File No. 333-40691
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
FT 232
LATIN AMERICAN GOVERNMENT INCOME TRUST
(Exact Name of Trust)
NIKE SECURITIES L.P.
(Exact Name of Depositor)
1001 Warrenville Road
Lisle, Illinois 60532
(Complete address of Depositor's principal executive offices)
NIKE SECURITIES L.P. CHAPMAN AND CUTLER
Attn: James A. Bowen Attn: Eric F. Fess
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(Name and complete address of agents for service)
It is proposed that this filing will become effective (check
appropriate box)
: : immediately upon filing pursuant to paragraph (b)
: x : April 30, 1999
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
March 26, 1999.
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
2,300 UNITS
PROSPECTUS
Part One
Dated April 27, 1999
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The Latin American Government Income Trust (the "Trust") is a fixed portfolio
of interest-bearing U.S. dollar-denominated sovereign debt obligations of
certain Latin American countries. At March 16, 1999, each Unit represented a
1/2,300 undivided interest in the principal and net income of the Trust (see
"The Fund" in Part Two).
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. All of the Trust's investment in junk bonds have
been issued by foreign issuers which carry the additional risks of untimely
interest and principal payments and price volatility than higher rated
securities, and may present problems of liquidity and valuation. Investors
should carefully consider these risks before investing. See "Bond Portfolio
Selection" and "Risk Factors" in Part Two.
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price of the Units is equal to the aggregate value of the
Bonds in the Portfolio of the Trust divided by the number of Units
outstanding, plus a sales charge of 4.90% of the Public Offering Price (5.152%
of the amount invested). At March 16, 1999, the Public Offering Price per
Unit was $884.03 plus net interest accrued to date of settlement (three
business days after such date) of $0.26 and $24.09 for the monthly and semi-
annual distribution plans, respectively (see "Market for Units" in Part Two).
Please retain both parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders under the semi-annual distribution
plan was 10.78% per annum on March 16, 1999, and 10.72% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 11.06% per annum on March 16, 1999, and 11.00%
under the monthly distribution plan. Estimated Current Return is calculated
by dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. 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 Current Return and 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. 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. See "What are Estimated Current Return and Estimated Long-
Term Return?" in Part Two.
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF MARCH 16, 1999
Sponsor: Nike Securities L.P.
Evaluator: Muller Data Corporation
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,305,000
Number of Units 2,300
Fractional Undivided Interest in the Trust per Unit 1/2,300
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $1,933,638
Aggregate Value of Bonds per Unit $840.71
Sales Charge 5.152% (4.90% of Public Offering Price) $43.32
Public Offering Price per Unit $884.03*
Redemption Price and Sponsor's Repurchase Price per Unit
($43.32 less than the Public Offering Price per Unit) $840.71*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $500,000
</TABLE>
Date Trust Established January 6, 1998
Mandatory Termination Date September 30, 2027
Evaluator's Fee: $25 per evaluation. Evaluations for purposes of sale,
purchase or redemption of Units are made as of the close of trading (4:00 p.m.
Eastern time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.70
of the Sponsor per Unit annually
Administrative fee payable to Maximum of $.10
the Sponsor per Unit annually
Annual amortization of organization and offering costs $821 annually
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF MARCH 16, 1999
Sponsor: Nike Securities L.P.
Evaluator: Muller Data Corporation
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED ON VARIOUS DISTRIBUTION PLANS
Semi-
Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $99.34 $99.34
Less: Estimated Annual Expense $4.53 $4.03
Estimated Net Annual Interest Income $94.81 $95.31
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $94.81 $95.31
Divided by 12 and 2, Respectively $7.90 $47.66
Estimated Daily Rate of Net Interest Accrual $.2634 $.2647
Estimated Current Return Based on Public
Offering Price 10.72% 10.78%
Estimated Long-Term Return Based on Public
Offering Price 11.00% 11.06%
</TABLE>
Trustee's Annual Fee: $1.82 and $1.37 per Unit for those portions of the
Trust under the monthly and semi-annual distribution plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of FT 232,
The Latin American Government Income Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of FT 232, The Latin American Government Income Trust
as of December 31, 1998, and the related statements of operations and changes
in net assets for the period from the Initial Date of Deposit, January 6,
1998, to December 31, 1998. These financial statements are the responsibility
of the Trust's Sponsor. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FT 232, The Latin American
Government Income Trust at December 31, 1998, and the results of its
operations and changes in its net assets for the period from the Initial Date
of Deposit, January 6, 1998, to December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 9, 1999
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Bonds, at market value (cost $2,335,900)
(Note 1) $1,931,544
Accrued interest 46,565
Unamortized deferred organization and offering costs 3,297
__________
1,981,406
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Cash overdraft 40,813
Accrued liabilities 856
__________
41,669
__________
Net assets, applicable to 2,300 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $2,335,900
Net unrealized depreciation (Note 2) (404,356)
Distributable funds 8,193
__________
$1,939,737
==========
Net asset value per unit $843.36
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
PORTFOLIO - See notes to portfolio.
December 31, 1998
<TABLE>
<CAPTION>
Coupon Standard
interest Date of & Poor's Principal Market
Issue and country of issuer(c) rate maturity rating(a) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C>
Republic of Argentina 9.75 % 9/19/2027 BB(b) $305,000 277,169
Federative Republic of Brazil 10.125 5/15/2027 NR 500,000 338,750
United Mexican States 11.50 5/15/2026 BB(b) 500,000 543,750
Republic of Panama 8.875 9/30/2027 BB+(b) 500,000 472,500
Republic of Venezuela 9.25 9/15/2027 B+(b) 500,000 299,375
________________________
$2,305,000 1,931,544
========================
</TABLE>
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
NOTES TO PORTFOLIO
December 31, 1998
(a) The ratings shown are those effective at December 31, 1998. "NR"
indicates no rating. 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
(see (b) below). All of the Trust's investment in junk bonds have been
issued by foreign issuers which carry the additional risks of untimely
interest and principal payments and price volatility than higher rated
securities, and may present problems of liquidity and valuation.
(b) Standard & Poor's Corporation states: "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."
(c) The Trust consists of five obligations issued by Latin American
governments as noted below:
<TABLE>
<CAPTION>
Number of Country Portfolio
issues of issuer percentage
<C> <S> <C>
1 Argentina 13.24%
1 Brazil 21.69
1 Mexico 21.69
1 Panama 21.69
1 Venezuela 21.69
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
STATEMENT OF OPERATIONS
Period from the Initial Date of Deposit,
January 6, 1998, to December 31, 1998
<TABLE>
<S> <C>
Interest income $232,474
Expenses:
Trustee's fees and related expenses (4,939)
Evaluators' fees (6,250)
Supervisory fee (1,654)
Administrative fees (197)
Amortization or organization and offering costs (810)
__________
Investment income - net 218,624
Net gain (loss) on investments:
Net realized gain (loss) (20,765)
Change in net unrealized appreciation
or depreciation (404,356)
__________
(425,121)
__________
Net increase (decrease) in net assets resulting
from operations $(206,497)
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
STATEMENT OF CHANGES IN NET ASSETS
Period from the Initial Date of Deposit,
January 6, 1998, to December 31, 1998
<TABLE>
<S> <C>
Net increase (decrease) in net assets resulting
from operations:
Investment income - net $218,624
Net realized gain (loss) on investments (20,765)
Change in net unrealized appreciation or
depreciation on investments (404,356)
__________
(206,497)
Distributions to unit holders:
Investment income - net (202,419)
Principal from investment transactions -
__________
(202,419)
Units issued (2,250 units) 2,281,259
Units redeemed (200 units):
Principal portion (171,100)
Net interest accrued (8,756)
__________
(179,856)
__________
Total increase (decrease) in net assets 1,692,487
Net assets:
At the beginning of the period
(representing 250 units outstanding) 247,250
__________
At the end of the period (including distributable
funds applicable to Trust units of $8,193) $1,939,737
==========
Trust units outstanding at the end of the period 2,300
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Muller Data Corporation (the
Evaluator). The bond values are based on (1) current bid prices for the bonds
obtained from dealers or brokers who customarily deal in bonds comparable to
those held by the Trust, (2) current bid prices for comparable bonds, (3)
appraisal or (4) any combination of the above.
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the dates the bonds were deposited in the Trust. The premium or discount
(including original issue discount) existing at the dates the bonds were
deposited is not being amortized. Realized gain (loss) from bond transactions
is reported on an identified cost basis. Sales and redemptions of bonds are
recorded on the trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to The Chase Manhattan Bank which is
based on $1.82 and $1.37 per unit for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Additionally, a fee
of $25 per evaluation is payable to the Evaluator and the Trust pays all
related expenses of the Trustee, recurring financial reporting costs, an
annual supervisory fee payable to an affiliate of the Sponsor and an annual
administrative fee payable to the Sponsor.
Organization and offering costs -
The Trust has paid a portion of its organization and offering costs, including
costs of preparing the registration statement, the trust indenture and other
closing documents, registering units with the Securities and Exchange
Commission and states, the initial audit of the Trust's portfolio and the
initial fees and expenses of the Trustee. Such costs, totaling $4,107, have
been deferred and will be amortized over five years from the Initial Date of
Deposit.
2. Unrealized appreciation and depreciation
An analysis of net unrealized depreciation at December 31, 1998 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(404,356)
Unrealized appreciation -
_________
$(404,356)
=========
</TABLE>
<PAGE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the bonds on the date of an investor's purchase, plus a
sales charge of 4.9% of the public offering price which is equivalent to
approximately 5.152% of the net amount invested.
Distributions of net interest income -
Distributions of net interest income to unit holders are made monthly or semi-
annually. Such income distributions per unit, on an accrual basis, were as
follows:
<TABLE>
<CAPTION>
Period from
the Initial
Type of Date of Deposit,
distribution January 6, 1998,
plan to December 31, 1998
<S> <C>
Monthly $88.15*
Semi-annual 88.63
</TABLE>
*Excludes $.83 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit and to each supplemental Date of
Deposit, totaling $51,700, plus net interest accruing to the first settlement
date and to the settlement date of each supplemental Date of Deposit, totaling
$2,063, were distributed to the Sponsor as the unit holder of record. The
initial subsequent distribution, $9.45 and $9.50 per unit for those portions
of the Trust under the monthly and semi-annual distribution plans,
respectively, was paid on February 27, 1998 to all unit holders of record on
February 15, 1998.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the Initial
Date of Deposit
January 6, 1998,
to December 31, 1998
<S> <C>
Interest income $98.42
Expenses (5.86)
_______
Investment income - net 92.56
Distributions to unit holders:
Investment income - net (89.33)
Principal from investment transactions -
Net gain (loss) on investments (148.87)
_______
Total increase (decrease) in net assets (145.64)
Net assets:
Beginning of the period 989.00
_______
End of the period $843.36
=======
</TABLE>
<PAGE>
FT 232
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
PART ONE
Must be Accompanied by Part Two
____________________
P R O S P E C T U S
____________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
The Latin American Government Income Trust
FT Series
PROSPECTUS
Part Two NOTE: THIS PART TWO PROSPECTUS MAY
Dated April 30, 1999 ONLY BE USED WITH PART ONE
The Trust. The Latin American Government Income Trust (the "Trust") 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 at the Initial Date
of Deposit was 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" herein and "Portfolio" in Part
One of the Prospectus.
At the Initial Date of Deposit the Bonds issued by each of the
aforementioned issuers represented approximately 20% of the Trust's
portfolio, and therefore, the Trust is subject to greater risk than
would exist in a more diversified portfolio.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. for additional information concerning these
risks.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. AT THE INITIAL DATE
OF DEPOSIT THE BONDS ISSUED BY EACH OF THE AFOREMENTIONED ISSUERS
REPRESENT APPROXIMATELY 20% OF THE TRUST'S PORTFOLIO, AND THEREFORE, THE
TRUST IS SUBJECT TO GREAT RISK THAN WOULD EXIST IN A MORE DIVERSIFIED
PORTFOLIO. JUNK BONDS ISSUED BY FOREIGN ISSUERS CARRY THE ADDITIONAL
RISKS OF UNTIMELY INTEREST AND PRINCIPAL PAYMENTS AND PRICE VOLATILITY
THAN HIGHER RATED SECURITIES, AND MAY PRESENT PROBLEMS OF LIQUIDITY AND
VALUATION. 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 a 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?"
BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
The Public Offering Price of the Units will be equal to the aggregate
bid price of the Bonds in the portfolio divided by the number of Units
outstanding, plus a sales charge set forth in "Public Offering." 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
THE LATIN AMERICAN GOVERNMENT INCOME TRUST
FT Series
What is The FT Series?
The FT Series is 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 Bonds L.P., as Sponsor, The Chase Manhattan Bank, as
Trustee, Muller Data Corporation as Evaluator and First Trust Advisors
L.P., as Portfolio Supervisor.
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.
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" in Part One of the Prospectus. 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. See "Rights of Unit
Holders-How May Units be Redeemed?" The Trust has a Mandatory
Termination Date as set forth under "Summary of Essential Information"
in Part One of the Prospectus.
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 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" herein and "Portfolio" in Part One of the
Prospectus. 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.
Page 3
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, domestic and foreign corporate debt
obligations or "junk bonds" may entail, including increased credit risks
and the risk that the value of the Units will decline, and may decline
precipitously, with increases in interest rates. In recent years there
have been wide fluctuations in interest rates and thus in the value of
fixed-rate, debt obligations generally. 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 a slowdown in the economy and a
decrease in the value of assets generally that may adversely affect the
credit of issuers of high-yield, high-risk securities resulting in a
higher incidence of defaults among high-yield, high-risk securities. A
slowdown in the economy, or a development adversely affecting an
issuer's creditworthiness, may result in the issuer being unable to
maintain earnings or sell assets at the rate and at the prices,
respectively, that are required to produce sufficient cash flow to meet
its interest and principal requirements. For an issuer that has
outstanding both senior commercial bank debt and subordinated high-
yield, high-risk securities, an increase in interest rates will increase
that issuer's interest expense insofar as the interest rate on the bank
debt is fluctuating. However, many leveraged issuers enter into interest
rate protection agreements to fix or cap the interest rate on a large
portion of their bank debt. This reduces exposure to increasing rates,
but reduces the benefit to the issuer of declining rates. The Sponsor
cannot predict future economic policies or their consequences or,
therefore, the course or extent of any similar market fluctuations in
the future.
"High-yield" or "junk" Bonds, the generic names for corporate Bonds
rated below BBB by Standard & Poor's, or below Baa by Moody's, are
frequently issued by corporations in the growth stage of their
development, by established companies whose operations or industries are
depressed or by highly leveraged companies purchased in leveraged buyout
transactions. The market for high-yield Bonds is very specialized and
investors in it have been predominantly financial institutions. High-
yield Bonds are generally not listed on a national securities exchange.
Trading of high-yield Bonds, therefore, takes place primarily in over-
the-counter markets which consist of groups of dealer firms that are
typically major securities firms. Because the high-yield Bond market is
a dealer market, rather than an auction market, no single obtainable
price for a given Bond prevails at any given time. Prices are determined
by negotiation between traders. The existence of a liquid trading market
for the Bonds may depend on whether dealers will make a market in the
Bonds. There can be no assurance that a market will be made for any of
the Bonds, that any market for the Bonds will be maintained or of the
liquidity of the Bonds in any markets made. Not all dealers maintain
markets in all high-yield Bonds. Therefore, since there are fewer
traders in these Bonds than there are in "investment grade" Bonds, the
bid-offer spread is usually greater for high-yield Bonds than it is for
investment grade Bonds. The price at which the Bonds may be sold to meet
redemptions and the value of the Trust will be adversely affected if
trading markets for the Bonds are limited or absent. If the rate of
redemptions is great, the value of the Trust may decline to a level that
requires liquidation.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a Bond is recharacterized as equity by the
Internal Revenue Service for federal income tax purposes, the issuer's
interest deduction with respect to the Bond will be disallowed and this
disallowance may adversely affect the issuer's credit rating. Because
investors generally perceive that there are greater risks associated
with the lower-rated securities in the Trust, the yields and prices of
these securities tend to fluctuate more than higher-rated securities
with changes in the perceived quality of the credit of their issuers. In
addition, the market value of high-yield, high-risk, fixed-income
securities may fluctuate more than the market value of higher-rated
securities since high-yield, high-risk, fixed-income securities tend to
reflect short-term credit development to a greater extent than higher-
rated securities. Lower-rated securities generally involve greater risks
of loss of income and principal than higher-rated securities. Issuers of
lower-rated securities may possess fewer creditworthiness
characteristics than issuers of higher-rated securities and, especially
in the case of issuers whose obligations or credit standing have
Page 4
recently been downgraded, may be subject to claims by debtholders,
owners of property leased to the issuer or others which, if sustained,
would make it more difficult for the issuers to meet their payment
obligations. High-yield, high-risk Bonds are also affected by variables
such as interest rates, inflation rates and real growth in the economy.
Therefore, investors should consider carefully the relative risks
associated with investment in securities which carry lower ratings.
The value of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should the issuer
of any Bond default in the payment of principal or interest, the Trust
may incur additional expenses seeking payment on the defaulted Bond.
Because amounts (if any) recovered by the Trust in payment under the
defaulted Bond may not be reflected in the value of the Units until
actually received by the Trust, and depending upon when a Unit holder
purchases or sells his or her Units, it is possible that a Unit holder
would bear a portion of the cost of recovery without receiving any
portion of the payment recovered.
High-yield, high-risk Bonds are generally subordinated obligations. The
payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of
the issuer. Senior obligations generally include most, if not all,
significant debt obligations of an issuer, whether existing at the time
of issuance of subordinated debt or created thereafter. Upon any
distribution of the assets of an issuer with subordinated obligations
upon dissolution, total or partial liquidation or reorganization of or
similar proceeding relating to the issuer, the holders of senior
indebtedness will be entitled to receive payment in full before holders
of subordinated indebtedness will be entitled to receive any payment.
Moreover, generally no payment with respect to subordinated indebtedness
may be made while there exists a default with respect to any senior
indebtedness. Thus, in the event of insolvency, holders of senior
indebtedness of an issuer generally will recover more, ratably, than
holders of subordinated indebtedness of that issuer.
Obligations that are rated lower than BBB by Standard & Poor's, or Baa
by Moody's, respectively, should be considered speculative as such
ratings indicate a quality of less than investment grade. Investors
should carefully review the objective of the Trust and consider their
ability to assume the risks involved before making an investment in the
Trust. See "Description of Bond Ratings" herein for a description of
speculative ratings issued by Standard & Poor's and Moody's.
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 Bonds 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
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
Page 5
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 relatively long-standing 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
Page 6
predictability for the first time in a generation constitutes the
foundation of support for the 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. Consensus among all major political parties in
support of the Convertibility Plan makes policy continuity likely beyond
the presidential elections in December 1999.
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.
Due in part to the convertibility policy, economic activity in Argentina
has been for many years more volatile and sensitive to the direction and
pace of external capital flows than has been the case in other Latin
American countries. The net public external debt burden is among the
highest of rated sovereigns at an estimated 212% of exports for 1998.
Debt service alone absorbs 42% 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.
Despite the severe economic problems facing key trading partner Brazil,
Argentina has managed to weather the Brazilian crisis with little
impact. Although interest rates increased and the capital markets
suffered as they did after the 1994 Mexican peso crisis, the negative
effect on Argentina's economy was mitigated by the strength of its
financial system and the long-term funding of its companies.
Therefore, even as memories of fiscal chaos and hyperinflation recede in
the eighth 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 September 21, 1998.
Brazil. Brazil is the fifth largest country in the world and occupies
nearly half the land area of South America. Brazil's estimated
population is 165 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 re-elected in October 1998 and has
continued his advocacy of the Plano Real, an economic stabilization
program for Brazil and its 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 3% in 1998. The austerity plan raised taxes and
prices of everything from fuel to beer. It led to the dismissal of
thousands of government workers and banned new hires. Intended to ease
concerns on investors, these retrenchment measures followed 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.
In late 1998, the Brazilian economy plunged into turmoil following the
crash of its domestic financial markets, forcing the International
Monetary Fund to provide $41.5 billion in a massive bail-out. In
exchange for the IMF's assistance, the Brazilian government promised
reforms including the abandonment of its fixed exchange rate system. On
January 15, 1999, the government allowed the real to float. It
Page 7
depreciated by 55% compared to the U.S. dollar over the following three
weeks but has remained relatively stable for the last two months.
When it removed the fixed-exchange rate, Brazil's government also lost
its anchor for inflationary limits. The country's interest rates
immediately jumped to the 30-34% range in order to keep the real from
completely collapsing. The Brazilian Congress quickly passed a $34.5
billion package of tax increase and spending cuts to generate a fiscal
surplus for the year and to attempt to offset the government's swollen
debt service bill.
The long-term impact of this recent fiscal crisis has not yet been
projected, and the estimated length of Brazil's current recession varies
from analyst to analyst. Brazil's central bank predicts that the
economic decline in Brazil would be less severe than other predictions,
at only 2%. The IMF expects the decline to be approximately 3.8% of the
country's economy, while other economists are anticipating declines of
over 5% during 1999.
Standard & Poor's has not revised its ratings of Brazil's long term
debt, such as that acquired by the Trust, since July 31, 1998, at which
time it published a BB- rating.
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 and help alleviate
the traditionally destabilizing effects of electoral cycles on the
economy. Such improvements continue to 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. Nevertheless, as the economy slows in 1999,
the difficulties of achieving multiparty national agreement on economic
issues will intensify in conjunction with political pressures going into
the 2000 national elections. A broad based consensus on Mexico's banking
system in particular-and reform of the legal and judicial framework-are
crucial to maintain political and economic stability as the 2000
elections approach.
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 fragile banking system, still recovering from a four-year old
crisis, is ill-equipped to meet the needs of the economy. Excessive
delays in achieving a financial solution and correcting the regulatory
and legal flaws have left the system uncompetitive and critically
exposed to high interest rates and an impending economic downturn.
Further delays in addressing issues such as improvement of the
regulatory framework and implementation of effective bankruptcy and
white-collar crime laws could push the cost of the government's support
of the banking system well beyond 17% of GDP, further weakening Mexico's
fiscal position. The recent pickup in domestic credit growth stalled in
late 1998, leaving the pace of investment and economic activity
continuing to be heavily dependent on now unavailable external credit.
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.
Nevertheless, Mexico enjoys a relatively comfortable fiscal position and
a long-standing commitment to financial discipline compared to other
speculative-grade countries. This conservative fiscal policy remains the
cornerstone of Mexico's recovery from the peso crisis. Despite the sharp
drop in oil revenues (accounting for about one-third of total
governmental revenues), significant budget cuts in 1998 kept the fiscal
deficit under 2% of GDP. Mexico's external debt burden is also
manageable, having been halved by an estimated 88% of exports in
1998, and is expected to facilitate a fall in debt service (excluding short-
term) in 1999 to about 18% of exports. These gains are 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
Page 8
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. However, a slowdown in the U.S. economy-which
absorbs 85% of Mexico's exports-could dampen the country's economic
growth during 1999 and 2000.
Standard & Poor's rates Mexico's long term debt, such as that acquired
by the Trust, at BB as of October 2, 1998.
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
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).
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.
The next administration, due to be elected in May of 1999, will be
challenged to retain momentum in the structural reform process.
Particularly relevant will be reform of social security and the tax
structure as a means of achieving sustainable improvement in public sector
accounts. In turn, this would allow both a reduction in public sector debt
and an increase in public expenditure aimed at improving social conditions,
particularly in rural areas. Development beyond the metropolitan areas of
Panama City and Colon is limited, with poor social indicators, weak
infrastructure, and unemployment standing at 9.5% in the rural areas and
13.4% nationally in 1998.
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. Despite the fact that it has decreased from over
65% in 1996, the amount of externally held public debt (as a percentage
of GDP) is still high at 28% in 1998. 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.
Panama has experienced rapid growth in domestic credit, averaging 11.1%
per year since 1992 and led by a boom in credit to the private sector,
mainly to finance commerce, housing and personal consumption. Total
domestic credit has increased to 106% of GDP in 1998 from 77% in 1992.
If unchecked, this credit boom, associated with a downturn in the
business cycles and deteriorating international credit conditions, could
severely strain the banking system and eventually translate into
systemic problems which would shake confidence and accentuate the boom-
and-bust cycles. The enactment of a new banking law in March 1998 is a
positive step toward addressing the issue, if strongly enforced.
The Torrijos-Carter Treaties of 1977 provided for the return of ownership
and control of the Panama Canal. Operation and management of the Canal
Page 9
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 December 22, 1998.
Venezuela. After failing to implement its promised agenda of flexible
financial stability, structural reforms to public finances and the
creation of a stabilization fund, Venezuela remains acutely exposed to
oil price fluctuations. Growing federal expenditures coupled with oil-
related revenue volatility have led the Venezuelan economy into
increasing fiscal instability.
Venezuela fell into recession during 1998, and all indicators point
toward continued recession in 1999. The country's economy is heavily
dependent upon oil production. During the early 1990's, the oil industry
generated about 60% of governmental revenue; in 1998, however, that
figure dropped to about 40%, despite comparable output. Moreover,
Venezuela promised OPEC that it would decrease oil production from more
than 3 million to 2.85 million barrels a day by June 1998, but it has
not yet followed up on that agreement, most likely due to governmental
reliance on these revenues.
Weak monetary policy and low central bank credibility have further
depressed Venezuela's position. Inflation is unlikely to fall from
1998's 38% rate, with some economists projecting that it will surpass
40% in 1999. The country's exchange rate has become extremely
overvalued, undermining the credibility of the current exchange rate
policy. An eventual devaluation will only set back already ineffective
long-term anti-inflation efforts.
Urgent action is promised by Venezuela's new president, Hugo Chavez.
Citing mounting unemployment and a staggering budgetary deficit, Chavez
asked the Venezuelan Congress to enable him to implement economic
measures without congressional approval. The so-called Enabling Law was
enacted on April 27, 1999, allowing him full economic power for at least
six months. Among the measures he plans are the conversion of the
wholesale tax into a value-added tax, which would apply to a broader
base of goods and services but at a lower rate; a new tax on financial
transactions; and the enforcement of the country's income tax. Chavez
projects that with these measures, he can halve the country's deficit.
In addition, Chavez won support of the electorate to pass a referendum
(April 25, 1999) to create a new popular Constitutional Assembly
specifically for rewriting Venezuela's Constitution and, possibly,
dissolving the country's Congress and Supreme Court.
Standard & Poor's rates Venezuela's long term debt, such as that
acquired by the Trust, at B+ as of August 31, 1998, and the outlook was
revised from stable to negative.
Liquidity. All the Bonds in the Trust have been registered under the
Bonds 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
Page 10
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 in connection with
corporate acquisitions, leveraged buyouts or restructurings which could
have the effect of reducing the ability of the issuer to meet its debt
obligations and might result in the ratings of the Bonds and the value
of the underlying Trust portfolio being reduced. See "Rights of Unit
Holders-How May Bonds be Removed from the Trust?" 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
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
Page 11
current returns of bonds trading at a market premium are initially
higher than the current returns of comparable bonds of a similar type
issued at currently prevailing interest rates because premium bonds tend
to decrease in market value as they approach maturity when the face
amount becomes payable. Because part of the purchase price is thus
returned not at maturity but through current income payments, early
redemption of a premium bond at par or early prepayments of principal
will result in a reduction in yield. Redemption pursuant to call
provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed Bonds have an offering
side valuation which represents a premium over par or for original issue
discount Bonds a premium over the accreted value. To the extent that the
Bonds were deposited in the Trust at a price higher than the price at
which they are redeemed, this will represent a loss of capital when
compared to the original Public Offering Price of the Units. Because
premium bonds generally pay a higher rate of interest than bonds priced
at or below par, the effect of the redemption of premium bonds would be
to reduce Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of Bonds in
the Trust. Although the actual impact of any such redemptions that may
occur will depend upon the specific Bonds that are redeemed, it can be
anticipated that the Estimated Net Annual Unit Income will be
significantly reduced after the dates on which such Bonds are eligible
for redemption. See "Rights of Unit Holders-How May Bonds be Removed
from the Trust?" and "Other Information-How May the Indenture be Amended
or Terminated?"
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds from such events will be
distributed to Unit holders and will not be reinvested, no assurance can
be given that the Trust will retain for any length of time its present
size and composition. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in the Trust may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions, sinking fund provisions or
otherwise. A bond subject to optional call is one which is subject to
redemption or refunding prior to maturity at the option of the issuer. A
refunding is a method by which a bond issue is redeemed, at or before
maturity, by the proceeds of a new bond issue. A bond subject to sinking
fund redemption is one which is subject to partial call from time to
time at par or from a fund accumulated for the scheduled retirement of a
portion of an issue prior to maturity. The exercise of redemption or
call provisions will (except to the extent the proceeds of the called
Bonds are used to pay for Unit redemptions) result in the distribution
of principal and may result in a reduction in the amount of subsequent
interest distributions; it may also affect the Estimated Long-Term
Return and the Estimated Current Return on Units of the Trust.
Redemption pursuant to call provisions is more likely to occur, and
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.
Like other investment companies, financial and business organizations
and individuals around the world, the Trust could be adversely affected
if the computer systems used by the Sponsor, Evaluator, Portfolio
Supervisor or Trustee or other service providers to the Trust do not
properly process information and data involving dates of January 1, 2000
and thereafter. This is commonly known as the "Year 2000 Problem." The
Sponsor, Evaluator, Portfolio Supervisor and Trustee are taking steps
that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the
Trust's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse
impact to the Trust.
The Year 2000 Problem is expected to impact corporations, which may
include issuers of the Bonds contained in the Trust, to varying degrees
based upon various factors, including, but not limited to, their
industry sector and degree of technological sophistication. The Sponsor
is unable to predict what impact, if any, the Year 2000 Problem will
have on issuers of the Bonds contained in the Trust.
To the best knowledge of the Sponsor, there is no litigation pending as
of the date of this Prospectus in respect of any Bonds which might
reasonably be expected to have a material adverse effect upon the Trust.
At any time after the date of this Prospectus, litigation may be
Page 12
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 offered represents that fractional undivided interest in the
Trust as is set forth in the "Summary of Essential Information" in Part
One of the Prospectus 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?
As of the date of Part One of the Prospectus, the Estimated Current
Return and the Estimated Long-Term Return are as set forth in "Summary
of Essential Information" in Part One of the Prospectus. 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" in Part One of the Prospectus 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" in Part One of the
Prospectus 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 date of Part One of the Prospectus. 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" in Part One of the Prospectus 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 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. Unit holders will
receive on the next distribution date of the Trust the amount, if any,
of accrued interest paid on their Units.
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
Page 13
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
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
Page 14
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"
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
Page 15
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. The Internal Revenue Service Restructuring
and Reform Act of 1998 (the "1998 Tax 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)
realized from property (with certain exclusions) is subject to a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in
the lowest tax bracket). 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 for
determining the holding period of the Unit. Capital gains realized from
assets held for one year or less are taxed at the same rates as ordinary
income. 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 or her original cost.
If the Unit holder disposes of a Unit, he or she is deemed thereby to
have disposed of his or her entire pro rata interest in all Trust assets
including his or her 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.
It should be noted that capital gains may be recharacterized as ordinary
income in the case of certain financial transactions that are
"conversion transactions" effective for transactions entered into after
April 30, 1993. Unit holders and prospective investors should consult
with their tax advisors regarding the potential effect of this provision
on their investment in Units.
The Taxpayer Relief Act of 1997 (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.
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
Page 16
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
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.
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" in Part One of
the Prospectus, the Sponsor will not receive any fees in connection with
its activities relating to the Trust.
Page 17
First Trust Advisors L.P., an affiliate of the Sponsor, will receive an
annual supervisory fee, which is not to exceed the amount set forth
under "Summary of Essential Information" in Part One of the Prospectus,
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. 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" in Part One of the Prospectus. 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 a fee as indicated in "Special Trust Information" for the Trust.
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. Because the above fees (except for
the Evaluator's fee) are generally based on the largest aggregate number
of Units of the Trust outstanding during a calendar year, the per Unit
amounts set forth under "Summary of Essential Information" in Part One
of the Prospectus will be higher during any year in which redemptions of
Units occur.
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
of which Nike Bonds 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 Bonds 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
Page 18
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. Units may be purchased
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 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:
Sales Charge
____________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_________________ __________ __________
Less than 1 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 or more 5.00 5.263
There will be no reduction of the sales charges for volume purchases. 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.
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. 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
Page 19
day on which it is open, effective for all sales, purchases or
redemptions made subsequent to the last preceding determination.
The 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 Bonds 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?
Units repurchased in the secondary market may be offered by this Part
Two Prospectus at the Public Offering Price determined in the manner
described above.
The Sponsor reserves the right to change the amount of the concession or
agency commission from time to time. Certain commercial banks are making
Units of the Trust available to their customers on an agency basis. A
portion of the sales charge paid by these customers is retained by or
remitted to the banks in the amounts indicated in the second preceding
sentence. Under the Glass-Steagall Act, banks are prohibited from
underwriting Trust Units; however, the Glass-Steagall Act does permit
certain agency transactions and the banking regulators have not
indicated that these particular agency transactions are not permitted
under such Act. In Texas and in certain other states, any banks making
Units available must be registered as broker/dealers under state law.
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 Bonds 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.
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
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 Bonds L.P.
with returns on other taxable investments such as corporate or U.S.
Page 20
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.
What are the Sponsor's Profits?
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the
price at which Units are purchased (based on the bid prices of the Bonds
in the Trust) and the price at which Units are resold (which price is
also based on the bid prices of the Bonds in the Trust and includes a
maximum sales charge of 5.0%) or redeemed. The Public Offering Price of
Units may be greater or less than the cost of such Units to the Sponsor.
Will There be a Secondary Market?
Although not obligated to do so, the Sponsor intends to maintain a
market for the Units and continuously to offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid
price of the Bonds in the portfolio of the Trust plus interest accrued
to the date of settlement. All expenses incurred in maintaining a
secondary market, other than the fees of the Evaluator, the other
expenses of the Trust and the costs of the Trustee in transferring and
recording the ownership of Units, will be borne by the Sponsor. If the
supply of Units exceeds demand, or for some other business reason, the
Sponsor may discontinue purchases of Units at such prices. IF A UNIT
HOLDER WISHES TO DISPOSE OF HIS 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. As in this Trust, the purchase price per unit of such bond funds
will depend primarily on the value of the securities in the portfolio of
the fund.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units is evidenced by registered certificates executed by
the Trustee and the Sponsor. Delivery of certificates representing Units
ordered for purchase is normally made three business days following such
order or shortly thereafter. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer.
Page 21
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 Bonds 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.
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 must follow procedures established by the Trustee, including
furnishing indemnity satisfactory to the Trustee and paying 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 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
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.
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
Page 22
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
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
Page 23
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 Public Offering Price)
will be determined on the basis of the bid price of the Bonds in the
Trust. 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.
The Trustee is empowered to sell underlying Bonds in the Trust in order
to make funds available for redemption. To the extent that Bonds are
sold, the size and diversity of the Trust will be reduced. Such sales
may be required at a time when Bonds would not otherwise be sold and
might result in lower prices than might otherwise be realized.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the Bonds
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 Bonds and Exchange Commission may by order permit. Under
certain extreme circumstances, the Sponsor may apply to the Bonds and
Exchange Commission for an order permitting a full or partial suspension
of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before 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 may be tendered
to the Trustee for redemption as any other Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then currently
effective prospectus describing such Units. Any profit or loss resulting
from the resale or redemption of such Units will belong to the Sponsor.
How May Bonds be Removed from the Trust?
The Trustee, in its sole discretion, is empowered to sell underlying
Bonds of a Trust in order to make funds available for the redemption of
Units of such Trust or to provide for the payment of expenses of such
Page 24
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, the
acquisition by the Trust of any securities other than the Bonds
initially deposited is prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Bonds L.P., the Sponsor, specializes in the underwriting, trading
and distribution of unit investment trusts and other securities. Nike
Bonds 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 Bonds Trust, and The
Advantage Growth and Treasury Bonds Trust. First Trust introduced the
first insured unit investment trust in 1974 and to date more than $25
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 Bonds Dealers, Inc. and Bonds
Investor Protection Corporation and has its principal offices at 1001
Warrenville Road, Lisle, Illinois 60532; telephone number (630) 241-
4141. As of December 31, 1998, the total partners' capital of Nike Bonds
L.P. was $18,506,548 (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.
Page 25
The Trustee, whose duties are ministerial in nature, has not
participated in the selection of the portfolio or the Insurance Policy.
For information relating to the responsibilities of the Trustee under
the Indenture, reference is made to the material set forth under "Rights
of Unit Holders."
The Trustee and any successor trustee may resign by executing an
instrument in writing and filing the same with the Sponsor and mailing a
copy of a notice of resignation to all Unit holders. Upon receipt of
such notice, the Sponsor is obligated to appoint a successor trustee
promptly. If the Trustee becomes incapable of acting or becomes bankrupt
or its affairs are taken over by public authorities, the Sponsor may
remove the Trustee and appoint a successor as provided in the Indenture.
If upon resignation of a trustee no successor has accepted the
appointment within thirty days after notification, the retiring trustee
may apply to a court of competent jurisdiction for the appointment of a
successor. The resignation or removal of a trustee becomes effective
only when the successor trustee accepts its appointment as such or when
a court of competent jurisdiction appoints a successor trustee.
Any corporation into which the Trustee may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Bonds. In the event of the failure of the Sponsor
to act under the Indenture, the Trustee may act thereunder and shall not
be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in respect
of the Trust which the Trustee may be required to pay under any present
or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Bonds 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.
Page 26
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. 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. 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 financial statements, including the portfolio, of the Trust
appearing in Part One of this Prospectus and the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere therein and in the
Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and
auditing.
Page 27
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 28
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 29
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 30
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Page 31
CONTENTS:
The Latin American Government Income Trust
What is The FT Series? 3
Bond Portfolio Selection 3
Risk Factors 4
What are Estimated Long-Term Return and
Estimated Current Return? 12
How is Accrued Interest Treated? 13
Are Unit Holders Subject to Foreign
Withholding Tax? 13
What is the Federal Tax Status of Unit Holders? 13
Are Investments in the Trust Eligible for
Retirement Plans? 17
What are the Expenses and Charges? 17
Public Offering:
How is the Public Offering Price Determined? 18
How are Units Distributed? 19
What are the Sponsor's Profits? 21
Will There be a Secondary Market? 21
Rights of Unit Holders:
How are Certificates Issued and Transferred? 21
How are Interest and Principal Distributed? 21
How Can Distributions to Unit Holders be
Reinvested? 22
What Reports Will Unit Holders Receive? 23
How May Units be Redeemed? 23
How May Units be Purchased by the Sponsor? 24
How May Bonds be Removed from the Trust? 25
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 25
Who is the Trustee? 25
Limitations on Liabilities of Sponsor and Trustee 26
Who is the Evaluator? 26
Other Information:
How May the Indenture be Amended
or Terminated? 26
Legal Opinions 27
Experts 27
Description of Bond Ratings 28
_______________
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
Prospectus
Part Two
April 30, 1999
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 32
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, FT 232 LATIN AMERICAN GOVERNMENT INCOME TRUST,
certifies that it meets all of the requirements for effectiveness
of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment of its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the
Village of Lisle and State of Illinois on April 30, 1999.
FT 232
LATIN AMERICAN GOVERNMENT INCOME TRUST
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Director of )
Nike Securities )
Corporation, ) April 30, 1999
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
David J. Allen Director of Nike ) Attorney-in-Fact**
Securities 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
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated April 9, 1999 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated April 27, 1999.
ERNST & YOUNG LLP
Chicago, Illinois
April 26, 1999
