File No. 333-33967
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO.
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
(Exact Name of Trust)
NIKE SECURITIES L.P.
(Exact Name of Depositor)
1001 Warrenville Road
Lisle, Illinois 60532
(Complete address of Depositor's principal executive offices)
NIKE SECURITIES L.P. CHAPMAN AND CUTLER
Attn: James A. Bowen Attn: Eric F. Fess
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(Name and complete address of agents for service)
It is proposed that this filing will become effective (check
appropriate box)
: : immediately upon filing pursuant to paragraph (b)
: x : October 30, 1998
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
September 16, 1998.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
529,798 UNITS
PROSPECTUS
Part One
Dated October 27, 1998
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two and Part Three.
The Trust
The Ryan Beck Banking Opportunity Trust, Series 5, Mutual Holding Company
Portfolio (the "Trust") is a unit investment trust consisting of a portfolio
containing common stocks issued by financial institutions which are
incorporated or headquartered in the United States. At September 16, 1998,
each Unit represented a 1/529,798 undivided interest in the principal and net
income of the Trust (see "The Trust" in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price per Unit is equal to the aggregate value of the
Securities in the Portfolio of the Trust, plus or minus cash, if any, in the
Income and Capital Accounts of the Trust divided by the number of Units
outstanding, plus a sales charge of 4.25% of the Public Offering Price (4.439%
of the net amount invested) excluding income and principal cash. At September
16, 1998, the Public Offering Price per Unit was $9.234 (see "Public Offering"
in Part Two). The minimum purchase is $5,000 ($2,000 for Individual
Retirement Accounts or other retirement plans).
Please retain all parts of this Prospectus for future reference.
_____________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
_____________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
SUMMARY OF ESSENTIAL INFORMATION AS OF SEPTEMBER 16, 1998
Sponsor: Nike Securities L.P.
Evaluator: First Trust Advisors L.P.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Number of Units 529,798
Fractional Undivided Interest in the Trust per Unit 1/529,798
Public Offering Price:
Aggregate Value of Securities in the Portfolio $4,690,462
Aggregate Value of Securities per Unit $8.853
Income and Principal cash (overdraft) in the Portfolio $(6,237)
Income and Principal cash (overdraft) per Unit (.012)
Sales Charge 4.439% (4.25% of Public Offering Price,
excluding income and principal cash) .393
Public Offering Price per Unit $9.234
Redemption Price and Sponsor's Repurchase Price per
Unit ($.393 less than the Public Offering Price per
Unit) $8.841
</TABLE>
Date Trust Established September 4, 1997
Mandatory Termination Date September 1, 2001
Evaluator's Annual Fee: $.0030 per Unit outstanding. 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.
Supervisory fee payable to an affiliate Maximum of $.0035 per
of the Sponsor Unit outstanding annually
Bookkeeping and administrative expenses Maximum of $.0010 per
payable to the Sponsor Unit outstanding annually
Annual amortization of organization
and offering costs $5,334 annually
Trustee's Annual Fee: $.0096 per Unit outstanding.
Income Distribution Record Date: Fifteenth day of each February, May, August
and November.
Income Distribution Date: The last day of each February, May, August and
November.
Capital Record Date and Distribution Date: Distributions from the Capital
Account will be made monthly payable on the last day of the month to Unit
holders of record on the fifteenth day of such month if the amount available
for distribution equals at least $0.01 per Unit. Any remaining balance in the
Capital Account will be distributed in December of each year.
A Unit holder who owns at least 2,500 Units may request an "In-Kind
Distribution" upon redemption or upon termination of the Trust. See "Rights
of Unit Holders - How are Income and Capital Distributed?" in Part Two.
<PAGE>
THIS PAGE LEFT INTENTIONALLY BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Special Situations Trust, Series 194,
Ryan Beck Banking Opportunity Trust, Series 5,
Mutual Holding Company Portfolio
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust,
Series 194, Ryan Beck Banking Opportunity Trust, Series 5, Mutual Holding
Company Portfolio as of June 30, 1998, and the related statements of
operations and changes in net assets for the period from the Initial Date of
Deposit, September 4, 1997, to June 30, 1998. These financial statements are
the responsibility of the Trust's Sponsor. Our responsibility is to express
an opinion on these financial statements based on our 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1998, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Special
Situations Trust, Series 194, Ryan Beck Banking Opportunity Trust, Series 5,
Mutual Holding Company Portfolio at June 30, 1998, and the results of its
operations and changes in its net assets for the period from the Initial Date
of Deposit, September 4, 1997, to June 30, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 2, 1998
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Securities, at market value (cost, $5,304,564)
(Note 1) $6,254,216
Dividends receivable 7,269
Unamortized deferred organization and offering costs 16,951
__________
6,278,436
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Accrued liabilities 2,286
Cash overdraft 12,526
__________
14,812
__________
Net assets, applicable to 556,942 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $5,304,564
Net unrealized appreciation (Note 2) 949,652
Distributable funds 9,408
__________
$6,263,624
==========
Net asset value per unit $11.246
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
PORTFOLIO - See notes to portfolio.
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
shares Name of Issuer of Equity Securities value
<C> <S> <C>
16,357 Community Savings Bankshares, Inc.
(formerly Community Savings F.A.) 539,781
22,949 Fidelity Bankshares, Inc. 656,915
6,183 First Carnegie Deposit 117,477
1,726 First Federal Savings Bank of Siouxland 62,136
48,753 (1) First Source Bancorp, Inc. (formerly
First Savings Bank SLA) 472,319
2,193 Greater Delaware Valley Savings Bank 61,952
56,602 (1) Harbor Florida Bancshares, Inc. (formerly
Harbor Florida Bancorp, Inc.) 675,715
18,209 (2) Harris Financial, Inc. (formerly Harris
Savings Bank) 400,598
3,667 (3) Jacksonville Bancorp, Inc. 77,007
9,760 (3) Leeds Federal Bankshares, Inc. (formerly
Leeds Federal Savings Bank) 185,440
49,965 (4) Northwest Bancorp Inc. (formerly
Northwest Savings Bank) 790,097
3,828 (3) Pathfinder Bancorp, Inc. (formerly
Oswego City Savings Bank) 84,216
52,621 (1) Peoples Bancorp Inc. 526,210
33,611 Peoples Bank 1,163,781
7,376 (1) Pocahontas Bancorp, Inc. (formerly
Pocahontas Federal Savings and
Loan Association) 71,916
1,905 Pulaski Bank, A Savings Bank 70,843
6,040 Pulaski Savings Bank 95,885
4,170 (4) Savings Bank of Finger Lakes 77,666
2,570 (5) Wayne Savings Bancshares, Inc. (formerly
Wayne Savings and Loan Company) 66,820
2,984 Webster City Federal Savings Bank 57,442
__________
Total investments $6,254,216
==========
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
NOTES TO PORTFOLIO
June 30, 1998
(1) During the period ended June 30, 1998, four of the companies in the
Trust's original portfolio converted from Mutual Holding Companies
(MHCs) to full stock ownerships companies. Shareholders of the MHCs,
including the Trust, received a fixed number of shares in the fully
converted institutions for each share of the MHCs as indicated below:
<TABLE>
<CAPTION>
Number of shares
of the fully
converted institution
received for each
Name of Institution share of the MHC
<S> <C>
First Source Bancorp, Inc. 3.9133 shares
Harbor Florida Bankshares, Inc. 6.0094 shares
Peoples Bancorp, Inc. 3.8243 shares
Pocahontas Bancorp, Inc. 4.0245 shares
</TABLE>
(2) The number of shares reflects the effect of a three for one stock split.
(3) The number of shares reflects the effect of a three for two stock split.
(4) The number of shares reflects the effect of a two for one stock split.
(5) The number of shares reflects the effect of a 10% stock dividend.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
Period from the Initial Date of Deposit,
September 4, 1997, to June 30, 1998
<TABLE>
<S> <C>
Dividend income $97,774
Expenses:
Trustee's fees and related expenses (4,809)
Evaluator's fees (1,379)
Supervisory fees (1,613)
Administrative fees (461)
Amortization of organization and offering costs (4,384)
__________
Total expenses (12,646)
__________
Investment income - net 85,128
Net gain (loss) on investments:
Net realized gain (loss) 9,072
Change in net unrealized appreciation or depreciation 949,652
__________
958,724
__________
Net increase in net assets resulting from operations $1,043,852
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
Period from the Initial Date of Deposit,
September 4,1997, to June 30, 1998
<TABLE>
<S> <C>
Net increase in net assets resulting from operations:
Investment income - net $85,128
Net realized gain (loss) on investments 9,072
Change in net unrealized appreciation or
depreciation on investments 949,652
__________
1,043,852
Units issued (545,143) 5,191,533
Units redeemed (3,500) (42,183)
Distributions to unit holders:
Investment income - net (75,307)
Principal from investment transactions -
__________
(75,307)
__________
Total increase (decrease) in net assets 6,117,895
Net assets:
At the beginning of the period (representing
15,299 units outstanding) 145,729
__________
At the end of the period (including
distributable funds applicable to
Trust units of $9,408) $6,263,624
==========
Trust units outstanding at the end of the period 556,942
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
The equity securities are stated at the closing sale prices of listed equity
securities or, if no such price exists, at the closing bid price, as reported
by First Trust Advisors, L.P., (the Evaluator), an affiliate of the Sponsor.
Dividend income -
Dividends on each equity security are recognized on such equity security's ex-
dividend date.
Security cost -
Cost of the equity securities is based on the market value of such securities
on the dates the securities were deposited in the Trust. The cost of
securities sold is determined using the average cost method. Sales of
securities are recorded on the trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to the Chase Manhattan Bank which is
based on $.0096 per annum per unit outstanding based on the largest aggregate
number of units outstanding during the calendar year. In addition, the
Evaluator will receive an annual fee based on $.0030 per unit outstanding.
The Trust also pays recurring financial reporting costs, an annual supervisory
fee payable to an affiliate of the Sponsor and an annual administrative fee
payable to the Sponsor.
Organization and offerings costs -
The Trust has paid a portion of its organization 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's portfolio, legal fees
and the initial fees and expenses of the Trustee. Such costs, totaling
$21,335, have been deferred and are being amortized over four years from the
Initial Date of Deposit.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at June 30, 1998 follows:
<TABLE>
<S> <C>
Unrealized appreciation $982,296
Unrealized depreciation (32,644)
________
$949,652
========
</TABLE>
<PAGE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
underlying value of the equity securities on the date of an investor's
purchase, plus a sales charge of 4.75% of the public offering price which is
equivalent to approximately 4.987% of the net amount invested.
Distributions to unit holders -
Income distributions to unit holders are made on the last day of each
February, May, August and November to unit holders of record on the fifteenth
day of each February, May, August and November. Principal distributions to
unit holders, if any, are made on the last day of each month to unit holders
of record on the fifteenth day of such month if the amount available for
distribution equals at least $.01 per unit. Any remaining balance in the
principal account will be distributed in December of each year.
Selected data per unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Initial Date
of Deposit,
September 4,1997, to
June 30, 1998
<S> <C>
Dividend income $.175
Expenses (.023)
_______
Investment income - net .152
Distributions to unit holders:
Investment income - net (.134)
Principal from investment transactions -
Net gain (loss) on investments 1.703
_______
Total increase (decrease) in net assets 1.721
Net assets:
Beginning of the period 9.525
_______
End of the period $11.246
=======
</TABLE>
Dividend income, Expenses and Investment income - net per unit have been
calculated based on the weighted-average number of units outstanding during
the period (560,015 units). Distributions to unit holders of Investment
income - net per unit reflects the Trust's actual distributions of
approximately $.038 per unit to 560,442 units on November 30, 1997,
approximately $.058 per unit to 560,442 units on February 28, 1998 and
approximately $.038 per unit to 559,442 units on May 31, 1998. The Net gain
(loss) on investments per unit includes the effects of changes arising from
issuance of 545,143 additional units during the period at net asset values
which differed from the net asset value per unit of the original 15,299 units
($9.525 per unit) on September 4, 1997.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5
MUTUAL HOLDING COMPANY PORTFOLIO
PART ONE
Must be Accompanied by Part Two and Part Three
___________________
P R O S P E C T U S
___________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
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 statement 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.
Part II of II
THE FIRST TRUST (REGISTERED TRADEMARK) SPECIAL SITUATIONS TRUST
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated January 30, 1998 AND PART THREE
The Trust. The First Trust Special Situations Trusts, (the "Trusts" and
each a "Trust") are unit investment trusts consisting of portfolios
containing common stocks and, in certain Trusts, zero coupon U.S.
Treasury bonds. See Parts One and Three for a more complete description
of the portfolio for each Trust, including whether the portfolio of a
Trust includes zero coupon U.S. Treasury bonds.
The general objective of the Trusts containing only common stocks
("Equity Securities") (the "Equity Trusts") is to provide potential
capital appreciation and, in certain Trusts, to provide income. The
objective of the Trusts containing Equity Securities and zero coupon
U.S. Treasury bonds ("Treasury Obligations") (the "Growth and Treasury
Trusts") is to protect Unit holders' capital and provide potential
capital appreciation. For a more specific description of the objective
of each Trust, see "The Objective of the Trusts" in Part Three.
Collectively the Treasury Obligations and the Equity Securities are
referred to herein as the "Securities." See "Portfolio" appearing in
Part One for each Trust. Each Trust has a Mandatory Termination Date as
indicated in Part One. The Treasury Obligations evidence the right to
receive a fixed payment at a future date from the U.S. Government and
are backed by the full faith and credit of the U.S. Government. The
guarantee of the U.S. Government does not apply to the market value of
the Treasury Obligations or the Units of the Growth and Treasury Trusts,
whose net asset values will fluctuate and, prior to maturity, may be
worth more or less than a purchaser's acquisition cost. There is, of
course, no guarantee that the objectives of the Trusts will be achieved.
Each Unit of a Trust represents an undivided fractional interest in all
the Securities deposited in the Trust. The Growth and Treasury Trusts
have been organized so that purchasers of Units should receive, at the
termination of a Trust, an amount per Unit at least equal to $1.00, or
$10.00 for certain Trusts (which is equal to the per Unit value upon
maturity of the Treasury Obligations), even if the Growth and Treasury
Trusts never paid a dividend and the value of the Equity Securities were
to decrease to zero, which the Sponsor considers highly unlikely. This
feature of the Growth and Treasury Trusts provides Unit holders who
purchase Units at a price of $1.00, or $10.00 for certain Growth and
Treasury Trusts, or less per Unit with total principal protection,
including any sales charges paid, although they might forego any
earnings on the amount invested. To the extent that Units are purchased
at a price less than $1.00, or $10.00 for certain Growth and Treasury
Trusts, per Unit, this feature may also provide a potential for capital
appreciation. See Part One for each Growth and Treasury Trust to
determine those Trusts for which information is based on $1.00 per Unit
or $10.00 per Unit. UNIT HOLDERS DISPOSING OF THEIR UNITS PRIOR TO THE
MATURITY OF A GROWTH AND TREASURY TRUST MAY RECEIVE MORE OR LESS THAN
$1.00 PER UNIT (OR $10.00 PER UNIT FOR CERTAIN TRUSTS) DEPENDING ON
MARKET CONDITIONS ON THE DATE UNIT ARE SOLD OR REDEEMED.
The Treasury Obligations deposited in a Growth and Treasury Trust on the
Initial Date of Deposit will mature as listed in the "Portfolio"
appearing in Part One for each Trust. The Treasury Obligations in a
Growth and Treasury Trust have a maturity value equal to or greater than
the aggregate Public Offering Price (which includes the sales charge) of
the Units of the Growth and Treasury Trust on the Initial Date of
Deposit. The Equity Securities deposited in a Trust's portfolio have no
fixed maturity date and the value of these underlying Equity Securities
will fluctuate with changes in the values of stocks in general and with
changes in the conditions and performance of the specific Securities
owned by the Trusts. See "Portfolio" appearing in Part One for each
Trust.
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
Public Offering Price. The secondary market Public Offering Price per
Unit will be based upon a pro rata share of the bid prices of the
Treasury Obligations (if applicable) and the aggregate underlying value
of the Equity Securities in the Trusts (generally determined by the
closing sale prices of listed Equity Securities and the bid prices of
over-the-counter traded Equity Securities) plus or minus a pro rata
share of cash, if any, in the Capital and Income Accounts of the Trust
plus a sales charge as indicated in Part One for each Trust. The minimum
purchase of each Trust is that amount as set forth in Part One for each
Trust. For certain Trusts, the sales charge is reduced on a graduated
scale for sales involving at least a minimum number of Units or a
minimum dollar amount. See "Public Offering-How is the Public Offering
Price Determined?"
Dividend and Capital Distributions. Distributions of dividends and
capital received, if any, by a Trust will be paid in cash on the
Distribution Date to Unit holders of record on the Record Date as set
forth in the "Summary of Essential Information" in Part One for each
Trust. Any distribution of income and/or capital will be net of the
expenses of the Trust. Distributions of funds in the Capital Account, if
any, will be made at least annually in December of each year. INCOME
WITH RESPECT TO THE ACCRUAL OF ORIGINAL ISSUE DISCOUNT ON THE TREASURY
OBLIGATIONS (IF APPLICABLE) WILL NOT BE DISTRIBUTED CURRENTLY, ALTHOUGH
UNIT HOLDERS OF A GROWTH AND TREASURY TRUST WILL BE SUBJECT TO INCOME
TAX AT ORDINARY INCOME RATES AS IF A DISTRIBUTION HAD OCCURRED. See
"What is the Federal Tax Status of Unit Holders?" Additionally, upon
termination of a Trust, the Trustee will distribute, upon surrender of
Units for redemption, to each Unit holder his or her pro rata share of
the Trust's assets, less expenses, in the manner set forth under "Rights
of Unit Holders-How are Income and Capital Distributed?"
Secondary Market for Units. The Sponsor may maintain a market for Units
of the Trusts and offer to repurchase such Units at prices which are
based on the aggregate bid side evaluation of the Treasury Obligations
(if applicable) and the aggregate underlying value of Equity Securities
in a Trust (generally determined by the closing sale prices of listed
Equity Securities and the bid prices of over-the-counter traded Equity
Securities) plus or minus cash, if any, in the Capital and Income
Accounts of the Trusts. If a secondary market is not maintained, a Unit
holder may redeem Units through redemption at prices based upon the
aggregate bid price of the Treasury Obligations (if applicable) plus the
aggregate underlying value of the Equity Securities in a Trust
(generally determined by the closing sale prices of listed Equity
Securities and the bid prices of over-the-counter traded Equity
Securities) plus or minus a pro rata share of cash, if any, in the
Capital and Income Accounts of such Trust. See "Rights of Unit Holders-
How May Units be Redeemed?" For certain Trusts, a Unit holder tendering
the minimum amount specified in "Summary of Essential Information"
appearing in Part One for such Trust for redemption may request a
distribution of shares of Equity Securities (reduced by customary
transfer and registration charges) (an "In-Kind Distribution") in lieu
of payment in cash. See "Rights of Unit Holders-How May Units be
Redeemed?"
Termination. Commencing no later than the Mandatory Termination Date,
Equity Securities will begin to be sold as prescribed by the Sponsor.
The Trustee shall provide written notice of any termination of a Trust
to Unit holders which will specify when Unit holders may surrender their
certificates for cancellation and will include a form to enable Unit
holders to elect an In-Kind Distribution if such Unit holder owns at
least that minimum amount specified in "Summary of Essential
Information," in Part One for each Trust, rather than to receive payment
in cash for such Unit holder's pro rata share of the amounts realized
upon the disposition by the Trustee of Equity Securities. All Unit
holders of a Growth and Treasury Trust will receive their pro rata
portion of the Treasury Obligations in cash upon the termination of such
Trust. To be effective, the election form, together with surrendered
certificates and other documentation required by the Trustee, must be
returned to the Trustee at least ten business days prior to the
Mandatory Termination Date. Unit holders not electing a distribution of
shares of Equity Securities will receive a cash distribution from the
sale of the remaining Securities within a reasonable time after a Trust
is terminated. See "Rights of Unit Holders-How are Income and Capital
Distributed?" and "Other Information-How May the Indenture be Amended or
Terminated?"
Page 2
THE FIRST TRUST SPECIAL SITUATIONS TRUST
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust (the "Trusts" and each a
"Trust") is a series of investment companies created by the Sponsor
under the name of The First Trust Special Situations Trust, all of which
are generally similar but each of which is separate and is designated by
a different series number (the "Trust"). Each Trust in the Growth and
Treasury Trust Series consists of an underlying separate unit investment
trust consisting of a portfolio of zero coupon U.S. Treasury bonds, such
securities being referred to herein as the "Treasury Obligations," and
equity securities ("Equity Securities"). Each Trust in the Equity Trust
Series consists only of common stocks. All Trusts were 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, as Trustee, Securities
Evaluation Service, Inc., as Evaluator for certain Trusts, First Trust
Advisors L.P., as Evaluator for certain Trusts, and First Trust Advisors
L.P. as Portfolio Supervisor. See "The Trusts" in Part Three for a more
complete description of the portfolio for each Trust.
The general objective of the Equity Trusts is to provide potential
capital appreciation and, in certain Trusts, to provide income. The
general objective of the Growth and Treasury Trusts is to protect Unit
holders' capital and provide potential capital appreciation. See "The
Objective of the Trusts" in Part Three for each Trust for a more
specific description of the Trust's objective. The Treasury Obligations
in the Growth and Treasury Trusts evidence the right to receive a fixed
payment at a future date from the U.S. Government and are backed by the
full faith and credit of the U.S. Government. The guarantee of the U.S.
Government does not apply to the market value of the Treasury
Obligations or the Units of a Growth and Treasury Trust, whose net asset
value will fluctuate and, prior to maturity, may be more or less than a
purchaser's acquisition cost. Collectively, the Treasury Obligations and
Equity Securities in each Growth and Treasury Trust are referred to
herein as the "Securities." There is, of course, no guarantee that the
objectives of the Trusts will be achieved.
The Growth and Treasury Trusts have been organized so that purchasers of
Units should receive, at the termination of a Growth and Treasury Trust,
an amount per Unit at least equal to $1.00 per Unit, or $10.00 per Unit
for certain Trusts (which is equal to the per Unit value upon maturity
of the Treasury Obligations), even if the Equity Securities never paid a
dividend and the value of the Equity Securities in a Growth and Treasury
Trust were to decrease to zero, which the Sponsor considers highly
unlikely. The receipt of only $1.00 per Unit, or $10.00 per Unit for
certain Trusts, upon termination of a Growth and Treasury Trust (an
event which the Sponsor believes is unlikely) represents a substantial
loss on a present value basis. Furthermore, the $1.00 per Unit, or
$10.00 per Unit for certain Trusts, in no respect protects investors
against diminution in the purchasing power of their investment due to
inflation (although expectations concerning inflation are a component in
determining prevailing interest rates, which in turn determine present
values). To the extent that Units of a Trust are redeemed, the aggregate
value of the Securities in the Trust will be reduced and the undivided
fractional interest represented by each outstanding Unit of the Trusts
will increase. See "Rights of Unit Holders-How May Units be Redeemed?"
Each Trust has a Mandatory Termination Date as set forth under "Summary
of Essential Information," appearing in Part One for each Trust.
What are the Expenses and Charges?
With the exception of brokerage fees for certain trusts discussed in
"Rights of Unit Holders-How May Securities be Removed from the Trusts?"
and bookkeeping and other administrative services provided to certain
Trusts, for which the Sponsor will be reimbursed in amounts as set forth
under "Summary of Essential Information" in Part One (if applicable),
the Sponsor will not receive any fees in connection with its activities
relating to the Trusts.
First Trust Advisors L.P., an affiliate of the Sponsor, will receive an
annual supervisory fee, which is not to exceed the amount set forth
under "Summary of Essential Information" in Part One of this Prospectus,
for providing portfolio supervisory services for the Trusts. Such fee is
based on the number of Units outstanding in a Trust on January 1 of each
Page 3
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. In providing such supervisory
services, the Portfolio Supervisor may purchase research services from a
variety of sources which may include underwriters or dealers of the
Trusts.
Subsequent to the initial offering period, First Trust Advisors L.P. or
Securities Evaluation Service, Inc. (as applicable), the Evaluator for
the respective Trusts, will receive a fee as indicated in the "Summary
of Essential Information" in Part One of this Prospectus.
The Trustee pays certain expenses of a Trust for which it is reimbursed
by such Trust. The Trustee will receive for its ordinary recurring
services to a Trust an annual fee as indicated in the "Summary of
Essential Information" in Part One. The fee is computed per Unit in such
Trust, based upon the largest aggregate number of Units of such Trust
outstanding at any time during the calendar year. For a discussion of
the services performed by the Trustee pursuant to its obligations under
the Indenture, see "Rights of Unit Holders."
The Trustee's and the above described fees are payable from the Income
Account of a Trust to the extent funds are available, and then from the
Capital Account of such Trust. Since funds being held in the Capital and
Income Accounts are for payment of expenses and redemptions and since
such Accounts are noninterest-bearing to Unit holders, the Trustee
benefits thereby. Part of the Trustee's compensation for its services to
a Trust is expected to result from the use of these funds. However, the
Trustee may bear from its own resources certain expenses relating to
certain Trusts, including organization costs and brokerage commissions.
Each of the above mentioned 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. In addition,
with respect to the fees payable to the Sponsor or an affiliate of the
Sponsor for providing bookkeeping and other administrative services,
supervisory services and evaluation services, such individual fees may
exceed the actual costs of providing such services for a Trust, but at
no time will the total amount received for such services rendered to all
unit investment trusts of which Nike Securities L.P. is the Sponsor in
any calendar year exceed the actual cost to the Sponsor or its affiliate
of supplying such services in such year.
For certain Trusts, as set forth in the "Summary of Essential
Information" appearing in Part One for such Trusts, expenses incurred in
establishing such Trusts, 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 and the initial fees and expenses
of the Trustee and any other out-of-pocket expenses, have been paid by
the Trust and are being charged off over a period not to exceed five
years from such Trust's Initial Date of Deposit, or over a period not to
exceed the life of the Trust, if shorter than five years.
The following additional charges are or may be incurred by the Trusts:
all legal and annual auditing expenses of the Trustee incurred by or in
connection with its responsibilities under the Indenture; the expenses
and costs of any action undertaken by the Trustee to protect the Trusts
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 Trusts; 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 Trusts; all taxes
and other government charges imposed upon the Securities or any part of
the Trusts (no such taxes or charges are being levied or made or, to the
knowledge of the Sponsor, contemplated). The above expenses and the
Trustee's annual fee, when paid or owing to the Trustee, are secured by
a lien on the Trusts. In addition, the Trustee is empowered to sell
Securities in a Trust in order to make funds available to pay all these
amounts if funds are not otherwise available in the Income and Capital
Accounts of the Trust except that the Trustee shall not sell Treasury
Obligations in a Growth and Treasury Trust to pay Trust expenses. Since
the Equity Securities are all common stocks and the income stream
produced by dividend payments is unpredictable, the Sponsor cannot
provide any assurance that dividends will be sufficient to meet any or
all expenses of the Trusts. As described above, if dividends are
insufficient to cover expenses, it is likely that Equity Securities will
have to be sold to meet Trust expenses. These sales may result in
Page 4
capital gains or losses to Unit holders. See "What is the Federal Tax
Status of Unit Holders?"
The Indenture requires a Trust to 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 the Units, the
Sponsor is required to bear the cost of such annual audits to the extent
such cost exceeds $.50 per 1,000 Units if information is based on $1.00
per Unit (or per 100 Units if information is based on $10.00 per Unit).
Unit holders of a Trust covered by an audit may obtain a copy of the
audited financial statements upon request.
What is the Federal Tax Status of Unit Holders?
The following is a general discussion of certain of the Federal income
tax consequences of the purchase, ownership and disposition of the
Units. The summary is limited to investors who hold the Units as
"capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the "Code"). Unit holders should consult their tax advisers in
determining the Federal, state, local and any other tax consequences of
the purchase, ownership and disposition of Units in the Trusts. For
purposes of the following discussions and opinions, it is assumed that
the Equity Securities are equity for Federal income tax purposes.
In the opinion of Chapman and Cutler, special counsel for the Sponsor,
under existing law:
1. The Trusts are not associations taxable as corporations for Federal
income tax purposes; each Unit holder will be treated as the owner of a
pro rata portion of each of the assets of a Trust under the Code; and
the income of a Trust will be treated as income of the Unit holders
thereof under the Code. Each Unit holder will be considered to have
received his or her pro rata share of income derived from each Trust
asset when such income is considered received by a Trust.
2. Each Unit holder will have a taxable event when a Trust disposes of
a Security (whether by sale, exchange, liquidation, redemption, or
otherwise) or upon the sale or redemption of Units by such Unit holder.
The price a Unit holder pays for his or her Units, generally including
sales charges, is allocated among his or her pro rata portion of each
Security held by a Trust (in proportion to the fair market values
thereof on the valuation date closest to the date the Unit holder
purchases his or her Units) in order to determine his or her tax basis
for his or her pro rata portion of each Security held by a Trust. It
should be noted that certain legislative proposals have been made which
could affect the calculation of basis for Unit holders holding
securities that are substantially identical to the Securities. Unit
holders should consult their own tax advisers with regard to the
calculation of basis. The Treasury Obligations held by a Growth and
Treasury Trust are treated as stripped bonds and may be treated as bonds
issued at an original issue discount as of the date a Unit holder
purchases his or her Units. Because the Treasury Obligations represent
interests in "stripped" U.S. Treasury bonds, a Unit holder's tax basis
for his or her pro rata portion of each Treasury Obligation held by a
Growth and Treasury Trust (determined at the time he or she acquires his
or her 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 or her daily portions of
original issue discount attributable to the Treasury Obligations held by
a Growth and Treasury 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 Treasury Regulations relating to stripped bonds. To the
extent the amount of such discount is less than the respective "de
minimis" amount, such discount is generally 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 the Treasury Obligations, this method will
generally result in an increasing amount of income to the Unit holders
of a Growth and Treasury Trust each year. Unit holders should consult
their tax advisers regarding the Federal income tax consequences and
Page 5
accretion of original issue discount. For Federal income tax purposes, a
Unit holder's pro rata portion of dividends, as defined by Section 316
of the Code, paid by a corporation with respect to an Equity Security
held by a Trust are taxable as ordinary income to the extent of such
corporation's current and accumulated "earnings and profits." A Unit
holder's pro rata portion of dividends paid on such Equity Security
which exceed such current and accumulated earnings and profits will
first reduce a Unit holder's tax basis in such Equity Security, and to
the extent that such dividends exceed a Unit holder's tax basis in such
Equity Security shall generally be treated as capital gain. In general,
the holding period of any such capital gain will be determined by the
period of time a Unit holder has held his or her Units.
3. A Unit holder's portion of gain, if any, upon the sale or
redemption of Units or the disposition of Securities held by a Trust
will generally be considered a capital gain except in the case of a
dealer or a financial institution. A Unit holder's portion of loss, if
any, upon the sale or redemption of Units or the disposition of
Securities held by a Trust will generally be considered a capital loss
except in the case of a dealer or a financial institution. Unit holders
should consult their tax advisers regarding the recognition of such
capital gains and losses for Federal income tax purposes.
Dividends Received Deduction. A Unit holder will be considered to have
received all of the dividends paid on his or her pro rata portion of
each Equity Security when such dividends are received by a Trust. Unit
holders will be taxed in this manner regardless of whether distributions
from a Trust are actually received by the Unit holder.
A corporation that owns Units will generally be entitled to a 70%
dividends received deduction with respect to such Unit holder's pro rata
portion of dividends received by a Trust (to the extent such dividends
are taxable as ordinary income, as discussed above, and are attributable
to domestic corporations) in the same manner as if such corporation
directly owned the Equity Securities paying such dividends (other than
corporate shareholders, such as "S" corporations, which are not eligible
for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax
and the personal holding corporation tax). However, a corporation owning
Units should be aware that Sections 246 and 246A of the Code impose
additional limitations on the eligibility of dividends for the 70%
dividends received deduction. These limitations include a requirement
that stock (and therefore Units) must generally be held at least 46 days
(as determined under Section 246(c) of the Code). Final regulations have
been issued which address special rules that must be considered in
determining whether the 46 day holding requirement is met. Moreover, the
allowable percentage of the deduction will be reduced from 70% if a
corporate Unit holder owns certain stock (or Units) the financing of
which is directly attributable to indebtedness incurred by such
corporation. It should be noted that various legislative proposals that
would affect the dividends received deduction have been introduced. Unit
holders should consult with their tax advisers with respect to the
limitations on and possible modifications to the dividends received
deduction.
To the extent dividends received by a Trust are attributable to foreign
corporations, a corporation that owns Units will not be entitled to the
dividends received deduction with respect to its pro rata portion of
such dividends, since the dividends received deduction is generally
available only with respect to dividends paid by domestic corporations.
Recognition of Taxable Gain or Loss Upon Disposition of Securities by a
Trust or Disposition of Units. As discussed above, a Unit holder may
recognize taxable gain (or loss) when a Security is disposed of by a
Trust or if the Unit holder disposes of a Unit (although losses incurred
by Rollover Unit holders may be subject to disallowance, as discussed
above). For taxpayers other than corporations, net capital gains (which
are defined as net long-term capital gain over net short-term capital
loss for a taxable year) are subject to a maximum marginal tax rate of
28% or 20%, depending upon the holding period of the capital assets.
Capital gain or loss is long-term if the holding period for the asset is
more than one year, and is short-term if the holding period for the
asset is one year or less. The date on which a Unit is acquired (i.e.,
the trade date) is excluded for purposes of determining the holding
period for the Unit. Generally, capital gains realized from assets held
for more than one year but not more than 18 months are taxed at a
maximum marginal stated tax rate of 28% and capital gains realized from
assets (with certain exclusions) held for more than 18 months are taxed
Page 6
at a maximum marginal stated tax rate of 20% (10% in the case of certain
taxpayers in the lowest tax bracket). Further, capital gains realized
from assets held for one year or less are taxed at the same rates as
ordinary income. Legislation is currently pending that provides the
appropriate methodology that should be applies in netting the realized
capital gains and losses. Such legislation is proposed to be effective
retroactively for tax years ending after May 6, 1997. However, it should
be noted that legislative proposals are introduced from time to time
that affect tax rates and could affect relative differences at which
ordinary income and capital gains are taxed.
In addition, please note that capital gains may be recharacterized 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.
The 1997 Tax Act (the "1997 Act") includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g., short sales, offsetting notional principal
contracts, futures or forward contracts or similar transactions) as
constructive sales for purposes of recognition of gain (but not less)
and for purposes of determining the holding period. Unit holders should
consult their own tax advisers with regard to any such constructive
sales rules.
Limitations on Deductibility of Trust Expenses by Unit Holders. Each
Unit holder's pro rata share of each expense paid by a Trust is
deductible by the Unit holder to the same extent as though the expense
had been paid directly by such Unit holder. 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.
Unit holders may be required to treat some or all of the expenses of the
Trust as miscellaneous itemized deductions subject to this limitation.
Special Tax Consequences of In-Kind Distributions Upon Termination of a
Trust or Upon Redemption of Units (for Certain Equity Trusts). As
discussed in "Rights of Unit Holders-How are Income and Capital
Distributed?", under certain circumstances a Unit holder who owns at
least that minimum amount specified in "Summary of Essential
Information" in Part One for each Trust may request an In-Kind
Distribution upon the termination of a Trust. Furthermore, for Equity
Trusts, a Unit holder who owns at least that minimum amount specified in
"Summary of Essential Information" in Part One for such Trusts may
request an In-Kind Distribution upon the redemption of Units or the
termination of a Trust. The Unit holder requesting an In-Kind
Distribution will be liable for expenses related thereto (the
"Distribution Expenses") and the amount of such In-Kind Distribution
will be reduced by the amount of the Distribution Expenses. See "Rights
of Unit Holders-How are Income and Capital Distributed?" Treasury
Obligations held by a Growth and Treasury Trust will not be distributed
to a Unit holder as part of an In-Kind Distribution. The tax
consequences relating to the sale of Treasury Obligations are discussed
above. As previously discussed, prior to the termination of a Trust, a
Unit holder is considered as owning a pro rata portion of each of the
Trust assets for Federal income tax purposes. The receipt of an In-Kind
Distribution upon the redemption of Units (for Equity Trusts) or the
termination of a Trust would be deemed an exchange of such Unit holder's
pro rata portion of each of the shares of stock and other assets held by
a Trust in exchange for an undivided interest in whole shares of stock
plus, possibly, cash.
The potential tax consequences that may occur under an In-Kind
Distribution will depend on whether the Unit holder receives cash in
addition to Equity Securities. An "Equity Security" for this purpose is
a particular class of stock issued by a particular corporation (and does
not include the Treasury Obligations). A Unit holder will not recognize
gain or loss with respect to the Equity Securities if a Unit holder only
receives Equity Securities in exchange for his or her pro rata portion
in the Equity Securities held by a Trust. However, if a Unit holder also
receives cash in exchange for a fractional share of an Equity Security
held by a Trust, such Unit holder will generally recognize gain or loss
based upon the difference between the amount of cash received by the
Unit holder and his tax basis in such fractional share of an Equity
Security held by a Trust.
Because a Trust will own many Equity Securities, a Unit holder who
requests an In-Kind Distribution will have to analyze the tax
consequences with respect to each Equity Security owned by a Trust. The
amount of taxable gain (or loss) recognized upon such exchange will
generally equal the sum of the gain (or loss) recognized under the rules
Page 7
described above by such Unit holder with respect to each Equity Security
owned by a Trust. Unit holders who request an In-Kind Distribution are
advised to consult their tax advisers in this regard.
Computation of the Unit holder's Tax Basis. Initially, a Unit holder's
tax basis in his Units will generally equal the price paid by such Unit
holder for his Units. The cost of the Units is allocated among the
Securities held in a Trust in accordance with the proportion of the fair
market values of such Securities on the valuation date nearest to the
date the Units are purchased in order to determine such Unit holder's
tax basis for his pro rata portion of each Security.
A Unit holder's tax basis in his Units and his pro rata portion of a
Security held by a Trust will be reduced to the extent dividends paid
with respect to such Security are received by a Trust which are not
taxable as ordinary income as described above.
General. Each Unit holder 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 a Trust to such Unit holder (including amounts received
upon the redemption of Units) will be subject to back-up withholding.
Distributions by a Trust (other than those that are not treated as
United States source income, if any) will generally be subject to United
States income taxation and withholding in the case of Units held by non-
resident alien individuals, foreign corporations or other non-United
States persons (accrual of original issue discount on the Treasury
Obligations in Growth and Treasury Trusts may not be subject to taxation
or withholding provided certain requirements are met). Such persons
should consult their tax advisers.
In general, income that is not effectively connected to the conduct of a
trade or business within the United States that is earned by non-U.S.
Unit holders and derived from dividends of foreign corporations will not
be subject to U.S. withholding tax provided that less than 25 percent of
the gross income of the foreign corporation for a three-year period
ending with the close of its taxable year preceding payment was not
effectively connected to the conduct of a trade or business within the
United States. In addition, such earnings may be exempt from U.S.
withholding pursuant to a specific treaty between the United States and
a foreign country. Non-U.S. Unit holders should consult their own tax
advisers regarding the imposition of U.S. withholding on distributions
from the Trust.
It should be noted that payments to the Trusts of dividends on Equity
Securities that are attributable to foreign corporations 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 Trusts. Any dividends
withheld as a result thereof will nevertheless be treated as income to
the Unit holders. 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. The 1997 Tax Act imposes a required holding period for such
credits. Investors should consult their tax advisers with respect to
foreign withholding taxes and foreign tax credits.
Unit holders will be notified annually of the amounts of original issue
discount (in the case of the Growth & Treasury Trusts) and income
dividends includable in the Unit holder's gross income and amounts of
Trust expenses which may be claimed as itemized deductions.
Unit holders desiring to purchase Units for tax-deferred plans and IRAs
should consult their broker for details on establishing such accounts.
Units may also be purchased by persons who already have self-directed
plans established. See "Are Investments in the Trusts Eligible for
Retirement Plans?"
The foregoing discussion relates only to the tax treatment of U.S. Unit
holders ("U.S. Unit holders") with regard to Federal income tax. Unit
holders may be subject to state taxation and should consult their own
tax advisers in this regard. As used herein, the term "U.S. Unit holder"
means an owner of a Unit of the Trust that (a) is (i) for United States
federal income tax purposes a citizen or resident of the United States
(ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or of any political subdivision
thereof, or (iii) an estate or trust the income of which is subject to
United States federal income taxation regardless of its source or (b)
does not qualify as a U.S. Unit holder in paragraph (a) but whose income
from a Unit is effectively connected with such Unit holder's conduct of
Page 8
a United States trade or business. The term also includes certain former
citizens of the United States whose income and gain on the Units will be
taxable. Unit holders should consult their tax advisers regarding
potential state or local taxation with respect to the Units.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to the
Trusts for New York tax matters, under the existing income tax laws of
the State of New York, the Trusts are not associations taxable as
corporations and the income of the Trusts will be treated as the income
of the Unit holders thereof.
Are Investments in the Trusts Eligible for Retirement Plans?
Units of the Trusts are eligible 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.
PORTFOLIO
What are Treasury Obligations?
The Treasury Obligations deposited in the Growth and Treasury Trusts
consist of U.S. Treasury bonds which have been stripped of their
unmatured interest coupons. The Treasury Obligations evidence the right
to receive a fixed payment at a future date from the U.S. Government,
and are backed by the full faith and credit of the U.S. Government.
Treasury Obligations are purchased at a deep discount because the buyer
obtains only the right to a fixed payment at a fixed date in the future
and does not receive any periodic interest payments. The effect of
owning deep discount bonds which do not make current interest payments
(such as the Treasury Obligations) 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 Treasury Obligations are subject to
substantially greater price fluctuations during periods of changing
interest rates than are securities of comparable quality which make
regular interest payments. The effect of being able to acquire the
Treasury Obligations at a lower price is to permit more of a Growth and
Treasury Trust's portfolio to be invested in Equity Securities.
What are the Equity Securities?
Each Trust contains different issues of Equity Securities as described
in "The Trusts" in Part Three for each Trust and "Portfolio" appearing
in Part One for each Trust. An investment in Units of the Trusts should
be made with an understanding of the risks such an investment may
entail. Although actions have been taken to provide diversified
portfolios of Equity Securities, some inherent risks exist due to the
concentration in certain Trusts of the Equity Securities within a
specific country, state or geographic area or within specific
industries, although a number of companies have significant business
activities outside the specific country, state or geographic area.
Unpredictable factors include governmental, political, economic and
fiscal policies of the specific country, state, geographic area or
industry which may have an adverse effect on the performance of the
issuers which have significant business activities within the specific
country, state, geographic area or industry. In addition, regional
influences may affect the performance of the issuers, particularly if an
economic downturn or contraction occurs throughout the area. See
"Portfolio" in Part Three for each Trust for additional considerations
for investors, if applicable.
The Trust consists of such of the Securities listed under "Portfolio"
appearing in Part One for each Trust as may continue to be held from
time to time in the Trust together with cash held in the Income and
Capital Accounts. Neither the Sponsor nor the Trustee shall be liable in
any way for any failure in any of the Securities.
Page 9
Because certain of the Equity Securities from time to time may be sold
under certain circumstances described herein, 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 Trusts will retain for
any length of time their present size and composition. Although a
Portfolio is not managed, the Sponsor may instruct the Trustee to sell
Equity Securities under certain limited circumstances. Pursuant to the
Indenture and with limited exceptions, the Trustee may sell or keep any
securities or other property acquired in exchange for Equity Securities
such as those acquired in connection with a merger or other transaction.
See "Rights of Unit Holders-How May Securities be Removed from the
Trusts?" Equity Securities, however, will not be sold by a Trust to take
advantage of market fluctuations or changes in anticipated rates of
appreciation or depreciation.
Since certain of the Equity Securities in the Trusts may consist of
securities of foreign issuers, an investment in these Trusts involves
some investment risks that are different in some respects from an
investment in a trust that invests entirely in securities of domestic
issuers. Those investment risks include future political and
governmental restrictions which might adversely affect the payment or
receipt of payment of dividends on the relevant Equity Securities. In
addition, for the foreign issuers that are not subject to the reporting
requirements of the Securities Exchange Act of 1934, there may be less
publicly available information than is available from a domestic issuer.
Also, foreign issuers are not necessarily subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic issuers. However, due to the
nature of the issuers of Equity Securities included in the Trusts, the
Sponsor believes that adequate information will be available to allow
the Portfolio Supervisor to provide portfolio surveillance.
The securities of certain of the foreign issuers in the Trusts are in
ADR form. ADRs evidence American Depositary Receipts which represent
common stock deposited with a custodian in a depositary. American
Depositary Shares, and receipts therefor (ADRs), are issued by an
American bank or trust company to evidence ownership of underlying
securities issued by a foreign corporation. These instruments may not
necessarily be denominated in the same currency as the securities into
which they may be converted. For purposes of the discussion herein, the
term ADR generally includes American Depositary Shares.
ADRs may be sponsored or unsponsored. In an unsponsored facility, the
depositary initiates and arranges the facility at the request of market
makers and acts as agent for the ADR holder, while the company itself is
not involved in the transaction. In a sponsored facility, the issuing
company initiates the facility and agrees to pay certain administrative
and shareholder-related expenses. Sponsored facilities use a single
depositary and entail a contractual relationship between the issuer, the
shareholder and the depositary; unsponsored facilities involve several
depositaries with no contractual relationship to the company. The
depositary bank that issues an ADR generally charges a fee, based on the
price of the ADR, upon issuance and cancellation of the ADR. This fee
would be in addition to the brokerage commissions paid upon the
acquisition or surrender of the security. In addition, the depositary
bank incurs expenses in connection with the conversion of dividends or
other cash distributions paid in local currency into U.S. dollars and
such expenses are deducted from the amount of the dividend or
distribution paid to holders, resulting in a lower payout per underlying
share represented by the ADR than would be the case if the underlying
share were held directly. Certain tax considerations, including tax rate
differentials and withholding requirements, arising from applications of
the tax laws of one nation to nationals of another and from certain
practices in the ADR market may also exist with respect to certain ADRs.
In varying degrees, any or all of these factors may affect the value of
the ADR compared with the value of the underlying shares in the local
market. In addition, the rights of holders of ADRs may be different than
those of holders of the underlying shares, and the market for ADRs may
be less liquid than that for the underlying shares. ADRs are registered
securities pursuant to the Securities Act of 1933 and may be subject to
the reporting requirements of the Securities Exchange Act of 1934.
For those Equity Securities that are ADRs, currency fluctuations will
affect the U.S. dollar equivalent of the local currency price of the
underlying domestic share and, as a result, are likely to affect the
value of the ADRs and consequently the value of the Equity Securities.
The foreign issuers of securities that are ADRs may pay dividends in
foreign currencies which must be converted into dollars. Most foreign
currencies have fluctuated widely in value against the United States
dollar for many reasons, including supply and demand of the respective
currency, the soundness of the world economy and the strength of the
Page 10
respective economy as compared to the economies of the United States and
other countries. Therefore, for any securities of issuers (whether or
not they are in ADR form) whose earnings are stated in foreign
currencies, or which pay dividends in foreign currencies or which are
traded in foreign currencies, there is a risk that their United States
dollar value will vary with fluctuations in the United States dollar
foreign exchange rates for the relevant currencies.
On the basis of the best information available to the Sponsor at the
present time, none of the Equity Securities are subject to exchange
control restrictions under existing law which would materially interfere
with payment to the Trusts of dividends due on, or proceeds from the
sale of, the Equity Securities. However, there can be no assurance that
exchange control regulations might not be adopted in the future which
might adversely affect payment to the Trusts. In addition, the adoption
of exchange control regulations and other legal restrictions could have
an adverse impact on the marketability of international securities in
the Trusts and on the ability of the Trusts to satisfy their obligation
to redeem Units tendered to the Trustee for redemption.
An investment in Units should be made with an understanding of the risks
which an investment in common stocks entails, including the risk that
the financial condition of the issuers of the Equity Securities or the
general condition of the common stock market may worsen and the value of
the Equity Securities and therefore the value of the Units may decline.
Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value as market
confidence in and perceptions of the issuers change. These perceptions
are based on unpredictable factors including expectations regarding
government, economic, monetary and fiscal policies, inflation and
interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. Shareholders of common
stocks have rights to receive payments from the issuers of those common
stocks that are generally subordinate to those of creditors of, or
holders of debt obligations or preferred stocks of, such issuers.
Shareholders of common stocks of the type held by the Trusts have a
right to receive dividends only when and if, and in the amounts,
declared by the issuer's board of directors and have a right to
participate in amounts available for distribution by the issuer only
after all other claims on the issuer have been paid or provided for.
Common stocks do not represent an obligation of the issuer and,
therefore, do not offer any assurance of income or provide the same
degree of protection of capital as do debt securities. The issuance of
additional debt securities or preferred stock will create prior claims
for payment of principal, interest and dividends which could adversely
affect the ability and inclination of the issuer to declare or pay
dividends on its common stock or the rights of holders of common stock
with respect to assets of the issuer upon liquidation or bankruptcy. The
value of common stocks is subject to market fluctuations for as long as
the common stocks remain outstanding, and thus the value of the Equity
Securities in a Portfolio may be expected to fluctuate over the life of
a Trust to values higher or lower than those prevailing on a Unit
holder's purchase date.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of
the entity, have generally inferior rights to receive payments from the
issuer in comparison with the rights of creditors of, or holders of debt
obligations or preferred stocks issued by, the issuer. Cumulative
preferred stock dividends must be paid before common stock dividends and
any cumulative preferred stock dividend omitted is added to future
dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on
liquidation which are senior to those of common stockholders.
Whether or not the Equity Securities are listed on a national securities
exchange, the principal trading market for the Equity Securities may be
in the over-the-counter market. As a result, the existence of a liquid
trading market for the Equity Securities may depend on whether dealers
will make a market in the Equity Securities. There can be no assurance
that a market will be made for any of the Equity Securities, that any
market for the Equity Securities will be maintained or of the liquidity
of the Equity Securities in any markets made. The investigation by the
Securities and Exchange Commission of illegal insider trading in
connection with corporate takeovers, and possible congressional
inquiries and legislation relating to this investigation, may adversely
affect the ability of certain dealers to remain market makers. In
addition, the Trusts may be restricted under the Investment Company Act
of 1940 from selling Equity Securities to the Sponsor. The price at
which the Equity Securities may be sold to meet redemptions, and the
value of the Trusts, will be adversely affected if trading markets for
the Equity Securities are limited or absent.
Page 11
Unit holders will be unable to dispose of any of the Equity Securities
in a Portfolio, as such, and will not be able to vote the Equity
Securities. As the holder of the Equity Securities, the Trustee will
have the right to vote all of the voting stocks in a Trust and will vote
such stocks in accordance with the instructions of the Sponsor.
What are Some Additional Considerations for Investors?
Investors should be aware of certain other considerations before making
a decision to invest in a Trust.
The value of the Equity Securities, like the value of the Treasury
Obligations in Growth and Treasury Trusts, will fluctuate over the life
of a Trust and may be more or less than the price at which they were
deposited in the Trust. The Equity Securities may appreciate or
depreciate in value (or pay dividends) depending on the full range of
economic and market influences affecting these securities. However, the
Sponsor believes that, upon termination of a Growth and Treasury Trust,
even if the Equity Securities deposited in the Trust are worthless, an
event which the Sponsor considers highly unlikely, the Treasury
Obligations will provide sufficient principal to at least equal $1.00
per Unit, or $10.00 per Unit for certain Growth and Treasury Trusts
(which is equal to the per Unit value upon maturity of the Treasury
Obligations). This feature of the Growth and Treasury Trusts provides
Unit holders with principal protection, although they might forego any
earnings on the amount invested. To the extent that Units are purchased
at a price less than $1.00 per Unit (or less than $10.00 per Unit for
certain Trusts) this feature may also provide a potential for capital
appreciation.
Unless a Unit holder purchases Units of a Growth and Treasury Trust on a
date when the value of the Units is $1.00 or less (or $10.00 or less for
certain Trusts), total distributions, including distributions made upon
termination of the Trust, may be less than the amount paid for a Unit.
The Trustee will have no power to vary the investments of the Trusts,
i.e., the Trustee will have no managerial power to take advantage of
market variations to improve a Unit holder's investment, but may dispose
of Securities only under limited circumstances. See "How May Securities
be Removed from the Trusts?"
Like other investment companies, financial and business organizations and
individuals around the world, the Trusts could be adversely affected if the
computer systems used by the Sponsor, Evaluator, Portfolio Supervisor or
Trustee or other service providers to the Trusts do not properly process and
calculate date-related information and data from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Sponsor,
Evaluator, Portfolio Supervisor and Trustee are taking steps that they
believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable
assurances that comparable steps are being taken by the Trusts' other service
providers. At this time, however, there can be no assurance that these steps
will be sufficient to avoid any adverse impact to the Trusts.
The Year 2000 Problem is expected to impact corporations, which may include
issuers of Equity Securities contained in the Trusts, to varying degrees based
upon various factors, including, but not limited to, their industry sector
and degree of technological sophistication. The Sponsor is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the Equity
Securities contained in the Trusts.
To the best of the Sponsor's knowledge, there is no litigation pending
as of the date of this Part Two Prospectus in respect of any Security
which might reasonably be expected to have a material adverse effect on
the Trusts. Litigation may be instituted on a variety of grounds with
respect to the Securities. The Sponsor is unable to predict whether any
such litigation will be instituted, or if instituted, whether such
litigation might have a material adverse effect on the Trusts. See Part
Three for additional considerations, if applicable.
Legislation. From time to time Congress considers proposals to reduce
the rate of the dividends-received deductions. Enactment into law of a
proposal to reduce the rate would adversely affect the after-tax return
to investors who can take advantage of the deduction. Unit holders are
urged to consult their own tax advisers. Further, legislation may be
enacted that could negatively affect the Equity Securities in a Trust or
the issuers of the Equity Securities. Changing approaches to regulation,
particularly with respect to the environment or with respect to the
petroleum industry, may have a negative impact on certain companies
Page 12
represented in a Trust. There can be no assurance that future
legislation, regulation or deregulation will not have a material adverse
effect on a Trust or will not impair the ability of the issuers of the
Equity Securities to achieve their business goals.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. The Public Offering
Price is based on the aggregate bid side evaluation of the Treasury
Obligations (if applicable) and the aggregate underlying value of the
Equity Securities in the Trust, plus or minus cash, if any, in the
Income and Capital Accounts of the Trust, plus the applicable sales
charge.
The Public Offering Price of Units on the date of this Part Two
Prospectus may vary from the amount stated under "Summary of Essential
Information" appearing in Part One for each Trust in accordance with
fluctuations in the prices of the underlying Securities. The aggregate
value of the Units of a Trust shall be determined (a) on the basis of
the bid prices of the Treasury Obligations (if applicable) and the
aggregate underlying value of the Equity Securities therein plus or
minus cash, if any, in the Income and Capital Accounts of a Trust, (b)
if bid prices are not available for the Treasury Obligations (if
applicable), on the basis of bid prices for comparable securities, (c)
by determining the value of the Treasury Obligations (if applicable) on
the bid side of the market by appraisal, or (d) by any combination of
the above.
The aggregate value of the Equity Securities will be determined in the
following manner: if the Equity Securities are listed on a national
securities exchange or The Nasdaq Stock Market, this evaluation is
generally based on the closing sale prices on that exchange or that
system (unless it is determined that these prices are inappropriate as a
basis for valuation) or, if there is no closing sale price on that
exchange or system, at the closing bid prices. If the Equity Securities
are not so listed or, if so listed and the principal market therefore is
other than on the exchange, the evaluation shall generally be based on
the current bid price on the over-the-counter market (unless these
prices are inappropriate as a basis for evaluation). If current bid
prices are unavailable, the evaluation is generally determined (a) on
the basis of current bid prices for comparable securities, (b) by
appraising the value of the Equity Securities on the bid side of the
market or (c) by any combination of the above.
Although payment is normally made three business days following the
order for purchase, payment may be made prior thereto. A person will
become owner of the 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 five
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.
See "Public Offering" in Part Three for additional information for each
Trust.
How are Units Distributed?
Units repurchased in the secondary market may be offered by this Part
Two Prospectus at the secondary market public offering price determined
in the manner described above.
The Sponsor reserves the right to change the amount of the concession or
agency commission from time to time. Certain commercial banks may be
making Units of the Trusts 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. 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.
From time to time the Sponsor may implement programs under which
broker/dealers, banks or other selling agents of a 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 a broker/dealer,
Page 13
bank or other selling agent may be eligible to win other nominal awards
for certain sales efforts, or under which the Sponsor will reallow to
any such dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Sponsor, or participates in
sales programs sponsored by the 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 dealers for certain
services or activities which are primarily intended to result in sales
of Units of a Trust. Such payments are made by the Sponsor out of its
own assets, and not out of the assets of a Trust. These programs will
not change the price Unit holders pay for their Units or the amount that
a Trust will receive from the Units sold.
The Sponsor may, from time to time in its advertising and sales
materials, compare the then current estimated returns on a Trust and
returns over specified periods on other similar trusts sponsored by Nike
Securities L.P. with returns on other taxable investments such as
corporate or 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 respective 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 each respective Trust are described more fully
elsewhere in this Prospectus and in Part Three for each Trust.
Trust performance may be compared to performance on a total return basis
with the Dow Jones Industrial Average, the S&P 500 Composite Stock Price
Index, or performance data from Lipper Analytical Services, Inc. and
Morningstar Publications, Inc. or from publications such as Money, The
New York Times, U.S. News and World Report, Business Week, Forbes or
Fortune. As with other performance data, performance comparisons should
not be considered representative of a Trust's relative performance for
any future period.
What are the Sponsor's Profits?
In maintaining a market for the Units, the Sponsor will realize profits
or sustain losses in the amount of any difference between the price at
which Units are purchased and the price at which Units are resold (which
price includes a sales charge as indicated in Part One for each Trust)
or redeemed. The secondary market public offering price of Units may be
greater or less than the cost of such Units to the Sponsor.
RIGHTS OF UNIT HOLDERS
How is Evidence of Ownership 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 may be 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.
Unit holders may elect to hold their Units in uncertificated form. The
Trustee will maintain an account for each such Unit holder and will
credit each such account with the number of Units purchased by that Unit
holder. Within two business days of the issuance or transfer of Units
held in uncertificated form, the Trustee will send to the registered
Page 14
owner of Units a written initial transaction statement containing a
description of the Trust; the number of Units issued or transferred; the
name, address and taxpayer identification number, if any, of the new
registered owner; a notation of any liens and restrictions of the issuer
and any adverse claims to which such Units are or may be subject or a
statement that there are no such liens, restrictions or adverse claims;
and the date the transfer was registered. Uncertificated Units are
transferable through the same procedures applicable to Units evidenced
by certificates (described above), except that no certificate need be
presented to the Trustee and no certificate will be issued upon the
transfer unless requested by the Unit holder. A Unit holder may at any
time request the Trustee to issue certificates for Units.
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 Income and Capital Distributed?
The Trustee will distribute any net income (other than accreted
interest) received with respect to any of the Securities in a Trust on
or about the Income Distribution Dates to Unit holders of record on the
preceding Income Record Date. See "Summary of Essential Information"
appearing in Part One for each Trust. Persons who purchase Units will
commence receiving distributions only after such person becomes a record
owner. Notification to the Trustee of the transfer of Units is the
responsibility of the purchaser, but in the normal course of business
such notice is provided by the selling broker/dealer. The pro rata share
of cash in the Capital Account of each Trust will be computed as of the
date indicated in Part One for each Trust. Capital Account distributions
to the Unit holders of record of a Trust as of the date indicated in
Part One for each Trust will be made on the date indicated in Part One
for each Trust. The Trustee is not required to pay interest on funds
held in the Capital Account of a Trust (but may itself earn interest
thereon and therefore benefit from the use of such funds) nor to make a
distribution from the Capital Account of a Trust unless the amount
available for distribution shall equal at least $1.00 per 1000 Units (if
$1.00 per Unit) or $1.00 per 100 Units (if $10.00 per Unit). Proceeds
received on the sale of any Securities in a Trust, to the extent not
used to meet redemptions of Units or pay expenses, will however be
distributed to Unit holders of record as indicated in Part One for each
Trust. Income with respect to the original issue discount on the
Treasury Obligations in a Growth and Treasury Trust will not be
distributed currently, although Unit holders will be subject to Federal
income tax as if a distribution had occurred. See "What is the Federal
Tax Status of Unit Holders?"
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a specified percentage of any distribution made by
a Trust if the Trustee has not been furnished the Unit holder's tax
identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and
may be recovered by the Unit holder under certain circumstances by
contacting the Trustee, otherwise the amount may be recoverable only
when filing a tax return. Under normal circumstances the Trustee obtains
the Unit holder's tax identification number from the selling broker.
However, a Unit holder should examine his or her statements from the
Trustee to make sure that the Trustee has been provided a certified tax
identification number in order to avoid this possible "back-up
withholding." In the event the Trustee has not been previously provided
such number, one should be provided as soon as possible.
Within a reasonable time after a Trust is terminated, each Unit holder
who is not a Rollover Unit holder, if applicable, will, upon surrender
of his Units for redemption, receive: (i) the pro rata share of the
amounts realized upon the disposition of Equity Securities, unless he or
she elects an In-Kind Distribution as described under "Other Information-
How May the Indenture be Amended or Terminated?", (ii) a pro rata share
of the amounts realized upon the disposition of the Treasury Obligations
(if applicable) and (iii) a pro rata share of any other assets of the
Trust, less expenses of the Trust, subject to the limitation that
Treasury Obligations (if applicable) may not be sold to pay for Trust
expenses.
Page 15
The Trustee will credit to the Income Account of a Trust any dividends
received on the Equity Securities therein. All other receipts (e.g.
return of principal, capital gains, etc.) are credited to the Capital
Account of a Trust.
The Trustee may establish reserves (the "Reserve Account") within the
Trust for state and local taxes, if any, and any governmental charges
payable out of the Trust.
What Reports will Unit Holders Receive?
The Trustee shall furnish Unit holders in connection with each
distribution a statement of the amount of income, if any, and the amount
of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per 1,000 Units if $1.00 per Unit (or per
100 Units if $10.00 per Unit). Within a reasonable period of time after
the end of each calendar year, the Trustee shall furnish to each person
who at any time during the calendar year was a Unit holder of a Trust
the following information in reasonable detail: (1) a summary of
transactions in the Trust for such year; (2) any Securities sold during
the year and the Securities held at the end of such year by the Trust;
(3) the redemption price per 1,000 Units if $1.00 per Unit (or per 100
Units if $10.00 per Unit) based upon a computation thereof on the 31st
day of December of such year (or the last business day prior thereto);
and (4) amounts of income and capital distributed during such year.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Securities in the Trusts 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 unit investment trust office in the City of New York of
the certificates representing the Units to be redeemed, or in the case
of uncertificated Units, delivery of a request for redemption, 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 (if such day is a
day on which the New York Stock Exchange is open for trading), except
that as regards Units received after 4:00 p.m. Eastern time (or as of
any earlier closing time on a day on which the New York Stock Exchange
is scheduled in advance to close at such earlier time), the date of
tender is the next day on which the New York Stock 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.
For Equity Trusts, any Unit holder tendering at least the minimum amount
specified in "Summary of Essential Information" appearing in Part One
for each Trust for redemption may request by written notice submitted at
the time of tender from the Trustee in lieu of a cash redemption a
distribution of shares of Equity Securities in an amount and value of
Equity Securities per Unit equal to the Redemption Price Per Unit as
determined as of the evaluation next following tender. However, no In-
Kind Distribution requests submitted during the nine business days prior
to the Mandatory Termination Date will be honored. To the extent
possible, In-Kind Distributions shall be made by the Trustee through the
distribution of each of the Equity Securities in book-entry form to the
account of the Unit holder's bank or broker/dealer at the Depository
Trust Company. An In-Kind Distribution will be reduced by customary
transfer and registration charges. The tendering Unit holder will
receive his pro rata number of whole shares of each of the Equity
Securities comprising the portfolio and cash from the Capital Account
equal to the fractional shares to which the tendering Unit holder is
entitled. The Trustee may adjust the number of shares of any issue of
Equity Securities included in a Unit holder's In-Kind Distribution to
facilitate the distribution of whole shares, such adjustment to be made
on the basis of the value of Equity Securities on the date of tender. If
funds in the Capital Account are insufficient to cover the required cash
distribution to the tendering Unit holder, the Trustee may sell Equity
Securities in the manner described above.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a specified percentage of the principal amount of a
Page 16
Unit redemption if the Trustee has not been furnished the redeeming Unit
holder's tax identification number in the manner required by such
regulations. For further information regarding this withholding, see
"Rights of Unit Holders-How are Income and Capital Distributed?" In the
event the Trustee has not been previously provided such number, one must
be provided at the time redemption is requested.
Any amounts paid on redemption representing income shall be withdrawn
from the Income Account of a Trust to the extent that funds are
available for such purpose, or from the Capital Account. All other
amounts paid on redemption shall be withdrawn from the Capital Account
of a Trust.
The Trustee is empowered to sell Securities of a Trust in order to make
funds available for redemption. To the extent that Securities are sold,
the size and diversity of the Trust will be reduced. Such sales may be
required at a time when Securities would not otherwise be sold and might
result in lower prices than might otherwise be realized. For Growth and
Treasury Trusts, Equity Securities will be sold to meet redemptions of
Units before Treasury Obligations, although Treasury Obligations may be
sold if the Growth and Treasury Trust is assured of retaining a
sufficient principal amount of Treasury Obligations to provide funds
upon maturity of the Trust at least equal to $1.00 per Unit, or $10.00
per Unit for certain Trusts.
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
Treasury Obligations (if applicable) and the aggregate underlying value
of the Equity Securities in the Trust, plus or minus cash, if any, in
the Income and Capital Accounts of a Trust. The Redemption Price per
Unit is the pro rata share of each Unit determined by the Trustee by
adding: (1) the cash on hand in a Trust; (2) the aggregate value of the
Securities held in a Trust, as determined by the Evaluator on the basis
of bid prices of the Treasury Obligations (if applicable) and the
aggregate underlying value of the Equity Securities in a Trust next
computed; and (3) dividends receivable on Equity Securities trading ex-
dividend as of the date of computation; and deducting therefrom: (1)
amounts representing any applicable taxes or governmental charges
payable out of a Trust; (2) any amounts owing to the Trustee for its
advances; (3) an amount representing estimated accrued expenses of a
Trust, including but not limited to fees and expenses of the Trustee
(including legal and auditing fees), the Evaluator and supervisory fees,
if any; (4) cash held for distribution to Unit holders of record of a
Trust as of the business day prior to the evaluation being made; and (5)
other liabilities incurred by a Trust; and finally dividing the results
of such computation by the number of Units of the Trust outstanding as
of the date thereof.
The aggregate value of the Equity Securities will be determined in the
following manner: if the Equity Securities are listed on a national
securities exchange or The Nasdaq Stock Market, this evaluation is
generally based on the closing sale prices on that exchange or that
system (unless it is determined that these prices are inappropriate as a
basis for valuation) or, if there is no closing sale price on that
exchange or system, at the closing bid prices. If the Equity Securities
are not so listed or, if so listed and the principal market therefore is
other than on the exchange, the evaluation shall generally be based on
the current bid price on the over-the-counter market (unless these
prices are inappropriate as a basis for evaluation). If current bid
prices are unavailable, the evaluation is generally determined (a) on
the basis of current bid prices for comparable securities, (b) by
appraising the value of the Equity Securities on the bid side of the
market or (c) by any combination of the above.
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 the New
York Stock Exchange is restricted or any emergency exists, as a result
of which disposal or evaluation of the Securities 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. The Trustee is not liable to any person in any way
for any loss or damage which may result from any such suspension or
postponement.
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
Page 17
Units by notifying the Trustee before 1:00 p.m. Eastern time on the same
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. In the event the Sponsor does not
purchase Units, the Trustee may sell Units tendered for redemption in
the over-the-counter market, if any, as long as the amount to be
received by the Unit holder is equal to the amount he or she would have
received on redemption of the Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then 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 Securities be Removed from the Trusts?
The Portfolio of each Trust is not "managed" by the Sponsor or the
Trustee; their activities described herein are governed solely by the
provisions of the Indenture. The Indenture provides that the Sponsor may
(but need not) direct the Trustee to dispose of an Equity Security in
the event that an issuer defaults in the payment of a dividend that has
been declared, that any action or proceeding has been instituted
restraining the payment of dividends or there exists any legal question
or impediment affecting such Equity Security, that the issuer of the
Equity Security has breached a covenant which would affect the payments
of dividends, the credit standing of the issuer or otherwise impair the
sound investment character of the Equity Security, that the issuer has
defaulted on the payment on any of its outstanding obligations, that the
price of the Equity Security has declined to such an extent or other
such credit factors exist so that in the opinion of the Sponsor, the
retention of such Equity Securities would be detrimental to a Trust.
Treasury Obligations in Growth and Treasury Trusts may be sold by the
Trustee only pursuant to the liquidation of a Growth and Treasury Trust
or to meet redemption requests. Pursuant to the Indenture and with
limited exceptions, the Trustee may sell any securities or other
property acquired in exchange for Equity Securities such as those
acquired in connection with a merger or other transaction. If offered
such new or exchanged securities or property, the Trustee shall reject
the offer. However, in the event such securities or property are
nonetheless acquired by a Trust, they may be accepted for deposit in
such Trust and either sold by the Trustee or held in the Trust pursuant
to the direction of the Sponsor (who may rely on the advice of the
Portfolio Supervisor). Proceeds from the sale of Securities by the
Trustee are credited to the Capital Account of a Trust for distribution
to Unit holders or to meet redemptions. The Trustee may from time to
time retain and pay compensation to the Sponsor (or an affiliate of the
Sponsor) to act as agent for a Trust with respect to selling Equity
Securities from such Trust. In acting in such capacity the Sponsor or
its affiliate will be held subject to the restrictions under the
Investment Company Act of 1940, as amended.
The Trustee may also sell Securities designated by the Sponsor, or if
not so directed, in its own discretion, for the purpose of redeeming
Units of the Trust tendered for redemption and the payment of expenses;
provided, however, that in the case of Securities sold to meet
redemption requests, Treasury Obligations in Growth and Treasury Trusts
may only be sold if the Trust is assured of retaining a sufficient
principal amount of Treasury Obligations to provide funds upon maturity
of a Growth and Treasury Trust at least equal to $1.00 per Unit, or
$10.00 per Unit for certain Trusts. Treasury Obligations may not be sold
by the Trustee to meet Trust expenses.
The Sponsor, in designating Equity Securities to be sold by the Trustee,
will generally make selections in order to maintain, to the extent
practicable, the proportionate relationship among the number of shares
of individual issues of Equity Securities. To the extent this is not
practicable, the composition and diversity of the Equity Securities may
be altered. In order to obtain the best price for a Trust, it may be
necessary for the Sponsor to specify minimum amounts (generally 100
shares) in which blocks of Equity Securities are to be sold. The Sponsor
may consider sales of Units of unit investment trusts which it sponsors
in making recommendations to the Trustee as to the selection of
broker/dealers to execute the Trusts' portfolio transactions.
Page 18
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 (630) 241-4141. As of
December 31, 1996, the total partners' capital of Nike Securities L.P.
was $9,005,203 (audited). (This paragraph relates only to the Sponsor
and not to the Trusts or to any series thereof or to any other
Underwriter. 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, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, 6th floor, New York, New
York 10004-2413. Unit holders who have questions regarding the Trusts
may call the Customer Service Help Line at 1-800-682-7520. The Trustee
is subject to supervision by the Superintendent of Banks of the State of
New York, 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 Securities. 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 30 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 a Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Securities. 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.
Page 19
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the
interest thereon or upon it as Trustee under the Indenture or upon or in
respect of a 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 becomes incapable of acting or becomes 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 either Securities Evaluation Service, Inc., 531 East
Roosevelt Road, Suite 200, Wheaton, Illinois 60187 or First Trust
Advisors L.P., an Illinois limited partnership formed in 1991 and an
affiliate of the Sponsor. The address of First Trust Advisors L.P. is
1001 Warrenville Road, Lisle, Illinois 60532. See Part One for each
Trust to determine if Securities Evaluation Service, Inc. or First Trust
Advisors L.P. is evaluating such Trust. 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).
The Indenture provides that a Trust shall terminate upon the maturity,
redemption or other disposition of the last of the Treasury Obligations
held in a Growth and Treasury Trust, but in no event beyond the
Mandatory Termination Date indicated in Part One for each Trust under
"Summary of Essential Information." A Trust may be liquidated at any
time by consent of 100% of the Unit holders of the Trust, by the Trustee
in the event that Units of a Trust not yet sold aggregating more than
60% of the Units of the Trust are tendered for redemption by an
Underwriter, including the Sponsor or, for Equity Trusts, by the Trustee
when the principal amount of the Equity Securities owned by a Trust as
shown by any evaluation, is less than the amount specified in Part One
for each Trust. If a Trust is liquidated because of the redemption of
unsold Units of the Trust by an Underwriter, the Sponsor will refund to
each purchaser of Units of the Trust the entire sales charge and the
transaction fees (if applicable) paid by such purchaser. In the event of
termination, written notice thereof will be sent by the Trustee to all
Unit holders of a Trust. Within a reasonable period after termination,
the Trustee will follow the procedures set forth under "Rights of Unit
Holders-How are Income and Capital Distributed?"
Commencing during the period beginning nine business days prior to and
no later than the Mandatory Termination Date, Equity Securities will
begin to be sold in connection with the termination of a Trust. The
Page 20
Sponsor will determine the manner, timing and execution of the sale of
the Equity Securities. Written notice of any termination of a Trust
specifying the time or times at which Unit holders may surrender their
certificates for cancellation shall be given by the Trustee to each Unit
holder at his address appearing on the registration books of a Trust
maintained by the Trustee. Not less than 60 days prior to the Mandatory
Termination Date, the Trustee will provide written notice thereof to all
Unit holders and will include with such notice a form to enable Unit
holders to elect a distribution of shares of Equity Securities (an "In-
Kind Distribution"), if such Unit holder owns at least that minimum
amount as set forth in "Summary of Essential Information" in Part One
for each Trust, rather than receive payment in cash for such Unit
holder's pro rata share of the amounts realized upon the disposition by
the Trustee of Equity Securities. An In-Kind Distribution will be
reduced by customary transfer and registration charges. To be effective,
the election form, together with surrendered certificates and other
documentation required by the Trustee, must be returned to the Trustee
at least ten business days prior to the Mandatory Termination Date. Not
less than 60 days prior to the termination of the Trust, those Unit
holders with at least that minimum amount as set forth in "Summary of
Essential Information" in Part One for each Trust, will be offered the
option of having the proceeds from the Equity Securities distributed "In-
Kind," or they will be paid in cash, as indicated above. For Growth and
Treasury Trusts, all Unit holders will receive their pro rata portion of
the Treasury Obligations in cash upon the termination of a Trust. A Unit
holder may, of course, at any time after the Equity Securities are
distributed, sell all or a portion of the shares. Unit holders not
electing a distribution of shares of Equity Securities will receive a
cash distribution from the sale of the remaining Securities within a
reasonable time after a Trust is terminated. Regardless of the
distribution involved, the Trustee will deduct from the funds of the
Trust any accrued costs, expenses, advances or indemnities provided by
the Trust Agreement, including estimated compensation of the Trustee and
costs of liquidation and any amounts required as a reserve to provide
for payment of any applicable taxes or other governmental charges. Any
sale of Securities in a Trust upon termination may result in a lower
amount than might otherwise be realized if such sale were not required
at such time. In addition, to the extent that Equity Securities are sold
prior to the Mandatory Termination Date, Unit holders will not benefit
from any stock appreciation they would have received had the Equity
Securities not been sold at such time. The Trustee will then distribute
to each Unit holder his pro rata share of the balance of the Income and
Capital Accounts.
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, acted as counsel for the Trustee and as
special New York tax counsel for the Trust.
Experts
The financial statements of the various Series of the Trust appearing in
Part One of this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere therein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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Page 23
CONTENTS:
The First Trust Special Situations Trust:
What is The First Trust Special Situations Trust? 3
What are the Expenses and Charges? 3
What is the Federal Tax Status of Unit Holders? 5
Are Investments in the Trusts Eligible for
Retirement Plans? 9
Portfolio:
What are Treasury Obligations? 9
What are the Equity Securities? 9
What are Some Additional Considerations for
Investors? 12
Public Offering:
How is the Public Offering Price Determined? 13
How are Units Distributed? 13
What are the Sponsor's Profits? 14
Rights of Unit Holders:
How is Evidence of Ownership Issued and
Transferred? 14
How are Income and Capital Distributed? 15
What Reports will Unit Holders Receive? 16
How May Units be Redeemed? 16
How May Units be Purchased by the Sponsor? 17
How May Securities be Removed
from the Trusts? 18
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 19
Who is the Trustee? 19
Limitations on Liabilities of Sponsor and Trustee 19
Who is the Evaluator? 20
Other Information:
How May the Indenture be Amended or
Terminated? 20
Legal Opinions 21
Experts 21
___________
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 FUND
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
Special Situations Trust
Prospectus
Part Two
January 30, 1998
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE AND PART THREE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 24
RYAN BECK BANKING OPPORTUNITY TRUST SERIES
The First Trust (registered trademark) Special Situations Trust
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated October 30, 1998 PART ONE AND PART TWO
The Trusts. The Trusts consist of portfolios containing common stocks
issued by financial institutions incorporated or headquartered in the
United States. The Trusts do not include Treasury Obligations. See
"Portfolio" appearing in Part One for each Trust.
The Objective of the Trusts. The objective of the Trusts is to provide
for potential capital appreciation and increasing divided income by
investing each Trust's portfolio in common stocks issued by financial
institutions which are incorporated or headquartered in the United
States or in the Commonwealth of Puerto Rico ("Equity Securities"). In
the Underwriter's opinion, at a Trust's Initial Date of Deposit, the
financial institution stocks selected for deposit in a Trust had the
potential to achieve above-average capital appreciation over the life of
a Trust due to the strong or improving fundamental characteristics of
the issuing companies. At the Initial Date of Deposit, it was the
Underwriter's opinion that each stock selected for the portfolio was
attractively valued based on its price and earnings outlook, as well as
having the potential to benefit from possible restructuring in the case
of mutual holding companies and from ongoing consolidation activity
within the bank and thrift industries. The Underwriter further believed
that many of the financial institutions chosen for the portfolios are in
a position to be acquired by larger institutions or to acquire existing
institutions themselves. There is, of course, no guarantee that the
objective of the Trusts will be achieved.
Portfolio. The Equity Securities included in each Trust are listed on a
national securities exchange or The Nasdaq Stock Market or are traded in
the over-the-counter market. Each of the companies whose Equity
Securities are included in a Trust's portfolio were selected based upon,
but not limited to, the following criteria at the Initial Date of
Deposit: asset quality, earnings momentum, management expertise, and
franchise value. The companies were also determined to be actively
traded and well-established at the Initial Date of Deposit.
An investment in Units of a Trust should be made with an understanding
of the problems and risks inherent in the financial institutions
industry in general. Financial institutions, banks, thrifts and their
holding companies are especially subject to the adverse effects of
economic recession, volatile interest rates, portfolio concentrations in
geographic markets and in commercial and residential real estate loans,
and competition from new entrants in their fields of business. Banks and
thrifts are highly dependent on net interest income. Recent profits have
benefited from the relatively high yield on earning assets and
relatively low cost of funds. There is no certainty that such conditions
will continue, especially in a rising interest rate environment.
Commercial loan demand for banks has not been robust and an increasing
number of commercial loans have been securitized, which may have a
potentially adverse effect on the market share of the commercial banking
system. Bank and thrift institutions have received significant consumer
mortgage fee income as a result of activity in mortgage and refinance
markets. As initial home purchasing and refinancing activity subsides,
this income is expected to diminish to a lower level. Economic
conditions in the real estate markets, which have been weak in the past,
can have a substantial effect upon banks and
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
thrifts because they generally have a portion of their assets invested
in loans secured by real estate, as has recently been the case for a
number of banks and thrifts with respect to commercial real estate in
the northeastern and southwestern regions of the United States. Banks,
thrifts and their holding companies are subject to extensive federal
regulation and, when such institutions are state-chartered, to state
regulation as well. Such regulations impose strict capital requirements
and limitations on the nature and extent of business activities that
banks and thrifts may pursue. Furthermore, bank regulators have a wide
range of discretion in connection with their supervisory and enforcement
authority and may substantially restrict the permissible activities of a
particular institution if deemed to pose significant risks to the
soundness of such institution or the safety of the federal deposit
insurance fund. Regulatory actions, such as increases in the minimum
capital requirements applicable to banks and thrifts and increases in
deposit insurance premiums required to be paid by banks and thrifts to
the Federal Deposit Insurance Corporation ("FDIC"), can negatively
impact earnings and the ability of a company to pay dividends. Neither
federal insurance of deposits nor governmental regulations, however,
insures the solvency or profitability of banks or their holding
companies, or insures against any risk of investment in the securities
issued by such institutions.
The statutory requirements applicable to and regulatory supervision of
banks, thrifts and their holding companies have increased significantly
and have undergone substantial change in recent years. To a great
extent, these changes are embodied in the Financial Institutions Reform,
Recovery and Enforcement Act, enacted in August 1989, the Federal
Deposit Insurance Corporation Improvement Act of 1991, the Resolution
Trust Corporation Refinancing, Restructuring, and Improvement Act of
1991 and the regulations promulgated under these laws. Many of the
regulations promulgated pursuant to these laws have only recently been
finalized and their impact on the business, financial condition and
prospects of the Equity Securities in a Trust's portfolio cannot be
predicted with certainty. Periodic efforts by recent Administrations to
introduce legislation broadening the ability of banks to compete with
new products have not been successful, but if enacted could lead to more
failures as a result of increased competition and added risks. Failure
to enact such legislation, on the other hand, may lead to declining
earnings and an inability to compete with unregulated financial
institutions. Efforts to expand the ability of federal thrifts to branch
on an interstate basis have been initially successful through
promulgation of regulations, and legislation to liberalize interstate
banking has recently been signed into law. Under the legislation, banks
are able to purchase or establish subsidiary banks in any state. Banks
can turn existing banks into branches, though states could pass laws to
permit interstate branch banking. Consolidation is likely to continue in
both cases. The Securities and Exchange Commission and the Financial
Accounting Standards Board require the expanded use of market value
accounting by banks and have imposed rules requiring market accounting
for investment securities held in trading accounts or available for
sale. Adoption of additional such rules may result in increased
volatility in the reported health of the industry, and mandated
regulatory intervention to correct such problems. Additional legislative
and regulatory changes may be forthcoming. For example, the bank
regulatory authorities have proposed substantial changes to the
Community Reinvestment Act and fair lending laws, rules and regulations,
and there can be no certainty as to the effect, if any, that such
changes would have on the Equity Securities in a Trust's portfolio. In
addition, from time to time, the deposit insurance system is reviewed by
Congress and federal regulators, and proposed reforms of that system
could, among other things, further restrict the ways in which deposited
moneys can be used by banks or reduce the dollar amount or number of
deposits insured for any depositor. Such reforms could reduce
profitability as investment opportunities available to bank institutions
become more limited and as consumers look for savings vehicles other
than bank deposits. Banks and thrifts face significant competition from
other financial institutions such as mutual funds, credit unions,
mortgage banking companies and insurance companies, and increased
competition may result from legislative broadening of regional and
national interstate banking powers as has been recently enacted. Among
other benefits, the legislation allows banks and bank holding companies
to acquire across previously prohibited state lines and to consolidate
their various bank subsidiaries into one unit. The Sponsor makes no
prediction as to what, if any, manner of bank and thrift regulatory
actions might ultimately be adopted or what ultimate effect such actions
might have on a Trust's portfolio.
The Federal Bank Holding Company Act of 1956 generally prohibits a bank
holding company from (1) acquiring, directly or indirectly, more than 5%
of the outstanding shares of any class of voting securities of a bank or
bank holding company, (2) acquiring control of a bank or another bank
holding company, (3) acquiring all or substantially all the assets of a
Page 2
bank, or (4) merging or consolidating with another bank holding company,
without first obtaining Federal Reserve Board ("FRB") approval. In
considering an application with respect to any such transaction, the FRB
is required to consider a variety of factors, including the potential
anti-competitive effects of the transaction, the financial condition and
future prospects of the combining and resulting institutions, the
managerial resources of the resulting institution, the convenience and
needs of the communities the combined organization would serve, the
record of performance of each combining organization under the Community
Reinvestment Act and the Equal Credit Opportunity Act, and the
prospective availability to the FRB of information appropriate to
determine ongoing regulatory compliance with applicable banking laws. In
addition, the federal Change In Bank Control Act and various state laws
impose limitations on the ability of one or more individuals or other
entities to acquire control of banks or bank holding companies.
The FRB has issued a policy statement on the payment of cash dividends
by bank holding companies. In the policy statement, the FRB expressed
its view that a bank holding company experiencing earnings weaknesses
should not pay cash dividends which exceed its net income or which could
only be funded in ways that would weaken its financial health, such as
by borrowing. The FRB also may impose limitations on the payment of
dividends as a condition to its approval of certain applications,
including applications for approval of mergers and acquisitions. The
Sponsor makes no prediction as to the effect, if any, such laws will
have on the Equity Securities or whether such approvals, if necessary,
will be obtained.
Some of the Securities in a portfolio may be issued by a mutual holding
company. The following discussion may be helpful in understanding the
characteristics of a mutual holding company.
What is a Mutual Holding Company? A mutual holding company ("MHC") is
formed whereby: (I) a mutual savings bank charters an interim savings
bank, the stock of which is wholly owned by the mutual savings bank, and
(ii) the mutual savings bank transfers substantially all of its assets
and liabilities to the interim stock savings bank in exchange for all of
the stock of the interim stock savings bank. The former mutual savings
bank becomes a holding company and receives a new corporate mutual
holding company charter. What results is a mutually-owned corporation
owning all of the stock of a new stock savings bank. Depositors or
members having depositor rights in the mutual savings bank, would have
the same rights in the MHC. All new account holders of the stock savings
bank will also have depositor rights in the MHC.
MHCs typically vary from their fully converted peers only in terms of
corporate structure, not in terms of what type of banking activities
that they pursue. The MHC has the option to sell a minority portion (up
to 49.9%) of its stock to its depositors/public at the time of its
reorganization or anytime thereafter. Among the MHCs that have issued
stock, most have sold between 20% and 45% of the stock of the banking
subsidiary.
Why would a Mutual Savings Bank choose to form an MHC? An MHC allows the
mutual savings bank to raise capital in manageable increments. Mutual
Savings Banks that decide to undergo a full conversion are often
severely over-capitalized. With the MHC structure, a mutual can only
take up to 49.9% of the company public and the lower amount of capital
can result in higher returns.
Another reason for choosing the MHC structure is independence. An MHC
can not be acquired, because the majority of the stock of the bank is
owned by the MHC. The only way an MHC can be acquired is by first fully
converting, in what has come to be known as a "Second Step" transaction.
Can an MHC undertake stock repurchases? Yes, but currently, the MHC or
bank subsidiary can not engage stock repurchases without triggering the
adverse consequences resulting from bad debt reserve recapture
provisions. During 1997, regulatory approval has been granted to allow
MHCs to establish a subsidiary stock holding company, known as the
middle tier, that would hold all of the stock of a savings bank
subsidiary. The purpose of the middle tier is so the MHC can engage in a
stock repurchase program without adverse tax consequences. After stock
is repurchased by the stock holding company, the shares become treasury
shares. A number of existing MHCs are seeking regulatory approval for
the middle tier structure, and more are contemplating the structure.
Why should I invest in an MHC? When an MHC is appraised for a stock
sale, normally a discount is applied to its full conversion appraisal.
The discount takes into account the MHCs lower liquidity in the market,
less capital and earnings potential, and the lack of a takeover premium.
If an MHC decides to undergo a Second Step transaction, the minority
shareholders' shares are exchanged for shares in the newly formed
Page 3
holding company on a basis which preserves their ownership percentage.
This has the effect of eliminating the discount and reinstituting the
possibility of a takeover premium. Of course, there is no guarantee that
an MHC will undergo a Second Step transaction. In addition, those MHCs
undertaking stock repurchases may provide a source of additional demand
in the market place.
The following chart compares performance over the indicated period of
common stocks of Mutual Holding Companies (as evidenced by the SNL MHC
Index*), thrifts (as evidenced by the SNL Thrift Index*) and the S&P 500
Index. The S&P 500 figure assumes that dividends received during each
year will be reinvested on a monthly basis; neither the SNL MHC nor the
SNL Thrift figure include reinvested dividends. Sales charges,
commissions, expenses and taxes were not considered in determining
performance returns. The returns shown in the following table are not
guarantees of future performance and should not be used as a predictor
of returns to be expected in connection with a Trust portfolio.
Please refer to the APPENDIX following the last page of this document
for details on the chart included at this point.
*SNL Indices is the property of SNL Securities, a recognized authority
for information on financial institutions, including MHCs.
There is, of course, no guarantee that the objective of the Trusts will
be achieved.
Page 4
Public Offering. The applicable sales charge is reduced by a discount as
indicated below for volume purchases as a percentage of the Public
Offering Price (except for sales made pursuant to a "wrap fee account"
or similar arrangements as set forth below):
Number of Units Discount
________________ ________
10,000 to 24,999 0.50%
25,000 to 49,999 1.00%
50,000 or more 1.50%
A dealer will receive from the Sponsor a dealer concession of 65% of the
total sales charges for Units sold.
Any such reduced sales charge shall be the responsibility of the selling
Underwriter, broker/dealer, bank or other selling agent. The reduced
sales charge structure will apply on all purchases of Units in a Trust
by the same person on any one day from any one Underwriter or any one
broker/dealer, bank or other selling agent. 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 estate or single fiduciary account. The purchaser must
inform the Underwriter, broker/dealer, bank or other selling agent of
any such combined purchase prior to the sale in order to obtain the
indicated discount. In addition, with respect to the employees, officers
and directors (including their immediate family members, defined as
spouses, children, grandchildren, parents, grandparents, siblings,
mothers-in-law, fathers-in-law, sons-in-law and daughters-in-law, and
trustees, custodians or fiduciaries for the benefit of such persons) of
the Sponsor, Underwriter and broker/dealers, banks and other selling
agents and their subsidiaries, the sales charge is reduced by 2.0% of
the Public Offering Price.
Investors who purchase Units through registered broker/dealers who
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 may purchase Units at the Public Offering
Price, less the concession the Sponsor typically would allow such
broker/dealer. See "Public Offering-How are Units Distributed?" in Part
Two of the Prospectus.
Page 5
RYAN BECK BANKING OPPORTUNITY TRUST SERIES
The First Trust (registered trademark) Special Situations Trust
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
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.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
Page 6
-APPENDIX-
The graph which appears on page 4 of the Part Three Prospectus
represents a comparison between a $10,000 investment made on December
31, 1992 in those stocks which comprise the SNL MHC Index, the SNL
Thrift Index and the S&P 500 Index. The chart indicates that $10,000
invested on December 31, 1992 in the stocks which comprise the SNL MHC
Index would on August 20, 1997 be worth $38,160, as opposed to $32,770
had the $10,000 been invested in the stocks which comprise the SNL
Thrift Index and $24,125 had the $10,000 been invested in the stocks
which comprise the S&P 500 Index. The S&P 500 figure assumes that
dividends received during each year will be reinvested on a monthly
basis; neither the SNL MHC nor the SNL Thrift figure include reinvested
dividends. Sales charges, commissions, expenses and taxes were not
considered in determining total returns.
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
194 RYAN BECK BANKING OPPORTUNITY TRUST, SERIES 5 MUTUAL HOLDING
COMPANY PORTFOLIO, certifies that it meets all of the
requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Post-Effective Amendment of its Registration
Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the Village of Lisle and State of Illinois on
October 30, 1998.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 194
RYAN BECK BANKING OPPORTUNITY TRUST, SERIES
5 MUTUAL HOLDING COMPANY PORTFOLIO
(Registrant)
ByNIKE SECURITIES L.P.
(Depositor)
ByRobert M. Porcellino
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Director of )
Nike Securities )
Corporation, ) October 30, 1998
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
David J. Allen Director of Nike ) Attorney-in-Fact**
Securities Corporation,
the Genral Partner of
Nike Securities L.P.
* 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
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated October 2, 1998 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated October 27, 1998.
ERNST & YOUNG LLP
Chicago, Illinois
October 26, 1998
