Registration No. 33-65435
1940 Act No. 811-05903
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to Form S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES
OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust:
The First Trust Special Situations Trust, Series 137
B. Name of depositor:
NIKE SECURITIES L.P.
C. Complete address of depositor's principal executive offices:
NIKE SECURITIES L.P.
1001 Warrenville Road
Lisle, Illinois 60532
D. Name and complete address of agent for service:
Copy to:
JAMES A. BOWEN ERIC F. FESS
c/o Nike Securities L.P. c/o Chapman and Cutler
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
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 Aggregate 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 public:
As soon as practicable after the effective date of the
Registration Statement.
|XXX|Check box if it is proposed that this filing will become
effective on January 17, 1996 at 2:00 p.m. pursuant to Rule
487.
*Previously paid
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 Item Number Form S-6 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 depositor Information as to
Sponsor, Trustee and
Evaluator
3. Name and address of trustee Information as to
Sponsor, Trustee and
Evaluator
4. Name and address of principal Information as to
underwriters Sponsor, Trustee and
Evaluator
5. State of organization of trust The First Trust
Special Situations
Trust
6. Execution and termination of Other Information
trust agreement
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 Public Offering
securities
(b) Cumulative or distributive The First Trust
securities Special Situations
Trust
(c) Redemption Rights of Unitholders
(d) Conversion, transfer, etc. Rights of Unitholders
(e) Periodic payment plan *
(f) Voting rights Rights of Unitholders
(g) Notice of certificateholders Other Information
(h) Consents required Rights of Unitholders;
Other Information
(i) Other provisions The First Trust
Special Situations
Trust
11. Types of securities comprising The First Trust
units Special
Situations Trust
Schedule of
Investments
12. Certain information regarding
periodic payment 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 certificates *
(c) Certain percentages Summary of Essential
Information; The
First Trust Special
Situations Trust;
Public Offering
(d) Certain other fees, etc.
payable by holders Rights of Units
Holders
(e) Certain profits receivable
by depositor, principal,
underwriters, trustee or The First Trust
affiliated persons Special
Situations Trust
(f) Ratio of annual charges *
to income
14. Issuance of trust's securities Rights of Unit Holders
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 Rights of Unit Holders
disposition of income
(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 Information as
and successor to Sponsor, Trustee
and Evaluator
(e) and (f) Depositor, removal Information as
and successor to 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 employees of
depositor 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 Public Offering
securities by states
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
(c) Selling agreements Public Offering
39. (a) Organization of principal Information as
underwriters to Sponsor, Trustee
and Evaluator
(b) N.A.S.D. membership of
principal underwriters Information as to
Sponsor, Trustee and
Evaluator
40. Certain fees received by See Items 13(a) and
principal underwriters 13(e)
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 in Public Offering;
underlying securities Rights
of Unit Holders
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of Information as
trustee to 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 OF
SECURITIES
51. Insurance of holders of
trust's ecurities *
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust The First Trust
agreement with respect to Special
selection or elimination of Situations Trust;
underlying securities Rights of Unit Holders
(b) Transactions involving
elimination of underlying *
securities
(c) Policy regarding substitution The First Trust
or elimination of underlying Special
securities Situations Trust;
Rights 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.
56.
57. Certain information regarding
period payment certificates *
58.
59. Financial statements Report of Independent
(Instruction 1(c) to Statement of Net
Assets
Form S-6 Auditors
* Inapplicable, answer negative or not required.
The First Trust (registered trademark) Corporate Income Trust (High Yield)
Intermediate Series 12
The First Trust Special Situations Trust, Series 137 is a unit
investment trust consisting of a portfolio of interest-bearing corporate
debt obligations of domestic and foreign companies (the "Corporate
Bonds," or the "Bonds"), including delivery statements relating to
contracts for the purchase of certain such obligations and an
irrevocable letter of credit. The weighted average maturity of the Bonds
in the Trust is 7.5 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.
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 12?" and "Portfolio."
APPROXIMATELY 80% 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 25% 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 January 17, 1996
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 10,000 Units purchased. The minimum purchase is 100 Units.
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 $0.005
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.
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-January 17, 1996
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 $ 500,000
Number of Units 50,000
Fractional Undivided Interest in the Trust per Unit 1/50,000
Principal Amount (Par Value) of Bonds per Unit (1) $ 10.00
Public Offering Price
Aggregate Offering Price Evaluation of Bonds in the Portfolio 482,935
Aggregate Offering Price Evaluation per Unit $ 9.6587
Sales Charge (2) $ .4551
Public Offering Price per Unit (3) $ 10.1138
Sponsor's Initial Repurchase Price per Unit (3) $ 9.6587
Redemption Price per Unit (4) $ 9.6087
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ .5051
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption
Price per Unit $ .0500
</TABLE>
First Settlement Date January 22, 1996
Mandatory Termination Date (5) December 31, 2003
Supervisory Fee (6) Maximum of $0.005 per Unit
annually (7)
Evaluator's Fee $25 per daily evaluation
Estimated Annual Organizational and
Offering Expenses $.0070 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 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 $.0014
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 and offering 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 and offering expenses will be charged
off over a period not to exceed five years from the Initial Date of
Deposit. 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 12
The First Trust Special Situations Trust, Series 137
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust, Series 137 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," or
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. 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.
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
Page 4
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"), Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's") or Fitch Investors
Service, L.P. ("Fitch"). 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.
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
Page 5
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 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
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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 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
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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 Fitch, 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?").
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
Page 8
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 Fitch,
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, Moody's or Fitch.
Foreign Issuers. A portion 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, 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.
Page 9
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 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
Page 10
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
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
Page 11
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, if any such bonds are
included in the Trust, (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 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
Page 12
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 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
Page 13
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 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
Page 14
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 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
Page 15
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 charged
off over a period not to exceed five years from the Initial Date of
Deposit.
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
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 $0.005 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
Page 16
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
____________________ ________
10,000 to 49,999 .25%
50,000 to 99,999 .50%
100,000 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 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
Page 17
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 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
Page 18
2.8% of the Public Offering Price per Unit. Any broker/dealer or bank
that purchases 25,000 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 10,000 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" and 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 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
Page 19
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 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 $.01 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
Page 20
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 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
Page 21
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
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.
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
Page 22
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 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.
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
Page 23
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.)
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
Page 24
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.
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
Page 25
beyond December 31, 2003. 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.
UNDERWRITING
The Underwriters named below, including the Sponsor, have severally
purchased Units in the following respective amounts:
<TABLE>
<CAPTION>
Number
Name Address of Units
____ _______ _________
<S> <C> <C>
Sponsor
Nike Securities L.P. 1001 Warrenville Road, Lisle, IL 60532 29,000
Underwriters
First of Michigan Corporation 100 Renaissance Center, 26th Floor, 10,000
Detroit, MI 48243
Advest, Inc. 90 State House Square, Hartford, CT 06103 1,000
Berthal Fisher & Company 100 Second Street SE, P.O. Box 74250 1,000
Cedar Rapids, IA 52407-4250
Dain Bosworth Incorporated Dain Bosworth Plaza, 60 S. 6th Street, 14th 1,000
Floor, Minneapolis, MN 55402-4422
Fidelity Capital Markets, World Trade Center, 164 Northern Avenue, ZT3, 1,000
A division of National Boston, MA 02210
Financial Services Corporation
Gibraltar Securities Co. Ten James Street, Florham Park, NJ 07932 1,000
Gruntal & Co., Incorporated 14 Wall Street, 20th Floor, New York, NY 10005 1,000
Janney Montgomery Scott Inc. 1801 Market Street, 11th Floor, Philadelphia, PA 19103 1,000
Nathan & Lewis Securities, Inc. 1140 Avenue of the Americas, New York, NY 10036 1,000
Oppenheimer & Co., Inc. Oppenheimer Tower, One World Financial Center, 1,000
8th Floor, New York, NY 10281
Primevest Financial Services, Inc. 400 First Street South, Suite 300, St. Cloud, MN 56301 1,000
Raymond James & Associates, Inc. 880 Carillon Parkway, St. Petersburg, FL 33710 1,000
______
50,000
======
</TABLE>
On the Initial Date of Deposit, the Underwriters of the Trust became the
Page 26
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 18.
The Sponsor will receive from the Underwriters the excess over the gross
sales commission contained in the following table:
<TABLE>
<CAPTION>
Underwriting Concession (per Unit)
__________________________________
10,000-24,999 25,000-49,999 50,000-99,999 1,000,000 or More
Units Units Units Units
Underwritten Underwritten Underwritten Underwritten
____________ ____________ ____________ _________________
<S> <C> <C> <C>
3.0% 3.2% 3.4% 3.5%
</TABLE>
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, 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 27
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12
<TABLE>
<CAPTION>
Special Trust Information
Monthly Semi-Annually
_______ _____________
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ .8725 $ .8725
Less: Estimated Annual Expense per Unit $ .0431 $ .0381
Estimated Net Annual Interest Income per Unit $ .8294 $ .8344
Calculation of Interest Distribution per Unit
Estimated Net Annual Interest Income per Unit $ .8294 $ .8344
Divided by 12 and 2, respectively $ .0691 $ .4172
Estimated Daily Rate of Net Interest Accrual per Unit $.00230375 $.00231764
Estimated Current Return Based on Public Offering Price (1) 8.20% 8.25%
Estimated Long-Term Return Based on Public Offering Price (1) 8.23% 8.28%
CUSIP 33718R 302 310
</TABLE>
Trustee's Annual Fee $.0180 and $.0135 per Unit, exclusive of expenses
of the Trust, for those portions of the Trust under
the monthly and semi-annual plans, respectively,
commencing January 17, 1996.
Distributions
First distribution of $.0530 and $.0533 per Unit under the monthly and
semi-annual distribution plans, respectively, will be paid on February
29, 1996 to Unit holders of record on February 15, 1996.
Regular monthly distributions of $.0691 per Unit will begin on March 31,
1996 to monthly Unit holders of record on March 15, 1996.
A partial distribution of $.2781 per Unit will be paid on June 30, 1996
to semi-annual Unit holders of record on June 15, 1996.
Regular semi-annual distributions of $.4172 per Unit will begin on
December 31, 1996 to semi-annual Unit holders of record on December 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 28
What is the The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12?
The The First Trust Corporate Income Trust (High Yield) Intermediate
Series 12 consists of fifteen obligations. Three obligations
representing 25% of the aggregate principal amount of the Bonds in the
Trust consist of foreign Corporate Bonds. Twelve obligations
representing approximately 75% of the aggregate principal amount of the
Bonds in the Trust consist of domestic Corporate Bonds. Forty-five
percent of the aggregate principal amount of the Bonds in the Trust were
purchased at a premium over par value. Fifty-five 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. All the Bonds included
in the Trust will mature in 2003. See "What is The First Trust Special
Situations Trust?"
Number of Country Portfolio
Issues of Issuer Percentage
_________ _________ __________
12 United States of America 75.00%
1 Argentina 10.00%
1 Mexico 10.00%
1 Venezuela 5.00%
Page 29
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12
Portfolio
At the Opening of Business
On the Initial Date of Deposit of the Bonds-January 17, 1996
<TABLE>
<CAPTION>
Aggregate Issue and Country of Issuer Represented Redemption Cost to
Principal by Sponsor's Contracts to Purchase Bonds (1) Rating Provisions (5) the Trust
_________ ____________________________________________ ______ ______________ _________
<C> <S> <C> <C> <C>
$ 50,000 Banco De Galicia (Argentina), Notes, BB- (2) 1998 @ 103.375 $ 45,125
9.00%, Due 11/01/2003
25,000 Bethlehem Steel (United States of America), B+ (2) 27,125
Senior Notes, 10.375%, Due 09/01/2003
25,000 Coca-Cola Bottling (SW)(United States of B+ (2) 1998 @ 104.5 25,688
America), Senior Subordinate Notes,
9.00%, Due 11/15/2003
25,000 Conseco Inc. (United States of America), BB+ (2) 25,219
Senior Notes, 8.125%, Due 02/15/2003
25,000 Kaufman & Broad Home Corporation (United BB- (2) 2000 @ 100 25,531
States of America), Senior Subordinate Notes,
9.375%, Due 05/01/2003
50,000 Maxus Energy Corporation (United States of BB- (2) 51,250
America), Notes, 9.375%, Due 11/01/2003
25,000 PDV America Inc. (Venezuela), Senior Notes, Baa3 (3) 24,188
7.875%, Due 08/01/2003
50,000 Payless Cashways (United States of America), B+ (2) 1998 @ 104.56 39,500
Senior Subordinate Notes, 9.125%,
Due 04/15/2003
50,000 Playtex Family Products Corporation (United B+ (2) 1998 @ 104.5 45,875
States of America), Senior Subordinate Notes,
9.00%, Due 12/15/2003
25,000 RJR Nabisco Inc. (United States of America), BBB- (2) 24,781
Notes, 7.625%, Due 09/15/2003
25,000 Salomon Inc. (United States of America), BBB (2) 25,774
Senior Notes, 7.50%, Due 02/01/2003
25,000 Toll Corporation (United States of America), BB- (2) 1998 @ 104 26,375
Senior Subordinate Notes, 9.50%, Due 03/15/2003
50,000 Transportacion Maritma ADS (Mexico), Notes, BB- (2) 1998 @ 104.625 46,750
9.25%, Due 05/15/2003
25,000 Viacom Inc. (United States of America), BBB- (4) 25,307
Senior Notes, 6.75%, Due 01/15/2003
25,000 Westinghouse Electric (United States of B+ (2) 24,447
America), Notes, 6.875%, Due 09/01/2003
________ ________
$500,000 $482,935
======== ========
</TABLE>
[FN]
________________
See "Notes to Portfolio" on page 33.
Page 30
REPORT OF INDEPENDENT AUDITORS
The Sponsor, Nike Securities L.P., and Unit Holders
The First Trust Corporate Income Trust (High Yield) Intermediate 12
We have audited the accompanying statement of net assets, including the
portfolio, of The First Trust Special Situations Trust, Series 137,
comprised of The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12, as of the opening of business on January 17,
1996. 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 January 17,
1996. 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 137, comprised of The First Trust
Corporate Income Trust (High Yield) Intermediate Series 12, at the
opening of business on January 17, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1996
Page 31
Statement of Net Assets
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD)
INTERMEDIATE SERIES 12
The First Trust Special Situations Trust, Series 137
At the Opening of Business on the Initial Date of Deposit
January 17, 1996
<TABLE>
<CAPTION>
NET ASSETS
<S> <C>
Delivery statements relating to Sponsor's
contracts to purchase bonds (1)(2) $482,935
Accrued interest on underlying bonds (2)(3) 11,044
Organizational and offering costs (4) 35,000
_________
528,979
Less distributions payable (3) 11,044
Less accrued organizational and offering costs (4) 35,000
_________
Net assets $482,935
=========
Outstanding units 50,000
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NET ASSETS
<S> <C>
Cost to investors (5) $505,691
Less gross underwriting commissions (5) 22,756
_________
Net assets $482,935
=========
</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 12 $700,000 $494,221 $482,935 $11,044 $242
</TABLE>
(3) The Trustee will advance to the Trust the amount of net interest
accrued to January 22, 1996, 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 and offering costs which will be deferred
and charged off over a period not to exceed five years from the Initial
Date of Deposit. The estimated organizational and offering costs are
based on 1,000,000 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 32
NOTES TO PORTFOLIO
The following Notes to Portfolio pertain to the information contained in
the Trust Portfolio on page 30.
(1) Sponsor's contracts to purchase Bonds were entered into on January
16, 1996. All contracts to purchase Bonds are expected to be settled on
or prior to January 22, 1996 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 12 $482,935 $482,935 $0 $480,435 $43,625
</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) Rating by Fitch Investors Service, L.P. Such ratings were obtained
from a corporate bond information rating service.
(5) 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. Such redemption
provisions may result in a redemption price less than the value of the
Bonds on the Initial Date of Deposit. 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*
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
____________________
* As published by the rating companies.
Page 33
from other sources it considers reliable. Standard & Poor's does not
perform an audit in connection with any rating 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, 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.
Page 34
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.
Fitch Investors Service, L.P. A brief description of the applicable
Fitch rating symbols and their meanings follow:
AAA - These bonds are considered to be investment grade and of the
highest quality. The obligor has an extraordinary ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - These bonds are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal,
which is very strong, is somewhat less than for AAA-rated securities or
more subject to possible change over the term of the issue.
A - These bonds are considered to be investment grade and of good
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB - These bonds are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
Page 35
conditions and circumstances, however, are more likely to weaken this
ability than bonds with higher ratings.
A "+" or a "-" sign after a rating symbol indicates relative standing in
its rating.
Page 36
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Page 38
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Page 39
CONTENTS:
Summary of Essential Information 3
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12
The First Trust Special Situations Trust, Series 137:
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? 16
How are Units Distributed? 18
What are the Sponsor's Profits? 19
Will There be a Secondary Market? 19
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? 21
What Reports Will Unit Holders Receive? 21
How May Units be Redeemed? 22
How May Units be Purchased by the Sponsor? 23
How May Bonds be Removed from the Trust? 23
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 24
Who is the Trustee? 24
Limitations on Liabilities of Sponsor and Trustee 24
Who is the Evaluator? 25
Other Information:
How May the Indenture be Amended or Terminated? 25
Legal Opinions 26
Experts 26
Underwriting 26
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12 28
Report of Independent Auditors 31
Statement of Net Assets 32
Notes to Statement of Net Assets 32
Notes to Portfolio 33
Description of Bond Ratings 33
______________
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 12
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
January 17, 1996
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
CONTENTS OF REGISTRATION STATEMENT
A. BONDING ARRANGEMENTS OF DEPOSITOR:
Nike Securities L.P. is covered by a Brokers' Fidelity Bond,
in the total amount of $1,000,000, the insurer being
National Union Fire Insurance Company of Pittsburgh.
B. THIS REGISTRATION STATEMENT ON FORM S-6
COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The signatures
Exhibits
Financial Data Schedule
S-1
SIGNATURES
The Registrant, The First Trust Special Situations Trust,
Series 137, hereby identifies The First Trust Special Situations
Trust, Series 4 Great Lakes Growth and Treasury Trust, Series 1,
The First Trust Special Situations Trust, Series 18 Wisconsin
Growth and Treasury Securities Trust, Series 1, The First Trust
Special Situations Trust, Series 70, The First Trust Special
Situations Trust, Series 86 and The First Trust Combined Series
248, for purposes of the representations required by Rule 487 and
represents the following:
(1) that the portfolio securities deposited in the series
as to the securities of which this Registration Statement is
being filed do not differ materially in type or quality from
those deposited in such previous series;
(2) that, except to the extent necessary to identify the
specific portfolio securities deposited in, and to provide
essential financial information for, the series with respect to
the securities of which this Registration Statement is being
filed, this Registration Statement does not contain disclosures
that differ in any material respect from those contained in the
registration statements for such previous series as to which the
effective date was determined by the Commission or the staff; and
(3) that it has complied with Rule 460 under the Securities
Act of 1933.
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Special Situations Trust, Series
137, has duly caused this Amendment to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the Village of Lisle and State of Illinois on
January 17, 1996.
THE FIRST TRUST SPECIAL SITUATIONS
TRUST, SERIES 137
By NIKE SECURITIES L.P.
Depositor
By Carlos E. Nardo
Senior Vice President
S-2
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed
below by the following person in the capacity and on the date
indicated:
NAME TITLE* DATE
Robert D. Van Kampen Sole Director )
of Nike Securities )
Corporation, the ) January 17, 1996
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.,
Depositor.
** An executed copy of the related power of attorney was
filed with the Securities and Exchange Commission in
connection with the 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 herein by
this reference.
S-3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated January 17, 1996 in
Amendment No. 1 to the Registration Statement (Form S-6) (File
No. 33-65435) and related Prospectus of The First Trust Special
Situations Trust, Series 137.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1996
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 MULLER DATA CORPORATION
The consent of Muller Data Corporation to the use of its
name in the Prospectus included in the Registration Statement
will be filed as Exhibit 4.1 to the Registration Statement.
S-4
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Special Situations Trust, Series 24 and
certain 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. 33-45903] 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, Muller Data
Corporation, 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 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).
1.6 Underwriter Agreement (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42755] filed on
behalf of The First Trust Special Situations Trust,
Series 19).
2.1 Copy of Certificate of Ownership (included in Exhibit
1.1 filed herewith on page 2 and incorporated herein by
reference).
S-5
3.1 Opinion of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to Federal income tax status of
securities being registered.
3.3 Opinion of counsel as to New York income tax status of
securities being registered.
3.4 Opinion of counsel as to advancement of funds by
Trustee.
4.1 Consent of Muller Data Corporation.
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).
S-6
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 137
TRUST AGREEMENT
Dated: January 17, 1996
This Trust Agreement among Nike Securities L.P., as
Depositor, The Chase Manhattan Bank (National Association), as
Trustee, Muller Data Corporation, as Evaluator, and First Trust
Advisors L.P., as Portfolio Supervisor, sets forth certain
provisions in full and incorporates other provisions by reference
to the document entitled "Standard Terms and Conditions of Trust
for The First Trust Special Situations Trust, Series 24"
effective January 23, 1992 (herein called the "Standard Terms and
Conditions of Trust"), and such provisions as are set forth in
full and such provisions as are incorporated by reference
constitute a single instrument. All references herein to
Articles and Sections are to Articles and Sections of the
Standard Terms and Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual
agreements herein contained, the Depositor, the Trustee, the
Evaluator and Portfolio Supervisor agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the
provisions contained in the Standard Terms and Conditions of
Trust are herein incorporated by reference in their entirety and
shall be deemed to be a part of this instrument as fully and to
the same extent as though said provisions had been set forth in
full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed
to:
(a) The Bonds defined in Section 1.01(5) listed in
Schedule A hereto have been deposited in trust under this
Trust Agreement.
(b) The fractional undivided interest in and ownership
of the Trust Fund represented by each Unit for a Trust is the
amount set forth under the captions "Summary of Essential
Information - Fractional Undivided Interest in the Trust per
Unit" in the Prospectus.
(c) The number of units in a Trust referred to in
Section 2.03 is set forth under the caption "Summary of
Essential Information - Number of Units" in the Prospectus.
(d) For each Trust the First General Record Date and
the amount of the second distribution of funds from the
Interest Account shall be the record date for the Interest
Account and the amount set forth under "Trust Summary-Initial
Distribution" for such Trust in the Prospectus.
(e) For each Trust the "First Settlement Date" is the
date set forth under "Summary of Essential Information-First
Settlement Date" for such Trust in the Prospectus.
(f) The definition of "Bonds" contained in Section
1.01(5) of the Standard Terms and Conditions of Trust shall
be amended by inserting the following after "(the "Corporate
Bonds")" appearing in the first sentence thereof:
",zero coupon bonds (the "Zero Coupon Bonds")".
(g) Notwithstanding anything to the contrary in the
first three sentences of Section 6.04 of Article VI of the
Standard Terms and Conditions of trust the Trustee's fee,
shall be calculated on the largest number of Units
outstanding during each period in respect of which a payment
is made pursuant to Section 3.05, and the initial rate at
which such compensation is computed shall be the amount set
forth in "Special Trust Information" for such Trust in the
Prospectus.
(h) Notwithstanding anything to the contrary contained
in the Standard Terms and Conditions of Trust, "Portfolio
Supervisor" shall mean First Trust Advisors L.P. and its
successors in interest, or any successor portfolio supervisor
appointed as hereinafter provided.
PART III
A. Notwithstanding any provision to the contrary contained
in the Standard Terms and Conditions of Trust and in lieu of the
receipt of Certificates evidencing ownership of Units of the
Fund, the Sponsor or any Underwriter of the Fund listed under the
caption "Underwriting" in the Prospectus, at its option, may
elect that Units of the Fund owned by it be reflected by book
entry on the books and records of the Trustee. For all purposes
such Sponsor or Underwriter shall be deemed the owner of such
Units as if a Certificate evidencing ownership of Units of the
Fund had actually been issued by the Trustee. The Units
reflected by book entry on the books and records of the Trustee
may be transferable by the registered owner of such Units by
written instrument in form satisfactory to the Trustee. The
registered owner of Units reflected by book entry on the books
and records of the Trustee shall have the right at any time to
obtain Certificates evidencing ownership of such Units.
B. Section 2.01. of Article II of the Standard Terms and
Conditions of Trust is hereby amended by inserting "(a)" prior to
the beginning of the text of the paragraph and adding the
following additional paragraphs:
(b) From time to time following the Initial Date of
Deposit, the Depositor is hereby authorized, in its discretion,
to assign, convey to and deposit with the Trustee additional
Bonds, in bearer form or duly endorsed in blank or accompanied by
all necessary instruments of assignment and transfer in proper
form (or Contract Obligations relating to such Bonds), to be
held, managed and applied by the Trustee as herein provided.
Such deposit of additional Bonds shall be made, in each case,
pursuant to a Notice of Deposit of Additional Bonds from the
Depositor to the Trustee. The Depositor, in each case, shall
ensure that each deposit of additional Bonds pursuant to this
Section shall be, as nearly as is practicable, in the identical
ratio as the Percentage Ratio for such Bonds as is specified in
the Prospectus for the Trust and the Depositor shall ensure that
such Bonds are identical to those deposited on the Initial Date
of Deposit. The Depositor shall deliver the additional Bonds
which were not delivered concurrently with the deposit of
additional Bonds and which were represented by Contract
Obligations within 10 calendar days after such deposit of
additional Bonds (the "Additional Bonds Delivery Period"). If a
contract to buy such Bonds between the Depositor and seller is
terminated by the seller thereof for any reason beyond the
control of the Depositor or if for any other reason the Bonds are
not delivered to the Trust by the end of the Additional Bonds
Delivery Period for such deposit, the Trustee shall immediately
draw on the Letter of Credit, if any, in its entirely, apply the
monies in accordance with Section 2.01(d), and the Depositor
shall forthwith take the remedial action specified in
Section 3.14. If the Depositor does not take the action
specified in Section 3.14 within 10 calendar days of the end of
the Additional Bonds Delivery Period, the Trustee shall forthwith
take the action specified in Section 3.14.
(c) In connection with the deposits described in
Section 2.01 (a) and (b), the Depositor has, in the case of
Section 2.01(a) deposits, and, prior to the Trustee accepting a
Section 2.01(b) deposit, will, deposit cash and/or Letter(s) of
Credit in an amount sufficient to purchase the Contract
Obligations (the "Purchase Amount") relating to Bonds which are
not actually delivered to the Trustee at the time of such
deposit, the terms of which unconditionally allow the Trustee to
draw on the full amount of the available Letter of Credit. The
Trustee may deposit such cash or cash drawn on the Letter of
Credit in a non-interest bearing account for the Trust.
(d) In the event that the purchase of Contract Obligations
pursuant to any contract shall not be consummated in accordance
with said contract or if the Bonds represented by Contract
Obligations are not delivered to the Trust in accordance with
Section 2.01(a) or 2.01(b) and the monies, or, if applicable, the
monies drawn on the Letter of Credit, deposited by the Depositor
are not utilized for Section 3.14 purchases of New Bonds, such
funds, to the extent of the purchase price of Failed Contract
Obligations for which no Replacement Bond was acquired pursuant
to Section 3.14, plus all amounts described in the next
succeeding two sentences, shall be credited to the Principal
Account and distributed pursuant to Section 3.05 to Unit holders
of record as of the Record Date next following the failure of
consummation of such purchase. The Depositor shall cause to be
refunded to each Unit holder his pro rata portion of the sales
charge levied on the sale of Units to such Unit holder
attributable to such Failed Contract Obligation. The Depositor
shall also pay to the Trustee, for distribution to the Unit
holders, interest on the amount of the purchase price to the
Trust of the Failed Contract Obligation, at the rate of 5% per
annum to the date the Depositor notifies the Trustee that no
Replacement Bond will be purchased or, in the absence of such
notification, to the expiration date for purchase of a
Replacement Security specified in Section 3.14. Any amounts
remaining from monies drawn on the Letter of Credit which are not
used to purchase New Bonds or are not used to provide refunds to
Unit holders shall be paid to the Depositor.
(e) The Trustee is hereby irrevocably authorized to effect
registration or transfer of the Bonds in fully registered form to
the name of the Trustee or to the name of its nominee.
(f) In connection with and at the time of any deposit of
additional bonds pursuant to Section 2.01(b), the Depositor shall
exactly replicate Cash (as defined below) received or receivable
by the Trust as of the date of such deposit. For purposes of
this paragraph, "Cash" means, as to the Principal Account, cash
or other property (other than Bonds) on hand in the Principal
Account or receivable and to be credited to the Principal Account
as of the date of the deposit (other than amounts to be
distributed solely to persons other than holders of Units created
by the deposit) and, as to the Income Account, cash or other
property (other than Bonds) received by the Trust as of the date
of the deposit or receivable by the Trust in respect of
distributions declared but not received as of the date of the
deposit, reduced by the amount of any cash or other property
received or receivable on any Bond allocable (in accordance with
the Trustee's calculation of the monthly distribution from the
Income Account pursuant to Section 3.05) to a distribution made
or to be made in respect of a Record Date occurring prior to the
deposit. Such replication will be made on the basis of a
fraction, the numerator of which is the number of Units created
by the deposit and the denominator of which is the number of
Units which are outstanding immediately prior to the deposit.
C. Section 1.01(3) shall be amended to read as follows:
"(3) "Evaluator" shall mean Muller Data Corporation and its
successors in interest, or any successor evaluator appointed as
hereinafter provided."
D. Section 1.01(2) shall be amended to read as follows:
"(2) "Trustee" shall mean The Chase Manhattan Bank (National
Association), or any successor trustee appointed as hereinafter
provided."
All references to United States Trust Company of New York in
the Standard Terms and Conditions of Trust shall be amended to
refer to The Chase Manhattan Bank (National Association).
E. Section 1.01(4) shall be amended to read as follows:
"(4)"Portfolio Supervisor" shall mean First Trust Advisors
L.P. and its successors in interest, or any successor portfolio
supervisor appointed as hereinafter provided."
F. Section 3.01 of the Standard Terms and Conditions of
Trust shall be replaced in its entirety with the following:
"Section 3.01. Initial Cost. The expenses incurred in
establishing a Trust, including the cost of the preparation and
typesetting of the registration statement, prospectuses
(including preliminary prospectuses), the indenture and other
documents relating to the Trust, printing of Certificates,
Securities and Exchange Commission and state blue sky
registration fees, the costs of the initial valuation of the
portfolio and audit of the Trust, the initial fees and expenses
of the Trustee, and legal and other out-of-pocket expenses
related thereto, but not including the expenses incurred in the
printing of preliminary prospectuses and prospectuses, expenses
incurred in the preparation and printing of brochures and other
advertising materials and any other selling expenses, to the
extent not borne by the Depositor, shall be borne by the Trust.
To the extent the funds in the Income and Principal Accounts of
the Trust shall be insufficient to pay the expenses borne by the
Trust specified in this Section 3.01, the Trustee shall advance
out of its own funds and cause to be deposited and credited to
the Income Account such amount as may be required to permit
payment of such expenses. The Trustee shall be reimbursed for
such advance on each Record Date from funds on hand in the Income
Account or, to the extent funds are not available in such
Account, from the Principal Account, in the amount deemed to have
accrued as of such Record Date as provided in the following
sentence (less prior payments on account of such advances, if
any), and the provisions of Section 6.04 with respect to the
reimbursement of disbursements for Trust expenses, including,
without limitation, the lien in favor of the Trustee therefor and
the authority to sell Securities as needed to fund such
reimbursement, shall apply to the payment of expenses and the
amounts advanced pursuant to this Section. For the purposes of
the preceding sentence and the addition provided in clause (4) of
the first sentence of Section 5.01, the expenses borne by the
Trust pursuant to this Section shall be deemed to have been paid
on the date of the Trust Agreement and to accrue at a daily rate
over the time period specified for their amortization provided in
the Prospectus; provided, however, that nothing herein shall be
deemed to prevent, and the Trustee shall be entitled to, full
reimbursement for any advances made pursuant to this Section no
later than the termination of the Trust. For purposes of
calculating the accrual of organizational expenses under this
Section 3.01, the Trustee shall rely on the written estimates of
such expenses provided by the Depositor pursuant to Section
5.01."
G. The first sentence of Section 3.15. shall be amended to
read as follows:
"As compensation for providing supervisory portfolio
services under this Indenture, the Portfolio Supervisor
shall receive against a statement or statements therefor
submitted to the Trustee monthly or annually an aggregate
annual fee in an amount which shall not exceed the amount
set forth under "Summary of Essential Information-
Supervisory Fee" in the Prospectus times the number of Units
outstanding as of the December Record Date of the
immediately preceding year (such annual fee to be pro rated
for any calendar year in which the Portfolio Supervisor
provides services during less than the whole of such year),
but in no event shall such compensation when combined with
all compensation received from other series of the Fund and
other unit investment trust sponsored by the Depositor for
providing such supervisory services in any calendar year
exceed the aggregate cost to the Portfolio Supervisor for
providing such services.
H. Article III of the Standard Terms and Conditions of
Trust is hereby amended by inserting the following paragraphs
which shall be entitled Section 3.16.:
"Section 3.16. Bookkeeping and Administrative Expenses. As
compensation for providing bookkeeping and other administrative
services of a character described in Section 26(a)(2)(C) of the
Investment Company Act of 1940 to the extent such services are in
addition to, and do not duplicate, the services to be provided
hereunder by the Trustee or the Portfolio Supervisor, the
Depositor shall receive against a statement or statements
therefor submitted to the Trustee monthly or annually an
aggregate annual fee in an amount which shall not exceed that
dollar amount set forth in the Prospectus times the number of
Units outstanding as of January 1 of such year except for a year
or years in which an initial offering period as determined by
Section 4.01 of this Indenture occurs, in which case the fee for
a month is based on the number of Units outstanding at the end of
such month (such annual fee to be pro rated for any calendar year
in which the Depositor provides service during less than the
whole of such year), but in no event shall such compensation when
combined with all compensation received from other unit
investment trusts for which the Depositor hereunder is acting as
Depositor for providing such bookkeeping and administrative
services in any calendar year exceed the aggregate cost to the
Depositor providing services to such unit investment trusts.
Such compensation may, from time to time, be adjusted provided
that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after
the date hereof, in consumer prices for services as measured by
the United States Department of Labor Consumer Price Index
entitled "All Services Less Rent of Shelter" or similar index, if
such index should no longer be published. The consent or
concurrence of any Unit holder hereunder shall not be required
for any such adjustment or increase. Such compensation shall be
paid by the Trustee, upon receipt of invoice therefor from the
Depositor, upon which, as to the cost incurred by the Depositor
of providing services hereunder the Trustee may rely, and shall
be charged against the Interest and Principal Accounts on or
before the Distribution Date following the Monthly Record Date on
which such period terminates. The Trustee shall have no
liability to any Certificateholder or other person for any
payment made in good faith pursuant to this Section.
If the cash balance in the Income and Principal Accounts
shall be insufficient to provide for amounts payable pursuant to
this Section 3.16, the Trustee shall have the power to sell (i)
Bonds from the current list of Bonds designated to be sold
pursuant to Section 5.02 hereof, or (ii) if no such Bonds have
been so designated, such Bonds as the Trustee may see fit to sell
in its own discretion, and to apply the proceeds of any such sale
in payment of the amounts payable pursuant to this Section 3.16,
provided, however, that Zero Coupon Obligations may not be sold
to pay for amounts payable pursuant to this Section 3.16.
Any moneys payable to the Depositor pursuant to this Section
3.16 shall be secured by a prior lien on the Trust Fund except
that no such lien shall be prior to any lien in favor of the
Trustee under the provisions of Section 6.04 herein.
IN WITNESS WHEREOF, Nike Securities L.P., The Chase
Manhattan Bank (National Association), Muller Data Corporation
and First Trust Advisors L.P. have each caused this Trust
Agreement to be executed and the respective corporate seal to be
hereto affixed and attested (if applicable) by authorized
officers; all as of the day, month and year first above written.
NIKE SECURITIES L.P.,
Depositor
By Carlos E. Nardo
Senior Vice President
THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION), Trustee
(SEAL) By Thomas Porrazzo
Vice President
Attest:
Rosalia A. Raviele
Second Vice President
MULLER DATA CORPORATION, Evaluator
(SEAL) By Mario Buscemi
Chief Operating Officer
Attest:
Richard Birnbaum
Vice President
FIRST TRUST ADVISORS L.P.,
Portfolio Supervisor
By Carlos E. Nardo
Senior Vice President
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 137
(Note: Incorporated herein and made a part hereof is the
"Portfolio" as set forth for each Trust in the
Prospectus.)
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, IL 60603
January 17, 1996
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: The First Trust Special Situations Trust, Series 137
Gentlemen:
We have served as counsel for Nike Securities L.P., as
Sponsor and Depositor of The First Trust Special Situations Trust,
Series 137 in connection with the preparation, execution and
delivery of a Trust Agreement dated January 17, 1996 among Nike
Securities L.P., as Depositor, The Chase Manhattan Bank (National
Association), as Trustee, Muller Data Corporation, as Evaluator,
and First Trust Advisors L.P., as Portfolio Supervisor, pursuant
to which the Depositor has delivered to and deposited the
Securities listed in Schedule A to the Trust Agreement with the
Trustee and pursuant to which the Trustee has issued to or on the
order of the Depositor a certificate or certificates representing
units of fractional undivided interest in and ownership of the
Fund created under said Trust Agreement.
In connection therewith, we have examined such pertinent
records and documents and matters of law as we have deemed
necessary in order to enable us to express the opinions
hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and the
execution and issuance of certificates evidencing the Units in the
Fund have been duly authorized; and
2. The certificates evidencing the Units in the Fund when
duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will
constitute valid and binding obligations of the Fund and the
Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement (File No. 33-65435) relating to the
Units referred to above, to the use of our name and to the
reference to our firm in said Registration Statement and in the
related Prospectus.
Respectfully yours,
CHAPMAN AND CUTLER
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
January 17, 1996
Nike Securities L.P.
Suite 300
1001 Warrenville Road
Lisle, Illinois 60532
The Chase Manhattan Bank
(National Association)
770 Broadway
New York, New York 10003
Re: The First Trust Special Situations Trust, Series 137
Gentlemen:
We have acted as counsel for Nike Securities L.P., Depositor
of The First Trust Special Situations Trust, Series 137 (the
"Fund"), in connection with the issuance of units of fractional
undivided interests in the Trust of said Fund (the "Trust"),
under a Trust Agreement dated January 17, 1996 (the "Indenture")
between Nike Securities L.P., as Depositor, The Chase Manhattan
Bank (National Association), as Trustee, Muller Data Corporation,
as Evaluator, and First Trust Advisors L.P., as Portfolio
Supervisor.
In this connection, we have examined the Registration
Statement, the form of Prospectus proposed to be filed with the
Securities and Exchange Commission, the Indenture and such other
instruments and documents as we have deemed pertinent. The
opinions expressed herein assume that the Trust will be
administered, and investments by the Trust from proceeds of
subsequent deposits, if any, will be made in accordance with the
terms of the Indenture. The Trust holds Corporate Bonds and
certain Zero Coupon Certificates (the "Stripped Obligations")
(collectively "the Securities") as such terms are defined in the
Prospectus.
Based upon the foregoing and upon an investigation of such
matters of law as we consider to be applicable, we are of the
opinion that, under existing Federal income tax law:
(i) The Trust is not an association taxable as a
corporation but will be governed by the provisions of
subchapter J (relating to trusts) of chapter 1, of the
Internal Revenue Code of 1986 (the "Code").
(ii) Each Unit holder will be considered as owning a
pro rata share of each Security of the Trust in the
proportion that the number of Units held by him bears to the
total number of Units outstanding. Under subpart E,
subchapter J of chapter 1 of the Code, income of the Trust
will be treated as income of each Unit holder in the
proportion described, and an item of Trust income will have
the same character in the hands of a Unit holder as it would
have in the hands of the Trustee. Each Unit holder will be
considered to have received his pro rata share of interest
derived from each Trust asset when such interest 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
Security held by the Trust which was issued with original
issue discount at the same time and in the same manner as
though the Unit holder were the direct owner of such
interest. Original issue discount will be treated as zero
with respect to Corporate Bonds if it is "de minimis" within
the meaning of Section 1273 of the Code and, based upon a
Treasury Regulation (the "Regulation") which was issued on
December 28, 1992 regarding the stripped bond rules of the
Code, original issue discount with respect to a Stripped
Obligation will be treated as zero if it is "de minimis" as
determined thereunder. A Unit holder may elect to include
in taxable income for Federal income tax purposes, market
discount as it accrues with respect to his interest in any
Corporate Bond held by the Trust which he is considered as
having acquired with market discount at the same time and in
the same manner as though the Unit holder were the direct
owner of such interest.
(iii) The price a Unit holder pays for his Units,
including sales charges, is allocated among his pro rata
portion of each Security held by the Trust (in proportion to
the fair market values thereof on the date the Unit holder
purchases his Units), in order to determine his initial cost
for his pro rata portion of each Security held by the Trust.
The Stripped Obligations are treated as bonds that were
originally issued at an original issue discount. Because
the Stripped Obligations represent interests in "stripped"
bonds, a Unit holder's initial cost for his pro rata portion
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. Under the special rules relating to stripped bonds,
original issue discount applicable to the Stripped
Obligations 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
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 greater than or equal
to the "de minimis" amount described below. To the extent
the amount of such discount is less the respective "de
minimis" amount such discount shall be treated as zero. 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
Stripped Obligations, this method will generally result in
an increasing amount of income to the Unit holders each
year.
(iv) Gain or loss will be recognized to a Unit holder
upon redemption or sale of his Units. Such gain or loss is
measured by comparing the proceeds of such redemption or
sale with the adjusted basis of the Units represented by his
Certificate. Before adjustment, such basis would normally
be cost if the Unit holder had acquired his Units by
purchase. In addition, such basis will be increased by the
Unit holder's aliquot share of the accrued original issue
discount with respect to each Security held by the Trust
with respect to which there was original issue discount at
the time such Security was issued and by accrued market
discount which the Unit holder has elected to annually
include in income with respect to each Corporate Bond and
reduced by the Unit holder's aliquot share of the amortized
acquisition premium, if any, which the Unit holder has
properly elected to amortize under Section 171 of the Code
on each Security held by the Trust. 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.
(v) If the Trustee disposes of a Security (whether by
sale, exchange, redemption, payment on maturity or
otherwise) gain or loss will be recognized to the Unit
holder and the amount thereof will be measured by comparing
the Unit holder's aliquot share of the total proceeds from
the transaction with his basis for his fractional interest
in the Security disposed of. Such basis is ascertained by
apportioning the tax basis for his Units (as of the date on
which his Units were acquired) among each of the Securities
ratably according to their values as of the valuation date
nearest the date on which he purchased such Units. A Unit
holder's basis in his Units and of his fractional interest
in each Security must be reduced by the Unit holder's share
of the amortized acquisition premium, if any, on Securities
held by the Trust which the Unit holder has properly elected
to amortize under Section 171 of the Code and must be
increased by the Unit holder's share of the accrued original
issue discount and with respect to each Security which, at
the time the Security was issued, had original issue
discount and, in the case of a Corporate Bond, by accrued
market discount which the Unit holder has elected to
annually include in income.
The Tax Reform Act of 1986, among other things, provides
that certain itemized deductions, such as investment expenses,
tax return preparation fees and employee business expenses will
be deductible by individuals 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.
The Code provides a complex set of rules governing the
accrual of original issue discount including special rules
relating to "stripped" debt instruments such as the Stripped
Obligations. These rules provide that original issue discount
generally accrues on the basis of a constant compound interest
rate. Special rules apply if the purchase price of a Security
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"). Similarly, these
special rules would apply to a Unit holder if the tax basis of
his pro rata portion of a Security issued with original issue
discount exceeds his pro rata portion of its adjusted issue
price. The application of these rules will also vary depending
on the value of the Security on the date a Unit holder acquires
his Units, and the price the Unit holder pays for his Units. In
addition, as discussed above, the Regulation provides that the
amount of original issue discount on a stripped bond is
considered zero if the actual amount of original issued discount
on such stripped bond as determined under Section 1286 of the
Code is less that a "de minimis" amount, which, the Regulation
provides, is the product of (i) 0.25 percent of the stated
redemption price at maturity and (ii) the number of full years
from the date the stripped bond is purchased (determined
separately for each new purchaser thereof) to the final maturity
date of the bond.
If a Unit holder's tax basis in his interest in any
Corporate Bond held by the Trust is less than his allocable
portion of such Corporate Bond's stated redemption price at
maturity (or, if issued with original issue discount, his
allocable portion of its revised issue price on the date he buys
his Units), 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 in paragraph (iii).
Accrued market discount is generally includible in taxable
income of the Unit holders as ordinary income for Federal tax
purposes upon the receipt of serial principal payments on
Corporate Bonds held by the Trust, on the sale, maturity or
disposition of such Corporate Bonds by the Trust and on the sale
of a Unit holder's 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 of any interest expense incurred by the Unit holder to
purchase or carry his Units will be reduced by such accrued
market discount. In general, the portion of any interest which
is not currently deductible is deductible when the accrued market
discount is included in income upon the sale or redemption of the
Securities or the sale of Units.
A Unit holder will recognize taxable gain (or loss) when all
or part of his pro rata interest in a Security is either sold by
the Trust or redeemed or when a Unit holder disposes of his Units
in a taxable transaction, in each case 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
except in the case of a dealer or financial institution. As
previously discussed, gain attributable to any Corporate Bond
deemed to have been acquired by the Unit holder 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.
If a 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 Corporate 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 United States citizen or resident or United States
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 or redemption of any
Security held by the Trust 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) either
(a) the interest is United States source income
(which is the case for most securities issued by United
States issuers), the debt instrument is issued after
July 18, 1984, 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 debt instrument and the Unit holder
is not a controlled foreign corporation related (within
the meaning of Section 864(d)(4) of the Code) to the
issuer of the debt instrument; or
(b) the interest income is not from sources within
the United States;
(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.
It should be noted that The Revenue Reconciliation Act of
1993 included a provision which eliminates the exemption from
United States taxation, including withholding taxes, for certain
"contingent interest." This 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.
The scope of this opinion is expressly limited to the
matters set forth herein, and, except as expressly set forth
above, we express no opinion with respect to any other taxes,
including state or local taxes or collateral tax consequences
with respect to the purchase, ownership and disposition of Units.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 33-65435)
relating to the Units referred to above and to the use of our
name and to the reference to our firm in said Registration
Statement and in the related Prospectus.
Very truly yours
CHAPMAN AND CUTLER
EFF/jln
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
January 17, 1996
The Chase Manhattan Bank
(National Association), as Trustee of
The First Trust Special
Situations Trust, Series 137
The First Trust Corporate Income
Trust (High Yield) Intermediate
Series 12
770 Broadway - 6th Floor
New York, New York 10003
Attention: Mr. Paul J. Holland
Vice President
Re: The First Trust Special Situations Trust, Series 137
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12
Dear Sirs:
We are acting as special counsel with respect to New York
tax matters for The First Trust Special Situations Trust, Series
137 The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12 (the "Trust"), which will be established
under certain Standard Terms and Conditions of Trust dated
January 23, 1992, and a related Trust Agreement dated as of today
(collectively, the "Indenture"), among Nike Securities L.P., as
Depositor (the "Depositor"); Muller Data Corporation, as
Evaluator; First Trust Advisors L.P., as Portfolio Supervisor and
The Chase Manhattan Bank (National Association), as Trustee (the
"Trustee"). Pursuant to the terms of the Indenture, units of
fractional undivided interest in the Trust (the "Units") will be
issued in the aggregate number set forth in the Indenture.
We have examined and are familiar with originals or
certified copies, or copies otherwise identified to our
satisfaction, of such documents as we have deemed necessary or
appropriate for the purpose of this opinion. In giving this
opinion, we have relied upon the two opinions, each dated today
and addressed to the Trustee, of Chapman and Cutler, counsel for
the Depositor, with respect to the matters of law set forth
therein.
Based upon the foregoing, we are of the opinion that:
1. The Trust will not constitute an association taxable as
a corporation under New York law, and accordingly will not be
subject to the New York State franchise tax or the New York City
general corporation tax.
2. Under the income tax laws of the State and City of New
York, the income of the Trust will be considered the income of
the holders of the Units.
We consent to the filing of this opinion as an exhibit to
the Registration Statement (No. 33-65435) filed with the
Securities and Exchange Commission with respect to the
registration of the sale of the Units and to the references to
our name under the captions "What is the Federal Tax Status of
Unit Holders?" and "Legal Opinions" in such Registration
Statement and the preliminary prospectus included therein.
Very truly yours,
Carter, Ledyard & Milburn
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
January 17, 1996
The Chase Manhattan Bank
(National Association), as Trustee of
The First Trust Special Situations
Trust, Series 137
The First Trust Corporate
Income Trust (High Yield)
Intermediate Series 12
770 Broadway - 6th Floor
New York, New York 10003
Attention: Mr. Paul J. Holland
Vice President
Re: The First Trust Special Situations Trust, Series 137
The First Trust Corporate Income Trust (High Yield)
Intermediate Series 12
Dear Sirs:
We are acting as counsel for The Chase Manhattan Bank
(National Association) ("Chase") in connection with the execution
and delivery of a Trust Agreement (the "Trust Agreement") dated
today's date (which Trust Agreement incorporates by reference
certain Standard Terms and Conditions of Trust dated January 23,
1992, and the same are collectively referred to herein as the "
"Indenture") among Nike Securities L.P., as Depositor (the
"Depositor"); Muller Data Corporation, as Evaluator, First Trust
Advisors L.P., as Portfolio Supervisor; and Chase, as Trustee
(the "Trustee"), establishing The First Trust Special Situations
Trust, Series 137, consisting of The First Trust Corporate Income
Trust (High Yield) Intermediate Series 12 (the "Trust"), and the
execution by Chase, as Trustee under the Indenture, of a
certificate or certificates evidencing ownership of units (such
certificate or certificates evidencing and such aggregate units
being herein called "Certificates" and "Units"), each of which
represents an undivided interest in the Trust which consists of
interest-bearing corporate debt obligations of domestic and
foreign companies and zero coupon U.S. corporate obligations
(including confirmations of contracts for the purchase of certain
stocks and bonds not delivered and cash, cash equivalents or an
irrevocable letter of credit or a combination thereof, in the
amount required for such purchase upon the receipt of such stocks
and bonds), such stocks and bonds being defined in the Indenture
as Securities and listed in the Schedule to the Indenture.
We have examined the Indenture, the Closing Memorandum dated
today's date, a specimen Certificate, and such other documents as
we have deemed necessary in order to render this opinion. Based
on the foregoing, we are of the opinion that:
1. Chase is a duly organized and existing national banking
association authroized to exercise trust powers.
2. The Indenture has been duly executed and delivered by Chase
and, assuming due execution and delivery by the other parties
thereto, constitutes the valid and legally binding obligation of
Chase.
3. The Certificates are in proper form for execution and
delivery by Chase, as Trustee.
4. Chase, as Trustee, has duly executed and delivered to or
upon the order of the Depositor a Certificate or Certificates
evidencing ownership of the Units, registered in the name of the
Depositor. Upon receipt of confirmation of the effectiveness of
the registration statement for the sale of the Units filed with
the Securities and Exchange Commission under the Securities Act
of 1933, the Trustee may deliver such other Certificates, in such
names and denominations as the Depositor may request, to or upon
the order of the Depositor as provided in the Closing Memorandum.
5. The Trust Company, as Trustee, may lawfully advance to the
Trust amounts as may be necessary to provide periodic interest
distributions of approximately equal amounts, and be reimbursed,
without interest, for any such advances from funds in the
interest account on the ensuing record date, as provided in the
Indenture.
In rendering the foregoing opinion, we have not considered,
among other things, whether the Bonds have been duly authorized
and delivered.
Very truly yours,
CARTER, LEDYARD & MILBURN
Muller Data Corporation
395 Hudson Street
New York, New York 10014-3622
January 17, 1996
Nike Securities L.P.
1001 Warrenville Road
Lisle, IL 60532
Re: THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 137
Gentlemen:
We have examined the Registration Statement File No. 33-
65435 for the above captioned trust. We hereby acknowledge that
Muller Data Corporation is currently acting as the evaluator for
the trustee. We hereby consent to the use in the Registration
Statement of the references to Muller Data Corporation as
evaluator.
You are hereby authorized to file a copy of this letter with
the Securities and Exchange Commission.
Sincerely,
Muller Data Corporation
Mario S. Buscemi
Chief Operating Officer
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<LEGEND> This schedule contains summary financial information extracted
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