Registration No. 333-40691
1940 Act No. 811-05903
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 to Form S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES
OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust:
FT 232
B. Name of depositor:
NIKE SECURITIES L.P.
C. Complete address of depositor's principal executive offices:
1001 Warrenville Road
Lisle, Illinois 60532
D. Name and complete address of agents for service:
Copy to:
JAMES A. BOWEN ERIC F. FESS
c/o Nike Securities L.P. c/o Chapman and Cutler
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
E. Title of Securities Being Registered:
An indefinite number of Units pursuant to Rule 24f-2
promulgated under the Investment Company Act of 1940, as
amended
F. Approximate date of proposed sale to public:
As soon as practicable after the effective date of the
Registration Statement.
| |Check box if it is proposed that this filing will become
effective on January 6, 1998 at 2:00 p.m. pursuant to Rule
487.
________________________________
FT 232
Cross-Reference Sheet
(Form N-8B-2 Items required by Instructions as
to the Prospectus in Form S-6)
Form N-8B-2 Item Number Form S-6 Heading in Prospectus
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust Prospectus front cover
(b) Title of securities issued Summary of Essential
Information
2. Name and address of each depositor Information as to
Sponsor, Trustee and
Evaluator
3. Name and address of trustee Information as to
Sponsor, Trustee and
Evaluator
4. Name and address of principal Information as to
underwriters Sponsor, Trustee and
Evaluator
5. State of organization of trust The FT Series
6. Execution and termination of Other Information
trust agreement
7. Changes of name *
8. Fiscal year *
9. Litigation *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. (a) Registered or bearer Public Offering
securities
(b) Cumulative or distributive The FT Series
securities
(c) Redemption Rights of Unitholders
(d) Conversion, transfer, etc. Rights of Unitholders
(e) Periodic payment plan *
(f) Voting rights Rights of Unitholders
(g) Notice of certificateholders Other Information
(h) Consents required Rights of Unitholders;
Other Information
(i) Other provisions The FT Series
11. Types of securities comprising The FT Series
units Schedule of
Investments
12. Certain information regarding
periodic payment certificates *
13. (a) Load, fees, expenses, etc. Summary of Essential
Information; Public
Offering; The FT
Series
(b) Certain information regarding
periodic payment certificates *
(c) Certain percentages Summary of Essential
Information; The FT
Series; Public
Offering
(d) Certain other fees, etc.
payable by holders Rights of Units
Holders
(e) Certain profits receivable
by depositor, principal,
underwriters, trustee or The FT Series
affiliated persons
(f) Ratio of annual charges *
to income
14. Issuance of trust's securities Rights of Unit Holders
15. Receipt and handling of payments
from purchasers *
16. Acquisition and disposition of
underlying securities The FT Series; Rights
of Unit Holders;
17. Withdrawal or redemption The FT Series; Public
Offering; Rights of
Unit Holders
18. (a) Receipt, custody and Rights of Unit Holders
disposition of income
(b) Reinvestment of distributions Rights of Unit Holders
(c) Reserves or special funds Information as to
Sponsor, Trustee and
Evaluator
(d) Schedule of distributions *
19. Records, accounts and reports Rights of Unit Holders
20. Certain miscellaneous provisions
of trust agreement
(a) Amendment Other Information
(b) Termination Other Information
(c) and (d) Trustee, removal Information as
and successor to Sponsor, Trustee
and Evaluator
(e) and (f) Depositor, removal Information as
and successor to Sponsor, Trustee
and Evaluator
21. Loans to security holders *
22. Limitations on liability The FT Series;
Information as to
Sponsor, Trustee
and Evaluator
23. Bonding arrangements Contents of
Registration
Statement
24. Other material provisions *
of trust agreement
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor Information as to
Sponsor, Trustee and
Evaluator
26. Fees received by depositor *
27. Business of depositor Information as to
Sponsor, Trustee and
Evaluator
28. Certain information as to
officials and affiliated *
persons of depositor
29. Voting securities of depositor *
30. Persons controlling depositor *
31. Payment by depositor for certain
services rendered to trust *
32. Payment by depositor for certain
other services rendered to trust *
33. Remuneration of employees of
depositor for certain services
rendered to trust *
34. Remuneration of other persons
for certain services rendered *
to trust
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of trust's Public Offering
securities by states
36. Suspension of sales of trust's
securities *
37. Revocation of authority to *
distribute
38. (a) Method of distribution Public Offering
(b) Underwriting agreements Public Offering
(c) Selling agreements Public Offering
39. (a) Organization of principal Information as
underwriters to Sponsor, Trustee
and Evaluator
(b) N.A.S.D. membership of
principal underwriters Information as to
Sponsor, Trustee and
Evaluator
40. Certain fees received by See Items 13(a) and
principal underwriters 13(e)
41. (a) Business of principal Information as to
underwriters Sponsor, Trustee and
Evaluator
(b) Branch offices of
principal underwriters *
(c) Salesmen of principal *
underwriters
42. Ownership of trust's securities
by certain persons *
43. Certain brokerage commissions
received by principal *
underwriters
44. (a) Method of valuation Summary of Essential
Information; The FT
Series, Public
Offering
(b) Schedule as to offering *
price
(c) Variation in offering Public Offering
price to certain persons
45. Suspension of redemption rights *
46. (a) Redemption valuation Rights of Unit Holders
(b) Schedule as to redemption *
price
47. Maintenance of position in Public Offering;
underlying securities Rights
of Unit Holders
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of Information as
trustee to Sponsor, Trustee
and Evaluator
49. Fees and expenses of trustee The FT Series
50. Trustee's lien The FT Series
VI. INFORMATION CONCERNING THE INSURANCE OF HOLDERS OF
SECURITIES
51. Insurance of holders of
trust's securities *
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust The FT Series;
agreement with respect to Rights of Unit Holders
selection or elimination of
underlying securities
(b) Transactions involving
elimination of underlying *
securities
(c) Policy regarding substitution The FT Series;
or elimination of underlying Rights of Unit Holders
securities
(d) Fundamental policy not
otherwise covered *
53. Tax status of Trust The FT Series
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during *
last ten years
55.
56.
57. Certain information regarding
periodic payment certificates *
58.
59. Financial statements Report of Independent
(Instruction 1(c) to Form S-6) Auditors
Statement of Net
Assets
* Inapplicable, answer negative or not required.
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
FT 232 is a unit investment trust consisting of a portfolio of interest-
bearing U.S. dollar-denominated sovereign debt obligations of the
Republic of Argentina, the Federative Republic of Brazil, the United
Mexican States, the Republic of Panama and the Republic of Venezuela
(the "Bonds"), including delivery statements relating to contracts for
the purchase of certain such obligations and an irrevocable letter of
credit. The weighted average maturity of the Bonds in the Trust is 29.36
years.
The Objective of the Trust is to provide a high level of current income
through investment in a fixed portfolio consisting of high-yield, high-
risk U.S. dollar-denominated sovereign debt obligations. The objective
of the Trust is dependent upon the continuing ability of the issuers
and/or obligors to meet their respective obligations. There is, of
course, no guarantee that the objective of the Trust will be achieved.
See "What is the FT Series?-Risk Factors" and "Portfolio."
ALL OF THE BONDS IN THE TRUST ARE LOWER RATED BONDS, COMMONLY KNOWN AS
"JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN
THOSE FOUND IN HIGHER RATED SECURITIES. BONDS ISSUED BY EACH OF THE AFORE-
MENTIONED ISSUERS REPRESENT APPROXIMATELY 20% OF THE TRUST'S PORTFOLIO, AND
THEREFORE, THE TRUST IS SUBJECT TO GREATER RISK THAN WOULD EXIST IN A MORE
DIVERSIFIED PORTFOLIO. JUNK BONDS ISSUED BY FOREIGN ISSUERS CARRY THE ADDI-
TIONAL RISKS OF UNTIMELY INTEREST AND PRINCIPAL PAYMENTS AND PRICE VOLATI-
LITY THAN HIGHER RATED SECURITIES, AND MAY PRESENT PROBLEMS OF LIQUIDITY AND
VALUATION. FURTHERMORE, EACH OF THE AFOREMENTIONED ISSUERS HAVE
EXPERIENCED PERIODS OF ECONOMIC UNCERTAINTY THAT HAVE, AT VARIOUS TIMES,
RESULTED IN HIGH DEFAULT RATES ON OUTSTANDING OBLIGATIONS, HIGH
INFLATION AND CURRENCY INSTABILITY. THE BONDS INCLUDED IN THIS TRUST
SHOULD BE VIEWED AS SPECULATIVE AND AN INVESTOR SHOULD REVIEW HIS OR HER
ABILITY TO ASSUME THE RISKS ASSOCIATED WITH SUCH AN INVESTMENT.
INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE
"BOND PORTFOLIO SELECTION" AND "RISK FACTORS" ON PAGE 5 FOR ADDITIONAL
INFORMATION CONCERNING THESE RISKS.
UNITS OF THE TRUST ARE NOT DEPOSITS OF, OR GUARANTEED BY, ANY BANK AND
UNITS ARE NOT FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION AND INVOLVE INVESTMENT RISK INCLUDING LOSS
OF PRINCIPAL.
Attention Foreign Investors: Your interest income from the Trust may be
exempt from federal withholding taxes if you are not a United States
citizen or resident and certain conditions are met. See "What is the
Federal Tax Status of Unit Holders?"
Distributions to Unit holders may be reinvested as described herein. See
"Rights of Unit Holders-How Can Distributions to Unit Holders be
Reinvested?"
The Sponsor, although not obligated to do so, intends to maintain a
market for the Units at prices based upon the aggregate bid price of the
Bonds in the portfolio of the Trust. In the absence of such a market, a
Unit holder will nonetheless be able to dispose of the Units through
redemption at prices based upon the bid prices of the underlying Bonds.
See "Rights of Unit Holders-How May Units be Redeemed?"
The Sponsor may, from time to time during a period of up to
approximately one year after the Initial Date of Deposit, deposit
additional Bonds in the Trust. Such deposits of additional Bonds will,
therefore, be done in such a manner that the original proportionate
relationship amongst the individual issues of the Bonds shall be
maintained. See "What is The FT Series?" and "Rights of Unit Holders-How
May Bonds be Removed from the Trust?"
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.
The date of this Prospectus is January 6, 1998
Page 1
The Public Offering Price of the Units during the initial offering
period is equal to the aggregate offering price of the Bonds in the
portfolio divided by the number of Units outstanding, plus a sales
charge equal to 4.9% of the Public Offering Price (5.152% of the
aggregate offering price of the Bonds). For sales charges in the
secondary market, see "Public Offering." During the initial offering
period, the sales charge is reduced on a graduated scale for sales
involving at least $100,000. The minimum purchase is $1,000.
Portfolio Supervisor's Annual Fee. In performing its duties as Portfolio
Supervisor, First Trust Advisors L.P. may obtain research and other
information from a variety of sources. Such information will consist of
comments covering the financial condition and business prospects of the
issuers and an analysis of the respective market sectors, including
economic, tax, currency, political, regulatory and other similar risks.
The Sponsor believes that the information will be beneficial in the
present circumstances due to the complexity of the foreign high-yield
debt markets. First Trust Advisors L.P. will receive $.70 per Unit for
its supervisory services. THE SUPERVISORY FEE IS SET FORTH UNDER
"SUMMARY OF ESSENTIAL INFORMATION" AND IS GREATER FOR THIS TRUST THAN
FOR OTHER TRUSTS OF WHICH NIKE SECURITIES L.P. ACTS AS SPONSOR.
Risk Factors. An investment in the Trust should be made with an
understanding of the risks associated therewith, including, among other
factors, loss of principal and/or interest due to the possible
deterioration of the financial condition of the issuer governments,
governmental, political, economic and fiscal policies of the
representative countries, changes in economic conditions, volatile
interest rates, lack of liquidity, lack of adequate financial
information concerning an issuer government, exchange control
restrictions impacting foreign issuers and changing perceptions
regarding junk bonds. In addition, since the Trust contains only five
Bonds, a default by any one issuer will negatively impact the amount of
interest received by the Trust. See "Risk Factors."
Page 2
Summary of Essential Information
At the Opening of Business on the Initial Date of Deposit
of the Bonds-January 6, 1998
Underwriter: First Miami Securities, Inc.
Sponsor: Nike Securities L.P.
Trustee: The Chase Manhattan Bank
Evaluator: Muller Data Corporation
<TABLE>
<CAPTION>
General Information
<S> <C>
Principal Amount of Bonds in the Trust $ 250,000
Number of Units 250
Fractional Undivided Interest in the Trust per Unit 1/250
Principal Amount (Par Value) of Bonds per Unit (1) $ 1,000
Public Offering Price
Aggregate Offering Price Evaluation of Bonds in the Portfolio $ 247,250
Aggregate Offering Price Evaluation per Unit $ 989.00
Sales Charge (2) $ 50.96
Public Offering Price per Unit (3) $1,039.96
Sponsor's Initial Repurchase Price per Unit (3) $ 989.00
Redemption Price per Unit (4) $ 986.50
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 53.46
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 2.50
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
First Settlement Date January 9, 1998
Mandatory Termination Date (5) September 30, 2027
Supervisory Fee (6) Maximum of $.70 per Unit annually, payable to an affiliate of the Sponsor
Evaluator's Fee $25 per daily evaluation
Estimated Annual Amortization of
Organizational and Offering Costs (7) $.70 per Unit
Evaluations for purposes of sale, purchase or redemption of Units are
made as of the close of trading (generally 4:00 p.m. Eastern time) on
the New York Stock Exchange on each day on which it is open.
____________
<FN>
(1) Because certain of the Bonds in the Trust may from time to time under
certain circumstances be sold or redeemed or will be called or mature in
accordance with their terms, there is no guarantee that the value of
each Unit at the Trust's termination will be equal to the Principal
Amount (Par Value) of Bonds per Unit stated above.
(2) The sales charge for the Trust, expressed as a percentage of the
Public Offering Price per Unit and in parenthesis as a percentage of the
Aggregate Offering Price Evaluation per Unit is 4.9% (5.152%).
(3) Anyone ordering Units for settlement after the First Settlement Date
will pay accrued interest from such date to the date of settlement
(normally three business days after order) less distributions from the
Interest Account subsequent to the First Settlement Date. For purchases
settling on the First Settlement Date, no accrued interest will be added
to the Public Offering Price. After the initial offering period, the
Sponsor's Repurchase Price per Unit will be determined as described
under the caption "Public Offering-Will There Be a Secondary Market?"
(4) See "Rights of Unit Holders-How May Units be Redeemed?"
(5) The Trust may be terminated prior to the Mandatory Termination Date
if the principal value thereof is less than 20% of the original
principal amount of Bonds deposited in the Trust during the primary
offering period.
(6) The Sponsor will be reimbursed for bookkeeping and other
administrative expenses, currently at a maximum annual rate of $.14 per
Unit.
(7) The Trust (and therefore Unit holders) will bear all or a portion of
its organizational and offering costs (including costs of preparing the
registration statement, the trust indenture and other closing documents,
registering Units with the Securities and Exchange Commission and
states, the initial audit of the Trust portfolio, legal fees and the
initial fees and expenses of the Trustee but not including the expenses
incurred in the printing of preliminary and final prospectuses, and
expenses incurred in the preparation and printing of brochures and other
advertising materials and any other selling expenses) as is common for
mutual funds. Total organizational and offering expenses will be charged
off over a period not to exceed five years from the Initial Date of
Deposit. See "What are the Expenses and Charges?" and "Statement of Net
Assets." Historically, the sponsors of unit investment trusts have paid
all the costs of establishing such trusts.
</FN>
</TABLE>
Page 3
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
FT 232
What is The FT Series?
FT 232 is one of a series of investment companies created by the
Sponsor, all of which are generally similar, but each of which is
separate and is designated by a different series number. The FT Series
was formerly known as The First Trust Special Situations Trust Series.
This Series was created under the laws of the State of New York pursuant
to a Trust Agreement (the "Indenture"), dated the Initial Date of
Deposit, with Nike Securities L.P., as Sponsor, The Chase Manhattan
Bank, as Trustee, Muller Data Corporation as Evaluator and First Trust
Advisors L.P., as Portfolio Supervisor.
On the Initial Date of Deposit, the Sponsor deposited with the Trustee
interest-bearing U.S. dollar-denominated sovereign debt obligations of
the Republic of Argentina, the Federative Republic of Brazil, the United
Mexican States, the Republic of Panama and the Republic of Venezuela
(the "Bonds") including delivery statements relating to contracts for
the purchase of certain such obligations and an irrevocable letter of
credit issued by a financial institution in the amount required for such
purchases. The Trustee thereafter credited the account of the Sponsor
for Units of the Trust representing the entire ownership of the Trust
which Units are being offered hereby.
The objective of the Trust is to provide a high level of current income
through investment in a fixed portfolio of U.S. dollar-denominated
sovereign debt obligations of Argentina, Brazil, Mexico, Panama and
Venezuela which have a stated maturity of approximately 30 years. The
Bonds contained in the Trust are high-yield, high-risk bonds, commonly
known as "junk bonds" and are subject to greater market fluctuations and
potential risk of loss of income and principal than are investments in
lower-yielding, higher-rated fixed-income securities. The Trust has a
relatively high concentration in the debt of each of the aforementioned
countries, and is therefore subject to greater risk than would exist in
a more diversified portfolio. Each of the countries has experienced
periods of economic uncertainty that have, at various times, resulted in
a high default rate on outstanding obligations, high inflation and
currency instability. The securities included in this Trust should be
viewed as speculative and an investor should review his ability to
assume the risks associated with speculative bonds. The Bonds are not
collateralized or secured by the U.S. government, U.S. government
securities or any other source. Therefore, the payment of income is
dependent upon the continuing ability of the issuer governments to meet
their respective obligations. THERE IS, OF COURSE, NO GUARANTEE THAT THE
TRUST'S OBJECTIVE WILL BE ACHIEVED.
With the deposit of the Bonds on the Initial Date of Deposit, the
Sponsor established a percentage relationship between the amounts of
Bonds in the Trust's portfolio. From time to time following the Initial
Date of Deposit, the Sponsor, pursuant to the Indenture, may deposit
additional Bonds in the Trust and Units may be continuously offered for
sale to the public by means of this Prospectus, resulting in a potential
increase in the outstanding number of Units of the Trust. Any deposit by
the Sponsor of additional Bonds will duplicate, as nearly as is
practicable, the original proportionate relationship and not the actual
proportionate relationship on the subsequent date of deposit, since the
two may differ. Any such difference may be due to the sale, redemption
or liquidation of any of the Bonds deposited in the Trust on the
Initial, or any subsequent, Date of Deposit. See "Rights of Unit Holders-
How May Bonds be Removed from the Trust?" Since the prices of the
underlying Bonds will fluctuate daily, the ratio, on a market value
basis, will also change daily. The portion of Bonds represented by each
Unit will not change as a result of the deposit of additional Bonds in
the Trust.
On the Initial Date of Deposit, each Unit of the Trust represented the
undivided fractional interest in the Bonds deposited in the Trust as set
forth under "Summary of Essential Information." To the extent that Units
of the Trust are redeemed, the aggregate value of the Bonds in the Trust
will be reduced and the undivided fractional interest represented by
each outstanding Unit of the Trust will increase. However, if additional
Units are issued by the Trust in connection with the deposit of
additional Bonds by the Sponsor, the aggregate value of the Bonds in the
Trust will be increased by amounts allocable to additional Units, and
the fractional undivided interest represented by each Unit of the Trust
will be decreased proportionately. See "Rights of Unit Holders-How May
Units be Redeemed?" The Trust has a Mandatory Termination Date as set
forth herein under "Summary of Essential Information."
Page 4
Bond Portfolio Selection
The Sponsor of the Trust selected the Bonds for the Portfolio after
considering the Trust's investment objective as well as the credit
quality of the individual Bonds of the Portfolio. The following facts,
among others, were also considered: (a) the price of the Bonds relative
to other issues of similar quality and maturity; (b) the present rating
and credit quality of the issuers of the Bonds and the potential
improvement in the credit quality of such issuers; (c) the
diversification of the Bonds as to location of issuer; (d) the income to
the Unit holders of the Trust; (e) whether the Bonds were issued after
July 18, 1984; and (f) the stated maturity of the Bonds.
As of the Initial Date of Deposit for the Trust, all of the Bonds in the
Trust were rated "B+" or better by Moody's Investors Service, Inc.,
("Moody's"), Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's") or Fitch IBCA, Inc.
(formerly known as Fitch Investors Service, L.P.) ("Fitch"). See
"Description of Bond Ratings" and "Portfolio." Subsequent to the Initial
Date of Deposit, a Bond may cease to be so rated. If this should occur,
the Trust would not be required to eliminate the Bond from the Trust,
but such event may be considered in the Sponsor's determination to
direct the Trustee to dispose of such investment. The Trust follows a
buy and hold investment strategy in contrast to the frequent portfolio
changes of a managed fund based on economic, financial and market
analyses. The Trust may retain an issuer's bonds despite adverse
financial developments.
Risk Factors
High-Yield Obligations. An investment in Units of the Trust should be
made with an understanding of the risks that an investment in "high-
yield, high-risk," fixed-rate, foreign sovereign debt obligations or
"junk bonds" may entail, including increased credit risks and the risk
that the value of the Units will decline, and may decline precipitously,
with increases in interest rates. In recent years there have been wide
fluctuations in interest rates and thus in the value of fixed-rate debt
obligations generally. Bonds such as those included in the Trust are,
under most circumstances, subject to greater market fluctuations and
risk of loss of income and principal than are investments in lower-
yielding, higher-rated securities, and their value may decline
precipitously because of increases in interest rates, not only because
the increases in rates generally decrease values, but also because
increased rates may indicate an economic slowdown and a decrease in the
value of assets generally that may adversely affect the credit of
issuers of high-yield, high-risk securities resulting in a higher
incidence of defaults among high-yield, high-risk securities. A slowdown
in the economy, or a development adversely affecting an issuer's
creditworthiness, may result in the issuer being unable to produce
sufficient cash flow to meet its interest and principal requirements.
For an issuer that has outstanding both commercial bank debt and high-
yield, high-risk securities, an increase in interest rates will increase
that issuer's interest expense insofar as the interest rate on the bank
debt is fluctuating. The Sponsor cannot predict future economic policies
or their consequences or, therefore, the course or extent of any similar
market fluctuations in the future.
The market for high-yield bonds is very specialized and investors in it
have been predominantly financial institutions. High-yield bonds are
generally not listed on a national securities exchange. Trading of high-
yield bonds, therefore, takes place primarily in over-the-counter
markets which consist of groups of dealer firms that are typically major
securities firms. Because the high-yield bond market is a dealer market,
rather than an auction market, no single obtainable price for a given
bond prevails at any given time. Prices are determined by negotiation
between traders. The existence of a liquid trading market for the Bonds
may depend on whether dealers will make a market in the Bonds. There can
be no assurance that a market will be made for any of the Bonds, that
any market for the Bonds will be maintained or of the liquidity of the
Bonds in any markets made. Not all dealers maintain markets in all high-
yield bonds. Therefore, since there are fewer traders in these bonds
than there are in "investment grade" bonds, the bid-offer spread is
usually greater for high-yield bonds than it is for investment grade
bonds. The price at which the Bonds may be sold to meet redemptions and
the value of the Trust will be adversely affected if trading markets for
the Bonds are limited or absent. If the rate of redemptions is great,
the value of the Trust may decline to a level that requires liquidation
(see "Other Information-How May the Indenture be Amended or Terminated?").
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
Page 5
issuers of lower-rated securities may not be as strong as that of other
issuers. Because investors generally perceive that there are greater
risks associated with the lower-rated securities in the Trust, the
yields and prices of these securities tend to fluctuate more than higher-
rated securities with changes in the perceived quality of the credit of
their issuers. In addition, the market value of high-yield, high-risk,
fixed-income securities may fluctuate more than the market value of
higher-rated securities since high-yield, high-risk, fixed-income
securities tend to reflect short-term credit development to a greater
extent than higher-rated securities. Lower-rated securities generally
involve greater risks of loss of income and principal than higher-rated
securities. Issuers of lower-rated securities may possess fewer
creditworthiness characteristics than issuers of higher-rated securities
and, especially in the case of issuers whose obligations or credit
standing have recently been downgraded, may be subject to claims by
debtholders, or others which, if sustained, would make it more difficult
for the issuers to meet their payment obligations. High-yield, high-risk
bonds are also affected by variables such as interest rates, inflation
rates and real growth in the economy. Therefore, investors should
consider carefully the relative risks associated with investment in
securities which carry lower ratings.
The value of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should the issuer
of any Bond default in the payment of principal or interest, the Trust
may incur additional expenses seeking payment on the defaulted Bond.
Because amounts (if any) recovered by the Trust in payment under the
defaulted Bond may not be reflected in the value of the Units until
actually received by the Trust, and depending upon when a Unit holder
purchases or sells his Units, it is possible that a Unit holder would
bear a portion of the cost of recovery without receiving any portion of
the payment recovered.
Obligations that are rated lower than BBB by Standard & Poor's or Fitch,
or Baa by Moody's, respectively, should be considered speculative as
such ratings indicate a quality of less than investment grade. Investors
should carefully review the objective of the Trust and consider their
ability to assume the risks involved before making an investment in the
Trust. See "Description of Bond Ratings" for a description of
speculative ratings issued by Standard & Poor's, Moody's or Fitch.
Foreign Issuers. All of the Bonds in the Trust are issued by foreign
governments. It is appropriate for investors in the Trust to consider
certain investment risks that distinguish investments in bonds of
foreign issuers from those of domestic issuers. Those investment risks
include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on the Bonds
held in the Portfolio, the possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions (including
expropriation, burdensome or confiscatory taxation and moratoriums)
which might adversely affect the payment or receipt of payment of
amounts due on the Bonds. Investors should realize that, although the
Trust invests in U.S. dollar denominated investments, the foreign
issuers which operate internationally are subject to currency risks. The
value of Bonds can be adversely affected by political or social
instability and unfavorable diplomatic or other negative developments.
In addition, because the foreign issuers are not subject to the
reporting requirements of the Securities Exchange Act of 1934, there is
generally less publicly available information about the foreign issuers
than a U.S. domestic issuer. Foreign issuers also are not subject to
uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S.
domestic issuers. However, the Sponsor anticipates that adequate
information will be available to allow the Portfolio Supervisor to
provide portfolio surveillance.
The portfolio of U. S. dollar-denominated sovereign debt obligations of
Argentina, Brazil, Mexico, Panama and Venezuela involves special risks.
These issuers have historically experienced, and may continue to
experience, periods of high rates of inflation, high interest rates,
exchange rate fluctuation, large amounts of external debt, balance of
payments and trade difficulties and extreme poverty and unemployment.
The governmental authority that controls the repayment of a country's
debt may not be able or willing to repay the principal and/or interest
Page 6
when due in accordance with the terms of the debt obligation. The
willingness or ability to repay the principal and interest due in a
timely manner may be affected by, among other factors, the country's
cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is
due, the relative size of the debt service burden to the economy as a
whole, the government debtor's policy towards the International Monetary
Fund and the political constraints to which the government may be
subject. Government debtors may default on their debt and may also be
dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be
conditioned on a debtor's implementation of economic reforms and/or
economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of
economic performance or repay principal or interest when due may result
in the cancellation of such third parties' commitments to lend funds to
the government debtor, which may further impair such debtor's ability or
willingness to service its debts on a timely basis. Holders of foreign
government debt, including the Trust, may be requested to participate in
the rescheduling of such debt and to extend further loans to government
debtors.
In the event of default, no assurance can be given that commercial banks
and other lenders with loans outstanding to a foreign government will
not contest payments to the holders of other government debt obligations
in the event of default under their commercial bank or other
institutional loan agreements. Government obligors such as Argentina,
Brazil, Mexico, Panama and Venezuela, as well as other developing and
emerging countries, are among the world's largest debtors to commercial
banks, other governments, international financial organizations and
other financial institutions. The issuers of the Bonds have, in the
past, experienced substantial difficulties in servicing their external
debt obligations, which led to defaults on certain obligations and the
restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, obtaining new credit to finance interest
payments and reducing and rescheduling interest and principal payments
by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to secured obligations, such
as Brady Bonds. Holders of the Bonds may be requested to participate in
the restructuring of such obligations and to extend further loans to
their issuers. There can be no assurance that such restructuring
arrangements would not adversely affect the Trust. Furthermore,
participants in the secondary market for such debt may be directly
involved in negotiating the terms of these arrangements and may
therefore have access to information not available to other market
participants.
The economies of Argentina, Brazil, Mexico, Panama and Venezuela may
differ favorably or unfavorably from the U.S. economy in such respects
as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency and
balance of payments position. The governments of these countries have
exercised and continue to exercise substantial influence over many
aspects of the private sector. In some cases, the government owns or
controls many companies, including some of the largest in the country.
Accordingly, government actions could have a significant effect on
economic conditions in an emerging country and on market condition,
prices and yields of the Bonds. Moreover, the economies of these
countries are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by
trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been
and may continue to be adversely affected by economic conditions in the
countries with which they trade. With respect to any of these countries,
there is the possibility of nationalization, expropriation or
confiscatory taxation, political changes, government regulation,
economic or social instability or diplomatic developments (including
war) which could affect adversely the economies of these countries or
the value of the Bonds.
In addition, the inter-relatedness of the economies in emerging
countries has deepened over the years, with the effect that economic
difficulties in one country often spread throughout a region or even
among all or most emerging country markets, an effect that may reduce
the effectiveness of any attempt by the Trust to reduce risk through
diversification. No assurance can be given that the Trust will not be
further adversely affected by these and similar events.
Argentina. A six-year political commitment to prudent fiscal and
financial policies has weathered recession and elections, thus favorably
distinguishing Argentina from some other Latin American nations, and
reflecting the relative independence of economic policy from politics.
The achievement of price stability and financial predictability for the
first time in a generation constitutes the foundation of support for the
Page 7
Convertibility Plan. The Convertibility Plan, which restricts the
government's economic policy flexibility, was adopted in 1991 as a means
of reestablishing the credibility and creditworthiness lost by decades
of financial mismanagement and broken promises. To maintain public
confidence in the commitment to the Convertibility Plan and in order to
compensate for the high debt and relatively shallow financial system
that are a legacy of Argentina's past, the government will be forced to
exercise greater fiscal and financial discipline than is required of
some other similarly-situated Latin American nations.
Lingering structural flaws in public finances, notably chronically high
tax evasion, a distortionary tax code and inefficient spending policies
in the provinces continue to challenge the Argentine government. A
sustainable reduction in tax evasion hinges in part on an improvement in
the justice system and better control of official corruption.
The positive aspects of Argentina's fiscal reform efforts are somewhat
offset by the country's vulnerable external finances. The net public
external debt burden is among the highest of rated sovereigns at an
estimated 138% of exports for 1997. Debt service alone absorbs 43.6% of
export earnings. Short-term debt is modest, but the public sector's
medium-term amortization schedule is heavy, and private sector
indebtedness is expected to grow. Balance of payments pressure, though
receding, is still a primary factor of Argentina's public indebtedness.
An economic expansion of approximately 7%, projected for both 1997 and
1998, is expected to cut the unemployment rate to an expected 15% in
early 1998. The government is struggling with labor reform and
privatization. Following inconclusive negotiations regarding the
loosening of labor laws, particularly decentralizing collective
bargaining and facilitating dismissal, President Menem sought to change
the laws by decree. However, the Supreme Court declared the decree
unconstitutional, and the issue is now back in the hands of Congress.
Long-term export potential and competitiveness, as well as economic
growth and creditworthiness, would be reinforced by labor market reform.
Therefore, even as memories of fiscal chaos and hyperinflation recede in
the seventh year of the convertibility era, Argentina's economic and
credit prospects remain inextricably linked to the credibility of the
government's commitment to prudent fiscal policy.
Standard & Poor's rates Argentina's long term debt, such as that
acquired by the Trust, at BB as of April 1997.
Brazil. Brazil is the fifth largest country in the world and occupies
nearly half the land area of South America. As of December 31, 1995,
Brazil's estimated population was 155.8 million, the fifth largest in
the world. After two decades of military governments, in 1985 Brazil
made a successful transition to civilian authority and democratic
government. The current President, Fernando Cardoso, was elected in
October 1994 and has continued his advocacy of the Plano Real, an
economic stabilization program for Brazil and it's currency, the real.
In connection with the Plano Real, the Cardoso administration has
introduced a number of constitutional amendments and other measures
designed to effect fundamental changes in Brazil's public finances,
including, among others, reforms of the tax and social security systems,
modification or privatization of certain state monopolies, changes in
spending responsibilities of different levels of government and changes
in conditions of employment in the public sector. The administration has
also taken steps to further Brazil's economic liberalization process
through measures to further deregulate the economy, reduce the
government's fiscal deficit and encourage foreign capital investment.
During the week of November 10, 1997, the Brazilian government
imposed/announced a new austerity plan, aimed at saving the real, the
currency that has been central to reducing the annual inflation rate
from 2,500% in 1993 to 5% in 1997. The austerity plan will raise taxes
and prices of everything from fuel to beer. It will lead to the
dismissal of 33,000 government workers and ban new hires. Intended to
ease concerns of investors, the retrenchment measures follow a move by
the Central Bank of Brazil to double short term interest rates to 46%.
The government is also stepping up efforts to privatize state run
industries and will attempt to accelerate the sale of $60 billion in
state assets.
Government measures are expected to lead to an economic slowdown, with
estimates for real growth in 1998 in the range of 0-1%. The announced
tax increases and investment cutbacks will take about $18.6 billion out
of the economy, amounting to nearly 3% of annual output. These measures,
designed to stabilize the real and bring Brazil into the world economy
as a major player, will be particularly hard on a nation that has
managed to generate economic growth, even while enduring skyrocketing
inflation.
Page 8
If the government is stable and disciplined enough to go along with the
austerity plan, Brazil will have enough resources to weather the most
recent financial crisis that spread there from panicked Asian markets.
Although Brazil's government lost about $10 billion in hard currency
reserves since late October 1997, it has about $52 billion with which to
defend the real. The investment community's vote of confidence for the
government austerity plan came in the form of the recent sale of an
electric utility to a Brazilian consortium at a premium of approximately
70% over the bidding floor in the privatization. Standard & Poor's rates
Brazil's long-term debt, such as that acquired by the Trust, at BB- as
of April 2, 1997.
Mexico. Mexico's credit standing is constrained by the vulnerability of
the government's economic policy to political pressure. Mexico's new
pluralism is expected to improve overall governance. Such improvement
will depend on the commitment of President Zedillo's administration and
the Partido Revoluncionario Institutional (PRI) to achieve political
consensus toward a market-oriented economic policy. At the same time,
recent strengthening of economic and especially balance of payments
fundamentals, if sustained, could mitigate the credit impact of
potential setbacks along the way.
Mexico's landmark electoral reform was the first of several major
legislative initiatives the Mexican Congress will seek to secure broader
overall participation in government. Other upcoming issues include the
transparency and accountability of budgetary, privatization, auditing,
and other public-sector financial processes; a more explicit definition
of the powers of other branches and levels of government; and a
strengthening of the very weak judicial and law enforcement
apparatus. Sustained economic expansion would give Mexico a strong
foundation to support other necessary reforms. The achievement of 5%
annual growth would yield gains in real per capita income, still at its
1994 level, that could encourage public support for stringent reform and
an orthodox economic policy. A higher rate of domestic savings would
support growth and reduce external risks.
Mexico's banking system, still recovering from the most recent crisis,
is still ill-equipped to meet the needs of the economy. Slow resolution
of the banking crisis and blanket government backing will drive the
government's cost to about 12% of 1997 gross domestic product (GDP). A
gradual recovery in domestic credit in the context of conservative
capital, liquidity and lending standards would permit a partial rollback
of the government's guarantee for depositors and creditors. In addition,
Banco de Mexico's (Banxico) still weak credibility requires broader
political support for its autonomy, even in the face of the potential
volatility of the peso.
Conservative fiscal policy remains the cornerstone of Mexico's recovery
from the peso crisis. The 1998 budget deficit is expected to be close to
the government's projected 1.3% of gross domestic product, with net debt
declining to about 25% of GDP in 1997 from 39% in 1995. A manageable net
external debt burden, which has been halved since 1994 to an estimated
85% of exports in 1997, is owed primarily to a surge in exports.
A strong relationship with the United States has been beneficial for
Mexico. Close ties with the U.S. afford financial support, provide
special assistance on bilateral issues such as narcotics and trade, and
fuel exports and direct investment. Mexico has already repaid the $50
billion financial package it received from the U.S. and other nations
during the peso crisis in 1994, and it has regained access to the
international markets.
Standard & Poor's rates Mexico's long term debt, such as that acquired
by the Trust, at BB as of November 12, 1997.
Panama. Panama is distinguished by its strategic geographic location,
the presence of the Panama Canal and the Colon Free Trade Zone,
historically close ties with the United States and a unique monetary
regime anchored by the use of the U.S. dollar as legal tender. Since
winning the 1994 national elections, the coalition government of
President Ernesto Perez Balladares has implemented an ambitious agenda
of economic reforms intended to gradually eliminate the long-standing
inefficiencies that constrain Panama's development.
The defining feature of the Panamanian tax system has traditionally been
the abundance of tax incentives, exemptions and special regimes. The Tax
Incentive Harmonization Law passed in June 1995 reduced the tax-
preferred status of the agricultural sector, compressed income tax
brackets, scaled back subsidized mortgage lending by public sector banks
Page 9
and extended the reach of the capital gains tax. The law should
encourage investment in the medium term, but will have limited fiscal
impact, since it does not address the most important tax-induced
distortion, the exemption of services from the value-added tax (VAT).
Instead of extending the VAT, the government will target current
expenditure to moderate the fiscal deficit. The wage bill accounted for
over 45% of the government's total outlay in 1996. Attempts to modify
the public sector employment and compensation system are underway, but
are likely to be impeded by influential unions. The reform of the social
security agency which supplies pension benefits and universal health
coverage is also critical to the sustainability of Panama's fiscal
position. At the current pace, the social security system will be
showing cash deficits as early as 2005, with the current system already
showing an actuarial deficit of no less than $1.8 billion (over 20% of
the 1996 GDP). The government is currently struggling to reform this
system and is allowing the social security agency to diversify it's
assets, currently held in bank deposits, in an attempt to boost returns.
Given the relative inflexibility of current expenditure, the government
has frequently resorted to cuts in its infrastructure development to
achieve its fiscal objectives. Revenues from the privatization of public
enterprises and the sell off of other public assets, which could exceed
$1 billion through 2000, will be deposited in a fund whose proceeds will
finance infrastructure investment and, possibly, be used to retire the
public debt.
Under Panama's monetary system which uses the U.S. dollar as legal
tender, the link between money supply and domestic credit is weaker than
in other sovereigns, because the demand for credit can be met by
Panamanian banks or by foreign banks taking advantage of the country's
dollar economy. Panama's inability to alter its own monetary supply
makes the role of foreign banks, which can extend credit at times when
the supply of domestic money recedes, more important, because the
foreign banks' lending policies will mitigate or reinforce the effects
of economic cycles. Interest rates are therefore largely determined by
international rates. Because of Panama's unique monetary system, as of
1996, approximately 70% of the public sector debt is held by external
creditors. In 1989, the central government had a $1 billion overdraft at
the National Bank of Panama (the National Bank), contributing to the
near collapse of the National Bank, which reflected the difficulties of
making payments under the U.S. embargo at the height of the Noriega
period. Since then, the government formalized a repayment schedule and
has been buying back outstanding Brady Bonds with bonds created in
Panama's 1996 debt restructuring. The sales show investor confidence,
since the new bonds are not collateralized. The Torrijos-Carter Treaties
of 1977 provided for the return of ownership and control of the Panama
Canal. Operation and management of the Canal and its facilities has
gradually reverted and will be complete by December 31, 1999. The Panama
Canal continues to be the busiest waterway in the world, but it faces
increasing competition from land-only transhipment routes and from
prospective dry canals in Central America. The canal is the fastest way
to cross the continent, but it also the most expensive, and while its
efficiency remains unblemished, it is operating close to or above
capacity in recent years and will require an improvement of the
installations. Construction is already in progress, which will be paid
for by tolls.
Standard & Poor's rates Panama's long term debt, such as that acquired
by the Trust, at BB+ as of November 14, 1997.
Venezuela. Venezuela is characterized by growing external financial
flexibility, reflecting the near-term impact of high oil prices coupled
with increased oil output. Heavy investment is expected to underpin a
near doubling of oil output and exports over the next decade. The
government's austerity program is also expected to contribute to
Venezuela's financial picture, with growing central bank reserves
producing a projected decline in net public external debt to 26% of
exports in 1997 from 95% in 1995. Venezuela's improved external finances
should be sustainable over the medium term.
Approximately $2 billion in public sector assets were privatized in
1996, and the sale of aluminum and steel sector companies in 1997 and
1998 is expected. When coupled with rising investment in energy and
other sectors, including foreign direct investment, this privatization
will improve longer term growth prospects.
The Venezuelan government has taken the initial steps toward
restructuring the public sector. Recent reform of the severance payments
system will cost about 15% of the GDP, but will ultimately allow for the
downsizing of the public sector. Steady increases of more than 50% in
tax compliance value-added tax receipts in the past two years and public
Page 10
sector price increases will also reinforce public finances. Excessive
fixed expenditures on interest and personnel, a still-narrow tax base
and high levels of tax exemption are problems that still characterize
the structural flaws of the public finance system. Although the
aforementioned reforms and higher oil prices should support budgetary
balance, declining oil prices and increased social spending could
quickly reverse this improvement. Public finance reform is particularly
vulnerable to oil revenues, as Venezuela's is dependent upon oil for
nearly 50% of its fiscal revenues and 80% of its exports.
Moderate support for market-oriented economic policies in the context of
12% unemployment, the sharp shrinkage of purchasing power in the last
two years, and declining public services may weaken further as elections
in 1998 draw closer. This is exemplified by a 70% public sector wage
increase granted early in 1997. Reducing inflation will be complicated
by such wage increases and a likely depreciation of the bolivar.
Inflation was expected to reach more than 40% by the end of 1997. The
government's need to accommodate popular pressure may threaten
budgetary, privatization and structural reforms.
Standard & Poor's rates Venezuela's long term debt, such as that
acquired by the Trust, at B+ as of June 5, 1997.
Liquidity. All the Bonds in the Trust have been registered under the
Securities Act of 1933. The Bonds are not listed on a U.S. securities
exchange. Whether or not the Bonds are listed, the principal trading
market for the Bonds will generally be in the over-the-counter market.
As a result, the existence of a liquid trading market for the Bonds may
depend on whether dealers will make a market in the Bonds. There can be
no assurance that a market will be made for any of the Bonds, that any
market for the Bonds will be maintained or of the liquidity of the Bonds
in any markets made. The price at which the Bonds may be sold to meet
redemptions and the value of the Trust will be adversely affected if
trading markets for the Bonds are limited or absent.
Exchange Controls. On the basis of the best information available to the
Sponsor at the present time, none of the Bonds are subject to exchange
control restrictions under existing law which would materially interfere
with payment to the Trust of amounts due on the Bonds. However, there
can be no assurance that exchange control regulations might not be
adopted in the future which might adversely affect payments to the
Trust. In addition, the adoption of exchange control regulations and
other legal restrictions could have an adverse impact on the
marketability of the Bonds in the Trust and on the ability of the Trust
to satisfy its obligation to redeem Units tendered to the Trustee for
redemption.
Jurisdiction Over, and U.S. Judgments Concerning, Foreign Obligors. The
issuers of the Bonds have not submitted to the jurisdiction of U.S.
courts for purposes of lawsuits relating to those Bonds. The Trust, as a
holder of those obligations, may not be able to assert its rights in
U.S. courts under the documents pursuant to which the Bonds are issued.
Even if the Trust obtains a U.S. judgment against a foreign obligor,
there can be no assurance that the judgment will be enforced by a court
in the country in which the foreign obligor is located. In addition, a
judgment for money damages by a court in the United States if obtained,
will ordinarily be rendered only in U.S. dollars. It is not clear,
however, whether, in granting a judgment, the rate of conversion of the
applicable foreign currency into U.S. dollars would be determined with
reference to the due date or the date the judgment is rendered. Courts
in other countries may have rules that are similar to, or different
from, the rules of U.S. courts.
General. The Trust may consist of Bonds which, in many cases, do not
have the benefit of covenants which would prevent the issuer from
engaging in restructurings or borrowing transactions which could have
the effect of reducing the ability of the issuer to meet its debt
obligations and might result in the ratings of the Bonds and the value
of the underlying Trust portfolio being reduced. See "Rights of Unit
Holders-How May Bonds be Removed from the Trust?" In addition, as the
Trust contains only five Bonds, a default by any one issuer will
negatively impact the amount of interest received by the Trust.
Certain of the Bonds in the Trust may have been acquired at a market
discount from par value at maturity. The coupon interest rates on the
discount bonds at the time they were purchased and deposited in the
Trust were lower than the current market interest rates for newly issued
bonds of comparable rating and type. If such interest rates for newly
issued comparable bonds increase, the market discount of previously
issued bonds will become greater, and if such interest rates for newly
issued comparable bonds decline, the market discount of previously
Page 11
issued bonds will be reduced, other things being equal. Investors should
also note that the value of bonds purchased at a market discount will
increase in value faster than bonds purchased at a market premium if
interest rates decrease. Conversely, if interest rates increase, the
value of bonds purchased at a market discount will decrease faster than
bonds purchased at a premium. In addition, if interest rates rise, the
prepayment risk of higher yielding, premium bonds and the prepayment
benefit for lower yielding, discount bonds will be reduced. A discount
bond held to maturity will have a larger portion of its total return in
the form of capital gain and less in the form of interest income than a
comparable bond newly issued at current market rates. Market discount
attributable to interest changes does not indicate a lack of market
confidence in the issue. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any of the Bonds.
Certain of the Bonds in the Trust may be original issue discount bonds
or zero coupon bonds. Under current law, the original issue discount,
which is the difference between the stated redemption price at maturity
and the issue price of the Bonds, is deemed to accrue on a daily basis
and the accrued portion is treated as interest income for Federal income
tax purposes. On sale or redemption, any gain realized that is in excess
of the earned portion of original issue discount will be taxable as
capital gain unless the gain is attributable to market discount in which
case the accretion of market discount is taxable as ordinary income. See
"What is the Federal Tax Status of Unit Holders?" The current value of
an original discount bond reflects the present value of its stated
redemption price at maturity. The market value tends to increase in
greater increments as the Bonds approach maturity. The effect of owning
deep discount zero coupon bonds which do not make current interest
payments is that a fixed yield is earned not only on the original
investment, but also, in effect, on all earnings during the life of the
discount obligation. This implicit reinvestment of earnings at the same
rate eliminates the risk of being unable to reinvest the income on such
obligations at a rate as high as the implicit yield on the discount
obligation, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, the zero coupon
bonds are subject to substantially greater price fluctuations during
periods of changing interest rates than are securities of comparable
quality which make regular interest payments.
Certain of the Bonds in the Trust may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the
premium bonds at the time they were purchased and deposited in the Trust
were higher than the current market interest rates for newly issued
bonds of comparable rating and type. If such interest rates for newly
issued and otherwise comparable bonds decrease, the market premium of
previously issued bonds will be increased, and if such interest rates
for newly issued comparable bonds increase, the market premium of
previously issued bonds will be reduced, other things being equal. The
current returns of bonds trading at a market premium are initially
higher than the current returns of comparable bonds of a similar type
issued at currently prevailing interest rates because premium bonds tend
to decrease in market value as they approach maturity when the face
amount becomes payable. Because part of the purchase price is thus
returned not at maturity but through current income payments, early
redemption of a premium bond at par or early prepayments of principal
will result in a reduction in yield. Redemption pursuant to call
provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed Bonds have an offering
side valuation which represents a premium over par or for original issue
discount Bonds a premium over the accreted value. To the extent that the
Bonds were deposited in the Trust at a price higher than the price at
which they are redeemed, this will represent a loss of capital when
compared to the original Public Offering Price of the Units. Because
premium bonds generally pay a higher rate of interest than bonds priced
at or below par, the effect of the redemption of premium bonds would be
to reduce Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of Bonds in
the Trust. Although the actual impact of any such redemptions that may
occur will depend upon the specific Bonds that are redeemed, it can be
anticipated that the Estimated Net Annual Unit Income will be
significantly reduced after the dates on which such Bonds are eligible
for redemption. See "Rights of Unit Holders-How May Bonds be Removed
from the Trust?" and "Other Information-How May the Indenture be Amended
or Terminated?"
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds from such events will be
distributed to Unit holders and will not be reinvested, no assurance can
be given that the Trust will retain for any length of time its present
Page 12
size and composition. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in the Trust may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions, sinking fund provisions or
otherwise. A bond subject to optional call is one which is subject to
redemption or refunding prior to maturity at the option of the issuer. A
refunding is a method by which a bond issue is redeemed, at or before
maturity, by the proceeds of a new bond issue. A bond subject to sinking
fund redemption is one which is subject to partial call from time to
time at par or from a fund accumulated for the scheduled retirement of a
portion of an issue prior to maturity. The exercise of redemption or
call provisions will (except to the extent the proceeds of the called
Bonds are used to pay for Unit redemptions) result in the distribution
of principal and may result in a reduction in the amount of subsequent
interest distributions; it may also affect the Estimated Long-Term
Return and the Estimated Current Return on Units of the Trust.
Redemption pursuant to call provisions is more likely to occur, and
redemption pursuant to sinking fund provisions may occur, when the Bonds
have an offering side valuation which represents a premium over par or
for original issue discount bonds a premium over the accreted value.
Unit holders may recognize capital gain or loss upon any redemption or
call.
The contracts to purchase Bonds delivered to the Trustee represent
obligations by issuers or dealers to deliver Bonds to the Sponsor for
deposit in the Trust. Contracts are typically settled and the Bonds
delivered within a few business days subsequent to the Initial Date of
Deposit. The percentage of the aggregate principal amount of the Bonds
of the Trust relating to "when, as and if issued" Bonds or other Bonds
with delivery dates after the date of settlement for a purchase made on
the Initial Date of Deposit, if any, is indicated in the section for the
Trust entitled "Portfolio." Interest on "when, as and if issued" and
delayed delivery Bonds begins accruing to the benefit of Unit holders on
their dates of delivery. Because "when, as and if issued" Bonds have not
yet been issued, as of the Initial Date of Deposit the Trust is subject
to the risk that the issuers thereof might decide not to proceed with
the offering of such Bonds or that the delivery of such Bonds or the
delayed delivery Bonds may be delayed. If such Bonds, or replacement
bonds described below, are not acquired by the Trust or if their
delivery is delayed, the Estimated Long-Term Return and the Estimated
Current Return shown in "Special Trust Information" may be reduced.
In the event of a failure to deliver any Bond that has been purchased
for the Trust under a contract, including those Bonds purchased on a
"when, as and if issued" basis ("Failed Bonds"), the Sponsor is
authorized under the Indenture to direct the Trustee to acquire other
specified bonds ("New Bonds") to make up the original corpus of the
Trust. The New Bonds must be purchased within twenty days after delivery
of the notice of the failed contract and the purchase price (exclusive
of accrued interest) may not exceed the amount of funds reserved for the
purchase of the Failed Bonds. The New Bonds (i) must satisfy the
criteria previously described for Bonds originally included in the
Trust, (ii) must have a fixed maturity date of at least seven years, but
not exceeding the maturity date of the Failed Bonds, (iii) must be
purchased at a price that results in a yield to maturity and in a
current return, in each case as of the Initial Date of Deposit, at least
equal to that of the Failed Bonds, (iv) shall not be "when, as and if
issued" bonds. Whenever a New Bond has been acquired for the Trust, the
Trustee shall, within five days thereafter, notify all Unit holders of
the Trust of the acquisition of the New Bond and shall, on the next
monthly distribution date which is more than 30 days thereafter, make a
pro rata distribution of the amount, if any, by which the cost to the
Trust of the Failed Bond exceeded the cost of the New Bond plus accrued
interest. Once the original corpus of the Trust is acquired, the Trustee
will have no power to vary the investment of the Trust, i.e., the
Trustee will have no managerial power to take advantage of market
variations to improve a Unit holder's investment.
If the right of limited substitution described in the preceding
paragraph shall not be utilized to acquire New Bonds in the event of a
failed contract, the Sponsor shall refund the sales charge attributable
to such failed contract to all Unit holders of the Trust, and the
principal and accrued interest (at the coupon rate of the relevant Bond
to the date the Sponsor is notified of the failure) attributable to such
failed contract shall be distributed not more than thirty days after the
determination of such failure or at such earlier time as the Trustee in
its sole discretion deems to be in the interest of the Unit holders of
Page 13
the Trust. Unit holders should be aware that at the time of the receipt
of such refunded principal they may not be able to reinvest such
principal in other securities at a yield equal to or in excess of the
yield which such principal would have earned to Unit holders had the
Failed Bond been delivered to the Trust. The portion of such interest
paid to a Unit holder which accrued after the expected date of
settlement for purchase of his Units will be paid by the Sponsor.
To the best knowledge of the Sponsor, there is no litigation pending as
of the Initial Date of Deposit in respect of any Bonds which might
reasonably be expected to have a material adverse effect upon the Trust.
At any time after the Initial Date of Deposit, litigation may be
initiated on a variety of grounds with respect to Bonds in the Trust.
Such litigation may affect the validity of such Bonds. In addition,
other factors may arise from time to time which potentially may impair
the ability of issuers to meet obligations undertaken with respect to
the Bonds.
Each Unit initially offered represents that fractional undivided
interest in the Trust as is set forth in the "Summary of Essential
Information" for the Trust. To the extent that any Units of the Trust
are redeemed by the Trustee, the fractional undivided interest in the
Trust represented by each unredeemed Unit will increase, although the
actual interest in the Trust represented by such fraction will remain
substantially unchanged. Units will remain outstanding until redeemed
upon tender to the Trustee by any Unit holder, which may include the
Sponsor, or until the termination of the Trust Agreement.
What are Estimated Long-Term Return and Estimated Current Return?
At the opening of business on the Initial Date of Deposit, the Estimated
Current Return and the Estimated Long-Term Return are as set forth in
"Summary of Essential Information." Estimated Current Return is computed
by dividing the Estimated Net Annual Interest Income per Unit by the
Public Offering Price. Any change in either the Estimated Net Annual
Interest Income per Unit or the Public Offering Price will result in a
change in the Estimated Current Return. The Public Offering Price will
vary in accordance with fluctuations in the prices of the underlying
Bonds and the Net Annual Interest Income per Unit will change as Bonds
are redeemed, paid, sold or exchanged in certain refundings or as the
expenses of the Trust change. Therefore, there is no assurance that the
Estimated Current Return indicated in "Summary of Essential Information"
will be realized in the future. Estimated Long-Term Return is calculated
using a formula which (1) takes into consideration and determines and
factors in the relative weightings of the market values, yields (which
takes into account the amortization of premiums and the accretion of
discounts) and estimated retirements of all of the Bonds in the Trust;
and (2) takes into account a compounding factor and the expenses and
sales charge associated with each Unit of the Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the Estimated Long-Term
Return indicated in "Summary of Essential Information" will be realized
in the future. Estimated Current Return and Estimated Long-Term Return
are expected to differ because the calculation of Estimated Long-Term
Return reflects the estimated date and amount of principal returned
while Estimated Current Return calculations include only Net Annual
Interest Income and Public Offering Price as of the Initial Date of
Deposit. Neither rate reflects the true return to Unit holders, which is
lower, because neither includes the effect of certain delays in the
distributions to Unit holders.
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with the
Distribution Dates being the last day of the month in which the related
Record Date occurs. It is anticipated that an amount equal to
approximately one-half of the amount of net annual interest income per
Unit will be distributed on or shortly after each Distribution Date to
Unit holders of record on the preceding Record Date. See "Summary of
Essential Information" for the Trust.
Record Dates for monthly distributions of interest are the fifteenth day
of each month. The Distribution Dates for distributions of interest
under the monthly plan is the last day of each month in which the
related Record Date occurs. All Unit holders will receive the first
distribution of interest regardless of the plan of distribution chosen
and all Unit holders will receive such distributions, if any, from the
Principal Account as are made as of the Record Dates for monthly
distributions.
How is Accrued Interest Treated?
Accrued interest is the accumulation of unpaid interest on a bond from
the last day on which interest thereon was paid. Interest on Bonds
generally is paid semi-annually, although the Trust accrues such
interest daily. Because of this, the Trust always has an amount of
interest earned but not yet collected by the Trustee. For this reason,
with respect to sales settling subsequent to the First Settlement Date,
the Public Offering Price of Units will have added to it the
Page 14
proportionate share of accrued interest to the date of settlement. Unit
holders will receive on the next distribution date of the Trust the
amount, if any, of accrued interest paid on their Units.
In an effort to reduce the amount of accrued interest which would
otherwise have to be paid in addition to the Public Offering Price in
the sale of Units to the public, the Trustee will advance the amount of
accrued interest as of the First Settlement Date and the same will be
distributed to the Sponsor as the Unit holder of record as of the First
Settlement Date. Consequently, the amount of accrued interest to be
added to the Public Offering Price of Units will include only accrued
interest from the First Settlement Date to the date of settlement, less
any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unit Holders-How are Interest and
Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of
interest actually received by the Trust and distributed to Unit holders.
Therefore, there will always remain an item of accrued interest that is
added to the value of the Units. If a Unit holder sells or redeems all
or a portion of his Units, he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his
Units. Since the Trustee has the use of the funds held in the Interest
Account for distributions to Unit holders and since such Account is non-
interest-bearing to Unit holders, the Trustee benefits thereby.
Are Unit Holders Subject to Foreign Withholding Tax?
Certain of the Bonds are subject to non-U.S. ("foreign") withholding
taxes. If the Trust obtains a certificate from an issuer evidencing
payment of foreign withholding taxes with respect to a Bond, the Trust
will so notify Unit holders. A Unit holder is required to include in his
gross income the entire amount of interest paid on his pro rata portion
of the Bond including the amount of tax withheld therefrom and the
amount of any Additional Payment. However, if the foreign tax withheld
constitutes an income tax for which U.S. foreign tax credits may be
taken, the Unit holder may be able to obtain applicable foreign tax
credits (subject to statutory limitations) or deductions. (See "What is
the Federal Tax Status of Unit Holders?")
What is the Federal Tax Status of Unit Holders?
For purposes of the following discussion and opinion, it is assumed that
interest on the Bonds is included in gross income for Federal income tax
purposes and that the Bonds are debt for Federal income tax purposes.
In the opinion of Chapman and Cutler, Counsel for the Sponsor, under
existing law:
(1) The Trust is not an association taxable as a corporation for
Federal income tax purposes.
(2) Each Unit holder of the Trust is considered to be the owner of a
pro rata portion of each of the Trust assets under subpart E, subchapter
J of chapter 1 of the Internal Revenue Code of 1986 (hereinafter the
"Code"). Each Unit holder will be considered to have received his pro
rata share of income derived from each Trust asset when such income is
considered to be received by the Trust. Each Unit holder will also be
required to include in taxable income for Federal income tax purposes,
original issue discount with respect to his interest in any Bonds held
by the Trust at the same time and in the same manner as though the Unit
holder were the direct owner of such interest.
(3) Each Unit holder will have a taxable event when a Bond of the
Trust is disposed of whether by sale, liquidation, redemption, or
payment at maturity or otherwise, or when the Unit holder redeems or
sells his Units. The Unit holder's tax basis in his Units will equal his
tax basis in his pro rata portion of all of the assets of the Trust.
Such basis is determined (before the adjustments described below) by
apportioning the tax basis for the Units among each of the Trust's
assets according to value as of the valuation date nearest the date of
acquisition of the Units. Unit holders must reduce the tax basis of
their Units for their share of accrued interest received, if any, on
Bonds delivered after the date the Unit holders pay for their Units to
the extent that such interest accrued on such Bonds before the date the
Trust acquired ownership of the Bonds (and the amount of this reduction
Page 15
may exceed the amount of accrued interest paid to the sellers) and,
consequently, such Unit holders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Bonds (whether by sale, exchange,
payment on maturity, redemption or otherwise), gain or loss is
recognized to the Unit holder (subject to various non-recognition
provisions of the Code). The amount of any such gain or loss is measured
by comparing the Unit holder's pro rata share of the total proceeds from
such disposition with his basis for his fractional interest in the asset
disposed of. The basis of each Unit and of each Bond which was issued
with original issue discount (or which has market discount) must be
increased by the amount of accrued original issue discount (and market
discount, if the Unit holder elects to include market discount in income
as it accrues) and the basis of each Unit and of each Bond which was
purchased by the Trust at a premium must be reduced by the annual
amortization of bond premium which the Unit holder has properly elected
to amortize under Section 171 of the Code. The tax basis reduction
requirements of the Code relating to amortization of bond premium may,
under some circumstances, result in the Unit holder realizing a taxable
gain when his Units are sold or redeemed for an amount equal to or less
than his original cost. Original issue discount is effectively treated
as interest for Federal income tax purposes and the amount of original
issue discount in this case is generally the difference between the
bond's purchase price and its stated redemption price at maturity. A
Unit holder will be required to include in gross income for each taxable
year the sum of his daily portions of original issue discount 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, unless the original
issue discount on a Bond is less than a "de minimis" amount as
determined under Treasury Regulations. To the extent the amount of such
discount is less than the respective "de minimis" amount, such discount
shall be treated as zero. In general, original issue discount accrues
daily under a constant interest rate method which takes into account the
semi-annual compounding of accrued interest. Unit holders should consult
their tax advisers regarding the Federal income tax consequences and
accretion of original issue discount.
Each Unit holder's pro rata share of each expense paid by the Trust is
deductible by the Unit holder to the same extent as though the expense
had been paid directly by him. 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 (similar
limitations also apply to estates and trusts). Unit holders may be
required to treat some or all of the expenses paid by the Trust as
miscellaneous itemized deductions subject to this limitation.
If a Unit holder's tax basis of his pro rata portion in any Bonds held
by the Trust exceeds the amount payable by the issuer of the Bonds with
respect to such pro rata interest upon maturity of the Bond, such excess
would be considered premium which may be amortized by the Unit holder at
the Unit holder's election as provided in Section 171 of the Code. Unit
holders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing premium.
Certain of the Bonds in the Trust may have been acquired with "original
issue discount." In the case of any Bonds in the Trust acquired with
"original issue discount" that exceeds a "de minimis" amount as
specified in the Code, such discount is includable in taxable income of
the Unit holders on an accrual basis computed daily, without regard to
when payments of interest on such Bonds are received. The Code provides
a complex set of rules regarding the accrual of original issue discount.
These rules provide that original issue discount generally accrues on
the basis of a constant compound interest rate over the term of the
Bonds. Unit holders should consult their tax advisers as to the amount
of original issue discount which accrues.
Special original issue discount rules apply if the purchase price of the
Bond by the Trust exceeds its original issue price plus the amount of
original issue discount which would have previously accrued based upon
its issue price (its "adjusted issue price"). Similarly these special
rules would apply to a Unit holder if the tax basis of his pro rata
portion of a Bond issued with original issue discount exceeds his pro
rata portion of its adjusted issue price. Unit holders should also
consult their tax advisers regarding these special rules.
It is possible that a Bond that has been issued at an original issue
discount may be characterized as a "high-yield discount obligation"
Page 16
within the meaning of Section 163(e)(5) of the Code. To the extent that
such an obligation is issued at a yield in excess of six percentage
points over the applicable Federal rate, a portion of the original issue
discount on such obligation will be characterized as a distribution on
stock (e.g., dividends) for purposes of the dividends received deduction
which is available to certain corporations with respect to certain
dividends received by such corporation.
If a Unit holder's tax basis in his pro rata portion of Bonds is less
than the allocable portion of such Bond's stated redemption price at
maturity (or, if issued with original issue discount, the allocable
portion of its "revised issue price"), such difference will constitute
market discount unless the amount of market discount is "de minimis" as
specified in the Code. Market discount accrues daily computed on a
straight line basis, unless the Unit holder elects to calculate accrued
market discount under a constant yield method. Unit holders should
consult their tax advisers as to the amount of market discount which
accrues.
Accrued market discount is generally includable in taxable income to the
Unit holders as ordinary income for Federal tax purposes upon the
receipt of serial principal payments on the Bonds, on the sale, maturity
or disposition of such Bonds by the Trust, and on the sale by a Unit
holder of Units, unless a Unit holder elects to include the accrued
market discount in taxable income as such discount accrues. If a Unit
holder does not elect to annually include accrued market discount in
taxable income as it accrues, deductions for any interest expenses
incurred by the Unit holder which is incurred to purchase or carry his
Units will be reduced by such accrued market discount. In general, the
portion of any interest expense which was not currently deductible would
ultimately be deductible when the accrued market discount is included in
income. Unit holders should consult their tax advisers regarding whether
an election should be made to include market discount in income as it
accrues and as to the amount of interest expense which may not be
currently deductible.
The tax basis of a Unit holder with respect to his interest in a Bond is
increased by the amount of original issue discount (and market discount,
if the Unit holder elects to include market discount, if any, on the
Bonds held by the Trust in income as it accrues) thereon properly
included in the Unit holder's gross income as determined for Federal
income tax purposes and reduced by the amount of any amortized premium
which the Unit holder has properly elected to amortize under Section 171
of the Code. A Unit holder's tax basis in his Units will equal his tax
basis in his pro rata portion of all of the assets of the Trust.
A Unit holder will recognize taxable capital gain (or loss) when all or
part of his pro rata interest in a Bond is disposed of in a taxable
transaction for an amount greater (or less) than his tax basis therefor.
As previously discussed, gain realized on the disposition of the
interest of a Unit holder in any Bond deemed to have been acquired with
market discount will be treated as ordinary income to the extent the
gain does not exceed the amount of accrued market discount not
previously taken into income. Any capital gain or loss arising from the
disposition of a Bond by the Trust or the disposition of Units by a Unit
holder will be short-term capital gain or loss unless the Unit holder
has held his Units for more than one year in which case such capital
gain or loss will be long-term. The Taxpayer Relief Act of 1997 (the
"1997 Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net
short-term capital loss for the taxable year) is subject to a maximum
marginal stated tax rate of either 28% or 20%, depending upon the
holding periods 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 of 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 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 applied in netting the realized capital gains and losses. Such
legislation is proposed to be effective retroactively for tax years
ending after May 6, 1997. In addition, it should be noted that various
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. The tax basis reduction requirements of the
Code relating to amortization of bond premium may, under some
circumstances, result in the Unit holder realizing taxable gain when his
or her Units are redeemed for an amount equal to or less than his
original cost.
Page 17
The 1997 Tax Act treats certain transactions designed to eliminate or
reduce risk of loss and opportunities for gain (e.g. short sales,
offsetting notional principal contracts, futures or forwards contracts,
or similar transactions) as constructive sales for purposes of
recognition of gain (but not loss) and for purposes of determining the
holding period. Unit holders should consult their own tax advisers with
regard to any such constructive sales rules and the effect of the 1997
Tax Act on their investment in a Unit.
If the Unit holder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all Trust assets including
his pro rata portion of all of the Bonds represented by the Unit. This
may result in a portion of the gain, if any, on such sale being taxable
as ordinary income under the market discount rules (assuming no election
was made by the Unit holder to include market discount in income as it
accrues) as previously discussed.
A Unit holder who is a foreign investor (i.e., an investor other than a
U.S. citizen or resident or a U.S. corporation, partnership, estate or
trust) will not be subject to United States Federal income taxes,
including withholding taxes, on interest income (including any original
issue discount) on, or any gain from the sale or other disposition of,
his pro rata interest in any Bond or the sale of his Units provided that
all of the following conditions are met: (i) the interest income or gain
is not effectively connected with the conduct by the foreign investor of
a trade or business within the United States (ii) if the interest is
United States source income (which is the case for most securities
issued by United States issuers), and the Bond is issued after July 18,
1984 then the foreign investor does not own, directly or indirectly, 10%
or more of the total combined voting power of all classes of voting
stock of the issuer of the Bond and the foreign investor is not a
controlled foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Bond, (iii) with respect to
any gain, the foreign investor (if an individual) is not present in the
United States for 183 days or more during his or her taxable year and
(iv) the foreign investor provides all certification which may be
required of his status (foreign investors may contact the Sponsor to
obtain a Form W-8 which must be filed with the Trustee and refiled every
three calendar years thereafter). It should be noted that interest on
securities issued by most foreign corporations that do not engage in a
trade or business in the United States is not considered United States
source income; accordingly, condition (ii) above would not be required
to be satisfied for the interest income (including any original issue
discount) to be exempt from United States Federal income taxes including
withholding taxes. Foreign investors should consult their tax advisers
with respect to United States tax consequences of ownership of Units.
It should be noted that payments to the Trust of interest on the Bonds
of foreign governments may be subject to foreign withholding taxes and
Unit holders should consult their tax advisers regarding the potential
tax consequences relating to the payment of any such withholding taxes
by the Trust. Any interest withheld as a result thereof may 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.
It should be noted that the Revenue Reconciliation Act of 1993 included
a provision which eliminates the exemption from United States taxation,
including withholding taxes, for certain "contingent interest." The
provision applies to interest received after December 31, 1993. No
opinion is expressed herein regarding the potential applicability of
this provision and whether United States taxation or withholding taxes
could be imposed with respect to income derived from the Units as a
result thereof. Unit holders and prospective investors should consult
with their tax advisers regarding the potential effect of this provision
on their investment in Units.
Each Unit holder (other than a foreign investor who has properly
provided the certifications described above) will be requested to
provide the Unit holder's taxpayer identification number to the trustee
and to certify that the Unit holder has not been notified that payments
to the Unit holder are subject to back-up withholding. If the proper
taxpayer identification number and appropriate certification are not
provided when requested, distributions by the Trust to such Unit holder
including amounts received upon the redemption of the Units will be
subject to back-up withholding.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to the
Trust for New York tax matters, the Trust is not an association taxable
as a corporation and the income of the Trust will be treated as the
income of the Unit holders under the existing income tax laws of the
State and City of New York.
The foregoing discussion relates only to United States Federal and New
Page 18
York State and City income taxes; Unit holders may be subject to
foreign, state and local taxation in other jurisdictions (including a
foreign investor's country of residence). Unit holders should consult
their tax advisers regarding potential state, local, or foreign taxation
with respect to the Units.
Why are Investments in the Trust Eligible for Retirement Plans?
Units of the Trust 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.
What are the Expenses and Charges?
With the exception of bookkeeping and other administrative services
provided to the Trust, for which the Sponsor will be reimbursed in the
amount set forth under "Summary of Essential Information," the Sponsor
will not receive any fees in connection with its activities relating to
the Trust. Certain of the expenses incurred in establishing the Trust,
including the cost of the initial preparation of documents relating to
the Trust, Federal and state registration fees, the initial fees and
expenses of the Trustee, legal expenses and any other out-of-pocket
expenses may be paid by the Sponsor, and may, in part, be paid by the
Trustee.
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," for providing portfolio
supervisory services for the Trust. Such fee is based on the number of
Units outstanding in the Trust on January 1 of each year except for the
year or years in which an initial offering period occurs in which case
the fee for a month is based on the number of Units outstanding at the
end of such month. 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 Trust.
The Evaluator will receive an evaluation fee as set forth in "Summary of
Essential Information." The Trustee pays certain expenses of the Trust
for which it is reimbursed by the Trust. After the first year the
Trustee will receive for its ordinary recurring services to the Trust a
fee as indicated in "Special Trust Information" for the Trust. During
the first year the Trustee has agreed to lower its fee and, to the
extent necessary, pay expenses of the Trust in the amount, if any,
stated under "Special Trust Information" for the Trust. For a discussion
of the services performed by the Trustee pursuant to its obligations
under the Indenture, reference is made to the material set forth under
"Rights of Unit Holders." The Trustee pays certain expenses of the Trust
for which it is reimbursed by the Trust. The Trustee will receive for
its ordinary recurring services to the Trust an annual fee as set forth
in "Summary of Essential Information." Such fee will be based upon the
largest aggregate number of Units of the Trust outstanding at any time
during the year. For a discussion of the services performed by the
Trustee pursuant to its obligations under the Indenture, reference is
made to the material set forth under "Rights of Unit Holders."
The Trustee's and above described fees are payable monthly on or before
each Distribution Date from the Interest Account of the Trust to the
extent funds are available and then from the Principal Account of the
Trust. Since the Trustee has the use of the funds being held in the
Principal and Interest Accounts for future distributions, payment of
expenses and redemptions and since such Accounts are non-interest-
bearing to Unit holders, the Trustee benefits thereby. Part of the
Trustee's compensation for its services to the Trust is expected to
result from the use of these funds.
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 and
supervisory services, such individual fees may exceed the actual costs
of providing such services for the Trust, but at no time will the total
amount received for such services rendered to all unit investment trusts
Page 19
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.
Expenses incurred in establishing the Trust, including costs of
preparing the registration statement, the trust indenture and other
closing documents, registering Units with the Securities and Exchange
Commission and states, the initial audit of the Trust portfolio, legal
fees, the initial fees and expenses of the Trustee and any other non-
material out-of-pocket expenses, will be paid by the Trust and charged
off over a period not to exceed five years from the Initial Date of
Deposit. The following additional charges are or may be incurred by the
Trust: all expenses (including legal and annual auditing expenses) of
the Trustee incurred by or in connection with its responsibilities under
the Indenture, except in the event of negligence, bad faith or willful
misconduct on its part; the expenses and costs of any action undertaken
by the Trustee to protect the Trust and the rights and interests of the
Unit holders; fees of the Trustee for any extraordinary services
performed under the Indenture; indemnification of the Trustee for any
loss, liability or expense incurred by it without negligence, bad faith
or willful misconduct on its part, arising out of or in connection with
its acceptance or administration of the Trust; indemnification of the
Sponsor for any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct in acting as Depositor of
the Trust; all taxes and other government charges imposed upon the Bonds
or any part of the Trust (no such taxes or charges are being levied or
made or, to the knowledge of the Sponsor, contemplated); and
expenditures incurred in contacting Unit holders upon termination of the
Trust. The above expenses and the Trustee's annual fee, when paid or
owing to the Trustee, are secured by a lien on the Trust. In addition,
the Trustee is empowered to sell Bonds of the Trust in order to make
funds available to pay all these amounts if funds are not otherwise
available in the Interest and Principal Accounts of the Trust.
Unless the Sponsor determines that such an audit is not required, the
Indenture requires the accounts of the Trust shall be audited on an
annual basis at the expense of the Trust by independent auditors
selected by the Sponsor. So long as the Sponsor is making a secondary
market for Units, the Sponsor shall bear the cost of such annual audits
to the extent such cost exceeds $.50 per Unit. Unit holders of the Trust
covered by an audit may obtain a copy of the audited financial
statements from the Trustee upon request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. During the initial
offering period, the Public Offering Price is determined by adding to
the Evaluator's determination of the aggregate offering price of the
Bonds in the Trust a sales charge of 4.9% of the Public Offering Price
(equivalent to 5.152% of the net amount invested). Also added to the
Public Offering Price is a proportionate share of interest accrued but
unpaid on the Bonds after the First Settlement Date to the date of
settlement. See "How Is Accrued Interest Treated?" During the initial
offering period, the Sponsor's Repurchase Price is equal to the
Evaluator's determination of the aggregate offering price of the Bonds
in the Trust.
The applicable sales charge is reduced by a discount as indicated below
for volume purchases:
<TABLE>
<CAPTION>
Total Dollar Amount Discount
of Transaction per Unit
___________________ ________
<S> <C>
$ 100,000 to $249,999 0.25%
$ 250,000 to $499,999 0.50%
$ 500,000 to $999,999 0.75%
$1,000,000 or more 1.00%
</TABLE>
Any such reduced sales charge shall be the responsibility of the selling
Underwriter, broker/dealer, bank or other selling agent. This reduced
sales charge structure will apply on all purchases of Units in the Trust
by the same person on any one day from the Underwriter or any one
broker/dealer, bank or other selling agent. For purposes of calculating
the applicable sales charge, purchases of Units in the Trust will not be
aggregated with any other purchases by the same person of units in any
series of tax-exempt or other unit investment trusts sponsored by Nike
Page 20
Securities L.P. Additionally, Units purchased in the name of the spouse
of a purchaser or in the name of a child of such purchaser under 21
years of age will be deemed for the purposes of calculating the
applicable sales charge to be additional purchases by the purchaser. The
reduced sales charges will also be applicable to a trustee or other
fiduciary purchasing securities for a single trust or single fiduciary
account. In addition, 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,
broker/dealers, banks or other selling agents and their subsidiaries and
vendors providing services to the Sponsor may purchase Units of the
Trust during the initial and secondary offering periods at the Public
Offering Price less the concession the Sponsor typically allows
broker/dealers.
Units may be purchased in the primary or secondary market at the Public
Offering Price less the concession the Sponsor typically allows to
broker/dealers and other selling agents for purchases (see "Public
Offering-How are Units Distributed?") by investors who purchase Units
through registered investment advisers, certified financial planners and
registered broker-dealers who in each case either charge periodic fees
for financial planning, investment advisory or asset management
services, or provide such services in connection with the establishment
of an investment account for which a comprehensive "wrap fee" charge is
imposed.
The Public Offering Price of Units of the Trust for secondary market
purchases will be determined by adding to the Evaluator's determination
of the aggregate bid price of the Bonds in the Trust the appropriate
sales charge determined in accordance with the schedule set forth below,
based upon the number of years remaining to the maturity of each Bond in
the portfolio of the Trust, adjusting the total to reflect the amount of
any cash held in or advanced to the principal account of the Trust and
dividing the result by the number of Units of the Trust then
outstanding. The maximum sales charge on Units will be 5.0% of the
Public Offering Price (equivalent to 5.263% of the net amount invested).
For purposes of computation, Bonds will be deemed to mature on their
expressed maturity dates unless (a) the Bonds have been called for
redemption or funds or securities have been placed in escrow to redeem
them on an earlier call date, in which case such call date will be
deemed to be the date upon which they mature; or (b) such Bonds are
subject to a "mandatory tender," in which case such mandatory tender
will be deemed to be the date upon which they mature.
The effect of this method of sales charge computation will be that
different sales charge rates will be applied to each of the various
Bonds in the Trust based upon the maturities of such bonds, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
_________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_________________ __________ __________
<S> <C> <C>
Less than 1 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 or more 5.00 5.263
</TABLE>
There will be no reduction of the sales charges for volume purchases for
secondary market transactions. A dealer will receive from the Sponsor a
dealer concession of 70% of the total sales charges for Units sold by
such dealer and dealers will not be eligible for additional concessions
for Units sold pursuant to the above schedule.
Page 21
On the Initial Date of Deposit, the Public Offering Price is as
indicated in the "Summary of Essential Information." In addition to
fluctuations in the amount of interest accrued but unpaid on Bonds in
the Trust, the Public Offering Price at any time during the initial
offering period will vary from the Public Offering Price stated herein
in accordance with fluctuations in the prices of the underlying Bonds.
The aggregate price of the Bonds in the Trust is determined by whomever
from time to time is acting as evaluator (the "Evaluator"), on the basis
of bid prices or offering prices as is appropriate, (1) on the basis of
current market prices for the Bonds obtained from dealers or brokers who
customarily deal in bonds comparable to those held by the Trust; (2) if
such prices are not available for any of the Bonds, on the basis of
current market prices for comparable bonds; (3) by determining the value
of the Bonds by appraisal; or (4) by any combination of the above.
During the initial public offering period, a determination of the
aggregate price of the Bonds in the Trust is made by the Evaluator on an
offering price basis, as of the close of trading on the New York Stock
Exchange on each day on which it is open, effective for all sales made
subsequent to the last preceding determination. For secondary market
purposes, the Evaluator will be requested to make such a determination,
on a bid price basis, as of the close of trading on the New York Stock
Exchange on each day on which it is open, effective for all sales,
purchases or redemptions made subsequent to the last preceding
determination.
The Public Offering Price of the Units during the initial offering
period is equal to the offering price per Unit of the Bonds in the Trust
plus the applicable sales charge. After the completion of the initial
offering period, the secondary market Public Offering Price will be
equal to the bid price per Unit of the Bonds in the Trust plus the
applicable sales charge. The offering price of Bonds in the Trust may be
expected to be greater than the bid price of such Bonds by approximately
1-3% of the aggregate principal amount of such Bonds.
Although payment is normally made three business days following the
order for purchase (the "date of settlement"), payment may be made prior
thereto. A person will become owner of Units on the date of settlement
provided payment has been received. Cash, if any, made available to the
Sponsor prior to the date of settlement for the purchase of Units may be
used in the Sponsor's business and may be deemed to be a benefit to the
Sponsor, subject to the limitations of the Securities Exchange Act of
1934. Delivery of Certificates representing Units so ordered will be
made three business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
During the initial offering period (i) for Units issued on the Initial
Date of Deposit and (ii) for additional Units issued after such date as
additional Bonds are deposited by the Sponsor, Units will be offered to
the public at the Public Offering Price, computed as described above, by
the Sponsor and through broker/dealers and others. The initial offering
period may be up to approximately 360 days. During this period, the
Sponsor may deposit additional Bonds in the Trust and create additional
Units. Upon completion of the initial offering, Units repurchased in the
secondary market (see "Public Offering-Will There Be a Secondary
Market?") may be offered by this Prospectus at the secondary market
public offering price determined in the manner described above.
It is the intention of the Sponsor to qualify Units of the Trust for
sale in a number of states. Sales initially will be made to
broker/dealers and other selling agents at prices which represent a
concession or agency commission of 3.2% of the Public Offering Price per
Unit.
However, resales of Units of the Trust by such dealers and others to the
public will be made at the Public Offering Price described in the
Prospectus. The Sponsor reserves the right to change the amount of the
concession or agency commission from time to time. Certain commercial
banks are making Units of the Trust available to their customers on an
agency basis. A portion of the sales charge paid by these customers is
retained by or remitted to the banks in the amounts indicated in the
second preceding sentence. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall
Act does permit certain agency transactions and the banking regulators
have not indicated that these particular agency transactions are not
permitted under such Act. In Texas and in certain other states, any
Page 22
banks making Units available must be registered as broker/dealers under
state law.
A comparison of estimated current returns and estimated long-term
returns with the returns on various investments is one element to
consider in making an investment decision. The Sponsor may from time to
time in its advertising and sales materials compare the then current
estimated returns on the Trust and returns over specified periods on
other similar Trusts sponsored by Nike Securities L.P. with returns on
investments such as U.S. Government bonds, bank CDs and money market
accounts or money market funds, each of which has investment
characteristics that may differ from those of the Trust. U.S. Government
bonds, for example, are backed by the full faith and credit of the U.S.
Government and bank CDs and money market accounts are insured by an
agency of the federal government. Money market accounts and money market
funds provide stability of principal, but pay interest at rates that
vary with the condition of the short-term debt market. The investment
characteristics of the Trust are described more fully elsewhere in this
Prospectus.
What are the Sponsor's and Underwriter's Profits?
The Sponsor of the Trust will receive a gross sales commission equal to
4.9% of the Public Offering Price of the Units of the Trust (equivalent
to 5.152% of the net amount invested), less any reduced sales charge as
described under "Public Offering-How is the Public Offering Price
Determined?" See "Underwriting" for information regarding the receipt of
excess gross sales commissions by the Sponsor from the Underwriter and
additional concessions available to the Underwriter, broker/dealers and
others. In addition, the Sponsor may be considered to have realized a
profit or the Sponsor may be considered to have sustained a loss, as the
case may be for the Trust, in the amount of any difference between the
cost of the Bonds to the Trust (which is based on the Evaluator's
determination of the aggregate offering price of the underlying Bonds of
the Trust on the Initial Date of Deposit as well as subsequent dates of
deposit) and the cost of such Bonds to the Sponsor. See "Underwriting"
and Note 1 of "Notes to Portfolio." Such profits or losses may be
realized or sustained by the Sponsor with respect to Bonds which were
acquired by the Sponsor from underwriting syndicates of which it was a
member. During the initial offering period, the Underwriter also may
realize profits or sustain losses from the sale of Units to
broker/dealers or as a result of fluctuations after the Initial Date of
Deposit or subsequent dates of deposit in the offering prices of the
Bonds and hence in the Public Offering Price received by the Sponsor.
In maintaining a market for the Units, the Sponsor and the Underwriter
will also realize profits or sustain losses in the amount of any
difference between the price at which Units are purchased (based on the
bid prices of the Bonds in the Trust) and the price at which Units are
resold (which price is also based on the bid prices of the Bonds in the
Trust and includes a maximum sales charge of 5.0%) or redeemed. The
secondary market public offering price of Units may be greater or less
than the cost of such Units to the Sponsor or the Underwriter.
Will There be a Secondary Market?
After the initial offering period, although not obligated to do so, the
Sponsor and the Underwriter intend to maintain a market for the Units
and continuously to offer to purchase Units at prices, subject to change
at any time, based upon the aggregate bid price of the Bonds in the
portfolio of the Trust plus interest accrued to the date of settlement.
All expenses incurred in maintaining a secondary market, other than the
fees of the Evaluator, the other expenses of the Trust and the costs of
the Trustee in transferring and recording the ownership of Units, will
be borne by the Sponsor. If the supply of Units exceeds demand, or for
some other business reason, the Sponsor may discontinue purchases of
Units at such prices. IF A UNIT HOLDER WISHES TO DISPOSE OF HIS OR HER
UNITS, HE OR SHE SHOULD INQUIRE OF THE SPONSOR AS TO CURRENT MARKET
PRICES PRIOR TO MAKING A TENDER FOR REDEMPTION TO THE TRUSTEE.
Prospectuses relating to certain other bond funds indicate an intention,
subject to change, on the part of the respective sponsors of such funds
to repurchase units of those funds on the basis of a price higher than
the BID prices of the securities in the funds. Consequently, depending
upon the prices actually paid, the repurchase price of other sponsors
for units of their funds may be computed on a somewhat more favorable
basis than the repurchase price offered by the Sponsor for Units of the
Trust in secondary market transactions. As in this Trust, the purchase
price per unit of such bond funds will depend primarily on the value of
Page 23
the securities in the portfolio of the fund.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units is evidenced by registered certificates executed by
the Trustee and the Sponsor. Delivery of certificates representing Units
ordered for purchase is normally made three business days following such
order or shortly thereafter. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer.
Certificates to be redeemed must be properly endorsed or accompanied by
a written instrument or instruments of transfer. A Unit holder must sign
exactly as his name appears on the face of the certificate with the
signature guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP") or such other signature guaranty program in
addition to, or in substitution for, STAMP, as may be accepted by the
Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates
of death, appointments as executor or administrator or certificates of
corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or exchange. For new certificates
issued to replace destroyed, stolen or lost certificates, the Unit
holder may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from the Trust after deduction of amounts sufficient to
reimburse the Trustee, without interest, for any amounts advanced and
paid to the Sponsor as the Unit holder of record as of the First
Settlement Date (see "How is Accrued Interest Treated?") will be
distributed on or shortly after the last day of each month on a pro rata
basis to Unit holders of record as of the preceding Record Date who are
entitled to distributions at that time under the plan of distribution
chosen. All distributions for the Trust will be net of applicable
expenses for the Trust.
The pro rata share of cash in the Principal Account of the Trust will be
computed as of the fifteenth day of each month, and distributions to the
Unit holders of the Trust as of such Record Date will be made on or
shortly after the last day of each month. Proceeds from the disposition
of any of the Bonds of the Trust received after such Record Date and
prior to the following Distribution Date will be held in the Principal
Account of the Trust and not distributed until the next Distribution
Date. The Trustee is not required to make a distribution from the
Principal Account of the Trust unless the amount available for
distribution shall equal at least $.01 per Unit.
The Trustee will credit to the Interest Account of the Trust all
interest received by the Trust, including that part of the proceeds of
any disposition of Bonds which represents accrued interest. Other
receipts will be credited to the Principal Account of the Trust. The
distribution to the Unit holders of the Trust as of each Record Date
will be made on the following Distribution Date or shortly thereafter
and shall consist of an amount substantially equal to such portion of
the holder's pro rata share of the estimated annual income of the Trust
after deducting estimated expenses. Except through an advancement of its
own funds, the Trustee has no cash for distribution to Unit holders
until it receives interest payments on the Bonds in the Trust. The
Trustee shall be reimbursed, without interest, for any advances from
funds in the Interest Account of the Trust on the ensuing Record Date.
Persons who purchase Units between a Record Date and a Distribution Date
will receive their first distribution on the second Distribution Date
after the purchase under the applicable plan of distribution. The
Trustee is not required to pay interest on funds held in the Principal
or Interest Account of the Trust (but may itself earn interest thereon
and therefore benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct from the
Interest Account of the Trust and, to the extent funds are not
Page 24
sufficient therein, from the Principal Account of the Trust, amounts
necessary to pay the expenses of the Trust. The Trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the
Trustee may withdraw from the Interest Account and the Principal Account
of the Trust such amounts as may be necessary to cover redemption of
Units of the Trust by the Trustee.
PURCHASERS OF UNITS WHO DESIRE TO RECEIVE DISTRIBUTIONS ON A SEMI-ANNUAL
BASIS MAY ELECT TO DO SO AT THE TIME OF PURCHASE DURING THE INITIAL
PUBLIC OFFERING PERIOD. THOSE NOT SO INDICATING WILL BE DEEMED TO HAVE
CHOSEN THE MONTHLY DISTRIBUTION PLAN. However, all Unit holders
purchasing Units during the initial public offering period and prior to
the first Record Date will receive the first distribution of interest.
Thereafter, Record Dates for monthly distributions will be the fifteenth
day of each month and Record Dates for semi-annual distributions will be
the fifteenth day of June and December. Distributions will be made on
the last day of the month of the respective Record Date.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of
the prior owner. Each year, approximately six weeks prior to the end of
May, the Trustee will furnish each Unit holder a card to be returned to
the Trustee not more than thirty nor less than ten days before the end
of such month. Unit holders desiring to change the plan of distribution
in which they are participating may so indicate on the card and return
same, together with their certificate, to the Trustee. If the card and
certificate are returned to the Trustee, the change will become
effective as of June 16 of that year. If the card and certificate are
not returned to the Trustee, the Unit holder will be deemed to have
elected to continue with the same plan for the following twelve months.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation in a
Universal Distribution Option which permits a Unit holder to direct the
Trustee to distribute principal and interest payments to any other
investment vehicle of which the Unit holder has an EXISTING account. For
example, at a Unit holder's direction, the Trustee would distribute
automatically on the applicable distribution date interest income,
capital gains or principal on the participant's Units to, among other
investment vehicles, a Unit holder's checking, bank savings, money
market, insurance, reinvestment or any other account. All such
distributions, of course, are subject to the minimum investment and
sales charges, if any, of the particular investment vehicle to which
distributions are directed. The Trustee will notify the participant of
each distribution pursuant to the Universal Distribution Option. The
Trustee will distribute directly to the Unit holder any distributions
which are not accepted by the specified investment vehicle. A
participant may at any time, by so notifying the Trustee in writing,
elect to terminate his participation in the Universal Distribution
Option and receive directly future distributions on his Units.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of the Trust in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after
the end of each calendar year, the Trustee will furnish to each person
who at any time during the calendar year was a Unit holder of the Trust
of record, a statement as to (1) the Interest Account: interest received
by the Trust (including amounts representing interest received upon any
disposition of Bonds of the Trust), deductions for payment of applicable
taxes and for fees and expenses of the Trust, redemption of Units and
the balance remaining after such distributions and deductions, expressed
both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (2) the Principal Account: the dates of disposition of
any Bonds of the Trust and the net proceeds received therefrom,
deduction for payment of applicable taxes and for fees and expenses of
the Trust, redemptions of Units, and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount
and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (3) the
Bonds held and the number of Units of the Trust outstanding on the last
Page 25
business day of such calendar year; (4) the Redemption Price per Unit
based upon the last computation thereof made during such calendar year;
and (5) the amounts actually distributed during such calendar year from
the Interest Account and from the Principal Account of the Trust,
separately stated, expressed both as total dollar amounts and as dollar
amounts representing the pro rata share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds in their Trust furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its unit investment trust office in the City of New York of
the certificates representing the Units to be redeemed, duly endorsed or
accompanied by proper instruments of transfer with signature guaranteed
as explained above (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates), and payment of
applicable governmental charges, if any. No redemption fee will be
charged. On the third business day following such tender, the Unit
holder will be entitled to receive in cash an amount for each Unit equal
to the Redemption Price per Unit next computed after receipt by the
Trustee of such tender of Units. The "date of tender" is deemed to be
the date on which Units are received by the Trustee (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 such Exchange is open for trading and
such Units will be deemed to have been tendered to the Trustee on such
day for redemption at the redemption price computed on that day. Units
so redeemed shall be cancelled.
Accrued interest to the settlement date paid on redemption shall be
withdrawn from the Interest Account of the Trust or, if the balance
therein is insufficient, from the Principal Account of the Trust. All
other amounts paid on redemption shall be withdrawn from the Principal
Account of the Trust.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the
Bonds in the Trust while the Public Offering Price of Units during the
initial offering period will be determined on the basis of the offering
price of the Bonds of the Trust as of the close of trading on the New
York Stock Exchange on the date any such determination is made. On the
Initial Date of Deposit the Public Offering Price per Unit (which is
based on the offering prices of the Bonds in the Trust and includes the
sales charge) exceeded the Unit value at which Units could have been
redeemed (based upon the current BID prices of the Bonds in the Trust)
by the amount shown under "Summary of Essential Information." The
Redemption Price per Unit is the pro rata share of each Unit determined
by the Trustee on the basis of (1) the cash on hand in the Trust or
moneys in the process of being collected, (2) the value of the Bonds in
the Trust based on the bid prices of the Bonds, and (3) accrued interest
on the bonds, less (a) amounts representing taxes or other governmental
charges payable out of the Trust, (b) the accrued expenses of the Trust
and (c) cash held for distribution to Unit holders of record as of a
date prior to the evaluation then being made. The Evaluator may
determine the value of the Bonds in the Trust (1) on the basis of
current bid prices of the Bonds obtained from dealers or brokers who
customarily deal in bonds comparable to those held by the Trust, (2) on
the basis of bid prices for bonds comparable to any Bonds for which bid
prices are not available, (3) by determining the value of the Bonds by
appraisal, or (4) by any combination of the above.
The difference between the bid and offering prices of such Bonds may be
expected to average 1-3% of the principal amount. In the case of
actively traded bonds, the difference may be as little as 1/2 of 1% and,
in the case of inactively traded bonds, such difference usually will not
exceed 4%. Therefore, the price at which Units may be redeemed could be
less than the price paid by the Unit holder. At the opening of business
on the Initial Date of Deposit, the aggregate current offering price of
such Bonds per Unit exceeded the Redemption Price per Unit (based upon
current bid prices of such Bonds) by the amount indicated in the
"Summary of Essential Information."
The Trustee is empowered to sell underlying Bonds in the Trust in order
to make funds available for redemption. To the extent that Bonds are
sold, the size and diversity of the Trust will be reduced. Such sales
may be required at a time when Bonds would not otherwise be sold and
Page 26
might result in lower prices than might otherwise be realized.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on that
Exchange is restricted or an emergency exists, as a result of which
disposal or evaluation of the Bonds is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission may by
order permit. Under certain extreme circumstances, the Sponsor may apply
to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor or Underwriter?
The Trustee shall notify the Sponsor and Underwriter of any tender of
Units for redemption. If the Sponsor's or Underwriter's bid in the
secondary market at that time equals or exceeds the Redemption Price per
Unit, it may purchase such Units by notifying the Trustee before 1:00
p.m. Eastern time on the next succeeding business day and by making
payment therefor to the Unit holder not later than the day on which the
Units would otherwise have been redeemed by the Trustee. Units held by
the Sponsor or Underwriter may be tendered to the Trustee for redemption
as any other Units.
The offering price of any Units acquired by the Sponsor or Underwriter
will be in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit or loss
resulting from the resale or redemption of such Units will belong to the
Sponsor or Underwriter.
How May Bonds be Removed from the Trust?
The Trustee, in its sole discretion, is empowered to sell underlying
Bonds of a Trust in order to make funds available for the redemption of
Units of such Trust or to provide for the payment of expenses of such
Trust for which funds are not available. The Depositor shall maintain
with the Trustee a current list of Bonds held in each Trust designated
to be sold for such purposes. As described in the following paragraph,
the Trustee may also sell Bonds in the Trust which are in default in the
payment of principal or interest or in significant risk of such default
where, in the Sponsor's opinion, such sale is in the best interests of
Unit holders or no other alternative exists. In addition, at the
Sponsor's request, the Trustee shall sell Bonds of a Trust if factors
arise which, in the Sponsor's opinion, adversely affect the tax or
exchange control status of the Bonds. See "Rights of Unit Holders-How
May Units be Redeemed?" 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 the Trust with respect to selling Bonds from the 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.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor, within thirty
days, the Trustee is required to notify the Sponsor thereof. If the
Sponsor fails to instruct the Trustee to sell or to hold such Bond
within thirty days after notification by the Trustee to the Sponsor of
such default, the Trustee may, in its discretion, sell the defaulted
Bond and not be liable for any depreciation or loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made by an
issuer of any of the Bonds to issue new obligations in exchange and
substitution for any Bonds pursuant to a refunding or refinancing plan,
except that the Sponsor may instruct the Trustee to accept such an offer
or to take any other action with respect thereto as the Sponsor may deem
proper if the issuer is in default with respect to such Bonds or in the
written opinion of the Sponsor the issuer will probably default in
respect to such Bonds in the foreseeable future. Any obligations so
received in exchange or substitution will be held by the Trustee subject
to the terms and conditions in the Indenture to the same extent as Bonds
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph and under "What
is the FT Series?" for Failed Bonds, the acquisition by the Trust of any
securities other than the Bonds initially deposited is prohibited.
Page 27
INFORMATION AS TO UNDERWRITER, SPONSOR, TRUSTEE AND EVALUATOR
Who is the Underwriter?
First Miami Securities, Inc., headquartered in North Miami Beach,
Florida, specializes in fixed income securities including tax free
municipals, U.S. Treasuries and dollar-denominated global debt issues.
F.M.S. was established in 1977 and currently has 50 brokers who service
clients nationwide.
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 FT Series (formerly known as The First Trust Special
Situations Trust), The First Trust Insured Corporate Trust, The First
Trust of Insured Municipal Bonds, The First Trust GNMA, 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 Trust or to
any series thereof or to any broker/dealers. 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 Trust 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 portfolio or the Insurance Policy.
For information relating to the responsibilities of the Trustee under
the Indenture, reference is made to the material set forth under "Rights
of Unit Holders."
The Trustee and any successor trustee may resign by executing an
instrument in writing and filing the same with the Sponsor and mailing a
copy of a notice of resignation to all Unit holders. Upon receipt of
such notice, the Sponsor is obligated to appoint a successor trustee
promptly. If the Trustee becomes incapable of acting or becomes bankrupt
or its affairs are taken over by public authorities, the Sponsor may
remove the Trustee and appoint a successor as provided in the Indenture.
If upon resignation of a trustee no successor has accepted the
appointment within thirty days after notification, the retiring trustee
may apply to a court of competent jurisdiction for the appointment of a
successor. The resignation or removal of a trustee becomes effective
only when the successor trustee accepts its appointment as such or when
a court of competent jurisdiction appoints a successor trustee.
Any corporation into which the Trustee may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Page 28
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Bonds. In the event of the failure of the Sponsor
to act under the Indenture, the Trustee may act thereunder and shall not
be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in respect
of the Trust which the Trustee may be required to pay under any present
or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate the Trust as provided herein, or (c) continue to act as
Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Muller Data Corporation, 395 Hudson Street, New York,
New York 10014. The Evaluator may resign or may be removed by the
Sponsor and the Trustee, in which event the Sponsor and the Trustee are
to use their best efforts to appoint a satisfactory successor. Such
resignation or removal shall become effective upon the acceptance of
appointment by the successor Evaluator. If upon resignation of the
Evaluator no successor has accepted appointment within 30 days after
notice of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
determined in good faith by the Sponsor and the Trustee), provided that
the Indenture is not amended to increase the number of Units of the
Trust issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
initially deposited in the Trust, except for the substitution of certain
refunding securities for Bonds or New Bonds for Failed Bonds. In the
event of any amendment, the Trustee is obligated to notify promptly all
Unit holders of the substance of such amendment.
The Trust may be liquidated at any time by consent of 100% of the Unit
holders of the Trust or by the Trustee when the value of the Trust, as
shown by any evaluation, is less than 20% of the aggregate principal
amount of the Bonds initially deposited in the Trust during the primary
offering period or by the Trustee in the event that Units of the Trust
not yet sold aggregating more than 60% of the Units of the Trust are
tendered for redemption by the underwriters, including the Sponsor. If
the Trust is liquidated because of the redemption of unsold Units of the
Trust by the underwriters, the Sponsor will refund to each purchaser of
Page 29
Units of the Trust the entire sales charge paid by such purchaser. The
Indenture will terminate upon the redemption, sale or other disposition
of the last Bond held thereunder, but in no event shall it continue
beyond September 30, 2027. In the event of termination, written notice
thereof will be sent by the Trustee to all Unit holders of the Trust.
Within a reasonable period after termination, the Trustee will sell any
Bonds remaining in the Trust and, after paying all expenses and charges
incurred by the Trust, will distribute to each Unit holder of the Trust
(including the Sponsor if it then holds any Units), upon surrender for
cancellation of his Certificate for Units, his pro rata share of the
balances remaining in the Interest and Principal Accounts of the Trust,
all as provided in the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Carter, Ledyard & Milburn, 2 Wall Street, New York, New York 10005, will
act as counsel for the Trustee and as special counsel for the Trust for
New York tax matters.
Experts
The statement of net assets, including the portfolio, of the Trust on
the Initial Date of Deposit appearing in this Prospectus and
Registration Statement has been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and is included in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
UNDERWRITING
The Underwriter named below has purchased Units in the following amount:
<TABLE>
<CAPTION>
Number
Name Address of Units
____ _______ ________
<S> <C> <C>
UNDERWRITER
First Miami Securities, Inc. 20660 W. Dixie Highway
North Miami Beach, FL 33180 250
========
</TABLE>
On the Initial Date of Deposit, the Underwriter of the Trust became the
owner of the Units of the Trust and entitled to the benefits thereof, as
well as the risks inherent therein.
The Underwriter Agreement provides that a public offering of the Units
of the Trust will be made at the Public Offering Price described in the
prospectus. Units may also be sold to or through dealers and other
selling agents during the initial offering period and in the secondary
market at prices representing a concession or agency commission as
described in "Public Offering-How are Units Distributed?"
The Underwriter has agreed to underwrite additional Units of the Trust
as they become available. The Sponsor will receive from the Underwriter
the difference between the gross sales commission and the Underwriter
concession listed below. The Underwriter concession will be calculated
as a percentage of the Public Offering Price per Unit according to the
following schedule:
<TABLE>
<CAPTION>
Public Offering Price Concession
_____________________ __________
<S> <C>
Less than $5,000,000 3.5%
$5,000,000 but less than $7,500,000 3.7%
$7,500,000 but less than $10,000,000 3.9%
$10,000,000 or more 4.0%
</TABLE>
From time to time the Sponsor may implement programs under which
Underwriter and dealers of the Trust may receive nominal awards from the
Sponsor for each of their registered representatives who have sold a
minimum number of UIT Units during a specified time period. In addition,
at various times the Sponsor may implement other programs under which
the sales force of an Underwriter or dealer may be eligible to win other
nominal awards for certain sales efforts, or under which the Sponsor
will reallow to any such Underwriter or dealer that sponsors sales
contests or recognition programs conforming to criteria established by
the Sponsor, or participates in sales programs sponsored by 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
Page 30
programs. Also, the Sponsor in its discretion may from time to time
pursuant to objective criteria established by the Sponsor pay fees to
the Underwriter or qualifying dealers for certain services or activities
which are primarily intended to result in sales of Units of the Trust.
Such payments are made by the Sponsor out of its own assets, and not out
of the assets of the Trust. These programs will not change the price
Unit holders pay for their Units or the amount that the Trust will
receive from the Units sold.
The Sponsor may from time to time in its advertising and sales materials
compare the then current estimated returns on the Trust and returns over
specified periods on other similar Trusts sponsored by Nike Securities
L.P. with returns on 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 Trust. U.S. Government bonds, for example, are backed by
the full faith and credit of the U.S. Government and bank CDs and money
market accounts are insured by an agency of the federal government.
Money market accounts and money market funds provide stability of
principal, but pay interest at rates that vary with the condition of the
short-term debt market. The investment characteristics of the Trust are
described more fully elsewhere in this Prospectus.
Information on percentage changes in the dollar value of Units, on the
basis of changes in Unit price may be included from time to time in
advertisements, sales literature, reports and other information
furnished to current or prospective Unit holders. Total return figures
are not averaged, and may not reflect deduction of the sales charge,
which would decrease the return. Average annualized return figures
reflect deduction of the maximum sales charge. No provision is made for
any income taxes payable.
Past performance may not be indicative of future results. The Trust's
portfolio is not managed. Unit price and return fluctuate with the value
of the common stocks in the Trust's portfolio, so there may be a gain or
loss when Units are sold.
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 the Trust's relative performance for
any future period.
Page 31
The Latin American Government Income Trust
<TABLE>
<CAPTION>
Special Trust Information
Monthly Semi-Annually
_______ _____________
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ 99.00 $ 99.00
Less: Estimated Annual Expense per Unit $ 4.54 $ 4.04
Estimated Net Annual Interest Income per Unit $ 94.46 $ 94.96
Calculation of Interest Distribution per Unit
Estimated Net Annual Interest Income per Unit $ 94.46 $ 94.96
Divided by 12 and 2, respectively $ 7.87 $ 47.48
Estimated Daily Rate of Net Interest Accrual per Unit $ .262402 $.263791
Estimated Current Return Based on Public Offering Price (1) 9.08% 9.13%
Estimated Long-Term Return Based on Public Offering Price (1) 9.22% 9.27%
CUSIP 30264N 131 149
_________________
<FN>
(1) The Estimated Current Return is calculated by dividing the Estimated
Net Annual Interest Income per Unit by the Public Offering Price. The
Estimated Net Annual Interest Income per Unit will vary with changes in
fees and expenses of the Trustee, the Portfolio Supervisor and the
Evaluator and with the principal prepayment, redemption, maturity,
exchange or sale of Bonds while the Public Offering Price will vary with
changes in the offering price of the underlying Bonds; therefore, there
is no assurance that the present Estimated Current Return indicated
above will be realized in the future. The Estimated Long-Term Return is
calculated using a formula which (1) takes into consideration, and
determines and factors in the relative weightings of the market values,
yields (which take into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all of the Bonds in
the Trust; and (2) takes into account a compounding factor and the
expenses and sales charge associated with each Unit of the Trust. Since
the market values and estimated retirements of the Bonds and the
expenses of the Trust will change, there is no assurance that the
present Estimated Long-Term Return indicated above will be realized in
the future. Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of the Estimated Long-Term
Return reflects the estimated date and amount of principal returned
while the Estimated Current Return calculations include only Net Annual
Interest Income and Public Offering Price. Neither rate reflects the
true return to Unit holders, which is lower, because neither includes
the effect of certain delays in distributions to Unit holders. The above
figures are based on estimated per Unit cash flows. Estimated cash flows
will vary with changes in fees and expenses, with changes in current
interest rates, and with the principal prepayment, redemption, maturity,
call, exchange or sale of the underlying Bonds. The estimated cash flows
for this Trust may be obtained from the Sponsor at no charge.
</FN>
</TABLE>
Trustee's Annual Fee $1.82 and $1.37 per Unit, exclusive of expenses of
the Trust, for those portions of the Trust under the monthly and semi-
annual plans, respectively, commencing January 6, 1998.
Distributions
First distribution of $9.45 and $9.50 per Unit under the monthly and
semi-annual distribution plans, respectively, will be paid on February
27, 1998 to Unit holders of record on February 15, 1998.
Regular monthly distributions of $7.87 per Unit will begin on March 31,
1998 to monthly Unit holders of record on March 15, 1998.
A partial distribution of $31.65 per Unit will be paid on June 30, 1998
to semi-annual Unit holders of record on June 15, 1998.
Regular semi-annual distributions of $47.48 per Unit will begin on
December 31, 1998 to semi-annual Unit holders of record on December 15,
1998.
Page 32
What is The Latin American Government Income Trust?
The Latin American Government Income Trust consists of five obligations.
Each obligation represents 20% of the aggregate principal amount of the
Bonds in the Trust. One obligation representing 20% of the aggregate
principal amount of the Bonds in the Trust was purchased at a premium
over par value. 20% and 80% of the aggregate principal amount of the
Bonds in the Trust will mature in 2026 and 2027, respectively. See "What
is The FT Series?"
Page 33
The Latin American Government Income Trust
Portfolio
At the Opening of Business
On the Initial Date of Deposit of the Bonds-January 6, 1998
<TABLE>
<CAPTION>
Aggregate Issue and County of Issuer Represented by Cost to
Principal Sponsor's Contracts to Purchase Bonds (1) Rating (2) the Trust
__________ _________________________________________ __________ _________
<C> <S> <C> <C>
$ 50,000 Republic of Argentina, 9.75%, BB $ 48,000
Due 09/19/2027
50,000 Federative Republic of Brazil, 10.125%, BB- 47,125
Due 05/15/2027
50,000 United Mexican States, 11.50%, BB 60,125
Due 05/15/2026
50,000 Republic of Panama, 8.875%, BB+ 47,125
Due 09/30/2027
50,000 Republic of Venezuela, 9.25%, B+ 44,875
Due 09/15/2027
_________ _________
$250,000 $247,250
========= =========
<FN>
(1) Sponsor's contracts to purchase Bonds were entered into on January
5, 1998. All contracts to purchase Bonds are expected to be settled on
or prior to January 9, 1998.
Other information regarding the Bonds in the Trust on the Initial Date
of Deposit is as follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
Aggregate Annual
Offering Cost of Profit Or Interest
Price of Bonds to (Loss) to Bid Price Income
Bonds Sponsor Sponsor of Bonds to Trust
_________ ________ _________ _________ ________
<S> <C> <C> <C> <C>
$247,250 $248,875 $(1,625) $246,625 $24,750
<FN>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor
reflects underwriting profits or losses received or incurred by the
Sponsor through its participation in underwriting syndicates. The
Offering and Bid Prices of Bonds were determined by Muller Data
Corporation.
(2) Rating by Standard & Poor's. Such ratings were obtained from a bond
information reporting service.
</FN>
</TABLE>
Page 34
REPORT OF INDEPENDENT AUDITORS
The Sponsor, Nike Securities L.P., and Unit Holders
The Latin American Government Income Trust
We have audited the accompanying statement of net assets, including the
portfolio, of FT 232, comprised of The Latin American Government Income
Trust, as of the opening of business on January 6, 1998. This statement
of net assets is the responsibility of the Trust's Sponsor. Our
responsibility is to express an opinion on this statement of net assets
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of net assets is
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statement
of net assets. Our procedures included confirmation of the letter of
credit held by the Trustee and deposited in the Trust on January 6,
1998. An audit also includes assessing the accounting principles used
and significant estimates made by the Sponsor, as well as evaluating the
overall presentation of the statement of net assets. We believe that our
audit of the statement of net assets provides a reasonable basis for our
opinion.
In our opinion, the statement of net assets referred to above presents
fairly, in all material respects, the financial position of FT 232,
comprised of The Latin American Government Income Trust, at the opening
of business on January 6, 1998 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 6, 1998
Page 35
Statement of Net Assets
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
FT 232
At the Opening of Business on the
Initial Date of Deposit-January 6, 1998
<TABLE>
<CAPTION>
NET ASSETS
<S> <C>
Delivery statements relating to Sponsor's contracts to purchase bonds (1)(2) $247,250
Accrued interest on underlying bonds (2)(3) 5,601
Organizational and offering costs (4) 35,000
________
287,851
Less distributions payable (3) (5,601)
Less accrued organizational and offering costs (4) (35,000)
_________
Net assets $247,250
=========
Outstanding units 250
ANALYSIS OF NET ASSETS
Cost to investors (5) $259,989
Less gross commissions (5) (12,739)
_________
Net assets $247,250
=========
<FN>
NOTES TO STATEMENT OF NET ASSETS
(1) The aggregate offering price of the Bonds in the Trust at the
opening of business on the Initial Date of Deposit and the cost to the
Trust are the same. The offering price is determined by the Evaluator.
(2) Pursuant to delivery statements relating to contracts to purchase
Bonds, an irrevocable letter of credit has been deposited in the Trust
as collateral. The amount of available letter of credit and the amount
expected to be utilized for the Trust is shown below. The amount
expected to be utilized is (a) the cost to the Trust of the principal
amount of the Bonds to be purchased, (b) accrued interest on those Bonds
to the Initial Date of Deposit, and (c) accrued interest on those Bonds
from the Initial Date of Deposit to the expected dates of delivery of
the Bonds.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Accrued
Aggregate Accrued Interest to
Letter of Credit Offering Interest to Expected
To be Price of Date of Dates of
Trust Available Utilized Bonds Deposit Delivery
_____ _________ ________ _________ ___________ ___________
<S> <C> <C> <C> <C> <C>
The Latin American Government Income Trust $300,000 $252,988 $247,250 $5,601 $137
</TABLE>
(3) The Trustee will advance to the Trust the amount of net interest
accrued to January 9, 1998, the First Settlement Date, for distribution
to the Sponsor as the Unit holder of record.
(4) The Trust (and therefore Unit holders) shall bear all or a portion
of its estimated organization and offering costs which will be deferred
and charged off over a period not to exceed five years from the Initial
Date of Deposit. The estimated organizational and offering costs are
based on 10,000 Units of the Trust expected to be issued. To the extent
the number of Units issued is larger or smaller, the estimate will vary.
(5) The aggregate cost to investors and the aggregate gross underwriting
commissions of 4.9% are computed assuming no reduction of sales charge
for quantity purchases.
Page 36
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangements under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposure to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise
_______________
* As published by the rating companies.
Page 37
noted, a rating decision will be made within 90 days. Issues appear on
Credit Watch where an event, situation, or deviation from trends
occurred and needs to be evaluated as to its impact on credit ratings. A
listing, however, does not mean a rating change is inevitable. Since S&P
continuously monitors all of its ratings, Credit Watch is not intended
to include all issues under review. Thus, rating changes will occur
without issues appearing on Credit Watch.
Moody's. A brief description of the applicable Moody's rating symbols
and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat large than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1 - Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa - Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(- - -) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) A
brief description of the applicable Fitch rating symbols and their
meanings follows:
Page 38
AAA - These bonds are considered to be investment grade and of the
highest quality. The obligor has an extraordinary ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - These bonds are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal,
which is very strong, is somewhat less than for AAA-rated securities or
more subject to possible change over the term of the issue.
A - These bonds are considered to be investment grade and of good
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB - These bonds are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to weaken this
ability than bonds with higher ratings.
BB - These bonds are considered speculative and of low investment grade.
The obligor's ability to pay interest and repay principal is not strong
and is considered likely to be affected over time by adverse economic
changes.
B - These bonds are considered highly speculative. Bonds in this class
are lightly protected as to the obligor's ability to pay interest over
the life of the issue and repay principal when due.
A "+" or a "-" sign after a rating symbol indicates relative standing in
its rating.
Page 39
CONTENTS:
Summary of Essential Information 3
The Latin American Government Income Trust
FT 232:
What is The FT Series? 4
Bond Portfolio Selection 5
Risk Factors 5
What are Estimated Long-Term Return and
Estimated Current Return? 14
How is Accrued Interest Treated? 14
Are Unit Holders Subject to Foreign
Withholding Tax? 15
What is the Federal Tax Status of Unit Holders? 15
Why are Investments in the Trust Eligible for
Retirement Plans? 18
What are the Expenses and Charges? 19
Public Offering:
How is the Public Offering Price Determined? 20
How are Units Distributed? 22
What are the Sponsor's and Underwriter's Profits? 23
Will There be a Secondary Market? 23
Rights of Unit Holders:
How are Certificates Issued and Transferred? 23
How are Interest and Principal Distributed? 24
How Can Distributions to Unit Holders be
Reinvested? 25
What Reports Will Unit Holders Receive? 25
How May Units be Redeemed? 26
How May Units be Purchased by the Sponsor
or Underwriter? 27
How May Bonds be Removed from the Trust? 27
Information as to Underwriter, Sponsor,
Trustee and Evaluator:
Who is the Underwriter? 28
Who is the Sponsor? 28
Who is the Trustee? 28
Limitations on Liabilities of Sponsor and Trustee 29
Who is the Evaluator? 29
Other Information:
How May the Indenture be Amended
or Terminated? 29
Legal Opinions 30
Experts 30
Underwriting 30
The Latin American Government Income Trust 32
Portfolio 34
Report of Independent Auditors 35
Statement of Net Assets 36
Notes to Statement of Net Assets 36
Description of Bond Ratings 37
_______________
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,
AS AMENDED, AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (registered trademark)
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
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
January 6, 1998
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 40
CONTENTS OF REGISTRATION STATEMENT
A. BONDING ARRANGEMENTS OF DEPOSITOR:
Nike Securities L.P. is covered by a Brokers' Fidelity Bond,
in the total amount of $1,000,000, the insurer being
National Union Fire Insurance Company of Pittsburgh.
B. THIS REGISTRATION STATEMENT ON FORM S-6
COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The signatures
Exhibits
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, FT 232, has duly caused this Amendment to
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Lisle
and State of Illinois on January 6, 1998.
FT 232
By NIKE SECURITIES L.P.
Depositor
By Robert M. Porcellino
Vice President
S-2
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed
below by the following person in the capacity and on the date
indicated:
NAME TITLE* DATE
Robert D. Van Kampen Director )
of Nike Securities )
Corporation, the ) January 6, 1998
General Partner of )
Nike Securities L.P. )
)
)
David J. Allen Director of Nike ) Robert M. Porcellino
Securities ) Attorney-in-Fact**
Corporation, the )
General 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 Special Situations Trust, Series 18 (File No.
33-42683) and the same is hereby incorporated herein by
this reference.
S-3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated January 6, 1998 in
Amendment No. 3 to the Registration Statement (Form S-6) (File
No. 333-40691) and related Prospectus of FT 232.
ERNST & YOUNG LLP
Chicago, Illinois
January 6, 1998
CONSENTS OF COUNSEL
The consents of counsel to the use of their names in the
Prospectus included in this Registration Statement will be
contained in their respective opinions to be filed as Exhibits
3.1, 3.2, 3.3 and 3.4 of the Registration Statement.
CONSENT OF MULLER DATA CORPORATION
The consent of Muller Data Corporation to the use of its
name in the Prospectus included in the Registration Statement
will be filed as Exhibit 4.1 to the Registration Statement.
S-4
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Special Situations Trust, Series 24 and
certain subsequent Series effective January 23, 1992
among Nike Securities L.P., as Depositor, United States
Trust Company of New York as Trustee, Securities
Evaluation Service, Inc., as Evaluator, and Nike
Financial Advisory Services L.P. as Portfolio
Supervisor (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-45903] filed on behalf
of The First Trust Special Situations Trust,
Series 24).
1.1.1 Form of Trust Agreement for FT 232 among Nike Securities
L.P., as Depositor, The Chase Manhattan Bank, as
Trustee, Muller Data Corporation, as Evaluator, and
First Trust Advisors L.P., as Portfolio Supervisor.
1.2 Copy of Certificate of Limited Partnership of Nike
Securities L.P. (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-42683] filed on behalf of
The First Trust Special Situations Trust, Series 18).
1.3 Copy of Amended and Restated Limited Partnership
Agreement of Nike Securities L.P. (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
1.4 Copy of Articles of Incorporation of Nike Securities
Corporation, the general partner of Nike Securities
L.P., Depositor (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-42683] filed on behalf of
The First Trust Special Situations Trust, Series 18).
1.5 Copy of By-Laws of Nike Securities Corporation, the
general partner of Nike Securities L.P., Depositor
(incorporated by reference to Amendment No. 1 to Form S-
6 [File No. 33-42683] filed on behalf of The First Trust
Special Situations Trust, Series 18).
1.6 Underwriter Agreement (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42755] filed on
behalf of The First Trust Special Situations Trust,
Series 19).
2.1 Copy of Certificate of Ownership (included in Exhibit
1.1 filed herewith on page 2 and incorporated herein by
reference).
S-5
3.1 Opinion of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to Federal income tax status of
securities being registered.
3.3 Opinion of counsel as to New York income tax status of
securities being registered.
3.4 Opinion of counsel as to advancement of funds by
Trustee.
4.1 Consent of Muller Data Corporation.
6.1 List of Directors and Officers of Depositor and other
related information (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
7.1 Power of Attorney executed by the Director listed on
page S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
S-6
FT 232
TRUST AGREEMENT
Dated: January 6, 1998
This Trust Agreement among Nike Securities L.P., as
Depositor, The Chase Manhattan Bank, as Trustee, Muller Data
Corporation, as Evaluator, and First Trust Advisors L.P., as
Portfolio Supervisor, sets forth certain provisions in full and
incorporates other provisions by reference to the document
entitled "Standard Terms and Conditions of Trust for The First
Trust Special Situations Trust, Series 24" effective January 23,
1992 (herein called the "Standard Terms and Conditions of
Trust"), and such provisions as are set forth in full and such
provisions as are incorporated by reference constitute a single
instrument. All references herein to Articles and Sections are
to Articles and Sections of the Standard Terms and Conditions of
Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual
agreements herein contained, the Depositor, the Trustee, the
Evaluator and Portfolio Supervisor agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the
provisions contained in the Standard Terms and Conditions of
Trust are herein incorporated by reference in their entirety and
shall be deemed to be a part of this instrument as fully and to
the same extent as though said provisions had been set forth in
full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
FOR LATIN AMERICAN GOVERNMENT INCOME TRUST
The following special terms and conditions are hereby agreed
to:
(a) The Bonds defined in Section 1.01(5) listed in
Schedule A hereto have been deposited in trust under this
Trust Agreement.
(b) The fractional undivided interest in and ownership
of the Trust Fund represented by each Unit for a Trust is the
amount set forth under the captions "Summary of Essential
Information - Fractional Undivided Interest in the Trust per
Unit" in the Prospectus.
(c) The number of units in a Trust referred to in
Section 2.03 is set forth under the caption "Summary of
Essential Information - Number of Units" in the Prospectus.
(d) For each Trust the First General Record Date and
the amount of the second distribution of funds from the
Interest Account shall be the record date for the Interest
Account and the amount set forth under "Trust Summary-Initial
Distribution" for such Trust in the Prospectus.
(e) For each Trust the "First Settlement Date" is the
date set forth under "Summary of Essential Information-First
Settlement Date" for such Trust in the Prospectus.
(f) The definition of "Bonds" contained in Section
1.01(5) of the Standard Terms and Conditions of Trust shall
be amended by inserting the following after "(the "Corporate
Bonds")" appearing in the first sentence thereof:
"interest bearing U.S. dollar - denominated sovereign debt
obligations (the "Foreign Bonds"),zero coupon bonds (the
"Zero Coupon Bonds")".
(g) Notwithstanding anything to the contrary in the
first three sentences of Section 6.04 of Article VI of the
Standard Terms and Conditions of trust the Trustee's fee,
shall be calculated on the largest number of Units
outstanding during each period in respect of which a payment
is made pursuant to Section 3.05, and the initial rate at
which such compensation is computed shall be the amount set
forth in "Special Trust Information" for such Trust in the
Prospectus.
PART III
A. Notwithstanding anything to the contrary in the
Standard Terms and Conditions of Trust, references to subsequent
Series established after the date of effectiveness of the First
Trust Special Situations Trust, Series 24 shall include FT 232.
B. Notwithstanding any provision to the contrary contained
in the Standard Terms and Conditions of Trust and in lieu of the
receipt of Certificates evidencing ownership of Units of the
Fund, the Sponsor, at its option, may elect that Units of the
Fund owned by it be reflected by book entry on the books and
records of the Trustee. For all purposes the Sponsor shall be
deemed the owner of such Units as if a Certificate evidencing
ownership of Units of the Fund had actually been issued by the
Trustee. The Units reflected by book entry on the books and
records of the Trustee may be transferable by the registered
owner of such Units by written instrument in form satisfactory to
the Trustee. The registered owner of Units reflected by book
entry on the books and records of the Trustee shall have the
right at any time to obtain Certificates evidencing ownership of
such Units.
C. Section 2.01. of Article II of the Standard Terms and
Conditions of Trust is hereby amended by inserting "(a)" prior to
the beginning of the text of the paragraph and adding the
following additional paragraphs:
(b) From time to time following the Initial Date of
Deposit, the Depositor is hereby authorized, in its discretion,
to assign, convey to and deposit with the Trustee additional
Bonds, in bearer form or duly endorsed in blank or accompanied by
all necessary instruments of assignment and transfer in proper
form (or Contract Obligations relating to such Bonds), to be
held, managed and applied by the Trustee as herein provided.
Such deposit of additional Bonds shall be made, in each case,
pursuant to a Notice of Deposit of Additional Bonds from the
Depositor to the Trustee. The Depositor, in each case, shall
ensure that each deposit of additional Bonds pursuant to this
Section shall be, as nearly as is practicable, in the identical
ratio as the Percentage Ratio for such Bonds as is specified in
the Prospectus for the Trust and the Depositor shall ensure that
such Bonds are identical to those deposited on the Initial Date
of Deposit. The Depositor shall deliver the additional Bonds
which were not delivered concurrently with the deposit of
additional Bonds and which were represented by Contract
Obligations within 10 calendar days after such deposit of
additional Bonds (the "Additional Bonds Delivery Period"). If a
contract to buy such Bonds between the Depositor and seller is
terminated by the seller thereof for any reason beyond the
control of the Depositor or if for any other reason the Bonds are
not delivered to the Trust by the end of the Additional Bonds
Delivery Period for such deposit, the Trustee shall immediately
draw on the Letter of Credit, if any, in its entirely, apply the
monies in accordance with Section 2.01(d), and the Depositor
shall forthwith take the remedial action specified in
Section 3.14. If the Depositor does not take the action
specified in Section 3.14 within 10 calendar days of the end of
the Additional Bonds Delivery Period, the Trustee shall forthwith
take the action specified in Section 3.14.
(c) In connection with the deposits described in
Section 2.01 (a) and (b), the Depositor has, in the case of
Section 2.01(a) deposits, and, prior to the Trustee accepting a
Section 2.01(b) deposit, will, deposit cash and/or Letter(s) of
Credit in an amount sufficient to purchase the Contract
Obligations (the "Purchase Amount") relating to Bonds which are
not actually delivered to the Trustee at the time of such
deposit, the terms of which unconditionally allow the Trustee to
draw on the full amount of the available Letter of Credit. The
Trustee may deposit such cash or cash drawn on the Letter of
Credit in a non-interest bearing account for the Trust.
(d) In the event that the purchase of Contract Obligations
pursuant to any contract shall not be consummated in accordance
with said contract or if the Bonds represented by Contract
Obligations are not delivered to the Trust in accordance with
Section 2.01(a) or 2.01(b) and the monies, or, if applicable, the
monies drawn on the Letter of Credit, deposited by the Depositor
are not utilized for Section 3.14 purchases of New Bonds, such
funds, to the extent of the purchase price of Failed Contract
Obligations for which no Replacement Bond was acquired pursuant
to Section 3.14, plus all amounts described in the next
succeeding two sentences, shall be credited to the Principal
Account and distributed pursuant to Section 3.05 to Unit holders
of record as of the Record Date next following the failure of
consummation of such purchase. The Depositor shall cause to be
refunded to each Unit holder his pro rata portion of the sales
charge levied on the sale of Units to such Unit holder
attributable to such Failed Contract Obligation. The Depositor
shall also pay to the Trustee, for distribution to the Unit
holders, interest on the amount of the purchase price to the
Trust of the Failed Contract Obligation, at the rate of 5% per
annum to the date the Depositor notifies the Trustee that no
Replacement Bond will be purchased or, in the absence of such
notification, to the expiration date for purchase of a
Replacement Security specified in Section 3.14. Any amounts
remaining from monies drawn on the Letter of Credit which are not
used to purchase New Bonds or are not used to provide refunds to
Unit holders shall be paid to the Depositor.
(e) The Trustee is hereby irrevocably authorized to effect
registration or transfer of the Bonds in fully registered form to
the name of the Trustee or to the name of its nominee.
(f) In connection with and at the time of any deposit of
additional bonds pursuant to Section 2.01(b), the Depositor shall
exactly replicate Cash (as defined below) received or receivable
by the Trust as of the date of such deposit. For purposes of
this paragraph, "Cash" means, as to the Principal Account, cash
or other property (other than Bonds) on hand in the Principal
Account or receivable and to be credited to the Principal Account
as of the date of the deposit (other than amounts to be
distributed solely to persons other than holders of Units created
by the deposit) and, as to the Income Account, cash or other
property (other than Bonds) received by the Trust as of the date
of the deposit or receivable by the Trust in respect of
distributions declared but not received as of the date of the
deposit, reduced by the amount of any cash or other property
received or receivable on any Bond allocable (in accordance with
the Trustee's calculation of the monthly distribution from the
Income Account pursuant to Section 3.05) to a distribution made
or to be made in respect of a Record Date occurring prior to the
deposit. Such replication will be made on the basis of a
fraction, the numerator of which is the number of Units created
by the deposit and the denominator of which is the number of
Units which are outstanding immediately prior to the deposit.
D. Section 1.01(3) shall be amended to read as follows:
"(3) "Evaluator" shall mean Muller Data Corporation and its
successors in interest, or any successor evaluator appointed as
hereinafter provided."
E. Section 1.01(2) shall be amended to read as follows:
"(2) "Trustee" shall mean The Chase Manhattan Bank, or any
successor trustee appointed as hereinafter provided."
All references to United States Trust Company of New York in
the Standard Terms and Conditions of Trust shall be amended to
refer to The Chase Manhattan Bank.
F. Section 1.01(4) shall be amended to read as follows:
"(4)"Portfolio Supervisor" shall mean First Trust Advisors
L.P. and its successors in interest, or any successor portfolio
supervisor appointed as hereinafter provided."
G. Section 3.01 of the Standard Terms and Conditions of
Trust shall be replaced in its entirety with the following:
"Section 3.01. Initial Cost. The expenses incurred in
establishing a Trust, including the cost of the preparation and
typesetting of the registration statement, prospectuses
(including preliminary prospectuses), the indenture and other
documents relating to the Trust, printing of Certificates,
Securities and Exchange Commission and state blue sky
registration fees, the costs of the initial valuation of the
portfolio and audit of the Trust, the initial fees and expenses
of the Trustee, and legal and other out-of-pocket expenses
related thereto, but not including the expenses incurred in the
printing of preliminary prospectuses and prospectuses, expenses
incurred in the preparation and printing of brochures and other
advertising materials and any other selling expenses, to the
extent not borne by the Depositor, shall be borne by the Trust.
To the extent the funds in the Income and Principal Accounts of
the Trust shall be insufficient to pay the expenses borne by the
Trust specified in this Section 3.01, the Trustee shall advance
out of its own funds and cause to be deposited and credited to
the Income Account such amount as may be required to permit
payment of such expenses. The Trustee shall be reimbursed for
such advance on each Record Date from funds on hand in the Income
Account or, to the extent funds are not available in such
Account, from the Principal Account, in the amount deemed to have
accrued as of such Record Date as provided in the following
sentence (less prior payments on account of such advances, if
any), and the provisions of Section 6.04 with respect to the
reimbursement of disbursements for Trust expenses, including,
without limitation, the lien in favor of the Trustee therefor and
the authority to sell Securities as needed to fund such
reimbursement, shall apply to the payment of expenses and the
amounts advanced pursuant to this Section. For the purposes of
the preceding sentence and the addition provided in clause (4) of
the first sentence of Section 5.01, the expenses borne by the
Trust pursuant to this Section shall be deemed to have been paid
on the date of the Trust Agreement and to accrue at a daily rate
over the time period specified for their amortization provided in
the Prospectus; provided, however, that nothing herein shall be
deemed to prevent, and the Trustee shall be entitled to, full
reimbursement for any advances made pursuant to this Section no
later than the termination of the Trust. For purposes of
calculating the accrual of organizational expenses under this
Section 3.01, the Trustee shall rely on the written estimates of
such expenses provided by the Depositor pursuant to Section
5.01."
H. The first sentence of Section 3.15. shall be amended to
read as follows:
"As compensation for providing supervisory portfolio
services under this Indenture, the Portfolio Supervisor
shall receive against a statement or statements therefor
submitted to the Trustee monthly or annually an aggregate
annual fee in an amount which shall not exceed the amount
set forth under "Summary of Essential Information-
Supervisory Fee" in the Prospectus times the number of Units
outstanding as of the December Record Date of the
immediately preceding year (such annual fee to be pro rated
for any calendar year in which the Portfolio Supervisor
provides services during less than the whole of such year),
but in no event shall such compensation when combined with
all compensation received from other series of the Fund and
other unit investment trust sponsored by the Depositor for
providing such supervisory services in any calendar year
exceed the aggregate cost to the Portfolio Supervisor for
providing such services.
I. Article III of the Standard Terms and Conditions of
Trust is hereby amended by inserting the following paragraphs
which shall be entitled Section 3.16.:
"Section 3.16. Bookkeeping and Administrative Expenses. As
compensation for providing bookkeeping and other administrative
services of a character described in Section 26(a)(2)(C) of the
Investment Company Act of 1940 to the extent such services are in
addition to, and do not duplicate, the services to be provided
hereunder by the Trustee or the Portfolio Supervisor, the
Depositor shall receive against a statement or statements
therefor submitted to the Trustee monthly or annually an
aggregate annual fee in an amount which shall not exceed that
dollar amount set forth in the Prospectus times the number of
Units outstanding as of January 1 of such year except for a year
or years in which an initial offering period as determined by
Section 4.01 of this Indenture occurs, in which case the fee for
a month is based on the number of Units outstanding at the end of
such month (such annual fee to be pro rated for any calendar year
in which the Depositor provides service during less than the
whole of such year), but in no event shall such compensation when
combined with all compensation received from other unit
investment trusts for which the Depositor hereunder is acting as
Depositor for providing such bookkeeping and administrative
services in any calendar year exceed the aggregate cost to the
Depositor providing services to such unit investment trusts.
Such compensation may, from time to time, be adjusted provided
that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after
the date hereof, in consumer prices for services as measured by
the United States Department of Labor Consumer Price Index
entitled "All Services Less Rent of Shelter" or similar index, if
such index should no longer be published. The consent or
concurrence of any Unit holder hereunder shall not be required
for any such adjustment or increase. Such compensation shall be
paid by the Trustee, upon receipt of invoice therefor from the
Depositor, upon which, as to the cost incurred by the Depositor
of providing services hereunder the Trustee may rely, and shall
be charged against the Interest and Principal Accounts on or
before the Distribution Date following the Monthly Record Date on
which such period terminates. The Trustee shall have no
liability to any Certificateholder or other person for any
payment made in good faith pursuant to this Section.
If the cash balance in the Income and Principal Accounts
shall be insufficient to provide for amounts payable pursuant to
this Section 3.16, the Trustee shall have the power to sell (i)
Bonds from the current list of Bonds designated to be sold
pursuant to Section 5.02 hereof, or (ii) if no such Bonds have
been so designated, such Bonds as the Trustee may see fit to sell
in its own discretion, and to apply the proceeds of any such sale
in payment of the amounts payable pursuant to this Section 3.16,
provided, however, that Zero Coupon Obligations may not be sold
to pay for amounts payable pursuant to this Section 3.16.
Any moneys payable to the Depositor pursuant to this Section
3.16 shall be secured by a prior lien on the Trust Fund except
that no such lien shall be prior to any lien in favor of the
Trustee under the provisions of Section 6.04 herein.
J. Section 3.14(b) of the Standard Terms and Conditions of
Trust shall be amended to delete the requirement that each New
Bond be rated "A" or better in the case of Trusts other than
Insured Trusts by Standard & Poor's Corporation or Moody's
Investors Service, Inc., or comparably rated by any other
nationally recognized credit rating service rating debt
obligations which shall be designated by the Depositor and shall
be satisfactory to the Trustee with the requirement that each
such New Bond be rated "B" or better by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or comparably
rated by any other nationally recognized credit rating service
rating debt obligations which shall be designated by the
Depositor and shall be satisfactory to the Trustee.
IN WITNESS WHEREOF, Nike Securities L.P., The Chase
Manhattan Bank, Muller Data Corporation and First Trust Advisors
L.P. have each caused this Trust Agreement to be executed and the
respective corporate seal to be hereto affixed and attested (if
applicable) by authorized officers; all as of the day, month and
year first above written.
NIKE SECURITIES L.P.,
Depositor
By Robert M. Porcellino
Vice President
THE CHASE MANHATTAN BANK, Trustee
(SEAL) By Rosalia A. Raviele
Vice President
Attest:
Joan A. Currie
Second Vice President
MULLER DATA CORPORATION, Evaluator
(SEAL) By Ronald Valinoti
Chief Operating Officer
Attest:
Richard Birnbaum
Vice President
FIRST TRUST ADVISORS L.P.,
Portfolio Supervisor
By Robert M. Porcellino
Vice President
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
FT 232
(Note: Incorporated herein and made a part hereof is the
"Portfolio" as set forth for each Trust in the
Prospectus.)
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, IL 60603
January 6, 1998
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: FT 232
Gentlemen:
We have served as counsel for Nike Securities L.P., as
Sponsor and Depositor of FT 232 in connection with the
preparation, execution and delivery of a Trust Agreement dated
January 6, 1998 among Nike Securities L.P., as Depositor, The
Chase Manhattan Bank, as Trustee, Muller Data Corporation, as
Evaluator, and First Trust Advisors L.P., as Portfolio Supervisor,
pursuant to which the Depositor has delivered to and deposited the
Securities listed in Schedule A to the Trust Agreement with the
Trustee and pursuant to which the Trustee has issued to or on the
order of the Depositor a certificate or certificates representing
units of fractional undivided interest in and ownership of the
Fund created under said Trust Agreement.
In connection therewith, we have examined such pertinent
records and documents and matters of law as we have deemed
necessary in order to enable us to express the opinions
hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and the
execution and issuance of certificates evidencing the Units in the
Fund have been duly authorized; and
2. The certificates evidencing the Units in the Fund when
duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will
constitute valid and binding obligations of the Fund and the
Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement (File No. 333-40691) relating to the
Units referred to above, to the use of our name and to the
reference to our firm in said Registration Statement and in the
related Prospectus.
Respectfully yours,
CHAPMAN AND CUTLER
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
January 6, 1998
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Re: FT 232
Gentlemen:
We have acted as counsel for Nike Securities L.P., as
Sponsor and Depositor of FT 232 (the "Trust"), in connection with
the issuance of Units of fractional undivided interest in the
Trust, under a Trust Agreement dated January 6, 1998 (the
"Indenture") between Nike Securities L.P., as Depositor, Muller
Data Corporation, as Evaluator, and The Chase Manhattan Bank, as
Trustee.
In this connection, we have examined the Registration
Statement, the Prospectus, the Indenture, and such other
instruments and documents as we have deemed pertinent.
The assets of the Trust will consist of a portfolio of high
yield, high risk foreign sovereign debt obligations (the "Bonds"
or the "Obligations") as set forth in the Prospectus. All
Obligations have been issued after July 18, 1984. For purpose of
the following discussions and opinions, it is assumed that the
Obligations are debt for Federal income tax purposes.
Based upon the foregoing and upon an investigation of such
matters of law as we consider to be applicable, we are of the
opinion that, under existing Federal income tax law:
(i) The Trust is not an association taxable as a
corporation for Federal income tax purposes but will be
governed by the provisions of subpart E, subchapter J
(relating to trusts) of chapter 1, Internal Revenue
Code of 1986 (the "Code").
(ii) Each Unit holder will be considered as owning
a pro rata share of each asset of the Trust for Federal
income tax purposes. Under subpart E, subchapter J of
chapter 1 of the Code, income of the Trust will be
treated as income of each Unit holder. Each Unit
holder will be considered to have received his pro rata
share of income derived from each Trust asset when such
income is considered to be received by the Trust. Each
Unit holder will also be required to include in taxable
income for Federal income tax purposes, original issue
discount with respect to his interest on any Obligation
held by the Trust at the same time and in the same
manner as though the Unit holder were the direct owner
of such interest. Original issue discount will be
treated as zero if it is "de minimis" within the
meaning of Section 1273 of the Code. If a Bond is a
"high-yield discount obligation" within the meaning of
Section 163(e)(5) of the Code, certain special rules
may apply. A Unit holder may elect to include in
taxable income for Federal income tax purposes, market
discount as it accrues with respect to his interest in
any Corporate Bond held by the Trust which he is
considered as having acquired with market discount at
the same time and in the same manner as though the Unit
holder were the direct owner of such interest
(iii) The price a Unit holder pays for his Units,
generally including sales charges, is allocated among
his pro rata portion of each Obligation 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 Units), in order to determine his tax
basis for his pro rata portion of each Obligation held
by the Trust. A Unit holder will be required to
include in gross income for each taxable year the sum
of his daily portions of original issue discount
attributable to the Obligations held by the Trust as
such original issue discount accrues and will in
general be subject to Federal income tax with respect
to the total amount of such original issue discount
that accrues for such year even though the income is
not distributed to the Unit holders during such year to
the extent it is greater than or equal to the "de
minimis" amount described below. To the extent the
amount of such discount is less than the respective "de
minimis" amount, such discount shall be treated as
zero. In general, original issue discount accrues
daily under a constant interest rate method which takes
into account the semi-annual compounding of accrued
interest.
(iv) Each Unit holder will have a taxable event
when an Obligation is disposed of (whether by sale,
exchange, liquidation, redemption, payment on maturity
or otherwise) or when the Unit holder redeems or sells
his Units. A Unit holder's tax basis in his Units will
equal his tax basis in his pro rata portion of all the
assets of the Trust. Such basis, is determined (before
the adjustments described below) by apportioning the
tax basis for the Units among each of the Trust assets
according to value as of the valuation date nearest the
date of acquisition of the Units. Unit holders must
reduce their tax basis of their Units for their share
of accrued interest, if any on Obligations delivered
after the date the Unit holders pay for their Units to
the extent such interest accrued on such Obligations
before the date the Trust acquired ownership of the
Obligations (and the amount of this reduction may
exceed the amount of accrued interest paid to the
sellers) and, consequently such Unit holder may have an
increase in taxable gain or reduction in capital loss
upon the disposition of such Units. Gain or loss upon
the sale or redemption of Units is measured by
comparing the proceeds of such sale or redemption with
the adjusted basis of the Units. If the Trustee
disposes of Obligations (whether by sale, exchange,
payment on maturity, redemption or otherwise), gain or
loss is recognized to the Unit holder (subject to
various nonrecognition provisions of the Code). The
amount of any such gain or loss is measured by
comparing the Unit holder's pro rata portion of the
total proceeds from such disposition with his basis for
his fractional interest in the asset disposed of. The
basis of each Unit and of each Obligation which was
issued with original issue discount (or which has
market discount) must be increased by the amount of
accrued original issue discount (and market discount if
the Unit holder elects to include market discount in
income as it accrues) and the basis of each Unit and of
each Obligation which was purchased by the Trust at a
premium must be reduced by the annual amortization of
bond premium which the Unit holder has properly elected
to amortize under Section 171 of the Code. The tax
basis reduction requirements of the Code relating to
amortization of bond premium may, under some
circumstances, result in the Unit holder realizing a
taxable gain when his Units are sold or redeemed for an
amount equal to or less than his original cost.
Each Unit holder's pro rata share of each expense paid by
the Trust is deductible by the Unit holder to the same extent as
though the expense had been paid directly by him. It should be
noted that, as a result of The Tax Reform Act of 1986 (the
"Act"), 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
(similar limitations also apply to estates and trusts). Unit
holders may be required to treat some or all of the expenses paid
by the Trust as miscellaneous itemized deductions subject to this
limitation.
The Code provides a complex set of rules governing the
accrual of original issue discount. These rules provide that
original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Obligations.
Special rules apply if the purchase price of an Obligation
exceeds its original issue price plus the amount of original
issue discount which would have previously accrued, based upon
its issue price (its "adjusted issue price"). Similarly, these
special rules would apply to a Unit holder if the tax basis of
his pro rata portion of an Obligation issued with original issue
discount exceeds his pro rata portion of its adjusted issue
price.
It is possible that a Bond that has been issued at an
original issue discount may be characterized as a "high-yield
discount obligation" within the meaning of Section 163(e)(5) of
the Code. To the extent that such an obligation is issued at a
yield in excess of six percentage points over the applicable
Federal rate, a portion of the original issue discount on such
obligation will be characterized as a distribution on stock
(e.g., dividends) for purposes of the dividends received
deduction which is available to certain corporations with respect
to certain dividends received by such corporations.
If a Unit holder's tax basis in his pro rata portion of any
Bond held by the Trust is less than his allocable portion of such
Bond's stated redemption price at maturity (or, if issued with
original issue discount, the allocable portion of its revised
issue price), such difference will constitute market discount
unless the amount of market discount is "de minimis" as specified
in the Code. To the extent the amount of such discount is less
than the respective "de minimis" amount, such discount shall be
treated as zero. Market discount accrues daily computed on a
straight line basis, unless the Unit holder elects to calculate
accrued market discount under a constant yield method.
Accrued market discount is generally includible in taxable
income of the Unit holders as ordinary income for Federal tax
purposes upon the receipt of serial principal payments on
Obligations held by the Trust, on the sale, maturity or
disposition of such Obligations by the Trust and on the sale of a
Unit holder's Units unless a Unit holder elects to include the
accrued market discount in taxable income as such discount
accrues. If a Unit holder does not elect to annually include
accrued market discount in taxable income as it accrues,
deductions for any interest expense incurred by the Unit holder
to purchase or carry his Units will be reduced by such accrued
market discount. In general, the portion of any interest which
was not currently deductible would ultimately be deductible when
the accrued market discount is included in income.
The tax basis of a Unit holder with respect to his interest
in an Obligation is increased by the amount of original issue
discount (and market discount, if the Unit holder elects to
include market discount, if any, on the Obligations held by the
Trust in income as it accrues) thereon properly included in the
Unit holder's gross income as determined for Federal income tax
purposes and reduced by the amount of any amortized premium which
the Unit holder has properly elected to amortize under Section
171 of the Code. A Unit holder's tax basis in his Units will
equal his tax basis in his pro rata portion of all the assets of
the Trust.
A Unit holder will recognize taxable gain (or loss) when all
or part of the pro rata interest in an Obligation is disposed of
for an amount greater (or less) than his tax basis therefor in a
taxable transaction, subject to various non-recognition
provisions of the Code.
As previously discussed, gain attributable to any Bond
deemed to have been acquired by the Unit holder with market
discount will be treated as ordinary income to the extent the
gain does not exceed the amount of accrued market discount not
previously taken into income. The tax basis reduction
requirements of the Code relating to amortization of bond premium
may, under certain circumstances, result in the Unit holder
realizing a taxable gain when his Units are sold or redeemed for
an amount equal to or less than his original cost.
If a Unit holder disposes of a Unit, he is deemed thereby to
have disposed of his entire pro rata interest in all Trust assets
including his pro rata portion of all of the Obligations
represented by the Unit. This may result in a portion of the
gain, if any, on such sale being taxable as ordinary income under
the market discount rules (assuming no election was made by the
Unit holder to include market discount in income as it accrues)
as previously discussed.
For taxpayers other than corporations, net capital gain
(which is defined as net long-term capital gain over net short-
term capital loss for the taxable year) is subject to a maximum
marginal stated tax rate of either 28% or 20%, depending upon the
holding periods 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 of 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 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 applied in netting the
realized capital gains and losses. Such legislation is proposed
to be effective retroactively for tax years ending after May 6,
1997.
The Taxpayer Relief Act of 1997 (the "1997 Act") 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 loss) and for purposes of
determining the holding period.
"The Revenue Reconciliation Act of 1993" (the "1993 Tax
Act") raised tax rates on ordinary income above the rates at
which capital gains are subject to tax in certain circumstances.
Because some or all capital gains are taxed at a comparatively
lower rate under the 1993 Tax Act, the 1993 Tax Act includes a
provision that recharacterizes capital gains as ordinary income
in the case of certain financial transactions that are
"conversion transactions" effective for transactions entered into
after April 30, 1993.
A Unit holder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation,
partnership, estate or trust) will not be subject to United
States Federal income taxes, including withholding taxes on
interest income (including any original issue discount) on, or
any gain from the sale or other disposition of, his pro rata
interest in any Obligation held by the Trust or the sale of his
Units provided that all of the following conditions are met:
(i) the interest income or gain is not effectively
connected with the conduct by the foreign investor of a
trade or business within the United States;
(ii) if the interest is United States source income (which
is the case for most securities issued by United States
issuers), the Obligation is issued after July 18, 1984,
(which is the case for each Obligation held by the Trust)
the foreign investor does not own, directly or indirectly,
10% or more of the total combined voting power of all
classes of voting stock of the issuer of the Obligation and
the foreign investor is not a controlled foreign corporation
related (within the meaning of Section 864(d)(4) of the
Code) to the issuer of the Obligation;
(iii) with respect to any gain, the foreign investor (if
an individual) is not present in the United States for 183
days or more during his or her taxable year; and
(iv) the foreign investor provides all certification which
may be required of his status.
It should be noted that interest on securities issued by
most foreign corporations that do not engage in a trade or
business in the United States is not considered United States
source income; accordingly, for such non-United States source
interest income, condition (ii) above would not be required to be
satisfied for the interest income (including any original issue
discount) to be exempt from United States Federal income taxes
including withholding taxes.
It should be noted that the 1993 Tax Act includes a
provision which eliminates the exemption from United States
taxation, including withholding taxes, for certain "contingent
interest." This provision applies to interest received after
December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United
States taxation or withholding taxes could be imposed with
respect to income derived from the Units as a result thereof.
The scope of this opinion is expressly limited to the
matters set forth herein, and, except as expressly set forth
above, we express no opinion with respect to any other taxes,
including foreign, state or local taxes or collateral tax
consequences with respect to the purchase, ownership and
disposition of Units.
Very truly yours
Chapman and Cutler
EFF/erg
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
January 6, 1998
The Chase Manhattan Bank, as Trustee of
FT 232
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Attention: Mr. Paul J. Holland
Vice President
Re: FT 232
Dear Sirs:
We are acting as special counsel with respect to New York
tax matters for FT 232 (each, a "Trust"), which will be
established under certain Standard Terms and Conditions of Trust
dated January 23, 1992, and a related Trust Agreement dated as of
today (collectively, the "Indenture") among Nike Securities L.P.,
as Depositor (the "Depositor"), Muller Data Corporation, as
Evaluator, First Trust Advisors L.P., as Portfolio Supervisor and
The Chase Manhattan Bank as Trustee (the "Trustee"). Pursuant to
the terms of the Indenture, units of fractional undivided
interest in the Trust (the "Units") will be issued in the
aggregate number set forth in the Indenture.
We have examined and are familiar with originals or
certified copies, or copies otherwise identified to our
satisfaction, of such documents as we have deemed necessary or
appropriate for the purpose of this opinion. In giving this
opinion, we have relied upon the two opinions, each dated today
and addressed to the Trustee, of Chapman and Cutler, counsel for
the Depositor, with respect to the matters of law set forth
therein.
Based upon the foregoing, we are of the opinion that:
1. The Trust will not constitute an association taxable as
a corporation under New York law, and accordingly will not be
subject to the New York State franchise tax or the New York City
general corporation tax.
2. Under the income tax laws of the State and City of New
York, the income of the Trust will be considered the income of
the holders of the Units.
We consent to the filing of this opinion as an exhibit to
the Registration Statement (No. 333-40691) filed with the
Securities and Exchange Commission with respect to the
registration of the sale of the Units and to the references to
our name under the captions "What is the Federal Tax Status of
Unit-holders?" and "Legal Opinions" in such Registration
Statement and the preliminary prospectus included therein.
Very truly yours,
Carter, Ledyard & Milburn
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
January 6, 1998
The Chase Manhattan Bank, as Trustee of
FT 232
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Attention: Mr. Paul J. Holland
Vice President
Re: FT 232
Dear Sirs:
We are acting as counsel for The Chase Manhattan Bank
("Chase") in connection with the execution and delivery of a
Trust Agreement (the "Trust Agreement") dated today's date (which
Trust Agreement incorporates by reference certain Standard Terms
and Conditions of Trust dated January 23, 1992, and the same are
collectively referred to herein as the "Indenture") among Nike
Securities L.P., as Depositor (the "Depositor"), Muller Data
Corporation, as Evaluator, First Trust Advisors L.P., as
Portfolio Supervisor, and Chase, as Trustee (the "Trustee"),
establishing the unit investment trust or trusts included in FT
232 (each, a "Trust"), and the confirmation by Chase, as Trustee
under the Indenture, that it has registered on the registration
books of the Trust the ownership by the Depositor of a number of
units constituting the entire interest in the Trust (such
aggregate units being herein called "Units"), each of which
represents an undivided interest in the respective Trust which
consists of corporate obligations (including, confirmations of
contracts for the purchase of certain obligations not delivered
and cash, cash equivalents or an irrevocable letter of credit or
a combination thereof, in the amount required for such purchase
upon the receipt of such obligations), such obligations being
defined in the Indenture as Securities and listed in the Schedule
to the Indenture.
We have examined the Indenture, a specimen of the
certificates to be issued thereunder (the "Certificates"), the
Closing Memorandum dated today's date, and such other documents
as we have deemed necessary in order to render this opinion.
Based on the foregoing, we are of the opinion that:
1. Chase is a duly organized and existing corporation having
the powers of a trust company under the laws of the State of New
York.
2. The Trust Agreement has been duly executed and delivered by
Chase and, assuming due execution and delivery by the other
parties thereto, constitutes the valid and legally binding
obligation of Chase.
3. The Certificates are in proper form for execution and
delivery by Chase, as Trustee.
4. Chase, as Trustee, has registered on the registration books
of the Trust the ownership of the Units by the Depositor. Upon
receipt of confirmation of the effectiveness of the registration
statement for the sale of the Units filed with the Securities and
Exchange Commission under the Securities Act of 1933, the Trustee
may deliver Certificates for such units, in such names and
denominations as the Depositor may request, to or upon the order
of the Depositor as provided in the Closing Memorandum.
5. Chase, as Trustee, may lawfully advance to the Trust amounts
as may be necessary to provide periodic interest distributions of
approximately equal amounts, and may be reimbursed, without
interest, for any such advances from funds in the interest
account, as provided in the Indenture.
In rendering the foregoing opinion, we have not considered,
among other things, whether the Bonds have been duly authorized
and delivered.
Very truly yours,
CARTER, LEDYARD & MILBURN
Muller Data Corporation
395 Hudson Street
New York, New York 10014-3622
January 6, 1998
Nike Securities L.P.
1001 Warrenville Road
Lisle, IL 60532
Re: FT 232
Gentlemen:
We have examined the Registration Statement File No. 333-
40691 for the above captioned trust. We hereby acknowledge that
Muller Data Corporation is currently acting as the evaluator for
the trustee. We hereby consent to the use in the Registration
Statement of the references to Muller Data Corporation as
evaluator.
You are hereby authorized to file a copy of this letter with
the Securities and Exchange Commission.
Sincerely,
Muller Data Corporation
Ron Valinoti
Chief Operating Officer
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