File No. 33-45093
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
(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 28, 1995
: : 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
February 15, 1995.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
8,978 UNITS
PROSPECTUS
Part One
Dated April 18, 1995
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The First Trust Insured Corporate Trust, Series 3 (the "Trust") is an insured
and fixed portfolio of interest-bearing corporate debt obligations of domestic
public utility companies and zero coupon U.S. Treasury bonds. At March 16,
1995, each Unit represented a 1/8,978 undivided interest in the principal and
net income of the Trust (see "The Fund" 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 5.8% of the Public Offering Price (6.157%
of the amount invested). At March 16, 1995, the Public Offering Price per
Unit was $341.18 plus net interest accrued to date of settlement (five
business days after such date) of $5.82 and $11.71 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
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 6.91% per annum on March 16, 1995, and 6.81% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 6.11% per annum on March 16, 1995, and 6.00%
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 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.
Please retain both parts of this Prospectus for future reference.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF MARCH 16, 1995
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $3,397,000
Number of Units 8,978
Fractional Undivided Interest in the Trust per Unit 1/8,978
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,885,433
Aggregate Value of Bonds per Unit $321.39
Sales Charge 6.157% (5.8% of Public Offering Price) $19.79
Public Offering Price per Unit $341.18*
Redemption Price and Sponsor's Repurchase Price per Unit
($19.79 less than the Public Offering Price per Unit) $321.39*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $2,100,000
</TABLE>
Date Trust Established January 23, 1992
Mandatory Termination Date December 31, 2041
Evaluator's Fee: $20 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 $.25
of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (five business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF MARCH 16, 1995
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<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 $27.55 $27.55
Less: Estimated Annual Expense Excluding
Insurance $3.62 $3.25
Annual Premium on Portfolio
Insurance $.71 $.71
Estimated Net Annual Interest Income $23.22 $23.59
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $23.22 $23.59
Divided by 12 and 2, Respectively $1.94 $11.80
Estimated Daily Rate of Net Interest Accrual $.0645 $.0655
Estimated Current Return Based on Public
Offering Price 6.81% 6.91%
Estimated Long-Term Return Based on Public
Offering Price 6.00% 6.11%
</TABLE>
Trustee's Annual Fee: $.84 and $.51 per $1,000 principal amount of Bonds 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 The First Trust
Special Situations Trust, Series 24, The First
Trust Insured Corporate Trust, Series 3
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust,
Series 24, The First Trust Insured Corporate Trust, Series 3 as of
December 31, 1994, and the related statements of operations and changes in net
assets for each of the two years in the period then ended and for the period
from the Date of Deposit, January 23, 1992, to December 31, 1992. 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 audits.
We conducted our audits 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, 1994,
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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Special
Situations Trust, Series 24, The First Trust Insured Corporate Trust, Series 3
at December 31, 1994, and the results of its operations and changes in its net
assets for each of the two years in the period then ended and for the period
from the Date of Deposit, January 23, 1992, to December 31, 1992, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 2, 1995
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Bonds, at market value (cost $2,913,996)
(Notes 1 and 3) $2,916,747
Cash 50,498
Accrued interest 40,618
__________
3,007,863
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Unit redemptions payable 2,302
Accrued liabilities 5,563
__________
7,865
__________
Net assets, applicable to 9,104 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $2,913,996
Net unrealized appreciation (Note 2) 2,751
Distributable funds 83,251
__________
$2,999,998
==========
Net asset value per unit $329.53
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
PORTFOLIO - See notes to portfolio.
December 31, 1994
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(d) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
1995 @ 107.330
Appalachian Power Company 9.875% 12/01/2020 1995 @ 100 S.F. A- $820,000 881,418
1995 @ 107.680
Arkansas Power and Light Company 10.00 2/01/2020 1995 @ 100 S.F. BBB 912,000 982,187
The Cincinnati Gas and Electric Company 9.70 6/15/2019 1995 @ 106.650 BBB+ 805,000 855,304
United States Treasury Strips (c) - 11/15/2013 NR 890,000 197,838
______________________
$3,427,000 2,916,747
======================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
NOTES TO PORTFOLIO
December 31, 1994
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year or, if
currently redeemable, the redemption price at December 31, 1994. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. All of the Corporate
Bonds in the Trust are currently redeemable.
(b) The ratings shown are those effective at December 31, 1994 ("NR"
indicates no rating).
(c) The United States Treasury Strips are not covered by the insurance
obtained by the Trust (see Note 3).
(d) The Trust consists of three corporate bonds issued by domestic public
utility companies (representing approximately 74% of the aggregate
principal amount of the Bonds in the Trust) and one United States
Treasury zero coupon Bond issue. All of the Bond issues represent 10%
or more of the aggregate principal amount of Bonds in the Trust. The
largest such issue represents approximately 27%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
the Date
of Deposit,
Jan. 23,
Year ended Year ended 1992, to
Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992
<S> <C> <C> <C>
Interest income $284,435 537,502 780,981
Expenses:
Trustee's fees and related expenses (8,800) (14,875) (8,994)
Insurance expense (Note 3) (7,014) (12,221) (19,536)
Evaluators' fees (5,060) (5,040) (4,140)
Supervisory fee (2,647) (2,700) (2,478)
________________________________
Investment income - net 260,914 502,666 745,833
Net gain (loss) on investments:
Net realized gain (loss) (43,981) (6,076) (24,300)
Change in unrealized appreciation
or depreciation (74,560) 57,085 20,226
________________________________
(118,541) 51,009 (4,074)
________________________________
Net increase in net assets resulting
from operations $142,373 553,675 741,759
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
the Date
of Deposit,
Jan. 23,
Year ended Year ended 1992, to
Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $260,914 502,666 745,833
Net realized gain (loss) on investments (43,981) (6,076) (24,300)
Change in unrealized appreciation or
depreciation on investments (74,560) 57,085 20,226
_________________________________
142,373 553,675 741,759
Distributions to unit holders:
Investment income - net (266,052) (540,490) (608,465)
Principal from investment transactions (463,202)(4,006,188)(2,132,058)
_________________________________
(729,254)(4,546,678)(2,740,523)
Unit redemptions (1,483, 213 and 15 in
1994, 1993 and 1992, respectively):
Principal portion (510,005) (105,658) (11,408)
Net interest accrued (11,942) (2,272) (289)
_________________________________
(521,947) (107,930) (11,697)
_________________________________
Total increase (decrease) in net assets (1,108,828)(4,100,933)(2,010,461)
Net assets:
At the beginning of the period 4,108,826 8,209,759 10,220,220
_________________________________
At the end of the period (including
distributable funds applicable to
Trust units of $83,251, $87,470
and $128,313 at December 31, 1994,
1993 and 1992, respectively) $2,999,998 4,108,826 8,209,759
=================================
Trust units outstanding at the end of
the period 9,104 10,587 10,800
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Securities Evaluation Service,
Inc. (the Evaluator) certain shareholders of which are officers of the
Sponsor. 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 (see Note 3).
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the Date of Deposit, January 23, 1992. The premium or discount (including
original issue discount) existing at the Date of Deposit 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 -
In addition to insurance coverage obtained by the Trust (see Note 3), the
Trust pays a fee for Trustee services to United States Trust Company of New
York which is based on $.84 and $.51 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively. Additionally, a fee of $20 per evaluation is payable to
the Evaluator and the Trust pays all related expenses of the Trustee,
recurring financial reporting costs and an annual supervisory fee payable to
an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at December 31, 1994 follows:
<TABLE>
<S> <C>
Unrealized appreciation $35,947
Unrealized depreciation (33,196)
_______
$2,751
=======
</TABLE>
<PAGE>
3. Insurance
The Trust has acquired insurance coverage which provides for the scheduled
payment of principal and interest on all of the corporate bonds in its
portfolio. The United States Treasury Strips are direct obligations of the
United States Government and are not covered by the insurance obtained by the
Trust. Insurance coverage acquired by the Trust is effective only while the
bonds are owned by the Trust, and, in the event of disposition of such a bond
by the Trustee, the insurance terminates as to such bond on the date of
disposition. Pursuant to an irrevocable commitment of Financial Security
Assurance Inc., in the event of a sale of the bond from the portfolio which is
covered by the insurance obtained by the Trust, the Trustee has the right to
obtain permanent insurance for such bond upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such bond.
Annual insurance premiums payable by the Trust in future years, assuming no
change in the portfolio, would be $6,461.
The valuation of bonds does not include any amount attributable to the
insurance acquired by the Trust as there has been no default in the payment of
principal or interest on the bonds in the portfolio as of the date of these
financial statements and, in the opinion of the Sponsor, the bonds are being
quoted in the market at a value which does not reflect a significant risk of
such default.
4. 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 5.5% of the public offering price which is equivalent to
approximately 5.820% 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 Date
of Deposit,
Jan. 23,
Type of Year ended Year ended 1992, to
distribution Dec. 31, Dec. 31, Dec. 31,
plan 1994 1993 1992
<S> <C> <C> <C>
Monthly $27.05 50.23 56.26*
Semi-annual 27.43 50.58 56.44
</TABLE>
[FN]
*Excludes $1.55 per unit distributed to the Sponsor as discussed below.
<PAGE>
Accrued interest to the Date of Deposit, totaling $179,953, plus net interest
accruing to the first settlement date, January 30, 1992, totaling $16,815,
were distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $4.63 per unit, was paid on May 1, 1992 to all unit
holders of record on April 15, 1992.
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from
the Date
of Deposit,
Jan. 23,
Year ended Year ended 1992, to
Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992
<S> <C> <C> <C>
Interest income $29.28 50.02 72.23
Expenses (2.42) (3.24) (3.25)
_______________________________
Investment income - net 26.86 46.78 68.98
Distributions to unit holders:
Investment income - net (27.24) (50.30) (56.29)
Principal from investment transactions (46.24) (373.43) (197.19)
Net gain (loss) on investments (11.95) 4.89 (.34)
_______________________________
Total increase (decrease) in net assets (58.57) (372.06) (184.84)
Net assets:
Beginning of the period 388.10 760.16 945.00
_______________________________
End of the period $329.53 388.10 760.16
===============================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3
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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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 First Trust (registered trademark) Insured Corporate
Trust Series
First Trust Corporate Income Trust, Laddered Series
Global Corporate Income Trust, Intermediate Series
The First Trust Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated August 22, 1994
The First Trust Special Situations Trust, The First Trust Insured
Corporate Trust Series (the "Insured Series"), First Trust Corporate
Income Trust, Laddered Series (the "Laddered Series") and Global
Corporate Income Trust, Intermediate Series (the "Global Series")
(a Trust in a Series is a "Trust," collectively the "Trusts")
are unit investment trusts consisting of portfolios of interest-bearing
corporate debt obligations of domestic or foreign companies (the
"Corporate Bonds"), in certain Trusts, U.S. Treasury bonds (the
"Treasury Obligations"), in certain Trusts, taxable municipal
debt obligations (the "Municipal Bonds"), and in certain Trusts,
zero coupon bonds of foreign government issuers (the "zero coupon
bonds") (collectively, the "Bonds").
The Objectives of the Trusts are a high level of current income
and conservation of capital through investment in a portfolio
of corporate debt obligations of domestic or foreign companies
and in certain Trusts, taxable municipal debt obligations issued
after July 18, 1984 if interest thereon is U.S. source income.
A portion of a Trust's portfolio may consist of U.S. Treasury
bonds or zero coupon bonds of foreign government issuers. The
Trusts in the Laddered Series consist of laddered portfolios such
that Bonds representing a certain percentage of the principal
amount of the Trust will mature and be distributed annually to
Unit holders. See Part One for the weighted average maturity of
the Bonds for each Trust in the Laddered Series. The payment of
interest and the conservation of capital are, of course, dependent
upon the continuing ability of the issuers, obligors and/or insurers
to meet their respective obligations.
Attention Foreign Investors: Your interest income from the Trusts
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?"
THE FOLLOWING INFORMATION REGARDING INSURANCE APPLIES ONLY TO
THE INSURED SERIES, NOT THE GLOBAL SERIES OR THE LADDERED SERIES.
THE SCHEDULED PAYMENTS OF PRINCIPAL AND INTEREST ON ALL CORPORATE
BONDS AND MUNICIPAL BONDS IN THE PORTFOLIOS OF THE TRUSTS ARE
INSURED EITHER UNDER (I) AN INSURANCE POLICY (THE "INSURANCE POLICY")
OBTAINED FROM FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY"),
CAPITAL MARKETS ASSURANCE CORPORATION ("CAPMAC") OR AMBAC INDEMNITY
CORPORATION ("AMBAC") BY THE TRUST OR (II) INSURANCE POLICIES
DIRECTLY OBTAINED BY THE BOND ISSUER, THE UNDERWRITERS, THE SPONSOR
OR OTHERS PRIOR TO THE DATE OF DEPOSIT FROM FINANCIAL SECURITY
OR OTHER INSURERS (THE "PREINSURED BONDS"). THE INSURANCE POLICIES
OBTAINED BY A TRUST AND ISSUED BY EITHER FINANCIAL SECURITY, CAPMAC
OR AMBAC INSURE BONDS COVERED THEREBY ONLY WHILE BONDS ARE RETAINED
IN SUCH TRUST, WHILE INSURANCE ON PREINSURED BONDS IS EFFECTIVE
SO LONG AS SUCH BONDS ARE OUTSTANDING. PURSUANT TO IRREVOCABLE
COMMITMENTS OF FINANCIAL SECURITY, CAPMAC OR AMBAC, IN THE EVENT
OF A SALE OF A BOND INSURED
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 OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
UNDER THE INSURANCE POLICIES OBTAINED BY A TRUST, THE TRUSTEE
HAS THE RIGHT TO OBTAIN PERMANENT INSURANCE FOR SUCH BOND UPON
THE PAYMENT OF A SINGLE PREDETERMINED INSURANCE PREMIUM FROM THE
PROCEEDS OF THE SALE OF SUCH BOND. THE INSURANCE, IN ANY CASE,
RELATES ONLY TO THE CORPORATE BONDS AND MUNICIPAL BONDS IN A TRUST
AND NOT TO THE TREASURY OBLIGATIONS OR THE UNITS OFFERED HEREBY.
AS A RESULT OF SUCH INSURANCE, THE UNITS OF THE TRUSTS HAVE RECEIVED
A RATING OF "AAA" BY STANDARD & POOR'S CORPORATION. SEE "WHY AND
HOW ARE THE TRUSTS IN THE INSURED SERIES INSURED?" NO REPRESENTATION
IS MADE AS TO ANY INSURER'S ABILITY TO MEET ITS COMMITMENTS.
Distributions to Unit holders may be reinvested as described herein.
See "How Can Distributions to Unit Holders be Reinvested?"
The Sponsor, although not obligated to do so, intends to maintain
a market for the Units at prices based upon the aggregate bid
price of the Bonds in the portfolios of the Trusts. In the absence
of such a market, a Unit holder will nonetheless be able to dispose
of the Units through redemption at prices based upon the bid prices
of the underlying Bonds. See "How May Units be Redeemed?" Neither
the bid nor offering prices of the underlying Corporate or Municipal
Bonds or of the Units of Trusts in the Insured Series, absent
situations in which Bonds are in default in payment of principal
or interest or in significant risk of such default, include value
attributable to the portfolio insurance obtained by the Trusts.
See "Why and How are the Trusts Insured?"
The Secondary Market 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 maximum sales
charge set forth in Part One for each Trust. For sales charges
in the secondary market, see "Public Offering." The minimum purchase
is 1 unit.
Page 2
The First Trust Insured Corporate Trust Series
First Trust Corporate Income Trust, Laddered Series
Global Corporate Income Trust, Intermediate Series
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust, The First Trust Insured
Corporate Trust Series; First Trust Corporate Income Trust, Laddered
Series and Global Corporate Income Trust, Intermediate Series
are series of investment companies created by the Sponsor under
the name of The First Trust Special Situations Trust, all of which
are generally similar but each of which is separate and is designated
by a different series number (the "Trust"). Each Trust in a Series
consists of an underlying separate unit investment trust created
under the laws of the State of New York pursuant to a Trust Agreement
(the "Indenture"), dated the initial date of deposit, with Nike
Securities L.P., as Sponsor, United States Trust Company of New
York, as Trustee, Securities Evaluation Service, Inc., as Evaluator
and First Trust Advisors L.P., as Portfolio Supervisor.
The objectives of each Trust are a high level of current income
and conservation of capital through investment in a portfolio
of corporate debt obligations of domestic or foreign companies
and in certain Trusts, taxable municipal debt obligations, issued
after July 18, 1984 if interest thereon is U.S. source income.
A portion of each Trust's portfolio may consist of U.S. Treasury
bonds or zero coupon bonds of foreign government issuers. The
Trusts in the Laddered Series consist of laddered portfolios such
that Bonds representing a certain percentage of the principal
amount of the Trust will mature and be distributed annually to
Unit holders. See Part One for the weighted average maturity of
the Bonds for each Trust in the Laddered Series.
THE FOLLOWING INFORMATION REGARDING INSURANCE APPLIES ONLY TO
THE INSURED SERIES, NOT THE GLOBAL SERIES OR THE LADDERED SERIES.
The scheduled payment of all principal and interest on the Corporate
and Municipal Bonds in each Trust in the Insured Series is insured
either under (i) an insurance policy (the "Insurance Policy")
obtained by such Trust from Financial Security Assurance Inc.
("Financial Security"), Capital Markets Assurance Corporation
("CapMAC") or AMBAC Indemnity Corporation ("AMBAC") or (ii) insurance
policies obtained directly by the Bond issuer, the underwriters,
the Sponsor or others prior to the Date of Deposit from Financial
Security or other insurers (the "Preinsured Bonds"). The Insurance
Policies obtained by a Trust and issued by Financial Security,
CapMAC or AMBAC insure Corporate or Municipal Bonds covered thereby
only while the Bonds thus insured are held in a Trust while insurance
on Preinsured Bonds is effective so long as such Bonds are outstanding.
By the terms of the Insurance Policies, Financial Security, CapMAC
or AMBAC unconditionally and irrevocably guarantees to a Trust
in the Insured Series the full and complete payment of scheduled
payments on the Bonds listed in their respective Insurance Policy
in an amount equal to the principal of such Bonds, which is payable
on the stated maturity date thereof or on the date such Bonds
are called for mandatory sinking fund redemption, and interest
on such Bonds as the scheduled payments shall become due but are
not paid by the issuer of such Bonds. In the event of any acceleration
of the due date of principal by reason of call for redemption
(other than a mandatory sinking fund redemption), default or otherwise,
the payments guaranteed by Financial Security, CapMAC or AMBAC
will be made in the amounts and at the times as would have been
due had there not been an acceleration by reason of call for redemption
(other than a mandatory sinking fund redemption), default or otherwise
unless Financial Security, CapMAC or AMBAC elects, in their sole
discretion, to pay accelerated principal on the redemption date,
plus interest accrued or accreted, as appropriate, to the date
of acceleration or redemption. Payment of such accelerated amount
or redemption price shall fully discharge the obligations of Financial
Security, CapMAC or AMBAC under their Insurance Policy in respect
of such Bonds. See "Why and How are the Trusts Insured?"
Page 3
THERE IS, OF COURSE, NO GUARANTEE THAT A TRUST'S OBJECTIVES WILL
BE ACHIEVED. AN INVESTMENT IN A TRUST SHOULD BE MADE WITH AN UNDERSTANDING
OF THE RISKS WHICH AN INVESTMENT IN FIXED RATE LONG-TERM DEBT
OBLIGATIONS MAY ENTAIL, INCLUDING THE RISK THAT THE VALUE OF THE
UNITS WILL DECLINE WITH INCREASES IN INTEREST RATES.
Neither the Public Offering Price of the Units of a Trust in the
Insured Series nor any evaluation of such Units for purposes of
repurchases or redemptions reflects any element of value for the
insurance obtained by such Trust unless Bonds are in default in
payment of principal or interest or in significant risk of such
default. See "Public Offering-How is the Public Offering Price
Determined?" On the other hand, the value of insurance obtained
by the Bond issuer, the underwriters, the Sponsor or others is
reflected and included in the market value of such Bonds.
Insurance obtained by a Trust in the Insured Series or by the
Bond issuer, the underwriters, the Sponsor or others is not a
substitute for the basic credit of an issuer, but supplements
the existing credit and provides additional security therefor.
Monthly premiums are paid by each Trust in the Insured Series
for the Insurance Policies obtained by such Trust from Financial
Security, CapMAC or AMBAC, respectively. No premiums for insurance
are paid by the Trusts in the Insured Series for Preinsured Bonds.
Upon the sale of a Bond insured under an Insurance Policy issued
by Financial Security, CapMAC or AMBAC, respectively, and obtained
by the Trusts in the Insured Series, the Trustee has the right
to obtain an insurance policy guaranteeing the scheduled payment
of principal and interest to the maturity of such Bond ("Permanent
Insurance") from Financial Security, CapMAC or AMBAC, respectively,
with respect to such Bond upon the payment of a single predetermined
insurance premium. Such premium will be paid from the proceeds
of the sale of such Bond. Accordingly, any Bond in a Trust in
the Insured Series covered by the Insurance Policies is eligible
to be sold on an insured basis. Standard & Poor's Corporation
and Moody's Investors Service, Inc. have rated the claims-paying
ability of Financial Security, CapMAC and AMBAC "AAA" and "Aaa,"
respectively. See "Why and How are the Trusts in the Insured Series
Insured?"
In selecting Corporate or Municipal Bonds, the following facts,
among others, were considered at the Date of Deposit: (i) the
Standard & Poor's Corporation rating of the Bonds was in no case
less than "BBB," or the Moody's Investors Service, Inc. rating
of the Bonds was in no case less than "Baa," including plus or
minus signs or provisional or conditional ratings, respectively,
or, if not rated, the Bonds had, in the opinion of the Sponsor,
credit characteristics sufficiently similar to the credit characteristics
of interest-bearing corporate or municipal debt obligations, respectively,
that were so rated as to be acceptable for acquisition by the
Trusts (see "Description of Bond Ratings"); (ii) the prices of
the Bonds relative to other bonds of comparable quality and maturity;
(iii) in the case of a Trust in the Insured Series, the availability
and cost of insurance of the principal and interest on the Bonds;
(iv) the diversification of Bonds as to location of issuer and
in the case of a Trust in the Laddered Series, diversification
as to maturity; (v) whether the Bonds were issued after July 18,
1984 if interest thereon is U.S. source income; (vi) the amount
of foreign withholding taxes applicable to the Bonds; and (vii)
in the case of the Trusts in the Laddered Series, whether the
Bonds are non-callable. See Part One for each Trust in the Laddered
Series for additional information or extraordinary call provisions.
Subsequent to the Date of Deposit, a Bond may cease to be rated
or its rating may be reduced below the minimum required as of
the Date of Deposit. Neither event requires elimination of such
Bond from the portfolio, but may be considered in the Sponsor's
determination as to whether or not to direct the Trustee to dispose
of the Bond. Certain Trusts consist primarily of Bonds which,
in many cases, do not have the benefit of covenants which would
prevent the issuer from engaging in capital restructurings or
borrowing transactions in connection with corporate acquisitions,
leveraged buyouts or restructurings which could have the effect
of reducing the ability of the issuer to meet its debt obligations
and might result in the ratings of the Bonds and the value of
the underlying Trust portfolio being reduced. See "Rights of Unit
Holders-How May Bonds be Removed from the Trusts?"
Certain of the Corporate or Municipal Bonds in the Trusts 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 Trusts 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
Page 4
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 Corporate or Municipal Bonds in the Trusts may
be original issue discount 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. 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. Certain Trusts consist primarily of Bonds
which, in many cases, do not have the benefit of covenants which
would prevent the issuer from engaging in capital restructurings
or borrowing transactions in connection with corporate acquisitions,
leveraged buyouts or restructurings which could have the effect
of reducing the ability of the issuer to meet its debt obligations
and might result in the ratings of the Bonds and the value of
the underlying Trust portfolio being reduced. 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.
The Treasury Obligations in certain Trusts consist of U.S. Treasury
bonds which have been stripped of their unmatured interest coupons.
The Treasury Obligations evidence the right to receive a fixed
payment at a future date from the U.S. Government, and are backed
by the full faith and credit of the U.S. Government. Treasury
Obligations are purchased at a deep discount because the buyer
obtains only the right to a fixed payment at a fixed date in the
future and does not receive any periodic interest payments. The
effect of owning deep discount bonds which do not make current
interest payments (such as the Treasury Obligations) is that a
fixed yield is earned not only on the original investment, but
also, in effect, on all earnings during the life of the discount
obligation. This implicit reinvestment of earnings at the same
rate eliminates the risk of being unable to reinvest the income
on such obligations at a rate as high as the implicit yield on
the discount obligation, but at the same time eliminates the holder's
ability to reinvest at higher rates in the future. For this reason,
the Treasury Obligations are subject to substantially greater
price fluctuations during periods of changing interest rates than
are securities of comparable quality which make regular interest
payments.
Certain of the Corporate or Municipal Bonds in the Trusts 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 a Trust were higher than the current
market interest rates for newly issued bonds of comparable rating
and type. If such interest rates for newly issued and otherwise
comparable bonds decrease, the market premium of previously issued
bonds will be increased, and if such interest rates for newly
issued comparable bonds increase, the market premium of previously
issued bonds will be reduced, other things being equal. The current
returns of bonds trading at a market premium are initially higher
than the current returns
Page 5
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 a 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 a 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
Trusts?" and "Other Information: How May the Indenture be Amended
or Terminated?" See "Portfolio" appearing in Part One for each
Trust for the earliest scheduled call date and the initial redemption
price for each Bond.
All of the Corporate Bonds in the Trusts in the Insured Series
are obligations of public utility issuers. In view of this an
investment in a Trust should be made with an understanding of
the characteristics of such issuers and the risks which such an
investment may entail. General problems encountered by such issuers
include the difficulty in financing large construction programs
in an inflationary period, the difficulty of the capital market
in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. All of
such issuers have been experiencing certain of these problems
in varying degrees. In addition, Federal, state and municipal
governmental authorities may from time to time review existing,
and impose additional, regulations governing the licensing, construction
and operation of nuclear power plants, which may adversely affect
the ability of the issuers of certain of the Bonds in the Trusts
to make payments of principal and /or interest on such Bonds.
Utilities are generally subject to extensive regulation by state
utility commissions which, for example, establish the rates which
may be charged and the appropriate rate of return on an approved
asset base, which must be approved by the state commissions. Certain
utilities have had difficulty from time to time in persuading
regulators, who are subject to political pressures, to grant rate
increases necessary to maintain an adequate return on investment
and voters in many states have the ability to impose limits on
rate adjustments (for example, by initiative or referendum). Any
unexpected limitations could negatively affect the profitability
of utilities whose budgets are planned far in advance. In addition,
gas pipeline and distribution companies have had difficulties
in adjusting to short and surplus energy supplies, enforcing or
being required to comply with long-term contracts and avoiding
litigation from their customers, on the one hand, or suppliers,
on the other.
Certain of the issuers of the Corporate Bonds in the Trusts may
own or operate nuclear generating facilities. Governmental authorities
may from time to time review existing, and impose additional,
requirements governing the licensing, construction and operation
of nuclear power plants. Nuclear generating projects in the electric
utility industry have experienced substantial cost increases,
construction delays and licensing difficulties. These have been
caused by various factors, including inflation, high financing
costs, required design changes and rework, allegedly faulty construction,
objections by groups and governmental officials, limits on the
ability to finance, reduced forecasts of energy requirements and
economic conditions. This experience indicates that the risk of
significant cost increases, delays and licensing difficulties
remains present through the completion and achievement of commercial
operation of any nuclear project. Also, nuclear generating units
in service have experienced unplanned outages or extensions of
scheduled outages due to equipment problems or new regulatory
requirements sometimes followed by a significant delay in obtaining
Page 6
regulatory approval to return to service. A major accident at
a nuclear plant anywhere, such as the accident at a plant in Chernobyl,
could cause the imposition of limits or prohibitions on the operation,
construction or licensing of nuclear units in the United States.
Other general problems of the gas, water, telephone and electric
utility industry (including state and local joint action power
agencies) include difficulty in obtaining timely and adequate
rate increases, difficulty in financing large construction programs
to provide new or replacement facilities during an inflationary
period, rising costs of rail transportation to transport fossil
fuels, the uncertainty of transmission service costs for both
interstate and intrastate transactions, changes in tax laws which
adversely affect a utility's ability to operate profitably, increased
competition in service costs, recent reductions in estimates of
future demand for electricity and gas in certain areas of the
country, restrictions on operations and increased cost and delays
attributable to environmental considerations, uncertain availability
and increased cost of capital, unavailability of fuel for electric
generation at reasonable prices, including the steady rise in
fuel costs and the costs associated with conversion to alternate
fuel sources such as coal, availability and cost of natural gas
for resale, technical and cost factors and other problems associated
with construction, licensing, regulation and operation of nuclear
facilities for electric generation, including among other considerations
the problems associated with the use of radioactive materials
and the disposal of radioactive wastes, and the effects of energy
conservation. Each of the problems referred to could adversely
affect the ability of the issuers of any utility bonds in the
Trusts to make payments due on these bonds.
In view of the pending investigations and the other uncertainties
discussed above, there can be no assurance that any company's
share of the full cost of nuclear units under construction ultimately
will be recovered in rates or of the extent to which a company
could earn an adequate return on its investment in such units.
The likelihood of a significantly adverse event occurring in any
of the areas of concern described above varies, as does the potential
severity of any adverse impact. It should be recognized, however,
that one or more of such adverse events could occur and individually
or collectively could have a material adverse impact on the financial
condition or the results of operations of a company and on such
company's ability to make interest and principal payments on its
outstanding debt.
Certain of the obligations in certain of the Trusts in the Insured
Series are taxable obligations of municipal issuers. In view of
this an investment in such Trusts should be made with an understanding
of the characteristics of such issuers and the risks which such
an investment may entail. Obligations of municipal issuers can
be either general obligations of a government entity that are
backed by the taxing power of such entity or revenue bonds payable
from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes.
General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. However, the taxing power of any governmental entity
may be limited by provisions of state constitutions or laws and
an entity's credit will depend on many factors, including an erosion
of the tax base due to population declines, natural disasters,
declines in the state's industrial base or inability to attract
new industries, economic limits on the ability to tax without
eroding the tax base and the extent to which the entity relies
on Federal or state aid, access to capital markets or other factors
beyond the entity's control.
As a result of the recent recession's adverse impact upon both
their revenues and expenditures, as well as other factors, many
state and local governments are confronting deficits and potential
deficits which are the most severe in recent years. Many issuers
are facing highly difficult choices about significant tax increases
or spending reductions in order to restore budgetary balance.
Failure to implement these actions on a timely basis could force
the issuers to depend upon market access to finance deficits or
cash flow needs.
In addition, certain of the Municipal Obligations in certain Trusts
in the Insured Series may be obligations of issuers who rely in
whole or in part on ad valorem real property taxes as a source
of revenue. Recently, certain proposals, in the form of state
legislative proposals or voter initiatives, to limit ad valorem
real property taxes have been introduced in various states.
Page 7
Revenue bonds, on the other hand, are payable only from revenues
derived from a particular facility or class of facilities, or,
in some cases, from the proceeds of a special excise tax or other
special revenue source. The ability of an issuer of revenue bonds
to make payments of principal and/or interest on such bonds is
primarily dependent upon the success or failure of the facility
or class of facilities involved or whether the revenues received
from an excise tax or other special revenue source are sufficient
to meet obligations.
Typically, interest income received from municipal issues is exempt
from Federal income taxation under Section 103 of the Internal
Revenue Code of 1986, as amended (the "Code") and therefore is
not includible in the gross income of the owners thereof. However,
interest income received for taxable municipal obligations is
not exempt from Federal income taxation under Section 103 of the
Code. Thus, owners of taxable municipal obligations generally
must include interest on such obligations in gross income for
Federal income tax purposes and treat such interest as ordinary
income.
Certain of the Municipal Obligations in certain Trusts in the
Insured Series may be obligations which are payable from and secured
by revenues derived from the ownership and operation of facilities
such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. In view of this an investment in such Trusts
should be made with an understanding of the characteristics of
such issuers and the risks which such an investment may entail.
The major portion of an airport's gross operating income is generally
derived from fees received from signatory airlines pursuant to
use agreements which consist of annual payments for leases, occupancy
of certain terminal space and service fees. Airport operating
income may therefore be affected by the ability of the airlines
to meet their obligations under the use agreements. The air transport
industry is experiencing significant variations in earnings and
traffic, due to increased competition, excess capacity, increased
costs, deregulation, traffic constraints and other factors, and
several airlines are experiencing severe financial difficulties.
The Sponsor cannot predict what effect these industry conditions
may have on airport revenues which are dependent for payment on
the financial condition of the airlines and their usage of the
particular airport facility. Similarly, payment on Bonds related
to other facilities is dependent on revenues from the projects,
such as user fees from ports, tolls on turnpikes and bridges and
rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors as increased cost
of maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss
of rents.
Certain of the Municipal Obligations in certain Trusts in the
Insured Series may be health care revenue bonds. In view of this
an investment in such Trusts should be made with an understanding
of the characteristics of such issuers and the risks which such
an investment may entail. Ratings of bonds issued for health care
facilities are often based on feasibility studies that contain
projections of occupancy levels, revenues and expenses. A facility's
gross receipts and net income available for debt service may be
affected by future events and conditions including, among other
things, demand for services and the ability of the facility to
provide the services required, physicians' confidence in the facility,
management capabilities, competition with other health care facilities,
efforts by insurers and governmental agencies to limit rates,
legislation establishing state rate-setting agencies, expenses,
the cost and possible unavailability of malpractice insurance,
the funding of Medicare, medicaid and other similar third party
payor programs, government regulation and the termination or restriction
of governmental financial assistance, including that associated
with Medicare, Medicaid and other similar third party payor programs.
Pursuant to recent Federal legislation, Medicare reimbursements
are currently calculated on a prospective basis utilizing a single
nationwide schedule of rates. Prior to such legislation Medicare
reimbursements were based on the actual costs incurred by the
health facility. The current legislation may adversely affect
reimbursements to hospitals and other facilities for services
provided under the Medicare program. Such adverse changes also
may adversely affect the ratings of Bonds held in the portfolio
of the Trusts. Because of the insurance obtained by the Trusts
in the Insured Series, the "AAA" rating of the Units in the Trusts
in the Insured Series would not be affected.
Page 8
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 Trusts will retain for any length
of time their 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 certain
Trusts 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. See
"Portfolio" appearing in Part One for each Trust. 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 Trusts. 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.
To the best knowledge of the Sponsor, there is no litigation pending
as of the date hereof in respect of any Bonds which might reasonably
be expected to have a material adverse effect upon the Trusts.
At any time after the date hereof, litigation may be initiated
on a variety of grounds with respect to Bonds in the Trusts. Such
litigation may affect the validity of such Bonds. In addition,
other factors may arise from time to time which potentially may
impair the ability of issuers to meet obligations undertaken with
respect to the Bonds.
Each Unit initially offered represents the fractional undivided
interest in a Trust as set forth in Part One for each Trust. To
the extent that any Units of a Trust are redeemed by the Trustee,
the fractional undivided interest in such 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 Certain Risks of an Investment in Foreign Issuers?
Foreign Issuers. Certain Bonds in the Trusts in the Laddered Series
and the Global Series are invested in securities of foreign issuers.
It is appropriate for investors in the Trusts 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 a 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 Trusts invest in U.S. dollar denominated investments, the
foreign issuers which operate internationally are subject to currency
risks. The value of Bonds can be adversely affected by political
or social instability and unfavorable diplomatic or other negative
developments. In addition, because many foreign issuers are not
subject to the reporting requirements of the Securities Exchange
Act of 1934, there may be less publicly available information
about the foreign issuer than a U.S. domestic issuer. Foreign
issuers also are not necessarily subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. domestic issuers. However,
the Sponsor anticipates that adequate information will be available
to allow the Portfolio Supervisor to provide portfolio surveillance.
Page 9
Liquidity. The Bonds in the Trusts may not have been registered
under the Securities Act of 1933 and may not be exempt from the
registration requirements of the Act. Most of the Bonds will not
be listed on a securities exchange. Whether or not the Bonds are
listed, the principal trading market for the Bonds will generally
be in the over-the-counter market. As a result, the existence
of a liquid trading market for the Bonds may depend on whether
dealers will make a market in the Bonds. There can be no assurance
that a market will be made for any of the Bonds, that any market
for the Bonds will be maintained or of the liquidity of the Bonds
in any markets made. The price at which the Bonds may be sold
to meet redemptions and the value of the Trusts will be adversely
affected if trading markets for the Bonds are limited or absent.
The Trusts may also contain non-exempt Bonds in registered form
which have been purchased on a private placement basis. Sales
of these Bonds may not be practicable outside the United States,
but can generally be made to U.S. institutions in the private
placement market which may not be as liquid as the general U.S.
securities market. Since the private placement market is less
liquid, the prices received may be less than would have been received
had the markets been broader.
Exchange Controls. On the basis of the best information available
to the Sponsor at the present time none of the Bonds is subject
to exchange control restrictions under existing law which would
materially interfere with payment to the Trusts 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
Trusts and on the ability of the Trusts to satisfy their obligation
to redeem Units tendered to the Trustee for redemption.
Jurisdiction Over, and U.S. Judgments Concerning, Foreign Obligors.
Non-U.S. issuers of the Bonds will generally not have submitted
to the jurisdiction of U.S. courts for purposes of lawsuits relating
to those Bonds. If a Trust contains Bonds of such an issuer, a
Trust as a holder of those obligations may not be able to assert
its rights in U.S. courts under the documents pursuant to which
the Bonds are issued. Even if a Trust obtains a U.S. judgment
against a foreign obligor, there can be no assurance that the
judgment will be enforced by a court in the country in which the
foreign obligor is located. In addition, a judgment for money
damages by a court in the United States if obtained, will ordinarily
be rendered only in U.S. dollars. It is not clear, however, whether,
in granting a judgment, the rate of conversion of the applicable
foreign currency into U.S. dollars would be determined with reference
to the due date or the date the judgment is rendered. Courts in
other countries may have rules that are similar to, or different
from, the rules of U.S. courts.
What are Estimated Long-Term Return and Estimated Current Return?
At the date of this Prospectus, the Estimated Current Return (if
applicable) and the Estimated Long-Term Return, under the monthly
and, if applicable, semi-annual distribution plans, are as set
forth in Part One attached hereto for each Trust. 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. For each Trust, 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 each Trust change. Therefore, there is no assurance
that the Estimated Current Return (if applicable) indicated in
Part One for each Trust 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 each Trust; and (2)
takes into account the expenses and sales charge associated with
each Unit of each Trust. Since the market values and estimated
retirements of the Bonds and the expenses of each Trust will change,
there is no assurance that the Estimated Long-Term Return indicated
in Part One for each Trust 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
Page 10
and Public Offering Price. Neither rate reflects the true return
to Unit holders, which is lower, because neither includes the
effect of the delay in the first payment to Unit holders.
Record Dates for the distribution of interest under the semi-annual
distribution plan, if applicable, are the fifteenth day of June
and December with the Distribution Dates as set forth in Part
One for each Trust. 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
Part One for each Trust.
Record Dates for monthly distributions are the fifteenth day of
each month. The Distribution Dates for distributions of interest
under the monthly distribution plan is as set forth in Part One
for each Trust. All Unit holders will receive such distributions,
if any, from the Principal Account as are made as of the Record
Dates for monthly distributions. See Part One for each Trust.
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 in a Trust generally is paid semi-annually, although
a Trust accrues such interest daily. Because of this, a Trust
always has an amount of interest earned but not yet collected
by the Trustee. For this reason, the Public Offering Price of
Units will have added to it the proportionate share of accrued
interest to the date of settlement.
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 a Trust. The Trustee will recover its
advancements without interest or other costs to such Trust from
interest received on the Bonds in a Trust. When these advancements
have been recovered, regular distributions of interest to Unit
holders will commence. See "Rights of Unit Holders-How are Interest
and Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount
of interest actually received by a Trust and distributed to Unit
holders. Therefore, there will always remain an item of accrued
interest that is added to the value of the Units. If a Unit holder
sells or redeems all or a portion of his Units, he will be entitled
to receive his proportionate share of the accrued interest from
the purchaser of his Units. Since the Trustee has the use of the
interest 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.
Why and How are the Trusts in the Insured Series Insured?
THE FOLLOWING INFORMATION REGARDING INSURANCE APPLIES ONLY TO
THE INSURED SERIES, NOT THE GLOBAL SERIES OR THE LADDERED SERIES.
All Corporate and Municipal Bonds in the portfolios of the Trusts
in the Insured Series are insured as to the scheduled payment
of interest and principal by an insurance policy (individually,
each an "Insurance Policy" and collectively, the "Insurance Policies")
obtained by such Trusts from Financial Security Assurance Inc.
("Financial Security"), Capital Markets Assurance Corporation
("CapMAC") or AMBAC Indemnity Corporation ("AMBAC") or by insurance
policies obtained by the Bond issuer, the underwriters, the Sponsor
or others prior to the Initial Date of Deposit directly from Financial
Security or other insurers (the "Preinsured Bonds"). The Insurance
Policies are noncancellable and will continue in force for the
Trusts in the Insured Series so long as such Trusts are in existence
and the Bonds described in the Insurance Policies continue to
be held by such Trusts. Nonpayment of premiums on an Insurance
Policy will not result in the cancellation of insurance, but will
permit Financial Security, CapMAC or AMBAC, respectively, to take
action against the respective Trust to recover premium payments
due it. Premium rates for each issue of Bonds protected by an
Insurance Policy are fixed for the life of each Trust in the Insured
Series. The premium for any Preinsured Bonds has been paid in
advance by the Bond issuer, the underwriters, the Sponsor or others
and any such policy or policies are noncancellable and will continue
in force so long as the Bonds so insured are outstanding and the
insurer and/or insurers thereof remain in business. Financial
Security, CapMAC or AMBAC have no obligation to insure any Preinsured
Bonds. Therefore,
Page 11
if the provider of an original issuance insurance policy insuring
Preinsured Bonds is unable to meet its obligations under such
policy, or if the rating assigned to the claims-paying ability
of such insurer deteriorates, Financial Security, CapMAC or AMBAC
have no obligation to insure any issue adversely affected by either
of the above described events. Monthly premiums are paid by the
Trusts in the Insured Series for the Insurance Policies, which
are payable from the interest income and principal received by
such Trusts. In the case of Preinsured Bonds, no premiums for
insurance are paid by the Trusts.
By the terms of the Insurance Policies, Financial Security, CapMAC
or AMBAC unconditionally and irrevocably guarantees to the Trusts
in the Insured Series the full and complete payment of scheduled
payments on the Bonds listed in their respective Insurance Policies
in an amount equal to the principal of such Bonds which is payable
on the stated maturity date thereof or on the date such Bonds
are called for mandatory sinking fund redemption and interest
on such Bonds as the scheduled payments shall become due but are
not paid by the issuers of such Bonds. In the event of any acceleration
of the due date of principal by reason of call for redemption
(other than a mandatory sinking fund redemption), default or otherwise,
the payments guaranteed by Financial Security, CapMAC or AMBAC
will be made in the amounts and at the times as would have been
due had there not been an acceleration by reason of call for redemption
(other than a mandatory sinking fund redemption), default or otherwise
unless Financial Security, CapMAC or AMBAC elects, in their sole
discretion, to pay accelerated principal on the redemption price,
plus interest accrued or accreted, as appropriate, to the date
of acceleration or redemption. Payment of such accelerated amount
or redemption price shall fully discharge the obligations of Financial
Security, CapMAC or AMBAC, respectively under their respective
Insurance Policy in respect of such Bonds. Financial Security,
CapMAC or AMBAC will be responsible for scheduled payments less
any amounts received by the Trusts in the Insured Series from
any trustee for the bond issuers or from any other source. In
the event the due date of the principal of any Bond covered by
an Insurance Policy is accelerated, the payments required by the
acceleration are received by the Trusts in the Insured Series,
and the Bond is canceled, the respective Insurance Policy will
terminate with respect to that Bond. An Insurance Policy does
not guarantee payment on an accelerated basis, the payment of
any redemption premium or the value of the Units. An Insurance
Policy also does not insure against nonpayment of principal of
or interest on the Bonds covered by the respective Insurance Policy
resulting from the insolvency, negligence or any other act or
omission of the trustee or other paying agent for the Bonds.
Each Insurance Policy is non-cancellable and will continue in
force so long as the respective Trust in the Insured Series is
in existence and the Bonds listed in the respective Insurance
Policy continue to be held in and owned by such Trust. Each Insurance
Policy shall terminate as to any Bond which has been redeemed
from a Trust in the Insured Series or sold by the Trustee on the
date of the redemption or on the settlement date of the sale,
and Financial Security, CapMAC or AMBAC, respectively, shall not
have any liability under their Insurance Policy as to that Bond
thereafter. If the date of the redemption or the settlement date
of the sale occurs between a record date and a date of payment
of any Bond, the Insurance Policy will terminate as to that Bond
on the business day next succeeding the date of payment. The termination
of an Insurance Policy as to any Bond shall not affect Financial
Security's, CapMAC's or AMBAC's obligations, respectively, regarding
any other Bond in a Trust covered by such Insurance Policy or
any other fund which has obtained an insurance policy from Financial
Security, CapMAC or AMBAC, respectively. Each Insurance Policy
will terminate as to all Bonds on the date on which the last of
the Bonds matures, is redeemed or is sold by a Trust. As Bonds
covered by an Insurance Policy are redeemed by their respective
issuers or are sold by the Trustee, the amount of the premium
payable for an Insurance Policy will be correspondingly reduced.
Nonpayment of premiums on an Insurance Policy will not result
in the cancellation of insurance but will permit Financial Security,
CapMAC or AMBAC, respectively, to take action against the Trustee
to recover premium payments due them. The Trustee in turn will
be entitled to recover the payments from the affected Trust.
Upon the sale of a Bond covered by an Insurance Policy from a
Trust in the Insured Series, the Trustee has the right to obtain
insurance to maturity ("Permanent Insurance") on the Bond upon
the payment of a single
Page 12
predetermined insurance premium. Accordingly, any Corporate or
Municipal Bond in a Trust in the Insured Series is eligible to
be sold on an insured basis. It is expected that the Trustee will
exercise the right to obtain Permanent Insurance upon instructions
from the Sponsor only if such Trust would receive net proceeds
from the sale of the Bond (less sale and rating agency fees) in
excess of the sale proceeds that would be received if the Bond
were sold on an uninsured basis. The predetermined Permanent Insurance
premium with respect to each Bond covered by the Insurance Policy
is based upon the insurability of each Bond as of the Initial
Date of Deposit and will not be increased for any change in the
creditworthiness of such Bond.
Although all Corporate and Municipal Bonds in the Trusts in the
Insured Series are individually insured, neither the Treasury
Obligations, the Trusts, the Units nor the Portfolios is insured
directly or indirectly by Financial Security, CapMAC or AMBAC.
Financial Security Assurance. Financial Security Assurance ("Financial
Security") is a monoline insurance company incorporated on March
16, 1984 under the laws of the State of New York. The operations
of Financial Security commenced on July 25, 1985, and Financial
Security received its New York State insurance license on September
23, 1985. Financial Security and its two wholly owned subsidiaries
are licensed to engage in the financial guaranty insurance business
in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively
in the business of writing financial guaranty insurance, principally
in respect of asset-backed and other collateralized securities
offered in domestic and foreign markets. Financial Security and
its subsidiaries also write financial guaranty insurance in respect
of municipal and other obligations and reinsure financial guaranty
insurance policies written by other leading insurance companies.
In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities,
thereby enhancing the credit rating of those securities, in consideration
for payment of a premium to the insurer.
Financial Security is approximately 91.6% owned by US West, Inc.
and 8.4% owned by The Tokio Marine and Fire Insurance Co., Ltd.
("Tokio Marine"). US West, Inc. operates businesses involved in
communications, data solutions, marketing services and capital
assets, including the provision of telephone services in 14 states
in the western and mid-western United States. Tokio Marine is
the largest property and casualty insurance company in Japan.
No shareholder of Financial Security is obligated to pay any debt
of Financial Security or any claim under any insurance policy
issued by Financial Security or to make any additional contribution
to the capital of Financial Security.
As of March 31, 1993, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were,
in accordance with statutory accounting principles, approximately
$479,110,000 (unaudited) and $220,078,000 (unaudited), and the
total shareholders' equity and the unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were,
in accordance with generally accepted accounting principles, approximately
$628,119,000 (unaudited), and $202,493,000 (unaudited). Copies
of Financial Security's financial statements may be obtained by
writing to Financial Security at 350 Park Avenue, New York, New
York, 10022, Attention Communications Department. Financial Security's
telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written by Financial Security or either of
its subsidiaries are reinsured among such companies on an agreed-upon
percentage substantially proportional to their respective capital,
surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security reinsures a portion of its liabilities
under certain of its financial guaranty insurance policies with
unaffiliated reinsurers under various quota share treaties and
on a transaction-by-transaction basis. Such reinsurance is utilized
by Financial Security as a risk management device and to comply
with certain statutory and rating agency requirements; it does
not alter or limit Financial Security's obligations under any
financial guaranty insurance policy.
Page 13
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc, and "AAA" by Standard & Poor's Corporation,
Nippon Investors Service Inc., Duff & Phelps Inc. and Australian
Ratings Pty. Ltd. Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time
by such rating agencies.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance
company which engages only in the business of financial guarantee
and surety insurance. CapMAC is licensed in 49 states in addition
to the District of Columbia, the Commonwealth of Puerto Rico and
the territory of Guam. CapMAC insures structured asset-backed,
corporate and other financial obligations in the domestic and
foreign capital markets. CapMAC may also provide financial guarantee
reinsurance for structured asset-backed, corporate and municipal
obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation
("Standard & Poor's"), and "AAA" by Duff & Phelps, Inc. ("Duff
& Phelps"). Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time
by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings, Inc. ("Holdings"),
a company that is owned by a group of institutional and other
investors, including CapMAC's management and employees. CapMAC
commenced operations on December 24, 1987 as an indirect, wholly-owned
subsidiary of Citibank (New York State), a wholly-owned subsidiary
of Citicorp. On June 25, 1992, Citibank (New York State) sold
CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay
any claims under any surety bond issued by CapMAC or any debts
of CapMAC or to make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the
State of New York. In addition, CapMAC is subject to regulation
by the insurance departments of the other jurisdictions in which
it is licensed. CapMAC is subject to periodic regulatory examinations
by the same regulatory authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes
in control, transactions with affiliates and consolidations and
acquisitions. The amount of exposure per risk that CapMAC may
retain, after giving effect to reinsurance, collateral or other
securities, is also regulated. Statutory and regulatory accounting
practices may prescribe appropriate rates at which premiums are
earned and the levels of reserves required. In addition, various
insurance laws restrict the incurrence of debt, regulate permissible
investments of reserves, capital and surplus, and govern the form
of surety bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured.
Such reinsurance does not relieve CapMAC of any of its obligations
under the Surety Bond(s).
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE
LAW.
In connection with the Sale, Holdings and CapMAC entered into
an Ownership Policy Agreement (the "Ownership Policy Agreement"),
which sets forth Holdings' intent with respect to its ownership
and control of CapMAC and provides for certain policies and agreements
with respect to Holdings' exercise of its control of CapMAC. In
the Ownership Policy Agreement, Holdings has agreed that, during
the term of the Ownership Policy Agreement, it will not and will
not permit any stockholder of Holdings to enter into any transaction
the result of which would be a change of control (as defined in
the Ownership Policy Agreement) of CapMAC, unless the long term
debt obligations or claims-paying ability of the person which
would control CapMAC after such transaction or its direct or indirect
parent are rated in a high investment grade category, unless Holdings
or CapMAC has confirmed that CapMAC's claims-paying ability rating
by Moody's (the "Rating") in effect immediately prior to any such
change of control will not be downgraded by Moody's upon such
change of control or unless such change of control occurs as a
result of a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements
(i) not to change the "zero-loss" underwriting standards or policies
and procedures of CapMAC in a manner that would materially and
adversely
Page 14
affect the risk profile of CapMAC's book of business, (ii) that
CapMAC will adhere to the aggregate leverage limitations and maintain
capitalization levels considered by Moody's from time to time
as consistent with maintaining CapMAC's Rating and (iii) that
until CapMAC's statutory capital surplus and contingency reserve
("qualified statutory capital") equal $250 million, CapMAC will
maintain a specified amount of qualified statutory capital in
excess of the amount of qualified statutory capital that CapMAC
is required at such time to maintain under the aggregate leverage
limitations set forth in Article 69 of the New York Insurance
Law.
The Ownership Policy Agreement will terminate on the earlier of
the date on which a change of control of CapMAC occurs and the
date on which CapMAC and Holdings agree in writing to terminate
the Ownership Policy Agreement; provided that, CapMAC or Holdings
has confirmed that CapMAC's Rating in effect immediately prior
to any such termination will not be downgraded upon such termination.
As of December 31, 1992 and 1991, CapMAC had statutory capital
and surplus of approximately $148 million and $232 million, respectively,
and had not incurred any debt obligations. On June 26, 1992, CapMAC
made a special distribution (the "Distribution") to Holdings in
connection with the Sale in an aggregate amount that caused the
total of CapMAC's statutory capital and surplus to decline to
approximately $150 million. Holdings applied substantially all
of the proceeds of the Distribution to repay debt owed to Citicorp
that was incurred in connection with the capitalization of CapMAC.
As of June 30, 1992, CapMAC had statutory capital and surplus
of approximately $150 million and had not incurred any debt obligations.
In addition, at December 31, 1992 CapMAC had a statutory contingency
reserve of approximately $15 million, which is also available
to cover claims under surety bonds issued by CapMAC. Article 69
of the New York State Insurance Law requires that CapMAC establishes
and maintains the contingency reserve.
In addition to its capital (including contingency reserve) and
other reinsurance available to pay claims under its surety bonds,
on June 25, 1992, CapMAC entered into a Stop Loss Reinsurance
Agreement (the "Stop Loss Agreement") with Winterthur Swiss Insurance
Company (the "Reinsurer"), which is rated AAA by Standard & Poor's
and Aaa by Moody's, pursuant to which the Reinsurer will be required
to pay any losses incurred by CapMAC during the term of the Stop
Loss Agreement on the surety bonds covered under the Stop Loss
Agreement in excess of a specified amount of losses incurred by
CapMAC under such surety bonds (such specified amount initially
$100 million and increasing annually by an amount equal to 662/3%
of the increase in CapMAC's statutory capital and surplus) up
to an aggregate limit payable under the Stop Loss Agreement of
$50 million. The Stop Loss Agreement has an initial term of seven
years, is extendable for one-year periods and is subject to early
termination upon the occurrence of certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity
facility (the "Liquidity Facility") provided by a syndicate of
banks rated A1+/P1 by Standard & Poor's and Moody's, respectively,
having a term of 360 days. Under the Liquidity Facility CapMAC
will be able, subject to satisfying certain conditions, to borrow
funds from time to time in order to enable it to fund any claim
payments or payments made in settlement or mitigation of claim
payments under its surety bonds, including the Surety Bond(s).
Copies of CapMAC's financial statements prepared in accordance
with statutory accounting standards, which differ from generally
accepted accounting principles, and filed with the Insurance Department
of the State of New York are available upon request. CapMAC is
located at 885 Third Avenue, New York, New York 10022, and its
telephone number is (212) 755-1155.
AMBAC Indemnity Corporation ("AMBAC Indemnity"). The Insurance
Policy of AMBAC Indemnity obtained by an Insured Trust is noncancellable
and will continue in force for so long as the Bonds described
in the Insurance Policy are held by an Insured Trust. A monthly
premium is paid by an Insured Trust for the Insurance Policy obtained
by it. The Trustee will pay, when due, successively, the full
amount of each installment of the insurance premium. Pursuant
to a binding agreement with AMBAC Indemnity, in the event of a
sale of a Bond covered by the AMBAC Indemnity Insurance Policy,
the Trustee has the right to obtain permanent insurance for such
Bond upon payment of a single predetermined premium from the proceeds
of the sale of such Bond.
Page 15
Under the terms of the Insurance Policy, AMBAC Indemnity agrees
to pay to the Trustee that portion of the principal of and interest
on the Bonds insured by AMBAC Indemnity which shall become due
for payment but shall be unpaid by reason of nonpayment by the
issuer of the Bonds. The term "due for payment" means, when referring
to the principal of a Bond so insured, its stated maturity date
or the date on which it shall have been called for mandatory sinking
fund redemption and does not refer to any earlier date on which
payment is due by reason of call for redemption (other than by
mandatory sinking fund redemption), acceleration or other advancement
of maturity and means, when referring to interest on a Bond, the
stated date for payment of interest.
AMBAC Indemnity will make payment to the Trustee not later than
thirty days after notice from the Trustee is received by AMBAC
Indemnity that a nonpayment of principal or of interest on a Bond
has occurred, but not earlier than the date on which the Bonds
are due for payment. AMBAC Indemnity will disburse to the Trustee
the face amount of principal and interest which is then due for
payment but is unpaid by reason of nonpayment by the issuer in
exchange for delivery of Bonds, not less in face amount than the
amount of the payment in bearer form, free and clear of all liens
and encumbrances and uncancelled. In cases where Bonds are issuable
only in a form whereby principal is payable to registered holders
or their assigns, AMBAC Indemnity shall pay principal only upon
presentation and surrender of the unpaid Bonds uncancelled and
free of any adverse claim, together with an instrument of assignment
in satisfactory form, so as to permit ownership of such Bonds
to be registered in the name of AMBAC Indemnity or its nominee.
In cases where Bonds are issuable only in a form whereby interest
is payable to registered holders or their assigns, AMBAC Indemnity
shall pay interest only upon presentation of proof that the claimant
is the person entitled to the payment of interest on the Bonds
and delivery of an instrument of assignment, in satisfactory form,
transferring to AMBAC Indemnity all right under such Bonds to
receive the interest in respect of which the insurance payment
was made.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the
State of Wisconsin and licensed to do business in fifty states,
the District of Columbia and the Commonwealth of Puerto Rico,
with admitted assets of approximately $1,988,000,000 (unaudited)
and statutory capital of approximately $1,148,000,000 (unaudited)
as of March 31, 1994. Statutory capital consists of AMBAC Indemnity's
policyholders' surplus and statutory contingency reserve. AMBAC
Indemnity is a wholly owned subsidiary of AMBAC Inc., a 100% publicly-held
company. Moody's Investors Service, Inc. and Standard & Poor's
Corporation have both assigned a triple-A claims-paying ability
rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York,
New York 10004 and (212) 668-0340.
AMBAC Indemnity makes no representation regarding the Bonds or
the advisability of investing in the Bonds and makes no representation
regarding, nor has it participated in the preparation of, this
Prospectus.
The information relating to Financial Security, CapMAC and AMBAC
contained in the above paragraphs have been furnished by Financial
Security, CapMAC and AMBAC, respectively. No representation is
made herein as to the accuracy or adequacy of such information,
or as to the existence of any adverse changes in such information,
subsequent to the date hereof.
In determining whether to insure bonds, Financial Security, CapMAC
and AMBAC have applied their own standards which are not necessarily
the same as the criteria used in regard to the selection of bonds
by the Sponsor. This decision is made prior to the Initial Date
of Deposit, as bonds not covered by the Insurance Policy are not
deposited in a Trust in the Insured Series unless such bonds are
Preinsured Bonds. The Insurance Policy covers Bonds listed in
the Insurance Policy deposited in such Trust in the Insured Series
and physically delivered to the Trustee in the case of bearer
bonds or registered in the name of the Trustee or its nominee
Page 16
or delivered along with an assignment in the case of registered
bonds or registered in the name of the Trustee or its nominee
in the case of Bonds held in book-entry form.
Insurance obtained by a Trust in the Insured Series or by the
Bond issuer, the underwriters, the Sponsor or others does not
guarantee the market value of the Bonds or the value of the Units
of such Trust. Each Insurance Policy is effective only as to Bonds
listed in the respective Insurance Policy owned by and held in
such Trust. In the event of a sale of any Bond listed in an Insurance
Policy by the Trustee, an Insurance Policy terminates as to such
Bond on the date of sale. Except as indicated below, insurance
obtained by a Trust in the Insured Series has no effect on the
price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained
by a Trust in the Insured Series (including the right to obtain
Permanent Insurance) for the purpose of computing the price or
redemption value of Units only if the Bonds covered by such insurance
are in default in payment of principal or interest or, in the
Sponsor's opinion, in significant risk of such default. The value
of the insurance will be equal to the difference between (i) the
market value of a Bond which is in default in payment of principal
or interest or in significant risk of such default assuming the
exercise of the right to obtain Permanent Insurance (less the
insurance premium attributable to the purchase of Permanent Insurance)
and (ii) the market value of such Bonds not covered by Permanent
Insurance. See "Public Offering-How is the Public Offering Price
Determined?" herein for a more complete description of the Evaluator's
method of valuing defaulted Bonds and Bonds which have a significant
risk of default. Insurance on a Preinsured Bond is effective as
long as such Bond is outstanding. Therefore, any such insurance
may be considered to represent an element of market value in regard
to the Bonds thus insured, but the exact effect, if any, of this
insurance on such market value cannot be predicted.
The Insurance Policies and the negotiations in respect thereof
represent the only relationship between Financial Security, CapMAC,
AMBAC and the Trusts in the Insured Series. Otherwise neither
Financial Security, CapMAC, AMBAC nor any affiliate thereof has
any significant relationship, direct or indirect, with the Trusts
or the Sponsor, except that the Sponsor has in the past and may
from time to time in the future, in the normal course of its business,
participate as sole underwriter or as manager or as a member of
underwriting syndicates in the distribution of new issues of municipal
bonds in which the investors or the affiliates of Financial Security,
CapMAC or AMBAC have or will be participants or for which a policy
of insurance guaranteeing the scheduled payment of interest and
principal has been obtained from Financial Security, CapMAC or
AMBAC. Neither the Trusts nor the Units of the Trusts nor the
portfolio of any Trust is insured directly or indirectly by Financial
Security, CapMAC or AMBAC.
Because the Corporate and Municipal Bonds in each Trust in the
Insured Series are insured as to the scheduled payment of principal
and interest and on the basis of the financial condition of the
insurance companies referred to above, Standard & Poor's Corporation
has assigned to units of the Trusts in the Insured Series its
"AAA" investment rating. This is the highest rating assigned to
securities by Standard & Poor's Corporation. See "Description
of Bond Ratings." The obtaining of this rating by the Trusts in
the Insured Series should not be construed as an approval of the
offering of the Units by Standard & Poor's Corporation or as a
guarantee of the market value of such Trusts or the Units of the
Trusts. Standard & Poor's has indicated that this rating is not
a recommendation to buy, hold or sell Units nor does it take into
account the extent to which expenses of the Trusts in the Insured
Series or sales by such Trusts of Bonds for less than the purchase
price paid by such Trusts will reduce payment to Unit holders
of the interest and principal required to be paid on such Bonds.
There is no guarantee that the "AAA" investment rating with respect
to the Units of the respective Trusts in the Insured Series will
be maintained.
An objective of portfolio insurance obtained by the Trusts in
the Insured Series is to obtain a higher yield on the Bonds in
the portfolios of such Trusts than would be available if all the
Bonds in such portfolio had the Standard & Poor's Corporation
"AAA" and/or Moody's Investors Service, Inc. "Aaa" rating(s) and
at the same time to have the protection of insurance of scheduled
payment of interest and principal on the Bonds. There is, of course,
no certainty that this result will be achieved. Bonds in the Trusts
in the Insured Series may or may not have a higher yield than
uninsured bonds rated "AAA" by Standard & Poor's Corporation or
"Aaa"
Page 17
by Moody's Investors Service, Inc. In selecting Bonds for the
portfolios of the Trusts, the Sponsor has applied the criteria
herein before described.
Are Unit Holders Compensated for Foreign Withholding Tax Risks?
Certain of the Bonds are subject to non-U.S. ("foreign") withholding
taxes. Certain issuers of Bonds which are subject to foreign withholding
taxes have generally agreed, subject to certain exceptions, to
make additional payments ("Additional Payments") which together
with other payments are intended to compensate the holder of the
Bond for the imposition of certain withholding taxes. However,
both the calculation of the Additional Payment and whether the
Additional Payment compensates the holder of the Bond for any
related penalties, interest or other charges imposed in connection
with any applicable foreign withholding taxes are likely to differ
from Bond to Bond. Moreover, the Additional Payment is itself
treated as taxable income to Unit holders for U.S. income tax
purposes. The Additional Payment may not be based upon a "gross-up"
formula which would otherwise compensate an investor for the tax
liability triggered by the receipt of the Additional Payment.
For any of these reasons, an investor may not be adequately compensated
for the actual foreign withholding tax liabilities incurred. If
the Trust obtains a certificate from an issuer evidencing payment
of foreign withholding taxes with respect to a Bond, the Trust
will so notify Unit holders. A Unit holder is required to include
in his gross income the entire amount of interest paid on his
pro rata portion of the Bond including the amount of tax withheld
therefrom and the amount of any Additional Payment. However, if
the foreign tax withheld constitutes an income tax for which U.S.
foreign tax credits may be taken, the Unit holder may be able
to obtain applicable foreign tax credits (subject to statutory
limitations) or deductions. (See "What is the Federal Tax Status
of Unit Holders?")
What is the Federal Tax Status of Unit Holders?
In the opinion of Chapman and Cutler, Counsel for the Sponsor,
under existing law:
(1) The Trusts are not associations taxable as corporations for
Federal income tax purposes.
(2) Each Unit holder of a 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 received by such 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 a 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 his Trust
disposes of a Bond, or when the Unit holder redeems or sells his
Units. Unit holders must reduce the tax basis of their Units for
their share of accrued interest received, if any, on Bonds delivered
after the date the Unit holders pay for their Units and, consequently,
such Unit holders may have an increase in taxable gain or reduction
in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing
the proceeds of such sale or redemption with the adjusted basis
of the Units. If the Trustee disposes of Bonds (whether by sale,
exchange, payment on maturity, redemption or otherwise), gain
or loss is recognized to the Unit holder. The amount of any such
gain or loss is measured by comparing the Unit holder's pro rata
share of the total proceeds from such disposition with his basis
for his fractional interest in the asset disposed of. In the case
of a Unit holder who purchases his Units, such basis is determined
by apportioning the tax basis for the Units among each of the
Trust assets ratably according to value as of the date of acquisition
of the Units. The basis of each Unit and of each Bond which was
issued with original issue discount including the Treasury Obligations
must be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased
by the Trusts at a premium must be reduced by the annual amortization
of Bond premium which the Unit holder has properly elected to
amortize under Section 171 of the Code. The tax cost reduction
requirements of the Code relating to amortization of bond premium
may, under some circumstances, result in the Unit holder realizing
a taxable
Page 18
gain when his Units are sold or redeemed for an amount equal to
or less than his original cost. The Treasury Obligations held
by the Trusts are treated as bonds that were originally issued
at an original issue discount provided, pursuant to a Treasury
Regulation (the "Regulation") issued on December 28, 1992, that
the amount of original issue discount determined under Section
1286 of the Code is not less than a "de minimis" amount as determined
thereunder as discussed below. Because the Treasury Obligations
represent interests in "stripped" U.S. Treasury bonds, a Unit
holder's initial cost for his pro rata portion of each Treasury
Obligation held by the Trust (determined at the time he acquires
his Units, in the manner described above) shall be treated as
its "purchase price" by the Unit holder. Original issue discount
is effectively treated as interest for Federal income tax purposes
and the amount of original issue discount in this case is generally
the difference between the bond's purchase price and its stated
redemption price at maturity. A Unit holder will be required to
include in gross income for each taxable year the sum of his daily
portions of original issue discount attributable to the Treasury
Obligations held by the Trust as such original issue discount
accrues and will in general be subject to Federal income tax with
respect to the total amount of such original issue discount that
accrues for such year even though the income is not distributed
to the Unit holders during such year to the extent it is not less
than a "de minimis" amount as determined under the Regulation.
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. In the case of the Treasury Obligations,
this method will generally result in an increasing amount of income
to the Unit holders each year. Unit holders should consult their
tax advisers regarding the Federal income tax consequences and
accretion of original issue discount.
(4) Each Unit holder's pro rata share of each expense paid by
his respective Trust is deductible by the Unit holder to the same
extent as though the expense had been paid directly by him, subject
to the following limitation. It should be noted that as a result
of the Tax Reform Act of 1986, certain miscellaneous itemized
deductions, such as investment expenses, tax return preparation
fees and employee business expenses will be deductible by an individual
only to the extent they exceed 2% of such individual's adjusted
gross income. Temporary regulations have been issued which require
Unit holders to treat certain expenses of the Trusts 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 a Trust exceeds the amount payable by the issuer of the
Bonds with respect to such pro rata interest upon maturity of
the Bonds, such excess would be considered "acquisition premium"
which may be amortized by the Unit holder at the Unit holder's
election as provided in Section 171 of the Code. Unit holders
should consult their tax advisors regarding whether such election
should be made and the manner of amortizing acquisition premium.
Certain of the Bonds in the Trusts may have been acquired with
"original issue discount." In the case of any Bonds in the Trusts
acquired with "original issue discount" that exceeds a "de minimis"
amount as specified in the Code or in the case of the Treasury
Obligations as specified in the Regulation, such discount is includable
in taxable income of the Unit holders on an accrual basis computed
daily, without regard to when payments of interest on such Bonds
are received. The Code provides a complex set of rules regarding
the accrual of original issue discount. These rules provide that
original issue discount generally accrues on the basis of a constant
compound interest rate over the term of the Bonds. Unit holders
should consult their tax advisers as to the amount of original
issue discount which accrues.
Special original issue discount rules apply if the purchase price
of the Bond by a 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
Page 19
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 Corporate 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. The market discount rules do not apply to Treasury Obligations
because they are stripped debt instruments subject to special
original issue discount rules as discussed above. Unit holders
should consult their tax advisers as to the amount of market discount
which accrues.
Accrued market discount is generally includable in taxable income
to the Unit holders as ordinary income for Federal tax purposes
upon the receipt of serial principal payments on the Bonds, on
the sale, maturity or disposition of such Bonds by a 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 are 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 Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective
for bonds purchased after April 30, 1993. In general, market discount
in the amount (if any) by which the state redemption price at
maturity (or if the Bond was issued at an original issue discount,
its revised issue price) exceeds an investor's purchase price
(except to the extent that such difference, if any, is attributable
to original issue discount not yet accrued). Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market
discount that accretes while the Trust holds a Bond would be recognized
as ordinary income by the Unit holders when principal payments
are received on the Bond, upon sale or at redemption (including
early redemption) or upon the sale or redemption of the Units,
unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and
Unit holders should consult their tax advisers regarding these
rules and their application.
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 a Trust in income as it accrues)
thereon properly included in the Unit holder's gross income as
determined for Federal income tax purposes and reduced by the
amount of any amortized acquisition premium which the Unit holder
has properly elected to amortize under Section 171 of the Code.
A Unit holder's tax basis in his Units will equal his tax basis
in his pro rata portion of all of the assets of such 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. Any gain recognized on a sale or exchange
and not constituting a realization of accrued "market discount,"
and any loss will, under current law, generally be capital gain
or loss except in the case of a dealer or financial institution.
As previously discussed, gain realized on the disposition of the
interest of a Unit holder in any Bond deemed
Page 20
to have been acquired with market discount will be treated as
ordinary income to the extent the gain does not exceed the amount
of accrued market discount not previously taken into income. Any
capital gain or loss arising from the disposition of a Bond by
a Trust or the disposition of Units by a Unit holder will be short-term
capital gain or loss unless the Unit holder has held his Units
for more than one year in which case such capital gain or loss
will be long-term. For taxpayers other than corporations, net
capital gains are presently subject to a maximum stated marginal
tax rate of 28 percent. However, it should be noted that legislative
proposals are introduced from time to time that affect tax rates
and would affect relative differences at which ordinary income
and capital gains are taxed. The tax cost 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 Units are sold or redeemed for an amount greater
or less than his original cost.
The Tax Act raised tax rates on ordinary income while capital
gains remain subject to a 28% maximum stated rate. Because some
or all capital gains are taxed at a comparatively lower rate under
the Tax Act, the Tax Act includes a provision that recharacterizes
capital gains as ordinary income in the case of certain financial
transactions that are "conversion transactions" effective for
transactions entered into after April 30, 1993. Unit holders and
prospective investors should consult with their tax advisers regarding
the potential effect of this provision on their investment in
Units.
If the Unit holder disposes of a Unit, he is deemed thereby to
have disposed of his entire pro rata interest in all Trust assets
including his pro rata portion of all of the Bonds represented
by the Unit. This may result in a portion of the gain, if any,
on such sale being taxable as ordinary income under the market
discount rules (assuming no election was made by the Unit holder
to include market discount in income as it accrues) as previously
discussed.
A Unit holder who is a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States Federal
income taxes, including withholding taxes, on interest income
(including any original issue discount) on, or any gain from the
sale or other disposition of, his pro rata interest in any Bond
or the sale of his Units provided that all of the following conditions
are met: (i) the interest income or gain is not effectively connected
with the conduct by the foreign investor of a trade or business
within the United States (ii) either (a) the interest is not from
sources within the United States or (b) if the interest is United
States source income (which is the case for most securities),
and the Bond is issued after July 18, 1984 (which is the case
for each Bond held by the Trust) then the foreign investor does
not own, directly or indirectly, 10% or more of the total combined
voting power of all classes of voting stock of the issuer of the
Bond and the foreign investor is not a controlled foreign corporation
related (within the meaning of Section 864(d)(4) of the Code)
to the issuer of the Bond, (iii) with respect to any gain, the
foreign investor (if an individual) is not present in the United
States for 183 days or more during his or her taxable year and
(iv) the foreign investor provides all certification which may
be required of his status (foreign investors may contact the Sponsor
to obtain a Form W-8 which must be filed with the Trustee and
refiled every three calendar years thereafter). Foreign investors
should consult their tax advisers with respect to United States
tax consequences of ownership of Units.
It should be noted that payments to a Trust of interest on the
Bonds of foreign companies 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 such Trust. Because, under the grantor
trust rules, an investor is deemed to have paid directly his share
of foreign taxes that have been paid or accrued, if any, an investor
may be entitled to a foreign tax credit or deduction for United
States tax purposes with respect to such taxes. In addition, such
Bonds may provide for Additional Payments to investors intended
to compensate them for any foreign tax liability. (See "Are Unit
Holders Compensated for Foreign Withholding Tax Risks?") Any such
Additional Payments received by the Trust would constitute taxable
income to Unit holders. Investors should consult their tax advisers
with respect to foreign withholding taxes and foreign tax credits.
Page 21
It should be noted that the Tax Act includes a provision which
would eliminate 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 a Trust to such
Unit holder will be subject to back-up withholding.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to
the Trusts for New York tax matters, the Trusts are not associations
taxable as corporations and the income of the Trusts will be treated
as the income of the Unit holders under the existing income tax
laws of the State and City of New York.
The foregoing discussion relates only to United States Federal
and New York State and City income taxes; Unit holders may be
subject to state and local taxation in other jurisdictions (including
a foreign investor's country of residence). Unit holders should
consult their tax advisers regarding potential state, local, or
foreign taxation with respect to the Units.
What are the Expenses and Charges?
At no cost to the Trusts, the Sponsor has borne all the expenses
of creating and establishing the Trusts, including the cost of
the initial preparation, printing and execution of the Indenture
and the certificates for the Units, legal and accounting expenses,
expenses of the Trustee and other out-of-pocket expenses. The
Sponsor will not receive any fees in connection with its activities
relating to the Trusts. However, 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," appearing in Part One for each Trust for
providing portfolio supervisory services for the Trusts. Such
fee is based on the number of Units of a Trust outstanding on
January 1 of each year except for Trusts which were established
subsequent to the last January 1, in which case the fee will be
based on the number of Units of such Trust outstanding as of the
respective Dates of Deposit. The fee may exceed the actual costs
of providing such supervisory services for a Trust, but at no
time will the total amount received for portfolio supervisory
services rendered to unit investment trusts of which Nike Securities
L.P. is the Sponsor in any calendar year exceed the aggregate
cost to First Trust Advisors L.P. of supplying such services in
such year.
For each valuation of the Bonds in the Trusts, the Evaluator will
receive a fee as indicated in Part One for each Trust. 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 a Trust a fee as indicated in Part One for each Trust.
For a discussion of the services performed by the Trustee pursuant
to its obligations under the Indenture, reference is made to the
material set forth under "Rights of Unit Holders." The Trustee's
and Evaluator's fees are payable monthly on or before each Distribution
Date from the Interest Account of each Trust to the extent funds
are available and then from the Principal Account of such 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 Trusts is expected to result
from the use of these funds. Both fees may be increased without
approval of the Unit holders by amounts not exceeding proportionate
increases under the category "All Services Less Rent of Shelter"
in the Consumer Price Index published by the United States Department
of Labor.
The annualized cost of the portfolio insurance obtained by each
Trust in the Insured Series is indicated in Part One for each
Trust. The portfolio insurance continues so long as such Trust
in the Insured Series retains the Bonds thus insured. Premiums
are payable monthly in advance by the Trustee on behalf of such
Trust. As Bonds in the portfolio are redeemed by their respective
issuers or are sold by the Trustee, the amount
Page 22
of premium will be reduced in respect of those Bonds no longer
owned by and held in the Trusts in the Insured Series which were
insured by insurance obtained by such Trust. Preinsured Bonds
in the Trusts in the Insured Series and Treasury Obligations are
not insured by such Trusts. The premium payable for Permanent
Insurance will be paid solely from the proceeds of the sale of
such Bond in the event the Trustee exercises the right to obtain
Permanent Insurance on a Bond. The premiums for such Permanent
Insurance with respect to each Bond will decline over the life
of the Bond.
The following additional charges are or may be incurred by a 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 a 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 a 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 a Trust; all taxes and other
government charges imposed upon the Bonds or any part of a 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 a Trust. The above
expenses and the Trustee's annual fee, when paid or owing to the
Trustee, are secured by a lien on the Trusts. In addition, the
Trustee is empowered to sell Bonds of a 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 each Trust shall be audited
on an annual basis at the expense of the Trust by independent
auditors selected by the Sponsor. So long as the Sponsor is making
a secondary market for Units, the Sponsor shall bear the cost
of such annual audits to the extent such cost exceeds $.50 per
Unit. Unit holders of a Trust covered by an audit may obtain a
copy of the audited financial statements from the Trustee upon
request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Although it is not obligated to do so, the Sponsor intends to
maintain a market for the Units and continuously to offer to purchase
Units at prices, subject to change at any time, based upon the
aggregate bid price of the Bonds in the portfolio of each Trust
plus interest accrued to the date of settlement. All expenses
incurred in maintaining a market, other than the fees of the Evaluator,
the other expenses of a Trust and the costs of the Trustee in
transferring and recording the ownership of Units, will be borne
by the Sponsor. If the supply of Units exceeds demand, or for
some other business reason, the Sponsor may discontinue purchases
of Units at such prices. If a Unit holder wishes to dispose of
his Units, he should inquire of the Sponsor as to current market
prices prior to making a tender for redemption to the Trustee.
Prospectuses relating to certain other bond funds indicate an
intention, subject to change, on the part of the respective sponsors
of such funds to repurchase units of those funds on the basis
of a price higher than the bid prices of the securities in the
funds. Consequently, depending upon the prices actually paid,
the repurchase price of other sponsors for units of their funds
may be computed on a somewhat more favorable basis than the repurchase
price offered by the Sponsor for Units of a Trust in secondary
market transactions. The purchase price per unit of such bond
funds will depend primarily on the value of the securities in
the portfolio of the fund.
Units are offered at the Public Offering Price. The Public Offering
Price is determined by adding to the Evaluator's determination
of the aggregate bid price of the Bonds in a 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 a Trust, adjusting the total
to reflect the amount of any cash held in or advanced to the principal
account of a Trust and dividing the result by the number of Units
of such Trust then outstanding. The minimum sales charge on Units
will be 3.0% of the Public Offering Price (equivalent to 3.093%
of the net amount invested). For purposes of computation, Bonds
will be deemed to mature on their expressed
Page 23
maturity dates unless 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.
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 Trusts in the Insured Series based upon the
maturities of such bonds, in accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
__________________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_________________ __________ __________
<S> <C> <C>
Less than 1 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 but less than 9 5.00 5.263
9 but less than 10 5.50 5.820
10 or more 5.80 6.157
</TABLE>
The following schedule applies to all Bonds in the Laddered Series
and the Global Series:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
_________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
____________________ ___________ __________
<S> <C> <C>
Less than 1 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 or more 4.70 4.932
</TABLE>
An investor may aggregate purchases of Units of two consecutive
Trusts in the Insured Series for purposes of calculating the discount
for volume purchases listed below. Additionally, with respect
to the employees, officers and directors (including their immediate
families and trustees, custodians or a fiduciary for the benefit
of such person) of Nike Securities L.P. and its subsidiaries the
sales charge is reduced by 2% of the Public Offering Price for
purchases of Units during the secondary offering period.
The applicable sales charge is reduced by a discount as indicated
below for volume purchases of the Insured Series:
Page 24
<TABLE>
<CAPTION>
Dollar Amount of
Transaction at Discount
Public Offering Price per Unit
_____________________ ________
<S> <C>
$500,000 to $999,999 $ 7.50
$1,000,000 or more $15.00
</TABLE>
Any such reduced sales charge shall be the responsibility of the
selling Underwriter or dealer. This reduced sales charge structure
will apply on all purchases of Units in a Trust by the same person
on any one day from any one Underwriter or dealer. Additionally,
Units purchased in the name of the spouse of a purchaser or in
the name of a child of such purchaser under 21 years of age will
be deemed for the purposes of calculating the applicable sales
charge to be additional purchases by the purchaser. The reduced
sales charges will also be applicable to a trustee or other fiduciary
purchasing securities for a single trust or single fiduciary account.
A dealer will receive from the Sponsor a dealer concession of
65% of the total sales charges for Units sold by such dealer and
dealers will not be eligible for additional concessions for Units
sold.
From time to time the Sponsor may implement programs under which
Underwriters and dealers of the Trusts may receive nominal awards
from the Sponsor for each of their registered representatives
who have sold a minimum number of UIT Units during a specified
time period. In addition, at various times the Sponsor may implement
other programs under which the sales force of an Underwriter or
dealer may be eligible to win other nominal awards for certain
sales efforts, or under which the Sponsor will reallow to any
such Underwriter or dealer that sponsors sales contests or recognition
programs conforming to criteria established by the Sponsor, or
participates in sales programs sponsored by Sponsor, an amount
not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to
time pursuant to objective criteria established by the Sponsor
pay fees to qualifying Underwriters or dealers for certain services
or activities which are primarily intended to result in sales
of Units of the Trusts. Such payments are made by the Sponsor
out of its own assets, and not out of the assets of the Trusts.
These programs will not change the price Unit holders pay for
their Units or the amount that the Trusts will receive from the
Units sold.
A comparison of estimated current returns and estimated long-term
returns with the returns on various investments is one element
to consider in making an investment decision. The Sponsor may
from time to time in its advertising and sales materials compare
the then current estimated returns on the Trusts and returns over
specified periods on other similar Trusts sponsored by Nike Securities
L.P. with returns on investments such as corporate or U.S. Government
bonds, bank CDs and money market accounts or money market funds,
each of which has investment characteristics that may differ from
those of the Trusts. 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 Trusts are described more fully elsewhere in this Prospectus.
The Public Offering Price of Units on the date of this Part Two
Prospectus may vary from the amount stated under "Summary of Essential
Information" appearing in Part One for each Trust in accordance
with fluctuations in the prices of the underlying Securities.
The aggregate price of the Bonds in each Trust is determined by
whomever from time to time is acting as evaluator (the "Evaluator"),
on the basis of bid 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 Trusts; (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. Unless Bonds are in default
in payment of principal or interest or, in the Sponsor's opinion,
in significant risk of such default, the Evaluator will not attribute
any value to the insurance obtained by the Trusts in the Insured
Series. On the other hand, the value of
Page 25
insurance obtained by the issuer of Bonds in a Trust in the Insured
Series is reflected and included in the market value of such Bonds.
The Evaluator will consider in its evaluation of Corporate or
Municipal Bonds in Trusts in the Insured Series which are in default
in payment of principal or interest or, in the Sponsor's opinion,
in significant risk of such default (the "Defaulted Bonds") and
which are covered by insurance obtained by each Trust, the value
of the insurance guaranteeing interest and principal payments.
The value of the insurance will be equal to the difference between
(i) the market value of Defaulted Bonds assuming the exercise
of the right to obtain Permanent Insurance (less the insurance
premium attributable to the purchase of Permanent Insurance) and
(ii) the market value of such Defaulted Bonds not covered by Permanent
Insurance. In addition, the Evaluator will consider the ability
of Financial Security, CapMAC and/or AMBAC to meet its commitments
under the insurance policy of a Trust in the Insured Series, including
the commitments to issue Permanent Insurance. It is the position
of the Sponsor that this is a fair method of valuing the Bonds
and the insurance obtained by each Trust in the Insured Series
and reflects a proper valuation method in accordance with the
provisions of the Investment Company Act of 1940. For a description
of the circumstances under which a full or partial suspension
of the right of Unit holders to redeem their Units may occur,
see "Rights of Unit Holders-How May Units be Redeemed?"
The Evaluator may be attributing value to insurance for the purpose
of computing the price or redemption value of Units of the Trusts
in the Insured Series. The Evaluator is attributing value to insurance
for the purpose of computing the price or redemption value of
Units for certain series of The First Trust of Insured Municipal
Bonds, an investment company sponsored by Nike Securities L.P.
See Part One for each Trust for further information with respect
to whether value is being attributed to insurance in determining
the value of Units for that Trust in the Insured Series.
The Evaluator in the Insured Series will be requested to make
a determination of the aggregate price of the Bonds in each Trust,
on a bid price basis, as of the close of trading on the New York
Stock Exchange on each day on which it is open, effective for
all sales, purchases or redemptions made subsequent to the last
preceding determination.
The secondary market Public Offering Price of the Units will be
equal to the bid price per Unit of the Bonds in a Trust, plus
(less) any balance (overdraft) in the principal cash account of
such Trust, plus the applicable sales charge.
Although payment is normally made five business days following
the order for purchase, payment may be made prior thereto. Cash,
if any, made available to the Sponsor prior to the date of settlement
for the purchase of Units may be used in the Sponsor's business
and may be deemed to be a benefit to the Sponsor, subject to the
limitations of the Securities Exchange Act of 1934. Delivery of
Certificates representing Units so ordered will be made five business
days following such order or shortly thereafter. See "Rights of
Unit Holders-How May Units Be Redeemed?" for information regarding
the ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market may be offered by this
Part Two Prospectus at the secondary market public offering price
determined in the manner described above.
The Sponsor reserves the right to change the amount of the concession
or agency commission from time to time.
Resales of Units of each Trust by dealers and others to the public
will be made at the Public Offering Price described in Part One
of this Prospectus. Certain commercial banks are making Units
of the Trusts available to their customers on an agency basis.
A portion of the sales charge paid by these customers is retained
by or remitted to the banks 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.
Page 26
What are the Sponsor's Profits?
The Underwriters of the Trusts, including the Sponsor, will receive
a maximum gross sales commission equal to that amount of the Public
Offering Price of the Units of the Trusts as specified in Part
One, less any reduced sales charge for quantity purchases as described
under "Public Offering-How is the Public Offering Price Determined?"
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 each Trust) and the price at which Units are resold
(which price is also based on the bid prices of the Bonds in each
Trust and includes a maximum sales charge of 5.8% for the Insured
Series or 4.7% for the Laddered Series and the Global Series)
or redeemed. The secondary market public offering price of Units
may be greater or less than the cost of such Units to the Sponsor.
RIGHTS OF UNIT HOLDERS
How 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 five
business days following such order or shortly thereafter. Certificates
are transferable by presentation and surrender to the Trustee
properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer.
A Unit holder must sign exactly as his name appears on the face
of the certificate with the signature guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guaranty program in addition to, or in
substitution for, STAMP as may be accepted by the Trustee. In
certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or certificates
of corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable
only on the books of the Trustee in denominations of one Unit
or any multiple thereof, numbered serially for purposes of identification.
Certificates for Units will bear an appropriate notation on their
face indicating which plan of distribution has been selected in
respect thereof. When a change is made, the existing certificate
must be surrendered to the Trustee and a new certificate issued
to reflect the then currently effective plan of distribution.
There is no charge for this service.
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 for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Unit holder
may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from each Trust will be distributed on or shortly after
the Distribution Date appearing in Part One 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 a Trust will be net of applicable
expenses for such Trust.
The pro rata share of cash in the Principal Account of each Trust
will be computed as of the fifteenth day of each month, and distributions
to the Unit holders of such Trust as of such Record Date will
be made on or shortly after the Distribution Date appearing in
Part One. Proceeds from the disposition of any of the Bonds of
such Trust (less any premiums due with respect to Bonds in the
Insured Series for which the Trustee has exercised the right to
obtain Permanent Insurance) received after such Record Date and
prior to the following Distribution Date will be held in the Principal
Account of such Trust and not distributed until the next Distribution
Page 27
Date. The Trustee is not required to pay interest on funds held
in the Principal or Interest Account of a Trust (but may itself
earn interest thereon and therefore benefit from the use of such
funds) nor to make a distribution from the Principal Account of
a Trust unless the amount available for distribution shall equal
at least $1.00 per Unit.
The Trustee will credit to the Interest Account of each Trust
all interest received by such Trust, including that part of the
proceeds (including insurance proceeds if any, paid to a Trust
in the Insured Series) of any disposition of Bonds which represents
accrued interest. Other receipts will be credited to the Principal
Account of such Trust. The distribution to the Unit holders of
a 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 such Trust after deducting estimated expenses
as is consistent with the distribution plan chosen. Because interest
payments are not received by a Trust at a constant rate throughout
the year, such interest distribution may be more or less than
the amount credited to the Interest Account of such Trust as of
the Record Date. For the purpose of minimizing fluctuations in
the distributions from the Interest Account of a Trust, the Trustee
is authorized to advance such amounts as may be necessary to provide
interest distributions of approximately equal amounts. The Trustee
shall be reimbursed, without interest, for any such advances from
funds in the Interest Account of such 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 a 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 each Trust and, to the extent funds
are not sufficient therein, from the Principal Account of each
Trust, amounts necessary to pay the expenses of such 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 such Trust. Amounts so withdrawn shall
not be considered a part of such 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 a Trust
such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
Record Dates for monthly distributions will be the fifteenth day
of each month and Record Dates for semi-annual distributions,
if applicable, will be the fifteenth day of June and December.
Distributions will be made on the Distribution Dates appearing
in Part One for each Trust.
The plan of distribution selected by a Unit holder will remain
in effect until changed. Unit holders purchasing Units in the
secondary market will initially receive distributions in accordance
with the election of the prior owner. Each year, approximately
six weeks prior to the end of May, the Trustee will furnish each
Unit holder a card to be returned to the Trustee not more than
thirty nor less than ten days before the end of such month. Unit
holders desiring to change the plan of distribution in which they
are participating, if more than one distribution option is offered,
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 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
Page 28
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 each 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 a Trust of record, a statement
as to (1) the Interest Account: interest received by such Trust
(including amounts representing interest received upon any disposition
of Bonds of such Trust), the amount of such interest representing
insurance proceeds (if applicable), deductions for payment of
applicable taxes and for fees and expenses of such 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 such Trust and
the net proceeds received therefrom (excluding any portion representing
interest and the premium attributable to the exercise of the right,
if applicable, to obtain Permanent Insurance), deduction for payment
of applicable taxes and for fees and expenses of the Trust, redemptions
of Units, and the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding
on the last business day of such calendar year; (3) the Bonds
held and the number of Units of such 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 such 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.
Each distribution statement will reflect pertinent information
in respect of each plan of distribution so that Unit holders may
be informed regarding the results of the other plan or plans of
distribution.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender
to the Trustee at its corporate trust office in the City of New
York of the certificates representing the Units to be redeemed,
duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed as explained above (or by providing
satisfactory indemnity, as in connection with lost, stolen or
destroyed certificates), and payment of applicable governmental
charges, if any. No redemption fee will be charged. On the seventh
calendar day following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount
for each Unit equal to the Redemption Price per Unit next computed
after receipt by the Trustee of such tender of Units. The "date
of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the
close of trading (4:00 p.m. Eastern time) on the New York Stock
Exchange, the date of tender is the next day on which such Exchange
is open for trading and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the redemption
price computed on that day. Units so redeemed shall be cancelled.
Accrued interest to the settlement date paid on redemption shall
be withdrawn from the Interest Account of a Trust or, if the balance
therein is insufficient, from the Principal Account of a Trust.
All other amounts paid on redemption shall be withdrawn from the
Principal Account of a Trust.
The Redemption Price per Unit (and the Secondary Market Public
Offering Price per Unit) will be determined on the basis of the
bid price of the Bonds in a Trust, as of the close of trading
on the New York Stock Exchange
Page 29
on the date any such determination is made. 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 a Trust or moneys
in the process of being collected, (2) the value of the Bonds
in such Trust based on the bid prices of the Bonds, except for
those cases in which the value of the insurance, if applicable,
has been added, and (3) interest accrued thereon, less (a) amounts
representing taxes or other governmental charges payable out of
such Trust, (b) the accrued expenses of such 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 such 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 such 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.
In determining the Redemption Price per Unit for a Trust in the
Insured Series, no value will be attributed to the portfolio insurance
covering the Bonds in such Trust unless such Bonds are in default
in payment of principal or interest or in significant risk of
such default. On the other hand, Bonds insured under a policy
obtained by the Bond issuer, the underwriters, the Sponsor or
others are entitled to the benefits of such insurance at all times
and such benefits are reflected and included in the market value
of such Bonds. See "Why and How are the Trusts in the Insured
Series Insured?" For a description of the situations in which
the evaluator may value the insurance obtained by a Trust in the
Insured Series, see "Public Offering-How is the Public Offering
Price Determined?" The difference between the bid and offering
prices of such Bonds may be expected to average 1-2% 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 3%. 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 a Trust in
order to make funds available for redemption. To the extent that
Bonds are sold, the size and diversity of such 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 Trustee may obtain Permanent Insurance on the
Bonds in a Trust in the Insured Series covered by the Insurance
Policy. Accordingly, any Bonds insured under the Insurance Policy
may be sold on an insured basis (as will Preinsured Bonds).
The right of redemption may be suspended and payment postponed
for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings, or during
which the Securities and Exchange Commission determines that trading
on that Exchange is restricted or an emergency exists, as a result
of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit. Under certain extreme circumstances,
the Sponsor may apply to the Securities and Exchange Commission
for an order permitting a full or partial suspension of the right
of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, it may purchase
such Units by notifying the Trustee before 12:00 p.m. Eastern
time on the next succeeding business day and by making payment
therefor to the Unit holder not later than the day on which the
Units would otherwise have been redeemed by the Trustee. Units
held by the Sponsor may be tendered to the Trustee for redemption
as any other Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
How May Bonds be Removed from the Trusts?
The Trustee is empowered to sell, for the purpose of redeeming
Units tendered by any Unit holder and for the payment of expenses
for which funds may not be available, such of the Bonds in each
Trust on a list furnished by the Sponsor as the Trustee in its
sole discretion may deem necessary. As described in the following
Page 30
paragraph and in certain other unusual circumstances for which
it is determined by the Sponsor to be in the best interests of
the Unit holders or if there is no alternative, the Trustee is
empowered to sell Bonds in a Trust which are in default in payment
of principal or interest or in significant risk of such default
and for which value has been attributed to the insurance, if any,
obtained by the Trusts in the Insured Series. See "How May Units
be Redeemed?" The Sponsor is empowered, but not obligated, to
direct the Trustee to dispose of Bonds in a Trust in the event
of advanced refunding. The Sponsor may from time to time act as
agent for a Trust with respect to selling Bonds out of a Trust.
From time to time, the Trustee may retain and pay compensation
to the Sponsor subject to the restrictions under the Investment
Company Act of 1940, as amended.
If any default in the payment of principal or interest on any
Bond occurs and no provision for payment is made therefor, either
pursuant to the portfolio insurance, if any, or otherwise, 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 a Trust of any securities other than the Bonds
initially deposited is prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust,
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $8 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141.
As of December 31, 1993, the total partners' capital of Nike Securities
L.P. was $12,743,032 (audited). (This paragraph relates only to
the Sponsor and not to the Trust or to any series thereof or to
any other Underwriters. The information is included herein only
for the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations.
More detailed financial information will be made available by
the Sponsor upon request.)
Who is the Trustee?
The Trustee is United States Trust Company of New York, with its
principal place of business at 45 Wall Street, New York, New York
10005 and its unit investment trust offices at 770 Broadway, New
York, New York 10003. Unit holders who have questions regarding
the Trusts may call the Customer Service Help Line at 1-800-682-7520.
The Trustee is a member of the New York Clearing House Association
and subject to supervision
Page 31
and examination by the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the portfolio or the Insurance Policies of
Trusts in the Insured Series. 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 a Trust which the Trustee may be required to pay under
any present or future law of the United States of America or of
any other taxing authority having jurisdiction. In addition, the
Indenture contains other customary provisions limiting the liability
of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or
its affairs are taken over by public authorities, then the Trustee
may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and not exceeding amounts prescribed
by the Securities and Exchange Commission, or (b) terminate the
Indenture and liquidate the Trust as provided herein, or (c) continue
to act as Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East
Roosevelt Road, Suite 200, Wheaton, Illinois 60187. 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 thirty 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
Page 32
not protect the Evaluator in any case of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations
and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee),
provided that the Indenture is not amended to increase the number
of Units of any Trust issuable thereunder or to permit the deposit
or acquisition of securities either in addition to or in substitution
for any of the Bonds of any Trust initially deposited in a 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.
Each Trust may be liquidated at any time by consent of 100% of
the Unit holders of such Trust or by the Trustee when the value
of such Trust, as shown by any evaluation, is less than 20% of
the aggregate principal amount of the Bonds initially deposited
in the Trust. 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 the mandatory termination
date specified in Part One of this Prospectus. In the event of
termination, written notice thereof will be sent by the Trustee
to all Unit holders of such Trust. Within a reasonable period
after termination, the Trustee will sell any Bonds remaining in
such Trust and, after paying all expenses and charges incurred
by such Trust, will distribute to each Unit holder of such 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 such 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, acts as counsel for the Trustee and as special
counsel for the Trusts for New York tax matters.
Experts
The financial statements of each Trust appearing in Part One of
this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS*
* As published by the rating companies.
** Bonds insured by Financial Security Assurance, Inc., Capital
Markets Assurance Corporation or AMBAC Indemnity Corporation
are automatically rated "AAA" by Standard & Poor's Corporation.
Standard & Poor's Corporation. A brief description of the applicable
Standard & Poor's Corporation rating symbols and their meanings
follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect
to a specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold
a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended
Page 33
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:
l. 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;
ll. Nature of and provisions of the obligation;
lll. 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.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of, or the risk of default upon failure of, such completion. The
investor should exercise his/her own judgment with respect to
such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings
of bonds and other fixed income securities. It focuses on events
and trends which place companies and government units under special
surveillance by S&P's 180-member analytical staff. These may include
mergers, voter referendums, actions by regulatory authorities,
or developments gleaned from analytical reviews. Unless otherwise
noted, a rating decision will be made within 90 days. Issues appear
on Credit Watch where an event, situation, or deviation
from trends occurred and needs to be evaluated as to its impact
on credit ratings. A listing, however, does not mean a rating
change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing
on Credit Watch.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings
follow:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Their safety
is so absolute that with the occasional exception of oversupply
in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
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
Page 34
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.
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.
Duff & Phelps Credit Rating Company. A brief description of the
applicable Duff & Phelps Credit Rating Co. rating symbols and
their meanings follow:
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative
and quantitative factors which may vary according to the basic
economic and financial characteristics of each industry and each
issuer. Important considerations are vulnerable to economic cycles
as well as risks related to such factors as competition, government
action, regulation, technological obsolescence, demand shifts,
cost structure, and management depth and expertise. The projected
viability of the obligor at the trough of the cycle is a critical
determination.
AAA - Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA - High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A - Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB - Below average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during
economic cycles.
BB - Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B - Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or
company fortunes.
Page 35
Potential exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC - Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
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Page 39
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
The First Trust Special Situations Trust
The First Trust Insured Corporate Trust Series:
First Trust Corporate Income Trust, Laddered Series:
Global Corporate Income Trust, Intermediate Series:
What is The First Trust Special Situations Trust? 3
What are Certain Risks of an Investment in
Foreign Issues 9
What are Estimated Long-Term Return and
Estimated Current Return? 10
How is Accrued Interest Treated? 11
Why and How are the Trusts in the Insured
Series Insured? 11
Are Unit Holders Compensated for Foreign
Withholding Tax Risks? 17
What is the Federal Tax Status of Unit Holders? 18
What are the Expenses and Charges? 22
Public Offering:
How is the Public Offering Price Determined? 23
How are Units Distributed? 26
What are the Sponsor's Profits? 27
Rights of Unit Holders:
How are Certificates Issued and Transferred? 27
How are Interest and Principal Distributed? 27
How Can Distributions to Unit Holders be
Reinvested? 28
What Reports Will Unit Holders Receive? 29
How May Units be Redeemed? 29
How May Units be Purchased by the Sponsor? 30
How May Bonds be Removed from the Trusts? 30
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 31
Who is the Trustee? 31
Limitations on Liabilities of Sponsor and Trustee 32
Who is the Evaluator? 32
Other Information:
How May the Indenture be Amended or
Terminated? 33
Legal Opinions 33
Experts 33
Description of Bond Ratings 33
</TABLE>
______________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH
IN THE REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO,
WHICH THE FUND HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (registered trademark)
The First Trust Insured Corporate Trust Series
First Trust Corporate Income Trust, Laddered Series
Global Corporate Income Trust, Intermediate Series
The First Trust
Special Situations Trust
Prospectus
Part Two
August 22, 1994
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
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
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
24 THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 3, 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 28, 1995.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 24
THE FIRST TRUST INSURED CORPORATE TRUST,
SERIES 3
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Carlos E. Nardo
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this 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 Sole Director of )
Nike Securities )
Corporation, ) April 28, 1995
the General Partner )
of Nike Securities L.P. )
)
) Carlos E. Nardo
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Special Situations Trust, Series 18 (File No. 33-42683) and
the same is hereby incorporated herein by this reference.
S-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 March 2, 1995 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated April 18, 1995.
ERNST & YOUNG LLP
Chicago, Illinois
April 17, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to Form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> INS CORP TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 2,913,996
<INVESTMENTS-AT-VALUE> 2,916,747
<RECEIVABLES> 40,618
<ASSETS-OTHER> 50,498
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,007,863
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,865
<TOTAL-LIABILITIES> 7,865
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,913,996
<SHARES-COMMON-STOCK> 9,104
<SHARES-COMMON-PRIOR> 10,587
<ACCUMULATED-NII-CURRENT> 83,251
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,751
<NET-ASSETS> 2,999,998
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 284,435
<OTHER-INCOME> 0
<EXPENSES-NET> 23,521
<NET-INVESTMENT-INCOME> 260,914
<REALIZED-GAINS-CURRENT> (43,981)
<APPREC-INCREASE-CURRENT> (74,560)
<NET-CHANGE-FROM-OPS> 142,373
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 266,052
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 463,202
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1,483
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,108,828)
<ACCUMULATED-NII-PRIOR> 87,470
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
