, consequently,
such Unit holders may have an increase in taxable gain or reduction
in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing
the proceeds of such sale or redemption with the adjusted basis
of the Units. If the Trustee disposes of Bonds (whether by sale,
exchange, payment on maturity, redemption or otherwise), gain
or loss is recognized to the Unit holder. The amount of any such
gain or loss is measured by comparing the Unit holder's pro rata
share of the total proceeds from such disposition with his basis
for his fractional interest in the asset disposed of. In the case
of a Unit holder who purchases his Units, such basis is determined
by apportioning the tax basis for the Units among each of the
Trust assets ratably according to value as of the date of acquisition
of the Units. The basis of each Unit and of each Bond which was
issued with original issue discount including the Zero Coupon
Bonds (also referred to herein as the "Stripped Obligations")
must be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased
by the Trust at a premium must be reduced by the annual amortization
of bond premium which the Unit holder has properly elected to
amortize under Section 171 of the Code. The tax cost reduction
requirements of the Code relating to amortization of bond premium
may, under some circumstances, result in the Unit holder realizing
a taxable gain when his Units are sold or redeemed for an amount
equal to or less than his original cost. The Stripped Obligations
held by the Trust are treated as bonds that were originally issued
at an original issue discount provided, pursuant to a Treasury
Regulation (the "Regulation") issued on December 28, 1992, that the
amount of original issue discount determined under Section 1286 of
the Code is not less than a "de minimis" amount as determined thereunder
as discussed below. Because the Stripped Obligations represent
Page 12
interests in "stripped" bonds, a Unit holder's initial cost for
his pro rata portions of each Stripped Obligation held by the
Trust (determined at the time he acquires his Units in the manner
described above) shall be treated as its "purchase price" by the
Unit holder. Original issue discount is effectively treated as
interest for Federal income tax purposes and the amount of original
issue discount in this case is generally the difference between
the bond's purchase price and its stated redemption price at maturity.
A Unit holder will be required to include in gross income for
each taxable year the sum of his daily portions of original issue
discount attributable to the Stripped Obligations held by the Trust
as such original issue discount accrues and will in general be subject
to Federal income tax with respect to the total amount of such original
issue discount that accrues for such year even though the income is not
distributed to the Unit holders during such year to the extent it is
not less than a "de minimis" amount as determined under the Regulation.
In general, original issue discount accrues daily under a constant
interest rate method which takes into account the semi-annual
compounding of accrued interest. In the case of the Stripped
Obligations, this method will generally result in an increasing
amount of income to the Unit holders each year. Unit holders should
consult their tax advisers regarding the Federal income tax
consequences and accretion of original issue discount.
(4) Each Unit holder's pro rata share of each expense paid by
the Trust is deductible by the Unit holder to the same extent
as though the expense had been paid directly by him, subject to
the following limitation. It should be noted that as a result
of the Tax Reform Act of 1986, certain miscellaneous itemized
deductions, such as investment expenses, tax return preparation
fees and employee business expenses will be deductible by an individual
only to the extent they exceed 2% of such individual's adjusted
gross income. Temporary regulations have been issued which require
Unit holders to treat certain expenses of the Trust as miscellaneous
itemized deductions subject to this limitation.
If a Unit holder's tax basis of his pro rata portion in any Bonds
held by the Trust exceeds the amount payable by the issuer of
the Bonds with respect to such pro rata interest upon maturity
of the Bond, such excess would be considered "acquisition premium"
which may be amortized by the Unit holder at the Unit holder's
election as provided in Section 171 of the Code. Unit holders
should consult their tax advisors regarding whether such election
should be made and the manner of amortizing acquisition premium.
Certain of the Bonds in the Trust may have been acquired with
"original issue discount." In the case of any Bonds in the Trust
acquired with "original issue discount" that exceeds a "de minimis"
amount as specified in the Code or in the case of the Stripped
Obligations as specified in the Regulation, such discount is includable
in taxable income of the Unit holders on an accrual basis computed
daily, without regard to when payments of interest on such Bonds
are received. The Code provides a complex set of rules regarding
the accrual of original issue discount. These rules provide that
original issue discount generally accrues on the basis of a constant
compound interest rate over the term of the Bonds. Unit holders
should consult their tax advisers as to the amount of original
issue discount which accrues.
Special original issue discount rules apply if the purchase price
of the Bond by the Trust exceeds its original issue price plus
the amount of original issue discount which would have previously
accrued based upon its issue price (its "adjusted issue price").
Unit holders should also consult their tax advisers regarding
these special rules. Similarly these special rules would apply
to a Unit holder if the tax basis of his pro rata portion of a
Bond issued with original issue discount exceeds his pro rata
portion of its adjusted issue price.
If a Unit holder's tax basis in his pro rata portion of Bonds
is less than the allocable portion of such Bond's stated redemption
price at maturity (or, if issued with original issue discount,
the allocable portion of its "revised issue price"), such difference
will constitute market discount unless the amount of market discount
is "de minimis" as specified in the Code. Market discount accrues
daily computed on a straight line basis, unless the Unit holder
elects to calculate accrued market discount under a constant yield
method. The market discount rules do not apply to Stripped Obligations
because they are stripped debt instruments subject to special original
issue discount rules as discussed above. Unit holders should consult
their tax advisers as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income
to the Unit holders as ordinary income for Federal tax purposes
upon the receipt of serial principal payments on the Bonds, on
Page 13
the sale, maturity or disposition of such Bonds by the Trust,
and on the sale by a Unit holder of Units, unless a Unit holder
elects to include the accrued market discount in taxable income
as such discount accrues. If a Unit holder does not elect to annually
include accrued market discount in taxable income as it accrues,
deductions for any interest expenses incurred by the Unit holder
which is incurred to purchase or carry his Units will be reduced
by such accrued market discount. In general, the portion of any
interest expense which was not currently deductible would ultimately
be deductible when the accrued market discount is included in
income. Unit holders should consult their tax advisers regarding
whether an election should be made to include market discount
in income as it accrues and as to the amount of interest expense
which may not be currently deductible.
The tax basis of a Unit holder with respect to his interest in
a Bond is increased by the amount of original issue discount (and
market discount, if the Unit holder elects to include market discount,
if any, on the Bonds held by the Trust in income as it accrues)
thereon properly included in the Unit holder's gross income as
determined for Federal income tax purposes and reduced by the
amount of any amortized acquisition premium which the Unit holder
has properly elected to amortize under Section 171 of the Code.
A Unit holder's tax basis in his Units will equal his tax basis
in his pro rata portion of all of the assets of the Trust for
taxpayers other than corporations.
A Unit holder will recognize taxable capital gain (or loss) when
all or part of his pro rata interest in a Bond is disposed of
in a taxable transaction for an amount greater (or less) than
his tax basis therefor. Any gain recognized on a sale or exchange
and not constituting a realization of accrued "market discount,"
and any loss will, under current law, generally be capital gain
or loss. As previously discussed, gain realized on the disposition
of the interest of a Unit holder in any Bond deemed to have been
acquired with market discount will be treated as ordinary income
to the extent the gain does not exceed the amount of accrued market
discount not previously taken into income. Any capital gain or loss
arising from the disposition of a Bond by the Trust or the disposition
of Units by a Unit holder will be short-term capital gain or loss
unless the Unit holder has held his Units for more than one year in
which case such capital gain or loss will be long-term. For taxpayers
other than corporations, net capital gains are presently subject to a
maximum stated marginal tax rate of 28%.
The Revenue Reconciliation Act of 1993 (the "Tax Act") raised
tax rates on ordinary income while capital gains remain subject
to a 28% maximum stated rate for taxpayers other than corporations.
Because some or all capital gains are taxed at a comparatively
lower rate under the Tax Act, the Tax Act includes a provision
that recharacterizes capital gains as ordinary income in the case
of certain financial transactions that are "conversion transactions"
effective for transactions entered into after April 30, 1993.
Unit holders and prospective investors should consult with their
tax advisers regarding the potential effect of this provision
on their investment in Units.
If the Unit holder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all Trust assets including
his pro rata portion of all of the Bonds represented by the Unit.
This may result in a portion of the gain, if any, on such sale being
taxable as ordinary income under the market discount rules (assuming
no election was made by the Unit holder to include market discount
in income as it accrues) as previously discussed.
A Unit holder who is a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States Federal
income taxes, including withholding taxes, on interest income
(including any original issue discount) on, or any gain from the
sale or other disposition of, his pro rata interest in any Bond
or the sale of his Units provided that all of the following conditions
are met: (i) the interest income or gain is not effectively connected
with the conduct by the foreign investor of a trade or business
within the United States (ii) (a) the interest income is not from
sources within the
Page 14
United States or (b) if the interest is United States source income
(which is the case for most securities issued by United States
issuers), then the foreign investor does not own, directly or
indirectly, 10% or more of the total combined voting power of
all classes of voting stock of the issuer of the Bond and the
foreign investor is not a controlled foreign corporation related
(within the meaning of Section 864(d)(4) of the Code) to the issuer
of the Bond, (iii) with respect to any gain, the foreign investor
(if an individual) is not present in the United States for 183
days or more during his or her taxable year and (iv) the foreign
investor provides all certification which may be required of his
status (foreign investors may contact the Sponsor to obtain a
Form W-8 which must be filed with the Trustee and refiled every
three calendar years thereafter). Foreign investors should consult
their tax advisers with respect to United States tax consequences
of ownership of Units.
It should be noted that payments to the Trust of interest on the
Bonds may be subject to foreign withholding taxes and Unit holders
should consult their tax advisers regarding the potential tax
consequences relating to the payment of any such withholding taxes
by the Trust. Because, under the grantor trust rules, an investor
is deemed to have paid directly his share of foreign taxes that
have been paid or accrued, if any, an investor may be entitled
to a foreign tax credit or deduction for United States tax purposes
with respect to such taxes. In addition, the Bonds may provide
for Additional Payments to investors intended to compensate them
for any foreign tax liability. (See "Are Unit Holders Compensated
for Foreign Withholding Tax Risks?") Any such Additional Payments
received by the Trust would constitute taxable income to Unit
holders. Investors should consult their tax advisers with respect
to foreign withholding taxes and foreign tax credits.
It should be noted that the Tax Act included a provision which
eliminates the exemption from United States taxation, including
withholding taxes, for certain "contingent interest." The provision
applies to interest received after December 31, 1993. No opinion
is expressed herein regarding the potential applicability of this
provision and whether United States taxation or withholding taxes
could be imposed with respect to income derived from the Units
as a result thereof. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect
of this provision on their investment in Units.
Each Unit holder (other than a foreign investor who has properly
provided the certifications described above) will be requested to
provide the Unit holder's taxpayer identification number to the
trustee and to certify that the Unit holder has not been notified that
payments to the Unit holder are subject to back-up withholding. If the
proper taxpayer identification number and appropriate certification
are not provided when requested, distributions by the Trust to
such Unit holder will be subject to back-up withholding.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to
the Trust for New York tax matters, the Trust is not an association
taxable as a corporation and the income of the Trust will be treated
as the income of the Unit holders under the existing income tax
laws of the State and City of New York.
The foregoing discussion relates only to United States Federal
and New York State and City income taxes; Unit holders may be
subject to state and local taxation in other jurisdictions (including
a foreign investor's country of residence). Unit holders should
consult their tax advisers regarding potential state, local, or
foreign taxation with respect to the Units.
Why are Investments in the Trust Suitable for Retirement Plans?
Units of the Trust may be well suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other tax-deferred
retirement plans. Generally, the Federal income tax relating to
capital gains and income received in each of the foregoing plans
is deferred until distributions are received. Distributions from
such plans are generally treated as ordinary income but may, in
some cases, be eligible for special averaging or tax-deferred
rollover treatment. Investors considering participation in any
such plan should review specific tax laws related thereto and
should consult their attorneys or tax advisers with respect to
the establishment and maintenance of any such plan. Such plans
are offered by brokerage firms and other financial institutions.
Fees and charges with respect to such plans may vary.
What are the Expenses and Charges?
With the exception of bookkeeping and other administrative services
provided to the Trust, for which the Sponsor will be reimbursed in
the amount set forth under "Summary of Essential Information," the
Page 15
Sponsor will not receive any fees in connection with its activities
relating to the Trust. Such bookkeeping and administrative charges
may be increased without approval of the Unit holders by amounts not
exceeding proportionate increases under the category "All Services
Less Rent of Shelter" in the Consumer Price Index published by
the United States Department of Labor. The fees payable to the
Sponsor for such services may exceed the actual costs of providing
such services for this Trust, but at no time will the total amount
received for such services rendered to unit investment trusts
of which Nike Securities L.P. is the Sponsor in any calendar year
exceed the actual cost to the Sponsor of supplying such services
in such year. First Trust Advisors L.P. will receive an annual
supervisory fee, which is not to exceed the amount set forth under
"Summary of Essential Information," for providing portfolio supervisory
services for the Trust. Such fee is based on the number of Units
outstanding in the Trust on January 1 of each year except for
the year or years in which an initial offering period occurs in
which case the fee for a month is based on the number of Units
outstanding at the end of such month. The fee may exceed the actual
costs of providing such supervisory services for this Trust, but
at no time will the total amount received for portfolio supervisory
services rendered to unit investment trusts of which Nike Securities
L.P. is the Sponsor in any calendar year exceed the aggregate cost
to First Trust Advisors L.P. of supplying such services in such year.
For valuation of the Bonds in the Trust, the Evaluator will receive
an evaluation fee as set forth in "Summary of Essential Information."
The Trustee pays certain expenses of the Trust for which it is reimbursed
by the Trust. After the first year the Trustee will receive for its ordinary
recurring services to the Trust a fee as indicated in "Special
Trust Information" for the Trust. During the first year the Trustee
has agreed to lower its fee and, to the extent necessary, pay
expenses of the Trust in the amount, if any, stated under "Special
Trust Information" for the Trust. For a discussion of the services
performed by the Trustee pursuant to its obligations under the
Indenture, reference is made to the material set forth under "Rights
of Unit Holders." Bankers Trust Company issued the irrevocable
letter of credit for the Trust and also provides securities clearing
services for the Sponsor and provides a line of credit which the
Sponsor may utilize to acquire securities (which may include certain
of the Bonds deposited in the Trust). The Trustee's and Evaluator's
fees are payable monthly on or before each Distribution Date from
the Interest Account of the Trust to the extent funds are available
and then from the Principal Account of the Trust. Since the Trustee
has the use of the funds being held in the Principal and Interest
Accounts for future distributions, payment of expenses and redemptions
and since such Accounts are non-interest-bearing to Unit holders,
the Trustee benefits thereby. Part of the Trustee's compensation
for its services to the Trust is expected to result from the use
of these funds. Both fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases
under the category "All Services Less Rent of Shelter" in the Consumer
Price Index published by the United States Department of Labor.
Expenses incurred in establishing the Trust, including costs of
preparing the registration statement, the trust indenture and
other closing documents, registering Units with the Securities
and Exchange Commission and states, the initial audit of the Trust
portfolio, legal fees, the initial fees and expenses of the Trustee
and any other non-material out-of-pocket expenses, will be paid
by the Trust and amortized over the first five years of the Trust.
The following additional charges are or may be incurred by the
Trust: all expenses (including legal and annual auditing expenses)
of the Trustee incurred by or in connection with its responsibilities
under the Indenture, except in the event of negligence, bad faith
or willful misconduct on its part; the expenses and costs of any
action undertaken by the Trustee to protect the Trust and the
rights and interests of the Unit holders; fees of the Trustee
for any extraordinary services performed under the Indenture;
indemnification of the Trustee for any loss, liability or expense
incurred by it without negligence, bad faith or willful misconduct
on its part, arising out of or in connection with its acceptance
or administration of the Trust; indemnification of the Sponsor
for any loss, liability or expense incurred without gross negligence,
bad faith or willful misconduct in acting as Depositor of the Trust;
all taxes and other government charges imposed upon the Bonds
Page 16
or any part of the Trust (no such taxes or charges are being levied
or made or, to the knowledge of the Sponsor, contemplated); and
expenditures incurred in contacting Unit holders upon termination
of the Trust. The above expenses and the Trustee's annual fee,
when paid or owing to the Trustee, are secured by a lien on the
Trust. In addition, the Trustee is empowered to sell Bonds of
the Trust in order to make funds available to pay all these amounts
if funds are not otherwise available in the Interest and Principal
Accounts of the Trust.
Unless the Sponsor determines that such an audit is not required,
the Indenture requires the accounts of the Trust shall be audited
on an annual basis at the expense of the Trust by independent
auditors selected by the Sponsor. So long as the Sponsor is making
a secondary market for Units, the Sponsor shall bear the cost of
such annual audits to the extent such cost exceeds $.50 per Unit.
Unit holders of a Trust covered by an audit may obtain a copy of
the audited financial statements from the Trustee upon request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. During the initial
offering period, the Public Offering Price is determined by adding
to the Evaluator's determination of the aggregate offering price
of the Bonds in the Trust a sales charge of 4.5% of the Public
Offering Price (equivalent to 4.712% of the net amount invested).
Also added to the Public Offering Price is a proportionate share
of interest accrued but unpaid on the Bonds after the First Settlement
Date to the date of settlement. See "How Is Accrued Interest Treated?"
During the initial offering period, the Sponsor's Repurchase Price
is equal to the Evaluator's determination of the aggregate offering
price of the Bonds in the Trust.
The applicable sales charge is reduced by a discount as indicated
below for volume purchases:
Discount
Units Purchased per Unit
________________ ________
100 to 499 .25%
500 to 999 .50%
1,000 or more .75%
Any such reduced sales charge shall be the responsibility of the
selling Underwriter or dealer. This reduced sales charge structure
will apply on all purchases of Units in the Trust by the same
person on any one day from any one Underwriter or dealer. For
purposes of calculating the applicable sales charge, purchases
of Units in the Trust will not be aggregated with any other purchases
by the same person of units in any series of tax-exempt or other
unit investment trusts sponsored by Nike Securities L.P. Additionally,
Units purchased in the name of the spouse of a purchaser or in the
name of a child of such purchaser under 21 years of age will be deemed
for the purposes of calculating the applicable sales charge to be
additional purchases by the purchaser. The reduced sales charges will
also be applicable to a trustee or other fiduciary purchasing securities
for a single trust or single fiduciary account.
Units may be purchased in the primary or secondary market at the
Public Offering Price less the concession the Sponsor typically
allows to dealers and other selling agents for purchases by investors
who purchase Units through registered investment advisers, certified
financial planners and registered broker-dealers who in each case
either charge periodic fees for financial planning, investment
advisory or asset management services, or provide such services
in connection with the establishment of an investment account
for which a comprehensive "wrap fee" charge is imposed.
The Public Offering Price of Units of the Trust for secondary
market purchases will be determined by adding to the Evaluator's
determination of the aggregate bid price of the Bonds in the Trust
the appropriate sales charge determined in accordance with the
schedule set forth below, based upon the number of years remaining
to the maturity of each Bond in the portfolio of the Trust, adjusting
the total to reflect the amount of any cash held in or advanced
to the principal account of the Trust and dividing the result
by the number of Units
Page 17
of the Trust then outstanding. The maximum sales charge on Units
will be 5.0% of the Public Offering Price (equivalent to 5.263%
of the net amount invested). For purposes of computation, Bonds
will be deemed to mature on their expressed maturity dates unless
(a) the Bonds have been called for redemption or funds or securities
have been placed in escrow to redeem them on an earlier call date,
in which case such call date will be deemed to be the date upon
which they mature; or (b) such Bonds are subject to a "mandatory
tender," in which case such mandatory tender will be deemed to
be the date upon which they mature.
The effect of this method of sales charge computation will be
that different sales charge rates will be applied to each of the
various Bonds in the Trust based upon the maturities of such bonds,
in accordance with the following schedule:
Secondary Offering Period
Sales Charge
__________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_________________ __________ __________
Less than 1 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 or more 5.00 5.263
There will be no reduction of the sales charges for volume purchases
for secondary market transactions. A dealer will receive from the
Sponsor a dealer concession of 70% of the total sales charges for
Units sold by such dealer and dealers will not be eligible for
additional concessions for Units sold pursuant to the above schedule.
With respect to the employees, officers and directors (including their
immediate families and trustees, custodians or a fiduciary for the
benefit of such person) of Nike Securities L.P. and its subsidiaries the
sales charge is reduced by 2% of the Public Offering Price for
purchases of Units during the initial and secondary offering periods.
On the Initial Date of Deposit, the Public Offering Price is as
indicated in the "Summary of Essential Information." In addition
to fluctuations in the amount of interest accrued but unpaid on
Bonds in the Trust, the Public Offering Price at any time during
the initial offering period will vary from the Public Offering
Price stated herein in accordance with fluctuations in the prices
of the underlying Bonds.
The aggregate price of the Bonds in the Trust is determined by
whomever from time to time is acting as evaluator (the "Evaluator"),
on the basis of bid prices or offering prices as is appropriate,
(1) on the basis of current market prices for the Bonds obtained
from dealers or brokers who customarily deal in bonds comparable
to those held by the Trust; (2) if such prices are not available
for any of the Bonds, on the basis of current market prices for
comparable bonds; (3) by determining the value of the Bonds by
appraisal; or (4) by any combination of the above.
During the initial public offering period, a determination of
the aggregate price of the Bonds in the Trust is made by the Evaluator
on an offering price basis, as of the close of trading on the
New York Stock Exchange on each day on which it is open, effective
for all sales made subsequent to the last preceding determination.
For secondary market purposes, the Evaluator will be requested
to make such a determination, on a bid price basis, as of the
close of trading on the New York Stock Exchange on each day on
which it is open, effective for all sales, purchases or redemptions
made subsequent to the last preceding determination. The Public
Offering Price of the Units during the initial offering period is
equal to the offering price per Unit of the Bonds in the Trust plus
the applicable sales charge. After the completion of the initial
offering period, the secondary market Public Offering Price will
be equal to the bid price per Unit of the Bonds in the Trust plus
the applicable sales charge. The offering price
Page 18
of Bonds in the Trust may be expected to be greater than the bid
price of such Bonds by approximately 1-3% of the aggregate principal
amount of such Bonds.
Although payment is normally made three business days following
the order for purchase (the "date of settlement"), payment may
be made prior thereto. A person will become owner of Units on
the date of settlement provided payment has been received. Cash,
if any, made available to the Sponsor prior to the date of settlement
for the purchase of Units may be used in the Sponsor's business
and may be deemed to be a benefit to the Sponsor, subject to the
limitations of the Securities Exchange Act of 1934. Delivery of
Certificates representing Units so ordered will be made three
business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
Until the primary distribution of the Units offered by this Prospectus
is completed, (i) for Units issued on the Initial Date of Deposit
and (ii) for additional Units issued after such date as additional
Bonds are deposited by the Sponsor, Units will be offered to the
public at the Public Offering Price, computed as described above,
by the Underwriters, including the Sponsor (see "Underwriting")
and through dealers and others. The initial offering period may
be up to approximately 360 days. During this period, the Sponsor
may deposit additional Bonds in the Trust and create additional
Units. Upon completion of the initial offering, Units repurchased
in the secondary market (see "Will There Be a Secondary Market?")
may be offered by this Prospectus at the secondary market public
offering price determined in the manner described above.
It is the intention of the Sponsor to qualify Units of the Trust
for sale in a number of states. Sales initially will be made to
dealers and others at prices which represent a concession or agency
commission of 2.8% of the Public Offering Price per Unit. Any broker/
dealer or bank that purchases 250 Units on any one day during the Initial
Offering Period will receive a per Unit concession or agency commission of
3.2% of the Public Offering Price. In addition, any broker/dealer or bank
that purchases 100 or more Units within 30 days from the Initial Date of
Deposit will receive a per Unit concession or agency commission of 2.9% of
the Public Offering Price.
However, resales of Units of the Trust by such dealers and others
to the public will be made at the Public Offering Price described
in the Prospectus. The Sponsor reserves the right to change the
amount of the concession or agency commission from time to time.
Certain commercial banks are making Units of the Trust available
to their customers on an agency basis. A portion of the sales
charge paid by these customers is retained by or remitted to the
banks in the amounts indicated in the second preceding sentence.
Under the Glass-Steagall Act, banks are prohibited from underwriting
Trust Units; however, the Glass-Steagall Act does permit certain
agency transactions and the banking regulators have not indicated
that these particular agency transactions are not permitted under
such Act. In Texas and in certain other states, any banks making
Units available must be registered as broker/dealers under state law.
What are the Sponsor's Profits?
The Underwriters of the Trust, including the Sponsor, will receive
a gross sales commission equal to 4.5% of the Public Offering
Price of the Units of the Trust (equivalent to 4.712% of the net
amount invested), less any reduced sales charge for quantity purchases
as described under "Public Offering-How is the Public Offering
Price Determined?" See "Underwriting" for information regarding
the receipt of the excess gross sales commissions by the Sponsor
from the other Underwriters and additional concessions available
to Underwriters, dealers and others. In addition, the Sponsor
and the other Underwriters may be considered to have realized
a profit or the Sponsor may be considered to have sustained a
loss, as the case may be for the Trust, in the amount of any difference
between the cost of the Bonds to the Trust (which is based on the
Evaluator's determination of the aggregate offering price of the
underlying Bonds of the Trust on the Initial Date of Deposit as well
as subsequent dates of deposit) and the cost of such Bonds to the
Sponsor. See "Underwriting" nd Note 1 of "Notes to Portfolio."
Such profits or losses may be realized or sustained by the Sponsor
and the other Underwriters with respect to Bonds which were acquired
by the Sponsor from underwriting syndicates of which it and the other
Underwriters were members. During the initial offering period, the
Underwriters also may realize profits or sustain losses from the sale
Page 19
of Units to other Underwriters or as a result of fluctuations after
the Initial Date of Deposit or subsequent dates of deposit in the
offering prices of the Bonds and hence in the Public Offering
Price received by the Underwriters.
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between
the price at which Units are purchased (based on the bid prices
of the Bonds in the Trust) and the price at which Units are resold
(which price is also based on the bid prices of the Bonds in the
Trust and includes a maximum sales charge of 5.0%) or redeemed.
The secondary market public offering price of Units may be greater
or less than the cost of such Units to the Sponsor.
Will There be a Secondary Market?
After the initial offering period, although it is not obligated
to do so, the Sponsor intends to maintain a market for the Units
and continuously to offer to purchase Units at prices, subject
to change at any time, based upon the aggregate bid price of the
Bonds in the portfolio of the Trust plus interest accrued to the
date of settlement. All expenses incurred in maintaining a secondary
market, other than the fees of the Evaluator, the other expenses
of the Trust and the costs of the Trustee in transferring and
recording the ownership of Units, will be borne by the Sponsor.
If the supply of Units exceeds demand, or for some other business
reason, the Sponsor may discontinue purchases of Units at such
prices. IF A UNIT HOLDER WISHES TO DISPOSE OF HIS UNITS, HE SHOULD
INQUIRE OF THE SPONSOR AS TO CURRENT MARKET PRICES PRIOR TO MAKING
A TENDER FOR REDEMPTION TO THE TRUSTEE. Prospectuses relating to
certain other bond funds indicate an intention, subject to change,
on the part of the respective sponsors of such funds to repurchase
units of those funds on the basis of a price higher than the bid
prices of the securities in the funds. Consequently, depending upon
the prices actually paid, the repurchase price of other sponsors for
units of their funds may be computed on a somewhat more favorable
basis than the repurchase price offered by the Sponsor for Units of
the Trust in secondary market transactions. As in this Trust, the
purchase price per unit of such bond funds will depend primarily on
the value of the securities in the portfolio of the fund.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the
Trustee. Ownership of Units is evidenced by registered certificates
executed by the Trustee and the Sponsor. Delivery of certificates
representing Units ordered for purchase is normally made three
business days following such order or shortly thereafter. Certificates
are transferable by presentation and surrender to the Trustee
properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer.
A Unit holder must sign exactly as his name appears on the face
of the certificate with the signature guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guaranty program in addition to, or in
substitution for, STAMP, as may be accepted by the Trustee. In
certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or certificates
of corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable
only on the books of the Trustee in denominations of one Unit
or any multiple thereof, numbered serially for purposes of identification.
Although no such charge is now made or contemplated, a Unit holder may be
required to pay $2.00 to the Trustee per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or exchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Unit holder may be
required to furnish indemnity satisfactory to the Trustee and pay such
expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from the Trust after deduction of amounts sufficient
to reimburse the Trustee, without interest, for any amounts advanced
and paid to the Sponsor as the Unit holder of record as of the
Page 20
First Settlement Date (see "How is Accrued Interest Treated?")
will be distributed on or shortly after the last day of each month
on a pro rata basis to Unit holders of record as of the preceding
Record Date who are entitled to distributions at that time under
the plan of distribution chosen. All distributions for the Trust
will be net of applicable expenses for the Trust.
The pro rata share of cash in the Principal Account of the Trust will
be computed as of the fifteenth day of each month, and distributions
to the Unit holders of the Trust as of such Record Date will be
made on or shortly after the last day of each month. Proceeds
from the disposition of any of the Bonds of the Trust received
after such Record Date and prior to the following Distribution
Date will be held in the Principal Account of the Trust and not
distributed until the next Distribution Date. The Trustee is not
required to make a distribution from the Principal Account of
the Trust unless the amount available for distribution shall equal
at least $1.00 per Unit.
The Trustee will credit to the Interest Account of the Trust all
interest received by the Trust, including that part of the proceeds
of any disposition of Bonds which represents accrued interest.
Other receipts will be credited to the Principal Account of the
Trust. The distribution to the Unit holders of the Trust as of
each Record Date will be made on the following Distribution Date
or shortly thereafter and shall consist of an amount substantially
equal to such portion of the holder's pro rata share of the estimated
annual income of the Trust after deducting estimated expenses.
Except through an advancement of its own funds, the Trustee has
no cash for distribution to Unit holders until it receives interest
payments on the Bonds in the Trust. The Trustee shall be reimbursed,
without interest, for any advances from funds in the Interest
Account of the Trust on the ensuing Record Date. Persons who purchase
Units between a Record Date and a Distribution Date will receive
their first distribution on the second Distribution Date after
the purchase under the applicable plan of distribution. The Trustee
is not required to pay interest on funds held in the Principal
or Interest Account of the Trust (but may itself earn interest
thereon and therefore benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct
from the Interest Account of the Trust and, to the extent funds
are not sufficient therein, from the Principal Account of the
Trust, amounts necessary to pay the expenses of the Trust. The
Trustee also may withdraw from said accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental
charges payable out of the Trust. Amounts so withdrawn shall not
be considered a part of the Trust's assets until such time as
the Trustee shall return all or any part of such amounts to the
appropriate account. In addition, the Trustee may withdraw from
the Interest Account and the Principal Account of the Trust such
amounts as may be necessary to cover redemption of Units of the
Trust by the Trustee.
PURCHASERS OF UNITS WHO DESIRE TO RECEIVE DISTRIBUTIONS ON A SEMI-ANNUAL
BASIS MAY ELECT TO DO SO AT THE TIME OF PURCHASE DURING THE INITIAL
PUBLIC OFFERING PERIOD. THOSE NOT SO INDICATING WILL BE DEEMED
TO HAVE CHOSEN THE MONTHLY DISTRIBUTION PLAN. However, all Unit
holders purchasing Units during the initial public offering period
and prior to the first Record Date will receive the first distribution
of interest. Thereafter, Record Dates for monthly distributions
will be the fifteenth day of each month and Record Dates for semi-annual
distributions will be the fifteenth day of June and December.
Distributions will be made on the last day of the month of the
respective Record Date.
The plan of distribution selected by a Unit holder will remain
in effect until changed. Unit holders purchasing Units in the
secondary market will initially receive distributions in accordance
with the election of the prior owner. Each year, approximately
six weeks prior to the end of May, the Trustee will furnish each
Unit holder a card to be returned to the Trustee not more than
thirty nor less than ten days before the end of such month. Unit
holders desiring to change the plan of distribution in which they
are participating may so indicate on the card and return same,
together with their certificate, to the Trustee. If the card and
certificate are returned
Page 21
to the Trustee, the change will become effective as of June 16
of that year. If the card and certificate are not returned to
the Trustee, the Unit holder will be deemed to have elected to
continue with the same plan for the following twelve months.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation
in a Universal Distribution Option which permits a Unit holder
to direct the Trustee to distribute principal and interest payments
to any other investment vehicle of which the Unit holder has an
existing account. For example, at a Unit holder's direction, the
Trustee would distribute automatically on the applicable distribution
date interest income, capital gains or principal on the participant's
Units to, among other investment vehicles, a Unit holder's checking,
bank savings, money market, insurance, reinvestment or any other
account. All such distributions, of course, are subject to the
minimum investment and sales charges, if any, of the particular
investment vehicle to which distributions are directed. The Trustee
will notify the participant of each distribution pursuant to the
Universal Distribution Option. The Trustee will distribute directly
to the Unit holder any distributions which are not accepted by
the specified investment vehicle. A participant may at any time,
by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive
directly future distributions on his Units.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of the Trust in connection
with each distribution a statement of the amount of interest,
if any, and the amount of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit.
Within a reasonable time after the end of each calendar year,
the Trustee will furnish to each person who at any time during
the calendar year was a Unit holder of the Trust of record, a
statement as to (1) the Interest Account: interest received by
the Trust (including amounts representing interest received upon
any disposition of Bonds of the Trust), deductions for payment
of applicable taxes and for fees and expenses of the Trust, redemption
of Units and the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding
on the last business day of such calendar year; (2) the Principal
Account: the dates of disposition of any Bonds of the Trust and
the net proceeds received therefrom (excluding any portion representing
interest and the premium attributable to the exercise of the right,
if applicable, to obtain Permanent Insurance), deduction for payment
of applicable taxes and for fees and expenses of the Trust, redemptions
of Units, and the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding
on the last business day of such calendar year; (3) the Bonds
held and the number of Units of the Trust outstanding on the last
business day of such calendar year; (4) the Redemption Price per
Unit based upon the last computation thereof made during such
calendar year; and (5) the amounts actually distributed during
such calendar year from the Interest Account and from the Principal
Account of the Trust, separately stated, expressed both as total
dollar amounts and as dollar amounts representing the pro rata
share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds in their Trust furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender
to the Trustee at its corporate trust office in the City of New
York of the certificates representing the Units to be redeemed,
duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed as explained above (or by providing
satisfactory indemnity, as in connection with lost, stolen or
destroyed certificates), and payment of applicable governmental
charges, if any. No redemption fee will be charged. On the third
business day following such tender, the Unit holder will be entitled
to receive in cash an amount for each Unit equal to the Redemption
Price per Unit next computed after receipt by the Trustee of such
tender of Units. The "date of tender" is deemed to be the date
on which Units are received by the Trustee, except that as regards
Units received after the close of trading (4:00 p.m. eastern standard
time) on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading and such Units will
be deemed to have been tendered to the Trustee on such day for
redemption at the redemption price computed on that day. Units so
redeemed shall be cancelled.
Page 22
Accrued interest to the settlement date paid on redemption shall
be withdrawn from the Interest Account of the Trust or, if the
balance therein is insufficient, from the Principal Account of
the Trust. All other amounts paid on redemption shall be withdrawn
from the Principal Account of the Trust.
The Redemption Price per Unit (as well as the secondary market
Public Offering Price) will be determined on the basis of the
bid price of the Bonds in the Trust while the Public Offering
Price of Units during the initial offering period will be determined
on the basis of the offering price of the Bonds of the Trust as
of the close of trading on the New York Stock Exchange on the
date any such determination is made. On the Initial Date of Deposit
the Public Offering Price per Unit (which is based on the offering
prices of the Bonds in the Trust and includes the sales charge)
exceeded the Unit value at which Units could have been redeemed
(based upon the current bid prices of the Bonds in the Trust)
by the amount shown under "Summary of Essential Information."
The Redemption Price per Unit is the pro rata share of each Unit
determined by the Trustee on the basis of (1) the cash on hand
in the Trust or moneys in the process of being collected, (2)
the value of the Bonds in the Trust based on the bid prices of
the Bonds, and (3) accrued interest on the bonds, less (a) amounts
representing taxes or other governmental charges payable out of
the Trust, (b) the accrued expenses of the Trust and (c) cash
held for distribution to Unit holders of record as of a date prior
to the evaluation then being made. The Evaluator may determine
the value of the Bonds in the Trust (1) on the basis of current
bid prices of the Bonds obtained from dealers or brokers who customarily
deal in bonds comparable to those held by the Trust, (2) on the
basis of bid prices for bonds comparable to any Bonds for which
bid prices are not available, (3) by determining the value of
the Bonds by appraisal, or (4) by any combination of the above.
The difference between the bid and offering prices of such Bonds
may be expected to average 1-3% of the principal amount. In the
case of actively traded bonds, the difference may be as little
as 1/2 of 1% and, in the case of inactively traded bonds, such
difference usually will not exceed 4%. Therefore, the price at
which Units may be redeemed could be less than the price paid
by the Unit holder. At the opening of business on the Initial
Date of Deposit, the aggregate current offering price of such
Bonds per Unit exceeded the Redemption Price per Unit (based upon
current bid prices of such Bonds) by the amount indicated in the
"Summary of Essential Information."
The Trustee is empowered to sell underlying Bonds in the Trust
in order to make funds available for redemption. To the extent
that Bonds are sold, the size and diversity of the Trust will
be reduced. Such sales may be required at a time when Bonds would
not otherwise be sold and might result in lower prices than might
otherwise be realized.
The right of redemption may be suspended and payment postponed
for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings, or during
which the Securities and Exchange Commission determines that trading
on that Exchange is restricted or an emergency exists, as a result
of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit. Under certain extreme circumstances,
the Sponsor may apply to the Securities and Exchange Commission
for an order permitting a full or partial suspension of the right
of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, it may purchase
such Units by notifying the Trustee before 12:00 p.m. eastern
standard time on the next succeeding business day and by making
payment therefor to the Unit holder not later than the day on which
the Units would otherwise have been redeemed by the Trustee. Units
held by the Sponsor may be tendered to the Trustee for redemption
as any other Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
Page 23
How May Bonds be Removed from the Trust?
The Trustee, in its sole discretion, is empowered to sell underlying
Bonds of a Trust in order to make funds available for the redemption
of Units of such Trust or to provide for the payment of expenses
of such Trust for which funds are not available. The Depositor
shall maintain with the Trustee a current list of Bonds held in
each Trust designated to be sold for such purposes. As described
in the following paragraph, the Trustee may also sell Bonds in the
Trust which are in default in the payment of principal or interest
or in significant risk of such default where, in the Sponsor's
opinion, such sale is in the best interests of Unit holders or no
other alternative exists. In addition, at the Sponsor's request,
the Trustee shall sell Bonds of a Trust if factors arise which,
in the Sponsor's opinion, adversely affect the tax or exchange
control status of the Bonds. See "How May Units be Redeemed?"
The Sponsor may from time to time act as agent for the Trust with
respect to selling Bonds out of the Trust. From time to time, the
Trustee may retain and pay compensation to the Sponsor subject to
the restrictions under the Investment Company Act of 1940, as amended.
If any default in the payment of principal or interest on any
Bond occurs and no provision for payment is made therefor, within
thirty days, the Trustee is required to notify the Sponsor thereof.
If the Sponsor fails to instruct the Trustee to sell or to hold
such Bond within thirty days after notification by the Trustee
to the Sponsor of such default, the Trustee may, in its discretion,
sell the defaulted Bond and not be liable for any depreciation
or loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made
by an issuer of any of the Bonds to issue new obligations in exchange
and substitution for any Bonds pursuant to a refunding or refinancing
plan, except that the Sponsor may instruct the Trustee to accept
such an offer or to take any other action with respect thereto
as the Sponsor may deem proper if the issuer is in default with
respect to such Bonds or in the written opinion of the Sponsor
the issuer will probably default in respect to such Bonds in the
foreseeable future. Any obligations so received in exchange or
substitution will be held by the Trustee subject to the terms
and conditions in the Indenture to the same extent as Bonds originally
deposited thereunder. Within five days after the deposit of obligations
in exchange or substitution for underlying Bonds, the Trustee
is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph and under
"What is the First Trust Special Situations Trust?" for Failed
Bonds, the acquisition by the Trust of any securities other than
the Bonds initially deposited is prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust,
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $9 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141.
As of December 31, 1994, the total partners' capital of Nike Securities
L.P. was $10,863,058 (audited). (This paragraph relates only to the
Sponsor and not to the Trust or to any series thereof or to any other
Underwriters. The information is included herein only for the purpose
of informing investors as to the financial responsibility of the
Sponsor and its ability to carry out its contractual obligations.
More detailed financial information will be made available by
the Sponsor upon request.)
Page 24
Who is the Trustee?
The Trustee is The Chase Manhattan Bank (National Association),
a national banking association with its principal executive office
located at 1 Chase Manhattan Plaza, New York, New York 10081 and
its unit investment trust office at 770 Broadway, New York, New
York 10003. Unit holders who have questions regarding the Trust
may call the Customer Service Help Line at 1-800-682-7520. The
Trustee is subject to supervision by the Comptroller of the Currency,
the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the portfolio or the Insurance Policy. For
information relating to the responsibilities of the Trustee under
the Indenture, reference is made to the material set forth under
"Rights of Unit Holders."
The Trustee and any successor trustee may resign by executing
an instrument in writing and filing the same with the Sponsor
and mailing a copy of a notice of resignation to all Unit holders.
Upon receipt of such notice, the Sponsor is obligated to appoint
a successor trustee promptly. If the Trustee becomes incapable
of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Indenture. If upon resignation of a
trustee no successor has accepted the appointment within thirty days
after notification, the retiring trustee may apply to a court of
competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only when
the successor trustee accepts its appointment as such or when a
court of competent jurisdiction appoints a successor trustee.
Any corporation into which the Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Trustee shall be a party,
shall be the successor Trustee. The Trustee must be a banking
corporation organized under the laws of the United States or any
State and having at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit
holders for taking any action or for refraining from taking any
action in good faith pursuant to the Indenture, or for errors
in judgment, but shall be liable only for their own willful misfeasance,
bad faith, gross negligence (ordinary negligence in the case of
the Trustee) or reckless disregard of their obligations and duties.
The Trustee shall not be liable for depreciation or loss incurred
by reason of the sale by the Trustee of any of the Bonds. In the
event of the failure of the Sponsor to act under the Indenture,
the Trustee may act thereunder and shall not be liable for any
action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in
respect of the Trust which the Trustee may be required to pay
under any present or future law of the United States of America
or of any other taxing authority having jurisdiction. In addition,
the Indenture contains other customary provisions limiting the
liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or
its affairs are taken over by public authorities, then the Trustee
may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and not exceeding amounts prescribed
by the Securities and Exchange Commission, or (b) terminate the
Indenture and liquidate the Trust as provided herein, or (c) continue
to act as Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Muller Data Corporation, 395 Hudson Street, New
York, New York 10014. The Evaluator may resign or may be removed
by the Sponsor and the Trustee, in which event the Sponsor and
the Trustee are to use their best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective
upon the acceptance of appointment by the successor Evaluator.
If upon resignation of the Evaluator no successor has accepted
appointment within 30 days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor.
Page 25
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the
Indenture shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator
shall be under no liability to the Trustee, Sponsor or Unit holders
for errors in judgment. This provision shall not protect the Evaluator
in any case of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee),
provided that the Indenture is not amended to increase the number
of Units of the Trust issuable thereunder or to permit the deposit
or acquisition of securities either in addition to or in substitution
for any of the Bonds initially deposited in the Trust, except
for the substitution of certain refunding securities for Bonds
or New Bonds for Failed Bonds. In the event of any amendment,
the Trustee is obligated to notify promptly all Unit holders of
the substance of such amendment.
The Trust may be liquidated at any time by consent of 100% of
the Unit holders of the Trust or by the Trustee when the value
of the Trust, as shown by any evaluation, is less than 20% of
the aggregate principal amount of the Bonds initially deposited
in the Trust during the primary offering period or by the Trustee
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 the Underwriters, including the Sponsor. If the Trust is liquidated
because of the redemption of unsold Units of the Trust by the
Underwriters, the Sponsor will refund to each purchaser of Units
of the Trust the entire sales charge paid by such purchaser. The
Indenture will terminate upon the redemption, sale or other disposition
of the last Bond held thereunder, but in no event shall it continue
beyond December 31, 2044. In the event of termination, written notice
thereof will be sent by the Trustee to all Unit holders of the Trust.
Within a reasonable period after termination, the Trustee will sell any
Bonds remaining in the Trust and, after paying all expenses and charges
incurred by the Trust, will distribute to each Unit holder of the Trust
(including the Sponsor if it then holds any Units), upon surrender for
cancellation of his Certificate for Units, his pro rata share of the
balances remaining in the Interest and Principal Accounts of the Trust,
all as provided in the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating
to Federal tax law have been passed upon by Chapman and Cutler,
111 West Monroe Street, Chicago, Illinois 60603, as counsel for
the Sponsor. Carter, Ledyard & Milburn, 2 Wall Street, New York,
New York 10005, will act as counsel for the Trustee and as special
counsel for the Trust for New York tax matters.
Experts
The statement of net assets, including the portfolio, of the Trust
on the Initial Date of Deposit appearing in this Prospectus and
Registration Statement has been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and is included
in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
Page 26
UNDERWRITING
The Underwriters named below, including the Sponsor, have severally
purchased Units in the following respective amounts*:
<TABLE>
<CAPTION>
Number of
Name Address Units
____ _______ _________
<S> <C> <C>
Sponsor
Nike Securities L.P. 1001 Warrenville Road, Lisle, IL 60532 615
Underwriters
First of Michigan Corporation 100 Renaissance Center, 26th Floor, Detroit, MI 48243 100
J.C. Bradford & Co. 330 Commerce Street, Nashville, TN 37201-1809 50
Dain Bosworth Incorporated Dain Bosworth Plaza, 60 S. 6th Street, 14th Floor, 50
Minneapolis, MN 55402-4422
Gruntal & Co., Incorporated 14 Wall Street, 20th Floor, New York, NY 10005 50
Stifel, Nicolaus 500 North Broadway, 16th Floor, St. Louis, MO 63102 50
& Company, Incorporated
Raymond James & Associates, Inc. 880 Carillon Parkway, St. Petersburg, FL 33710 25
Advest, Inc. One Commercial Plaza, 280 Trumbull Street, 18th Floor, 10
Hartford, CT 06103
Fidelity Capital Markets, A division World Trade Center, 164 Northern Avenue, ZT3, 10
of National Financial Services Boston, MA 02210
Corporation
Nathan & Lewis Securities, Inc. 1140 Avenue of the Americas, New York, NY 10036 10
Oppenheimer & Co., Inc. Oppenheimer Tower, One World Financial Center, 10
8th Floor, New York, NY 10281
Peacock, Hislop, Staley, Given, Inc. 122 North Kirkwood Road, St. Louis, MO 63122 10
Primevest 400 First Street South, Suite 300, St. Cloud, MN 56301 10
_________
1,000
=========
</TABLE>
[FN]
__________________
* The Underwriters have indicated their intention to
purchase additional Units from the Sponsor during the initial offering
period and will receive Underwriting Concessions based on total Units
underwritten during such period.
On the Initial Date of Deposit, the Underwriters of the Trust
became the owners of the Units of the Trust and entitled to the
benefits thereof, as well as the risks inherent therein.
The Agreement Among Underwriters provides that a public offering
of the Units of the Trust will be made at the Public Offering
Price described in the Prospectus. Units may also be sold to or
through dealers and others during the initial offering period
and in the secondary market at prices representing a concession
or agency commission as described in "Public Offering-How are
Units Distributed?" on page 19.
The Sponsor will receive from the Underwriters the excess over
the gross sales commission contained in the following table:
Underwriting Concession (per Unit)
100-249 250-499 500-999 1,000 or More
Units Units Units Units
Underwritten Underwritten Underwritten Underwritten
____________ ____________ ____________ ____________
3.0% 3.2% 3.4% 3.5%
In addition to any other benefits that the Underwriters may realize
from the sale of the Units of the Trust, the Agreement Among Underwriters
provides that the Sponsor will share with the other Underwriters
50% of the net gain, if any, represented by the difference between
the Sponsor's cost of the Bonds in connection with their acquisition
and the Aggregate Offering Price thereof on the Date of Deposit,
less a charge for acquiring the Bonds in the portfolio and for
the Sponsor maintaining a secondary market for the Units. See
"What are the Sponsor's Profits?" and Note 1 of "Notes to Portfolio."
From time to time the Sponsor may implement programs under which
Underwriters and dealers of the Trust may receive nominal awards
from the Sponsor for each of their registered representatives
who have sold a minimum number of UIT Units during a specified
time period. In addition, at various times the Sponsor may implement
other programs under which the sales force of an Underwriter or
dealer may be eligible to win other nominal awards for certain
sales efforts, or under which the Sponsor will reallow to any
such Underwriter or dealer that sponsors sales contests or recognition
programs conforming to criteria established by the Sponsor,
Page 27
or participates in sales programs sponsored by Sponsor, an amount
not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time
pursuant to objective criteria established by the Sponsor pay fees
to qualifying Underwriters or dealers for certain services or
activities which are primarily intended to result in sales of Units
of the Trust. Such payments are made by the Sponsor out of its own
assets, and not out of the assets of the Trust. These programs will
not change the price Unit holders pay for their Units or the amount
that the Trust will receive from the Units sold.
A comparison of estimated current returns and estimated long-term
returns with the returns on various investments is one element
to consider in making an investment decision. The Sponsor may
from time to time in its advertising and sales materials compare
the then current estimated returns on the Trust and returns over
specified periods on other similar Trusts sponsored by Nike Securities
L.P. with returns on investments such as U.S. Government bonds,
bank CDs and money market accounts or money market funds, each
of which has investment characteristics that may differ from those
of the Trust. U.S. Government bonds, for example, are backed by
the full faith and credit of the U.S. Government and bank CDs
and money market accounts are insured by an agency of the federal
government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with
the condition of the short-term debt market. The investment characteristics
of the Trust are described more fully elsewhere in this Prospectus.
Page 28
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 11
<TABLE>
<CAPTION>
Special Trust Information
Monthly Semi-Annually
_______ _____________
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ 86.18 $ 86.18
Less: Estimated Annual Expense per Unit $ 4.32 $ 3.82
Estimated Net Annual Interest Income per Unit $ 81.86 $ 82.36
Calculation of Interest Distribution per Unit
Estimated Net Annual Interest Income per Unit $ 81.86 $ 82.36
Divided by 12 and 2, respectively $ 6.82 $ 41.18
Estimated Daily Rate of Net Interest Accrual per Unit $ .227388 $ .228777
Estimated Current Return Based on Public Offering Price (1) 8.07% 8.12%
Estimated Long-Term Return Based on Public Offering Price (1) 8.08% 8.13%
CUSIP 33718R 161 179
</TABLE>
Trustee's Annual Fee $1.80 and $1.35 per Unit, exclusive of expenses
of the Trust, for those portions of the Trust
under the monthly and semi-annual plans,
respectively, commencing September 26, 1995.
Distributions
First distribution of $3.64 and $3.66 per Unit under the monthly
and semi-annual distribution plans, respectively, will be paid
on October 31, 1995 to Unit holders of record on October 15, 1995.
Regular monthly distributions of $ 6.82 per Unit will begin on
November 30, 1995 to monthly Unit holders of record on November
15, 1995.
A partial distribution of $13.73 per Unit will be paid on December
31, 1995 to semi-annual Unit holders of record on December 15, 1995.
Regular semi-annual distributions of $41.18 per Unit will begin on
June 30, 1996 to semi-annual Unit holders of record on June 15, 1996.
[FN]
___________
(1) The Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering
Price. The Estimated Net Annual Interest Income per Unit will
vary with changes in fees and expenses of the Trustee, the Portfolio
Supervisor and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Bonds while the Public
Offering Price will vary with changes in the offering price of
the underlying Bonds; therefore, there is no assurance that the
present Estimated Current Return indicated above will be realized
in the future. The Estimated Long-Term Return is calculated using
a formula which (1) takes into consideration, and determines and
factors in the relative weightings of the market values, yields
(which take into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all of the
Bonds in the Trust; and (2) takes into account a compounding factor
and the expenses and sales charge associated with each Unit of
the Trust. Since the market values and estimated retirements of
the Bonds and the expenses of the Trust will change, there is
no assurance that the present Estimated Long-Term Return indicated
above will be realized in the future. Estimated Current Return
and Estimated Long-Term Return are expected to differ because
the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income
and Public Offering Price. Neither rate reflects the true return
to Unit holders, which is lower, because neither includes the
effect of certain delays in distributions to Unit holders. The
above figures are based on estimated per Unit cash flows. Estimated
cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment,
redemption, maturity, call, exchange or sale of the underlying
Bonds. The estimated cash flows for this Trust may be obtained
from the Sponsor at no charge.
Page 29
What is the The First Trust Corporate Income Trust (High Yield)
Intermediate Series 11?
The The First Trust Corporate Income Trust (High Yield) Intermediate
Series 11 consists of fifteen obligations. Three obligations representing
20% of the aggregate principal amount of the Bonds in the Trust consist
of foreign Corporate Bonds and Zero Coupon Bonds. Twelve obligations
representing approximately 80% of the aggregate principal amount of the
Bonds in the Trust consist of domestic Corporate Bonds and Zero Coupon Bonds.
Approximately 43% of the aggregate principal amount of the Bonds in the
Trust were purchased at a premium over par value. Thirty percent of
the Bonds are subject to optional call or redemption provisions
within five years from the Initial Date of Deposit. See "Notes
to Portfolio" for additional information on redemption provisions.
Of the Bonds included in the Trust, 32.5% will mature in 2003,
30% will mature in 2004 and 37.5% will mature in 2005. See "What
is The First Trust Special Situations Trust?"
Number of Country Portfolio
Issues of Issuer Percentage
_________ _________ __________
12 United States of America 80.00%
2 Argentina 15.00%
1 Venezuela 5.00%
Page 30
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 11
Portfolio
At the Opening of Business
On the Initial Date of Deposit of the Bonds-September 26, 1995
<TABLE>
<CAPTION>
Aggregate Issue and Country of Issuer Represented Redemption Cost to
Principal by Sponsor's Contracts to Purchase Bonds (1) Rating Provisions (4) the Trust
_________ ________________________________________________ ______ ______________ _________
<C> <S> <C> <C> <C>
$ 50,000 Bethlehem Steel (United States of America), Senior B+ (2) $ 52,125
Notes, 10.375%, Due 9/1/2003
75,000 Borden Chemical & Plastics (United States of America), BB+ (2) 2000 @ 104 77,063
Notes, 9.50%, Due 5/1/2005
25,000 {Century Communications (United States of America), BB- (2) 12,375
Notes, Zero Coupon, Due 3/15/2003
75,000 Century Communications (United States of America), BB- (2) 75,937
Senior Notes, 9.50%, Due 3/1/2005
75,000 Continental Cablevision (United States of America), BB+ (2) 77,063
Debentures, 8.875%, Due 9/15/2005
75,000 Kaufman & Broad Home Corporation (United States of BB- (2) 2000 @ 100 72,281
America), Senior Subordinate Notes, 9.375%, Due 5/1/2003
50,000 PDV America Inc. (Venezuela), Senior Notes, Baa3 (3) 47,000
7.875%, Due 8/1/2003
75,000 Playtex Family Products Corporation (United States of B+ (2) 1998 @ 104.5 71,812
America), Senior Subordinate Notes, 9.00%, Due 12/15/2003
75,000 Ryland Group (United States of America), Senior BB- (2) 2000 @ 100 74,531
Subordinate Notes, 9.625%, Due 6/1/2004
50,000 Salomon, Inc. (United States of America), BBB (2) 47,499
Senior Notes, 6.875%, Due 12/15/2003
75,000 Tele-Communication, Inc. (United States of America), BBB- (2) 72,190
Senior Notes, 7.25%, Due 8/1/2005
75,000 Telefonica De Argentina, S.A. (Argentina), Notes, BB- (2) 75,563
11.875%, Due 11/1/2004
75,000 Time Warner Inc. (United States of America), Notes, BBB- (2) 75,562
7.75%, Due 6/15/2005
75,000 Turner Broadcasting (United States of America), BB+ (2) 73,398
Senior Notes, 7.40%, Due 2/1/2004
75,000 YPF Sociedad Anonima (Argentina), Notes, BB- (2) 64,688
8.00%, Due 2/15/2004
__________ __________
$1,000,000 $969,087
========== ==========
</TABLE>
[FN]
________________
{ These Bonds were issued at an original discount on April 1,
1993 at a price of 42.125% of their original principal amount.
See "Notes to Portfolio" on page 34.
Page 31
REPORT OF INDEPENDENT AUDITORS
The Sponsor, Nike Securities L.P., and Unit Holders
The First Trust Corporate Income Trust (High Yield) Intermediate
Series 11
We have audited the accompanying statement of net assets, including
the portfolio, of The First Trust Special Situations Trust, Series
125, comprised of The First Trust Corporate Income Trust (High
Yield) Intermediate Series 11, as of the opening of business on
September 26, 1995. This statement of net assets is the responsibility
of the Trust's Sponsor. Our responsibility is to express an opinion
on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the statement
of net assets is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of net assets. Our procedures included
confirmation of the letter of credit held by the Trustee and deposited
in the Trust on September 26, 1995. An audit also includes assessing
the accounting principles used and significant estimates made
by the Sponsor, as well as evaluating the overall presentation
of the statement of net assets. We believe that our audit of the
statement of net assets provides a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above
presents fairly, in all material respects, the financial position
of The First Trust Special Situations Trust, Series 125, comprised
of The First Trust Corporate Income Trust (High Yield) Intermediate
Series 11, at the opening of business on September 26, 1995 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 26, 1995
Page 32
Statement of Net Assets
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 11
The First Trust Special Situations Trust, Series 125
At the Opening of Business on the Initial Date of Deposit
September 26, 1995
<TABLE>
<CAPTION>
NET ASSETS
<S> <C>
Delivery statements relating to Sponsor's contracts to purchase
bonds (1)(2) $ 969,087
Accrued interest on underlying bonds (2)(3) 20,106
__________
Organizational costs (4) 35,000
1,024,193
Less distributions payable (3) 20,106
__________
Less accrued organizational costs (4) 35,000
Net assets $ 969,087
==========
Outstanding units 1,000
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NET ASSETS
<S> <C>
Cost to investors (5) $1,014,751
Less gross underwriting commissions (5) 45,664
__________
Net assets $ 969,087
==========
</TABLE>
[FN]
NOTES TO STATEMENT OF NET ASSETS
(1) The aggregate offering price of the bonds in the Trust at
the opening of business on the Initial Date of Deposit and the
cost to the Trust are the same. The offering price is determined
by the Evaluator.
(2) Pursuant to delivery statements relating to contracts to purchase
bonds, an irrevocable letter of credit has been deposited in the
Trust as collateral. The amount of available letter of credit
and the amount expected to be utilized for the Trust is shown
below. The amount expected to be utilized is (a) the cost to the
Trust of the principal amount of the bonds to be purchased, (b)
accrued interest on those bonds to the Initial Date of Deposit,
and (c) accrued interest on those bonds from the Initial Date
of Deposit to the expected dates of delivery of the bonds.
<TABLE>
<CAPTION>
Accrued
Letter of Credit Aggregate Accrued Interest to
Offering Interest to Expected
To be Price of Date of Dates of
Trust Available Utilized Bonds Deposit Delivery
_____ _________ ________ _________ ___________ ___________
<S> <C> <C> <C> <C> <C>
The First Trust Corporate
Income Trust (High Yield)
Intermediate Series 11 $1,100,000 $989,672 $969,087 $20,106 $479
</TABLE>
(3) The Trustee will advance to the Trust the amount of net interest
accrued to September 29, 1995, the First Settlement Date, for
distribution to the Sponsor as the Unit holder of record.
(4) The Trust (and therefore Unit holders) shall bear all or a
portion of its estimated organization costs which will be deferred
and amortized over five years from the Initial Date of Deposit.
The estimated organizational costs are based on 10,000,000 Units
of the Trust expected to be issued. To the extent the number of
Units issued is larger or smaller, the estimate will vary.
(5) The aggregate cost to investors and the aggregate gross underwriting
commissions of 4.5% are computed assuming no reduction of sales
charge for quantity purchases.
Page 33
NOTES TO PORTFOLIO
The following Notes to Portfolio pertain to the information contained
in the Trust Portfolio on page 31.
(1) Sponsor's contracts to purchase Bonds were entered into on
September 25, 1995. All contracts to purchase Bonds are expected to be
settled on or prior to September 29, 1995 unless otherwise indicated.
Other information regarding the Bonds in the Trust on the Initial
Date of Deposit is as follows:
<TABLE>
<CAPTION>
Aggregate Annual
Offering Cost of Profit Or Interest
Price of Bonds To (Loss) To Bid Price Income
Trust Bonds Sponsor Sponsor of Bonds to Trust
_____ _________ ________ _________ _________ ________
<S> <C> <C> <C> <C> <C>
The First Trust Corporate
Income Trust (High Yield)
Intermediate Series 11 $969,087 $969,087 $ - $965,369 $86,175
</TABLE>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor
reflects underwriting profits or losses received or incurred by
the Sponsor through its participation in underwriting syndicates.
The Offering and Bid Prices of Bonds were determined by Muller
Data Corporation.
(2) Rating by Standard & Poor's. Such ratings were obtained from
a corporate bond information reporting service.
(3) Rating by Moody's Investors Service, Inc. Such ratings were
obtained from a corporate bond information reporting service.
(4) There is shown under this heading the year in which each issue
of Bonds initially is redeemable and the redemption price for
that year. Issues of Bonds are redeemable at declining prices
(but not below par value) in subsequent years. Certain of the
Bonds may also be redeemed in whole or in part other than by operation
of the stated redemption provisions under certain circumstances
specified in the instruments setting forth the terms and provisions
of such Bonds. Redemption pursuant to call provisions generally
will occur at times when the redeemed Bonds have an offering side
valuation which represents a premium over par. To the extent that
the Bonds were deposited in the Trust at a price higher than the
price at which they are redeemed, this will represent a loss of
capital when compared with the original Public Offering Price
of the Units. Conversely, to the extent that the Bonds were acquired
at a price lower than the redemption price, this will represent
an increase in capital when compared to the original Public Offering
Price of the Units. Distributions will generally be reduced by
the amount of the income which would otherwise have been paid
with respect to redeemed Bonds and there will be distributed to
Unit holders the principal amount and any premium received on
such redemption (except to the extent the proceeds of the redeemed
Bonds are used to pay for Unit redemptions). The Estimated Current
Return and the Estimated Long-Term Return in this event may be
affected by such redemptions.
DESCRIPTION OF BOND RATINGS*
* As published by the rating companies.
Standard & Poor's. A brief description of the applicable Standard
& Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect
to a specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold
a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating
Page 34
and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result
of changes in, or unavailability of, such information, or for
other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangements
under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms
of the obligation. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to
adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of, or the risk of default upon failure of, such completion. The
investor should exercise his/her own judgment with respect to
such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings
of bonds and other fixed income securities. It focuses on events
and trends which place companies and government units under special
surveillance by S&P's 180-member analytical staff. These may include
mergers, voter referendums, actions by regulatory authorities,
or developments gleaned from analytical reviews. Unless otherwise
noted, a rating decision will be made within 90 days. Issues appear
on Credit Watch where an event, situation, or deviation from trends
occurred and needs to be evaluated as to its impact on credit
ratings. A listing, however, does not mean a rating change is
inevitable. Since S&P continuously monitors all of its ratings,
Credit Watch is not intended to include all issues under review.
Thus, rating changes will occur without issues appearing on Credit
Watch.
Moody's. A brief description of the applicable Moody's rating
symbols and their meanings follow:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
Page 35
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Their safety
is so absolute that with the occasional exception of oversupply
in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat large than in Aaa
securities. Their market value is virtually immune to all but
money market influences, with the occasional exception of oversupply
in a few specific instances.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. The market value of A-rated
bonds may be influenced to some degree by economic performance
during a sustained period of depressed business conditions, but,
during periods of normalcy, A-rated bonds frequently move in parallel
with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A 1 and Baa 1 - Bonds which are rated A 1 and Baa 1 offer the
maximum in security within their quality group, can be bought for
possible upgrading in quality, and additionally, afford the investor
an opportunity to gauge more precisely the relative attractiveness
of offerings in the market place.
Baa - Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length
of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well. The market
value of Baa-rated bonds is more sensitive to changes in economic
circumstances, and aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations will move in
parallel with Aaa, Aa, and A obligations during periods of economic
normalcy, except in instances of oversupply.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Moody's bond rating symbols may contain numerical modifiers of
a generic rating classification. The modifier 1 indicates that
the bond ranks at the high end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Con.(---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of construction
or elimination of basis of condition.
Page 36
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Page 37
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Page 38
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Page 39
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
Summary of Essential Information 3
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 11
The First Trust Special Situations Trust, Series 125:
What is The First Trust Special Situations Trust? 4
Bond Portfolio Selection 5
Risk Factors 5
What are Estimated Long-Term Return and
Estimated Current Return? 10
How is Accrued Interest Treated? 11
Are Unit Holders Compensated for Foreign
Withholding Tax Risks? 11
What is the Federal Tax Status of Unit Holders? 12
Why are Investments in the Trust Suitable for
Retirement Plans? 15
What are the Expenses and Charges? 15
Public Offering:
How is the Public Offering Price Determined? 17
How are Units Distributed? 19
What are the Sponsor's Profits? 19
Will There be a Secondary Market? 20
Rights of Unit Holders:
How are Certificates Issued and Transferred? 20
How are Interest and Principal Distributed? 20
How Can Distributions to Unit Holders be
Reinvested? 22
What Reports Will Unit Holders Receive? 22
How May Units be Redeemed? 22
How May Units be Purchased by the Sponsor? 23
How May Bonds be Removed from the Trust? 24
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 24
Who is the Trustee? 25
Limitations on Liabilities of Sponsor and Trustee 25
Who is the Evaluator? 25
Other Information:
How May the Indenture be Amended
or Terminated? 26
Legal Opinions 26
Experts 26
Underwriting 27
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 11 29
Report of Independent Auditors 32
Statement of Net Assets 33
Notes to Statement of Net Assets 33
Notes to Portfolio 34
Description of Bond Ratings 34
</TABLE>
______________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET
FORTH IN THE REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO,
WHICH THE TRUST HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (registered trademark)
THE FIRST TRUST
CORPORATE INCOME
TRUST (HIGH YIELD)
INTERMEDIATE
SERIES 11
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
The Chase Manhattan Bank
(National Association)
770 Broadway
New York, New York 10003
1-800-682-7520
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
September 26, 1995
MEMORANDUM
Re: The First Trust Special Situations Trust, Series 137
As indicated in our cover letter transmitting the
Registration Statement on Form S-6 and other related material
under the Securities Act of 1933 to the Commission, the only
difference of consequence (except as described below) between The
First Trust Special Situations Trust, Series 131, which is the
current fund, and The First Trust Special Situations Trust,
Series 137, the filing of which this memorandum accompanies, is
the change in the series number. The list of bonds comprising
the Fund, the evaluation, record and distribution dates and other
changes pertaining specifically to the new series, such as size
and number of Units in the Fund and the statement of condition of
the new Fund, will be filed by amendment.
1940 ACT
FORMS N-8A AND N-8B-2
These forms were not filed, as the Form N-8A and Form N-8B-2
filed in respect of Templeton Growth and Treasury Trust, Series 1
and subsequent series (File No. 811-05903) related also to the
subsequent series of the Fund.
1933 ACT
PROSPECTUS
The only significant changes in the Prospectus from the
Series 131 Prospectus relate to the series number and size and
the date and various items of information which will be derived
from and apply specifically to the bonds deposited in the Fund.
CONTENTS OF REGISTRATION STATEMENT
ITEM A Bonding Arrangements of Depositor:
Nike Securities L.P. is covered by a Broker's Fidelity
Bond, in the total amount of $1,000,000, 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 Cross-Reference Sheet
The Prospectus
The signatures
Exhibits
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Special Situations Trust, Series
137 has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
Village of Lisle and State of Illinois on December 28, 1995.
THE FIRST TRUST SPECIAL SITUATIONS
TRUST, SERIES 137
(Registrant)
By: NIKE SECURITIES L.P.
(Depositor)
By Carlos E. Nardo
Senior Vice President
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
Robert D. Van Kampen Sole Director of
Nike Securities December 28, 1995
Corporation, the
General Partner of
Nike Securities L.P. Carlos E. Nardo
Attorney-in-Fact**
___________________________
* The title of the person named herein represents his capacity
in and relationship to Nike Securities L.P., the Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with Amendment No. 1 to form S-6 of The First Trust Special
Situations Trust, Series 18 (File No. 33-42683) and the same
is hereby incorporated by this reference.
S-2
CONSENTS OF COUNSEL
The consents of counsel to the use of their names in the
Prospectus included in this Registration Statement will be
contained in their respective opinions to be filed as Exhibits
3.1, 3.2, 3.3 and 3.4 of the Registration Statement.
CONSENT OF ERNST & YOUNG LLP
The consent of Ernst & Young LLP to the use of its name and
to the reference to such firm in the Prospectus included in this
Registration Statement will be filed by amendment.
CONSENT OF FT EVALUATORS L.P.
The consent of FT Evaluators L.P. to the use of its name in
the Prospectus included in the Registration Statement is filed as
Exhibit 4.1 to the Registration Statement
S-3
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Special Situations Trust, Series 24 and
subsequent Series effective January 23, 1992 among Nike
Securities L.P., as Depositor, United States Trust
Company of New York as Trustee, Securities Evaluation
Service, Inc., as Evaluator, and Nike Financial Advisory
Services L.P. as Portfolio Supervisor (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
45093] filed on behalf of The First Trust Special
Situations Trust, Series 24).
1.1.1* Form of Trust Agreement for Series 137 among Nike
Securities L.P., as Depositor, The Chase Manhattan Bank
(National Association), as Trustee, FT Evaluators L.P.,
as Evaluator and First Trust Advisors L.P., as Portfolio
Supervisor.
1.2 Copy of Certificate of Limited Partnership of Nike
Securities L.P. (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-42683] filed on behalf of
The First Trust Special Situations Trust, Series 18).
1.3 Copy of Amended and Restated Limited Partnership Agreement
of Nike Securities L.P. (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
1.4 Copy of Articles of Incorporation of Nike Securities
Corporation, the general partner of Nike Securities L.P.,
Depositor (incorporated by reference to Amendment No. 1
to Form S-6 [File No. 33-42683] filed on behalf of The
First Trust Special Situations Trust, Series 18).
1.5 Copy of By-Laws of Nike Securities Corporaiton, the
general partner of Nike Securities L.P., Depositor
(incorporated by reference to Amendment No. 1 to Form S-6
[File No. 33-42683] filed on behalf of The First Trust
Special Situations Trust, Series 18).
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
filed herewith on page 2 and incorporated herein by
reference).
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.
S-4
3.3* Opinion of counsel as to New York income tax status of
Securities being registered.
3.4* Opinion of counsel as to advancement of funds by Trustee.
4.1* Consent of FT Evaluators L.P.
6.1 List of Directors and Officers of Depositor and other
related information (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
7.1 Power of Attorney executed by the Director listed on page
S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File No.
33-42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
___________________________________
* To be filed by amendment.
S-5
