File No. 33-45920
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 4
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 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
(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 : May 31, 1996
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
March 14, 1996.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
380,258 UNITS
PROSPECTUS
Part One
Dated May 24, 1996
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The First Trust Preferred Adjustable Rate Trust, Series 1 (the "Trust") is a
unit investment trust consisting of a portfolio of adjustable rate preferred
stocks (Adjustable Preferred Securities). At April 16, 1996, each Unit
represented a 1/380,258 undivided interest in the principal and net income of
the Trust (see "The Trust" in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price per 100 Units is equal to the aggregate value of the
Adjustable Preferred Securities in the Portfolio of the Trust, plus or minus
cash, if any, in the Income and Capital Accounts of the Trust divided by the
number of Units outstanding, multiplied by 100, plus a sales charge of 4.5% of
the Public Offering Price (4.712% of the net amount invested) excluding income
and principal cash. At April 16, 1996, the Public Offering Price per 100
Units was $428.99 (see "Public Offering" in Part Two). The minimum purchase
is $1,000.
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>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1996
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank (National Association)
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Number of Units 380,258
Fractional Undivided Interest in the Trust per 100 Units 1/380,258
Public Offering Price:
Aggregate Value of Adjustable Preferred Securities in
the Portfolio $1,576,467
Aggregate Value of Adjustable Preferred Securities per
100 Units $414.58
Income and Principal Cash (overdraft) in the Portfolio $(19,525)
Income and Principal Cash (overdraft) per 100 Units $(5.13)
Sales Charge 4.712% (4.5% of Public Offering Price,
excluding Income and Principal Cash) $19.54
Public Offering Price per 100 Units $428.99
Redemption Price and Sponsor's Repurchase Price
per 100 Units ($19.54 less than the Public Offering
Price per 100 Units) $409.45
</TABLE>
Date Trust Established March 20, 1992
Mandatory Termination Date March 1, 1997
<TABLE>
<S> <C>
Calculation of Estimated Net Annual Dividends per 100 Units:
Estimated Gross Annual Dividends per 100 Units (based on
the most recent quarterly dividend declared by each
issuer, which is subject to periodic adjustments) $28.64
Estimated Annual Expense per 100 Units 2.00
______
Estimated Net Annual Dividends per 100 Units $26.64
======
</TABLE>
Evaluator's Annual Fee: $.30 per 100 Units outstanding. Evaluations for
purposes of sale, purchase or redemption of Units are made as of the close of
trading (4:00 p.m. Eastern time) on the New York Stock Exchange on each day on
which it is open.
Supervisory fee payable to Maximum of $.25 per 100
an affiliate of the Sponsor Units outstanding annually
Trustee's Annual Fee: $.84 per 100 Units outstanding.
Capital Distribution Record Date: Fifteenth day of each December.
Capital Distribution Date: Thirty-first day of each December.
Income Distribution Record Date: Fifteenth day of each month.
Income Distribution Date: The last day of each month.
A Unit holder who owns at least 2,500 units may request an "In-Kind
Distribution" upon tendering Units for redemption or upon termination of
the Trust. See "Rights of Unit Holders - How are Income and Capital
Distributed?" in Part Two.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Special Situations Trust, Series 26,
First Trust Preferred Adjustable Rate Trust, Series 1
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust, Series
26, First Trust Preferred Adjustable Rate Trust, Series 1 as of January 31,
1996, and the related statements of operations and changes in net assets for
each of the three years in the period then ended. 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 January 31, 1996,
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 26, First Trust Preferred Adjustable Rate Trust,
Series 1 at January 31, 1996, and the results of its operations and changes in
its net assets for each of the three years in the period then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 26, 1996
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Adjustable rate preferred securities, at market value
(cost $1,403,443) (Note 1) $1,666,710
Dividends receivable 15,487
__________
1,682,197
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Accrued liabilities 83
Cash overdraft 7,082
__________
7,165
__________
Net assets, applicable to 395,333 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $1,403,443
Net unrealized appreciation (Note 2) 263,267
Distributable funds 8,322
__________
$1,675,032
==========
Net asset value per 100 units $423.70
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
PORTFOLIO - See notes to portfolio.
January 31, 1996
<TABLE>
<CAPTION>
Standard & Optional
Name of Issuer Poor's Pre- Redemption Par or
Number of Adjustable ferred Stock Provision Stated Value Market
of Shares Preferred Securities Ratings(1) per Share(2) per Share Value
<C> <S> <C> <C> <C> <C>
7,395 BankAmerica, Series A A- $50.00 $50.00 $358,658
3,251 Citicorp, Third Series A- 100.00 100.00 321,849
2,648 ENSERCH Corporation, Series E BBB- 100.00 100.00 251,560
3,735 First Chicago Corporation,
Series C BBB+ 100.00 100.00 366,030
705 First Fidelity Bancorporation,
Series D NR 100.00 100.00 67,680
6,958 Wells Fargo & Company,
Series B BBB 51.50 50.00 300,933
__________
$1,666,710
==========
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
NOTES TO PORTFOLIO
January 31, 1996
(1) All ratings are by Standard & Poor's Corporation as of January 31, 1996.
"NR" indicates that Standard & Poor's Corporation did not provide a
rating for that particular security.
(2) All of the Adjustable Preferred Securities are currently redeemable at
the option of the issuer. Optional redemption provisions, which may be
exercised in whole or in part, are initially at prices of par or stated
value plus a premium, then subsequently at prices declining to par or
stated value.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Dividend income $133,880 193,887 391,941
Expenses:
Trustee's fees and related expenses (8,011) (7,116) (10,366)
Evaluator's fees (1,329) (1,471) (1,743)
Supervisory fees (1,162) (1,224) (1,521)
________________________________
Total expenses (10,502) (9,811) (13,630)
________________________________
Investment income - net 123,378 184,076 378,311
Net gain (loss) on investments:
Net realized gain (loss) 58,946 294,946 93,226
Change in net unrealized appreciation
or depreciation 144,429 (579,996) 206,083
________________________________
203,375 (285,050) 299,309
________________________________
Net increase (decrease) in net assets
resulting from operations $326,753 (100,974) 677,620
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $123,378 184,076 378,311
Net realized gain (loss) on
investments 58,946 294,946 93,226
Change in net unrealized appreciation
or depreciation on investments 144,429 (579,996) 206,083
____________________________________
326,753 (100,974) 677,620
Units redeemed (70,431, 50,586 and
100,000 in 1996, 1995 and 1994,
respectively) (286,385) (265,005) (986,371)
Distributions to unit holders:
Investment income - net (126,280) (199,331) (379,616)
Principal from investment
transactions (160,461) (2,187,124) (783,609)
____________________________________
(286,741) (2,386,455) (1,163,225)
____________________________________
Total increase (decrease) in
net assets (246,373) (2,752,434) (1,471,976)
Net assets:
At the beginning of the year 1,921,405 4,673,839 6,145,815
____________________________________
At the end of the year
(including distributable funds
applicable to Trust units of
$8,322, $13,565 and $103,805 at
January 31, 1996, 1995 and 1994,
respectively $1,675,032 1,921,405 4,673,839
====================================
Trust units outstanding at the end
of the year 395,333 465,764 516,350
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
The adjustable rate preferred securities are stated at the closing sale prices
of listed adjustable rate preferred securities and the bid prices of over-the-
counter traded adjustable rate preferred securities, as determined by
Securities Evaluation Service, Inc. (the Evaluator), certain shareholders of
which are officers of the Sponsor.
Investment income -
Dividends on each adjustable rate preferred security are recognized on such
adjustable rate preferred security's ex-dividend date.
Security cost -
Cost of the adjustable rate preferred securities is based on the market value
of such securities on the dates the securities were deposited in the Trust.
The cost of securities sold is determined using the average cost method.
Sales of securities are recorded on the trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services which is based on $.84 per annum per
100 units outstanding based on the largest aggregate number of units
outstanding during the calendar year. Prior to September 1, 1995, the Trustee
was United States Trust Company of New York; effective September 1, 1995, The
Chase Manhattan Bank (National Association) succeeded United States Trust
Company of New York as Trustee. In addition, the Evaluator will receive an
annual fee based on $.30 per 100 units outstanding. The Trust also pays
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 January 31, 1996 follows:
<TABLE>
<S> <C>
Unrealized appreciation $263,267
Unrealized depreciation -
________
$263,267
========
</TABLE>
<PAGE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
underlying value of the adjustable rate preferred securities on the date of an
investor's purchase, plus a sales charge of 4.5% of the public offering price
which is equivalent to approximately 4.712% of the net amount invested.
Distributions to unit holders -
Income distributions to unit holders are made on the last day of each month to
unit holders of record on the fifteenth day of such month. Principal
distributions to unit holders, if any, are made on December 31 to unit holders
of record on December 15.
Selected data per 100 units of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Dividend income $30.35 39.60 67.98
Expenses (2.38) (2.00) (2.36)
_________________________________
Investment income - net 27.97 37.60 65.62
Distributions to unit holders:
Investment income - net (28.69) (40.35) (65.62)
Principal from investment
transactions (36.17) (430.37) (140.41)
Net gain (loss) on investments 48.06 (59.52) 48.45
_________________________________
Total increase (decrease) in
net assets 11.17 (492.64) (91.96)
Net assets:
Beginning of the year 412.53 905.17 997.13
_________________________________
End of the year $423.70 412.53 905.17
=================================
</TABLE>
Dividend income, Expenses and Investment income-net per 100 units have been
calculated based on the weighted average number of units outstanding during
the year (441,104, 489,603 and 576,510 units during the years ended January
31, 1996, 1995 and 1994, respectively). Distributions to unit holders of
Investment income - net and Principal from investment transactions reflect the
Trust's actual distributions during the years.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 26
FIRST TRUST ADJUSTABLE PREFERRED RATE TRUST, SERIES 1
PART ONE
Must be Accompanied by Part Two
______________________
P R O S P E C T U S
______________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
(National Association)
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.
PREFERRED ADJUSTABLE RATE SERIES
The First Trust (registered trademark) Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated May 30, 1996
The Trusts. The First Trust Special Situations Trusts (the "Trusts" and
each a "Trust") are unit investment trusts consisting of portfolios
containing adjustable preferred stocks.
The objective of each Trust is to provide for income and the
preservation of capital by investing each Trust's portfolio in
adjustable preferred stocks ("Adjustable Preferred Securities"). See
"Portfolio" appearing in Part One for each Trust. Each Adjustable
Preferred Security currently pays dividends at a rate which is subject
to periodic adjustments based on changes in interest rates. See
"Portfolio" appearing in Part One for each Trust. Each Trust has a
Mandatory Termination Date as indicated in Part One for each Trust.
There is, of course, no guarantee that the objective of the Trust will
be achieved.
Each Unit of a Trust represents an undivided fractional interest in all
the Adjustable Preferred Securities deposited in such Trust.
The Adjustable Preferred Securities deposited in each Trust's portfolio
have no fixed maturity date and the value of these underlying Adjustable
Preferred Securities may fluctuate with changes in interest rates and
with the financial condition of the issuers. The Adjustable Preferred
Securities are subject to redemption. See "Portfolio" appearing in Part
One for each Trust.
Public Offering Price. The secondary market Public Offering Price per
Unit will be based upon the aggregate underlying value of the Adjustable
Preferred Securities in a Trust (generally determined by the closing
sales prices of listed Adjustable Preferred Securities and the bid
prices of over-the-counter traded Adjustable Preferred Securities) plus
or minus a pro rata share of cash, if any, in the Capital and Income
Accounts of the Trust plus a sales charge as indicated in Part One for
each Trust. The minimum purchase is as indicated in Part One for each
Trust. The sales charge is reduced on a graduated scale for sales
involving at least a minimum number of Units or a minimum dollar amount.
See "How is the Public Offering Price Determined?"
Estimated Annual Distributions. The estimated net annual dividend
distribution to Unit holders (based on the most recent quarterly or semi-
annual ordinary dividend declared with respect to the Adjustable
Preferred Securities in a Trust) is as indicated in Part One. The
estimated net annual dividend distributions per Unit will vary with
changes in fees and expenses of each Trust, with changes in dividends
received, which may occur on a frequent basis, and with the sale,
redemption or liquidation of Adjustable Preferred Securities; therefore,
there is no assurance that the annual dividend distribution will be
realized in the future.
Dividend and Capital Distributions. Distributions of dividends received
by a Trust will be paid monthly in cash on the Distribution Date to Unit
holders of record on the Record Date as set forth in the "Summary of
Essential Information" appearing in Part One for each Trust.
Distributions of funds in the Capital Account, if any, will be made at
least annually in December of each year. Any distribution of income
and/or capital will be net of the expenses of a Trust. See "What is the
Federal Tax Status of Unit Holders?" Additionally, upon termination of a
Trust, the Trustee will distribute, upon surrender of Units for
redemption, to each Unit holder his pro rata share of the Trust's
assets, less expenses, in the manner set forth under "Rights of Unit
Holders-How are Income and Capital Distributed?"
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
Secondary Market for Units. The Sponsor may maintain a market for Units
of the Trusts and offer to repurchase such Units at prices which are
based on the aggregate underlying value of Adjustable Preferred
Securities in each Trust (generally determined by the closing sale
prices of listed Adjustable Preferred Securities and the bid prices of
over-the-counter traded Adjustable Preferred Securities) plus or minus
cash, if any, in the Capital and Income Accounts of the Trust. As of the
date of this Prospectus the Sponsor is maintaining a secondary market.
If a secondary market is not maintained in the future, a Unit holder may
redeem Units through redemption at prices based upon the aggregate
underlying value of the Adjustable Preferred Securities in a Trust
(generally determined by the closing sale prices of listed Adjustable
Preferred Securities and the bid prices of over-the-counter traded
Adjustable Preferred Securities) plus or minus a pro rata share of cash,
if any, in the Capital and Income Accounts of the Trust. For certain
Trusts, a Unit holder tendering at least the amount specified in
"Summary of Essential Information" appearing in Part One for such Trust
for redemption may request a distribution of shares of Adjustable
Preferred Securities (reduced by customary transfer and registration
charges) in lieu of payment in cash. See "How May Units be Redeemed?"
Termination. Commencing on the Mandatory Termination Date for each
Trust, Adjustable Preferred Securities will begin to be sold in
connection with the termination of such Trust. The Sponsor will
determine the manner, timing and execution of the sale of Adjustable
Preferred Securities. Written notice of any termination of a Trust
specifying the time or times at which Unit holders may surrender their
certificates for cancellation shall be given by the Trustee to each Unit
holder at his address appearing on the registration books of the Trust
maintained by the Trustee. At least 60 days prior to the Mandatory
Termination Date of a Trust the Trustee will provide written notice
thereof to all Unit holders and will include with such notice a form to
enable Unit holders to elect a distribution of shares of Adjustable
Preferred Securities (reduced by customary transfer and registration
charges) if such Unit holder owns at least the amount specified in
"Summary of Essential Information" appearing in Part One for each Trust,
rather than to receive payment in cash for such Unit holder's pro rata
share of the amounts realized upon the disposition by the Trustee of
Adjustable Preferred Securities. To be effective, the election form,
together with surrendered certificates and other documentation required
by the Trustee, must be returned to the Trustee at least five business
days prior to the Mandatory Termination Date of the Trust. Unit holders
not electing a distribution of shares of Adjustable Preferred Securities
will receive a cash distribution within a reasonable time after a Trust
is terminated. See "Rights of Unit Holders-How are Income and Capital
Distributed?"
Page 2
Preferred Adjustable Rate Series
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust is a series of investment
companies created by the Sponsor under the name of The First Trust
Special Situations Trust, all of which are generally similar but each of
which is separate and is designated by a different series number (the
"Trust"). Each Series consists of an underlying separate unit investment
trust consisting of a portfolio containing adjustable preferred stocks
("Adjustable Preferred Securities"), created under the laws of the State
of New York pursuant to a Trust Agreement (the "Indenture"), dated the
Initial Date of Deposit, with Nike Securities L.P., as Sponsor, The
Chase Manhattan Bank (National Association), as Trustee, Securities
Evaluation Service, Inc., as Evaluator, and First Trust Advisors L.P.,
as Portfolio Supervisor.
The objective of the Trusts is to provide for income and the
preservation of capital through an investment in Adjustable Preferred
Securities. See "Portfolio" appearing in Part One for each Trust. Each
Adjustable Preferred Security currently pays dividends at a rate which
is subject to periodic adjustments based on changes in interest rates.
The Adjustable Preferred Securities in each Trust consist of preferred
securities of companies which are considered to be concentrated within
the banking industry and the public utility industry. There is, of
course, no guarantee that the objective of the Trusts will be achieved.
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 each Trust. Such fee is based on the number of Units outstanding in
a Trust on January 1 of each year except for the year or years in which
an initial offering period occurs in which case the fee for a month is
based on the number of Units outstanding at the end of such month. The
fee may exceed the actual costs of providing such supervisory services
for 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.
The Evaluator will receive a fee as indicated in the "Summary of
Essential Information" appearing in Part One for each Trust. The Trustee
pays certain expenses of each Trust for which it is reimbursed by such
Trust. The Trustee will receive for its ordinary recurring services to
the Trust an annual 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 from the Income Account
of a Trust to the extent funds are available and then from the Capital
Account of the Trust. Since the Trustee has the use of the funds being
held in the Capital and Income Accounts for payment of expenses and
redemptions and since such Accounts are noninterest-bearing to Unit
holders, the Trustee benefits thereby. Part of the Trustee's
compensation for its services to a Trust is expected to result from the
use of these funds. 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 following additional charges are or may be incurred by a Trust: all
legal and annual auditing expenses of the Trustee incurred by or in
connection with its responsibilities under the Indenture; the expenses
and costs of any action undertaken by the Trustee to protect such Trust
and the rights and interests of the Unit holders; fees of the Trustee
for any extraordinary services performed under the Indenture;
Page 3
indemnification of the Trustee for any loss, liability or expense
incurred by it without negligence, bad faith or willful misconduct on
its part, arising out of or in connection with its acceptance or
administration of the Trust; indemnification of the Sponsor for any
loss, liability or expense incurred without gross negligence, bad faith
or willful misconduct in acting as Depositor of the Trust; all taxes and
other government charges imposed upon the Adjustable Preferred
Securities or any part of the Trust (no such taxes or charges are being
levied or made or, to the knowledge of the Sponsor, contemplated). The
above expenses and the Trustee's annual fee, when paid or owing to the
Trustee, are secured by a lien on a Trust. In addition, the Trustee is
empowered to sell Adjustable Preferred Securities in a Trust in order to
make funds available to pay all these amounts if funds are not otherwise
available in the Income and Capital Accounts of the Trust. Since the
Adjustable Preferred Securities are all preferred stocks and the income
stream produced by dividend payments is unpredictable, the Sponsor
cannot provide any complete assurance that dividends will be sufficient
to meet any or all expenses of a Trust. As described above, if in the
unlikely event dividends are insufficient to cover expenses, Adjustable
Preferred Securities will have to be sold to meet Trust expenses. These
sales may result in capital gains or losses to Unit holders. See "What
is the Federal Tax Status of Unit Holders?"
The Indenture requires a Trust to be audited on an annual basis at the
expense of such Trust by independent auditors selected by the Sponsor.
So long as the Sponsor is making a secondary market for the Units, the
Sponsor is required to bear the cost of such annual audits to the extent
such cost exceeds $.50 per 100 Units. Unit holders of a Trust covered by
an audit may obtain a copy of the audited financial statements upon request.
What is the Federal Tax Status of Unit Holders?
The following is a general discussion of certain of the Federal income
tax consequences of the purchase, ownership and disposition of the
Units. The summary is limited to investors who hold the Units as
"capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the
"Code"). Unit holders should consult their tax advisers in determining
the Federal, state, local and any other tax consequences of the
purchase, ownership and disposition of Units in a Trust.
Neither the Sponsor nor Chapman and Cutler has reviewed the Adjustable
Preferred Securities deposited in a Trust. Rather, they have assumed
that (i) the Adjustable Preferred Securities qualify as equity for
federal income tax purposes and that, accordingly, amounts received by a
Trust with respect to the Adjustable Preferred Securities will qualify
as dividends as defined in Section 316 of the Code and (ii) such
dividends would generally be eligible for the dividends received
deduction if the Adjustable Preferred Securities were directly held by a
Unit holder for at least 46 days.
Based on the above, in the opinion of Chapman and Cutler, special
counsel for the Sponsor, under existing law:
1. Each Trust is not an association taxable as a corporation for
Federal income tax purposes; each Unit holder will be treated as the
owner of a pro rata portion of each of the assets of a Trust under the
Code; and the income of a Trust will be treated as income of the Unit
holders thereof under the Code. Each Unit holder will be considered to
have received his pro rata share of the income derived from each
Adjustable Preferred Security when such income is considered to be
received by a Trust.
2. Each Unit holder will have a taxable event when a Trust disposes of
an Adjustable Preferred Security (whether by sale, taxable exchange,
redemption, or otherwise) or upon the sale or redemption of Units by
such Unit holder. The price a Unit holder pays for his Units, is
allocated among his pro rata portion of each Adjustable Preferred
Page 4
Security held by a Trust (in proportion to the fair market values
thereof on the valuation date nearest the date the Unit holder purchases
his Units) in order to determine his initial tax basis for his pro rata
portion of each Adjustable Preferred Security held by a Trust. For
Federal income tax purposes, a Unit holder's pro rata portion of
dividends, as defined by Section 316 of the Code, paid by a corporation
with respect to an Adjustable Preferred Security held by a Trust are
taxable as ordinary income to the extent of such corporation's current
and accumulated "earnings and profits". A Unit holder's pro rata portion
of dividends paid on such Adjustable Preferred Security which exceeds
such current and accumulated earnings and profits will first reduce a
Unit holder's tax basis in such Adjustable Preferred Security, and to
the extent that such dividends exceed a Unit holder's tax basis in such
Adjustable Preferred Security shall generally be treated as capital
gain. In general, any such capital gain will be short-term unless a Unit
holder has held his Units for more than one year.
3. A Unit holder's portion of gain, if any, upon the sale or
redemption of Units or the disposition of Adjustable Preferred
Securities held by a Trust will generally be considered a capital gain
except in the case of a dealer or a financial institution and will be
long-term if the Unit holder has held his Units for more than one year
(the date on which the Units are acquired (i.e., the "trade date") is
excluded for purposes of determining whether the Units have been held
for more than one year). A Unit holder's portion of loss, if any, upon
the sale or redemption of Units or the disposition of Adjustable
Preferred Securities held by a Trust will generally be considered a
capital loss (except in the case of a dealer or a financial institution)
and, in general, will be long-term if the Unit holder has held his Units
for more than one year. Unit holders should consult their tax advisers
regarding the recognition of such capital gains and losses for Federal
income tax purposes.
Dividends Received Deduction. A corporation that owns Units will
generally be entitled to a 70% dividends received deduction with respect
to such Unit holder's pro rata portion of dividends received by a Trust
(to the extent such dividends are taxable as ordinary income, as
discussed above) in the same manner as if such corporation directly
owned the Adjustable Preferred Securities paying such dividends.
However, a corporation owning Units should be aware that Sections 246
and 246A of the Code impose additional limitations on the eligibility of
dividends for the 70% dividends received deduction. These limitations
include a requirement that stock (and therefore Units) must generally be
held at least 46 days (as determined under Section 246(c) of the Code).
Final regulations have been issued which address special rules that must
be considered in determining whether the 46-day holding requirement is
met. Moreover, the allowable percentage of the deduction will be reduced
from 70% if a corporate Unit holder owns certain stock (or Units) the
financing of which is directly attributable to indebtedness incurred by
such corporation. It should be noted that various legislative proposals
that would affect the dividends received deduction have been introduced.
Unit holders should consult their tax advisers with respect to
limitations on and possible modifications to the dividends received
deduction.
Limitations on Deductibility of Trust Expenses by Unit holders. Each
Unit holder's pro rata share of each expense paid by the Trust is
deductible by the Unit holder to the same extent as though the expense
had been paid directly by him. It should be noted that as a result of
the Tax Reform Act of 1986, certain miscellaneous itemized deductions,
such as investment expenses, tax return preparation fees and employee
business expenses will be deductible by an individual only to the extent
they exceed 2% of such individual's adjusted gross income. Unit holders
may be required to treat some or all of the expenses of the Trust as
miscellaneous itemized deductions subject to this limitation.
Recognition of Taxable Gain or Loss Upon Disposition of Securities by a
Trust or Disposition of Units. As discussed above, a Unit holder may
recognize taxable gain (or loss) when an Adjustable Preferred Security
is disposed of by a Trust or if the Unit holder disposes of a Unit. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed.
The Revenue Reconciliation Act of 1993 (the "Tax Act") raised tax rates
on ordinary income while capital gains remain subject to a 28% maximum
stated rate for taxpayers other than corporations. Because some or all
capital gains are taxed at a comparatively lower rate under the Tax Act,
the Tax Act includes a provision that recharacterizes capital gains as
ordinary income in the case of certain financial transactions that are
"conversion transactions" effective for transactions entered into after
April 30, 1993. Unit holders and prospective investors should consult
with their tax advisers regarding the potential effect of this provision
on their investment in Units.
If a Unit holder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all assets of the Trust
involved including his pro rata portion of all the Adjustable Preferred
Securities represented by a Unit.
Page 5
Special Tax Consequences of In-Kind Distributions Upon Redemption of
Units or Termination of a Trust. A Unit holder who owns at least the
amount specified in "Summary of Essential Information" appearing in Part
One for each Trust may request an In-Kind Distribution upon the
redemption of Units or the termination of a Trust. The Unit holder
requesting an In-Kind Distribution will be liable for expenses related
thereto (the "Distribution Expenses") and the amount of such In-Kind
Distribution will be reduced by the amount of the Distribution Expenses.
See "Rights of Unit holders-How are Income and Capital Distributed?"As
previously discussed, prior to the redemption of Units or the
termination of a Trust, a Unit holder is considered as owning a pro rata
portion of each of the Trust assets for Federal income tax purposes. The
receipt of an In-Kind Distribution will result in a Unit holder
receiving an undivided interest in whole shares of stock plus, possibly,
cash.
Potential tax consequences that may occur under an In-Kind Distribution
will depend on whether or not a Unit holder receives cash in addition to
Adjustable Preferred Securities. An "Adjustable Preferred Security" for
this purpose is a particular class of stock issued by a particular
corporation. A Unit holder will not recognize gain or loss with respect
to the Adjustable Preferred Securities if a Unit holder only receives
Adjustable Preferred Securities in exchange for his or her pro rata
portion in each share of the Adjustable Preferred Securities held by the
Trust. However, if a Unit holder also receives cash in exchange for a
fractional share of an Adjustable Preferred Security held by the Trust,
such Unit holder will generally recognize gain or loss based upon the
difference between the amount of the cash received by the Unit holder
for the fractional share and his tax basis in such fractional share of
the Adjustable Preferred Security held by the Trust.
Because a Trust will own many Adjustable Preferred Securities, a Unit
holder who requests an In-Kind Distribution will have to analyze the tax
consequences with respect to each Adjustable Preferred Security owned by
a Trust. The amount of taxable gain (or loss) recognized upon such
exchange will generally equal the sum of the gain (or loss) recognized
under the rules described above by such Unit holder with respect to each
Adjustable Preferred Security owned by a Trust. Unit holders who request
an In-Kind Distribution are advised to consult their tax advisers in
this regard.
Computation of the Unit holder's Tax Basis. Initially, a Unit holder's
tax basis in his Units will generally equal the price paid by such Unit
holder for his Unit. The cost of the Units is allocated among the
Adjustable Preferred Securities held in the Trust in accordance with the
proportion of the fair market values of such Adjustable Preferred
Securities on the valuation date nearest the date the Units are
purchased in order to determine such Unit holder's tax basis for his pro
rata portion of each Adjustable Preferred Security.
A Unit holder's tax basis in his Units and his pro rata portion of an
Adjustable Preferred Security will be reduced to the extent dividends
paid with respect to such Adjustable Preferred Security are received by
the Trust which are not taxable as ordinary income described above.
General. Each Unit holder will be requested to provide the Unit holder's
taxpayer identification number to the Trustee and to certify that the
Unit holder has not been notified that payments to the Unit holder are
subject to back-up withholding. If the proper taxpayer identification
number and appropriate certification are not provided when requested,
distributions by a Trust to such Unit holder (including amounts received
upon the redemption of Units) will be subject to back-up withholding.
Distributions by a Trust will generally be subject to United States
income taxation and withholding in the case of Units held by non-
resident alien individuals, foreign corporations or other non-United
States persons. Such persons should consult their tax advisers.
On December 7, 1995, the U.S. Treasury Department released proposed
legislation that, if adopted, could affect the United States federal
income taxation of non-United States Unit holders and the portion of the
Trust's income allocable to non-United States Unit holders. Similar
language, which would be effective on the date of enactment, was
included in the Health Insurance Reform Bill as passed by the U.S.
Senate on April 23, 1996.
Unit holders will be notified annually of the amounts of dividend income
includable in the Unit holder's gross income and amounts of Trust
expenses which may be claimed as itemized deductions.
Page 6
Dividend income and long-term capital gains may also be subject to state
and local taxes. Foreign investors may be subject to different Federal
income tax consequences than those described above. Investors should
consult their tax advisers for specific information on the tax
consequences of particular types of distributions.
Unit holders desiring to purchase Units for tax-deferred plans and IRAs
should consult their broker for details on establishing such accounts.
Units may also be purchased by persons who already have self-directed
plans established. See "Why are Investments in the Trusts Suitable for
Retirement Plans?"
In the opinion of Carter, Ledyard & Milburn, Special Counsel to the
Trusts for New York tax matters, under the existing income tax laws of
the State of New York, each Trust is not an association taxable as a
corporation and the income of each Trust will be treated as the income
of the Unit holders thereof.
Why are Investments in the Trusts Suitable for Retirement Plans?
Units of a Trust may be well suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other tax-deferred
retirement plans. Generally, the Federal income tax relating to capital
gains and income received in each of the foregoing plans is deferred
until distributions are received. Distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible
for special averaging or tax-deferred rollover treatment. Investors
considering participation in any such plan should review specific tax
laws related thereto and should consult their attorneys or tax advisers
with respect to the establishment and maintenance of any such plan. Such
plans are offered by brokerage firms and other financial institutions.
Fees and charges with respect to such plans may vary.
PORTFOLIO
What are Adjustable Preferred Securities?
Each Trust consists of different issues of Adjustable Preferred
Securities, all of which may be issued by companies that are listed on a
national securities exchange or the NASDAQ National Market System or are
traded in the over-the-counter market. The Trusts consist of Adjustable
Preferred Securities of companies which are considered to be
concentrated within the banking industry and the public utility industry.
The Trusts consist of such of the Adjustable Preferred Securities listed
under "Portfolio" appearing in Part One for each Trust as may continue
to be held from time to time in each Trust and any additional Adjustable
Preferred Securities acquired and held by a Trust pursuant to the
provisions of the Trust Agreement together with cash held in the Income
and Capital Accounts. Neither the Sponsor nor the Trustee shall be
liable in any way for any failure in any of the Adjustable Preferred
Securities.
Because certain of the Adjustable Preferred Securities from time to time
may be sold under certain circumstances described herein, and because
the proceeds from such events will be distributed to Unit holders and
will not be reinvested, no assurance can be given that a Trust will
retain for any length of time its present size and composition. Although
the Portfolio is not managed, the Sponsor may instruct the Trustee to
sell Adjustable Preferred Securities under certain limited
circumstances. Pursuant to the Indenture and with limited exceptions,
the Trustee may sell any securities or other property acquired in
exchange for Adjustable Preferred Securities such as those acquired in
connection with a merger or other transaction. If offered such new or
exchanged securities or property, the Trustee shall reject the offer.
However, in the event such securities or property are nonetheless
acquired by the Trust, they may be accepted for deposit in the Trust and
either sold by the Trustee or held in the Trust pursuant to the
direction of the Sponsor (who may rely on the advice of the Portfolio
Supervisor). See "How May Adjustable Preferred Securities be Removed
from a Trust?" Adjustable Preferred Securities, however, will not be
sold by a Trust to take advantage of market fluctuations or changes in
anticipated rates of appreciation or depreciation.
Holders of preferred stocks of the type of Adjustable Preferred
Securities held in each Portfolio have the right to receive dividends at
an adjustable rate, when and as declared by the issuer's Board of
Directors but do not participate in other amounts available for
distribution by the issuing corporation. The adjustable dividend rates
on the Adjustable Preferred Securities, in general, are adjusted
quarterly based on changes in interest rates on certain U.S. Treasury
notes and obligations. The adjustable dividend rates generally have a
Page 7
maximum rate which may not be exceeded and a minimum rate below which
the actual dividend rate on the Adjustable Preferred Securities may not
fall. Although one of the objectives of a Trust is to invest in
instruments that will pay dividends that will increase with a general
increase in interest rates, at any given time the adjustable dividend
rate of a particular issuer may not correspond with the investment risk
of such issuer or with interest rates in general. In such cases, the
Adjustable Preferred Securities may trade at a price which is at a
discount from the par or stated value of the Adjustable Preferred
Security or at a price which is less than the price at which the
Adjustable Preferred Security was deposited in the Trust. In cases of a
decline of the issuer's creditworthiness or an increase in interest
rates, there is the risk that the value of a Portfolio and hence the
Units will decline. The Sponsor cannot predict future economic policies
or their consequences on interest rates, or the course or extent of
interest rate fluctuations or preferred stock prices in the future.
Issues of preferred stock generally provide that the preferred stock may
be liquidated, either by a partial scheduled redemption pursuant to a
sinking fund or by a refunding redemption pursuant to which, at the
option of the issuer, all or part of the issue can be retired from any
available funds, at prices which may or may not include a premium over
the involuntary liquidation preference, which generally is the same as
the par or stated value of the Adjustable Preferred Securities, except
as noted under "Portfolio" in Part One for each Trust. In general,
optional redemption provisions are more likely to be exercised when the
Adjustable Preferred Securities are valued at a premium over par or
stated value than when they are valued at a discount from par or stated
value. Generally, the value of the Adjustable Preferred Securities will
be at a premium over par when market interest rates fall below the
coupon rate, as adjusted from time to time.
An investment in Units should be made with an understanding of the risks
which an investment in preferred stocks entails, including the risk that
the financial condition of the issuers of the Adjustable Preferred
Securities or the general condition of the preferred stock market may
worsen and the value of the Adjustable Preferred Securities and
therefore the value of the Units may decline. Adjustable Preferred
Securities may be susceptible to general stock market movements and to
increases and decreases of value as market confidence in and perceptions
of the issuers change. These perceptions are based on unpredictable
factors including expectations regarding government, economic, monetary
and fiscal policies, inflation and interest rates, economic expansion or
contraction, and global or regional political, economic or banking
crises. Adjustable Preferred Securities are also subject to
Congressional reductions in the dividends-received deduction which would
adversely affect the after-tax return to the investors who can take
advantage of the deduction. Such reduction also might adversely affect
the value of preferred stocks in general. Holders of preferred stocks
have rights to receive payments from the issuers of those preferred
stocks that are generally subordinate to those of creditors of, or
holders of debt obligations or, in some cases, other senior preferred
stocks of, such issuers. Adjustable Preferred Securities do not
represent an obligation of the issuer and, therefore, do not offer any
assurance of income or provide the same degree of protection of capital
as do debt securities. The issuance of additional debt securities or
senior preferred stock will create prior claims for payment of principal
and interest and senior dividends which could adversely affect the
ability and inclination of the issuer to declare or pay dividends on its
preferred stock or the rights of holders of preferred stock with respect
to assets of the issuer upon liquidation or bankruptcy. The value of
preferred stocks is subject to market fluctuations for as long as the
preferred stocks remain outstanding, and thus the value of the
Adjustable Preferred Securities in the Portfolio may be expected to
fluctuate over the life of a Trust to values higher or lower than those
prevailing on the Initial Date of Deposit.
Holders of preferred stocks incur more risk than holders of debt
obligations because preferred stockholders, as owners of the entity,
have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of or holders of debt
obligations issued by the issuer.
Whether or not the Adjustable Preferred Securities are listed on a
national securities exchange, the principal trading market for the
Adjustable Preferred Securities may be in the over-the-counter market.
As a result, the existence of a liquid trading market for the Adjustable
Preferred Securities may depend on whether dealers will make a market in
the Adjustable Preferred Securities. There can be no assurance that a
market will be made for any of the Adjustable Preferred Securities, that
any market for the Adjustable Preferred Securities will be maintained or
of the liquidity of the Adjustable Preferred Securities in any markets
made. In addition, a Trust may be restricted under the Investment
Company Act of 1940 from selling Adjustable Preferred Securities to the
Page 8
Sponsor. The price at which the Adjustable Preferred Securities may be
sold to meet redemptions, and the value of a Trust, will be adversely
affected if trading markets for the Adjustable Preferred Securities are
limited or absent.
Unit holders will be unable to dispose of any of the Adjustable
Preferred Securities in a Portfolio, as such, and will not be able to
vote the Adjustable Preferred Securities. As the holder of the
Adjustable Preferred Securities, the Trustee will have the right to vote
all of the voting stocks in the Trust and will vote such stocks in
accordance with the instructions of the Sponsor.
The Trusts may be deemed to be concentrated in Adjustable Preferred
Securities issued by companies in the banking industry. In view of this,
an investment in Units of a Trust should be made with an understanding
of the problems and risks inherent in the banking industry in general.
Banks, thrifts and their holding companies are especially subject to the
adverse effects of economic recession, volatile interest rates,
portfolio concentrations in geographic markets and in commercial and
residential real estate loans, and competition from new entrants in
their fields of business. Banks and thrifts are highly dependent on net
interest income. Recent profits have benefitted from the relatively high
yield on earning assets and relatively low cost of funds. There is no
certainty that such conditions will continue, especially in a rising
interest rate environment. Commercial loan demand for banks has been
weak and an increasing number of commercial loans have been securitized-
a potential adverse affect on the market share of the commercial banking
system. Bank and thrift institutions have received significant consumer
mortgage fee income as a result of recent activity in mortgage and
refinance markets. As initial home purchasing and refinancing activity
subsides, this income is expected to diminish to a lower level. Economic
conditions in the real estate markets, which have been weak in the
recent past, can have a substantial effect upon banks and thrifts
because they generally have a portion of their assets invested in loans
secured by real estate, as has recently been the case for a number of
banks and thrifts with respect to commercial real estate in the
northeastern and southwestern regions of the United States. Banks,
thrifts and their holding companies are subject to extensive federal
regulation and, when such institutions are state-chartered, to state
regulation as well. Such regulations impose strict capital requirements
and limitations on the nature and extent of business activities that
banks and thrifts may pursue. Furthermore, bank regulators have a wide
range of discretion in connection with their supervisory and enforcement
authority and may substantially restrict the permissible activities of a
particular institution if deemed to pose significant risks to the
soundness of such institution or the safety of the federal deposit
insurance fund. Regulatory actions, such as increases in the minimum
capital requirements applicable to banks and thrifts and increases in
deposit insurance premiums required to be paid by banks and thrifts to
the Federal Deposit Insurance Corporation ("FDIC"), can negatively
impact earnings and the ability of a company to pay dividends. Neither
federal insurance of deposits nor governmental regulations, however,
insures the solvency or profitability of banks or their holding
companies, or insures against any risk of investment in the securities
issued by such institutions.
The statutory requirements applicable to and regulatory supervision of
banks, thrifts and their holding companies have increased significantly
and have undergone substantial change in recent years. To a great
extent, these changes are embodied in the Financial Institutions Reform,
Recovery and Enforcement Act; enacted in August 1989, the Federal
Deposit Insurance Corporation Improvement Act of 1991, the Resolution
Trust Corporation Refinancing, Restructuring, and Improvement Act of
1991 and the regulations promulgated under these laws. Many of the
regulations promulgated pursuant to these laws have only recently been
finalized and their impact on the business, financial condition and
prospects of the Adjustable Preferred Securities in each Trust's
portfolio cannot be predicted with certainty. Periodic efforts by recent
Administrations to introduce legislation broadening the ability of banks
to compete with new products have not been successful, but if enacted
could lead to more failures as a result of increased competition and
added risks. Failure to enact such legislation, on the other hand, may
lead to declining earnings and an inability to compete with unregulated
financial institutions. Efforts to expand the ability of federal thrifts
to branch on an interstate basis have been initially successful through
promulgation of regulations, and legislation to liberalize interstate
banking has recently been signed into law. Under the legislation, banks
will be able to purchase or establish subsidiary banks in any state, one
year after the legislation's enactment. Starting in mid-1997, banks
would be allowed to turn existing banks into branches, though states
could pass laws to permit interstate branch banking before then.
Page 9
Consolidation is likely to continue in both cases. The Securities and
Exchange Commission and the Financial Accounting Standards Board require
the expanded use of market value accounting by banks and have imposed
rules requiring market accounting for investment securities held in
trading accounts or available for sale. Adoption of additional such
rules may result in increased volatility in the reported health of the
industry, and mandated regulatory intervention to correct such problems.
In late 1993 the United States Treasury Department proposed a
restructuring of the banks regulatory agencies which, if implemented,
may adversely affect certain of the Adjustable Preferred Securities in
each Trust's portfolio. Additional legislative and regulatory changes
may be forthcoming. For example, the bank regulatory authorities have
proposed substantial changes to the Community Reinvestment Act and fair
lending laws, rules and regulations, and there can be no certainty as to
the effect, if any, that such changes would have on the Adjustable
Preferred Securities in each Trust's portfolio. In addition, from time
to time the deposit insurance system is reviewed by Congress and federal
regulators, and proposed reforms of that system could, among other
things, further restrict the ways in which deposited moneys can be used
by banks or reduce the dollar amount or number of deposits insured for
any depositor. Such reforms could reduce profitability as investment
opportunities available to bank institutions become more limited and as
consumers look for savings vehicles other than bank deposits. Banks and
thrifts face significant competition from other financial institutions
such as mutual funds, credit unions, mortgage banking companies and
insurance companies, and increased competition may result from
legislative broadening of regional and national interstate banking
powers as has been recently enacted. Among other benefits, the
legislation allows banks and bank holding companies to acquire across
previously prohibited state lines and to consolidate their various bank
subsidiaries into one unit. The Sponsor makes no prediction as to what,
if any, manner of bank and thrift regulatory actions might ultimately be
adopted or what ultimate effect such actions might have on each Trust's
portfolio.
The Federal Bank Holding Company Act of 1956 generally prohibits a bank
holding company from (1) acquiring, directly or indirectly, more than 5%
of the outstanding shares of any class of voting securities of a bank or
bank holding company, (2) acquiring control of a bank or another bank
holding company, (3) acquiring all or substantially all the assets of a
bank, or (4) merging or consolidating with another bank holding company,
without first obtaining Federal Reserve Board ("FRB") approval. In
considering an application with respect to any such transaction, the FRB
is required to consider a variety of factors, including the potential
anti-competitive effects of the transaction, the financial condition and
future prospects of the combining and resulting institutions, the
managerial resources of the resulting institution, the convenience and
needs of the communities the combined organization would serve, the
record of performance of each combining organization under the Community
Reinvestment Act and the Equal Credit Opportunity Act, and the
prospective availability to the FRB of information appropriate to
determine ongoing regulatory compliance with applicable banking laws. In
addition, the federal Change In Bank Control Act and various state laws
impose limitations on the ability of one or more individuals or other
entities to acquire control of banks or bank holding companies.
The FRB has issued a policy statement on the payment of cash dividends
by bank holding companies. In the policy statement, the FRB expressed
its view that a bank holding company experiencing earnings weaknesses
should not pay cash dividends which exceed its net income or which could
only be funded in ways that would weaken its financial health, such as
by borrowing. The FRB also may impose limitations on the payment of
dividends as a condition to its approval of certain applications,
including applications for approval of mergers and acquisitions. The
Sponsor makes no prediction as to the effect, if any, such laws will
have on the Adjustable Preferred Securities or whether such approvals,
if necessary, will be obtained.
The Trusts may be deemed to be concentrated in Adjustable Preferred
Securities issued by the public utility industry. An investment in Units
of a Trust should be made with an understanding of the characteristics
of the public utility industry and the risks which such an investment
may entail. General problems of the public utility industry include the
difficulty in obtaining an adequate return on invested capital despite
frequent increases in rates which have been granted by the public
service commissions having jurisdiction, the difficulty in financing
large construction programs during an inflationary period, the
restrictions on operations and increased cost and delays attributable to
environmental and other regulatory considerations, the difficulty to the
capital markets in absorbing utility debt and equity securities, the
Page 10
difficulty in obtaining fuel for electric generation at reasonable
prices, and the effects of energy conservation. There is no assurance
that such commissions will in the future grant rate increases or that
any such increases will be adequate to cover operating and other
expenses and debt service requirements. All of the public utilities
which are issuers of the Adjustable Preferred Securities in a portfolio
have been experiencing many 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 Adjustable Preferred Securities in a Trust's portfolio to make
dividend payments on their Adjustable Preferred Securities.
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 Adjustable Preferred Securities 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 until 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 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.
In view of the 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 a company's
financial condition, or the results of its operations or its ability to
make interest and principal payments on its outstanding debt or to pay
dividends.
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
Page 11
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 certain of the Adjustable Preferred Securities in the
Trusts to make dividend payments.
The average common stock dividend yield of utilities has exceeded that
of the S&P 500 stocks. There can be no assurance that the historical
investment performance for any industry (including the public utilities
industry) is indicative of future performance. However, during periods
of lower interest rates, dividend yields on utility common stocks are
often attractive. In times of both economic weakness and lower interest
rates, utility stocks have outperformed most other equity issues in
terms of price and dividend stability. However, during periods of rising
interest rates, the prices of utility common stocks typically decline.
The Underwriter in its general securities business acts as agent or
principal in connection with the purchase and sale of securities,
including the Adjustable Preferred Securities in the Trusts, and may act
as a market maker in certain of the Adjustable Preferred Securities. The
Underwriter also from time to time may issue reports on and make
recommendations relating to equity securities, which may include the
Adjustable Preferred Securities.
What are Some Additional Considerations for Investors?
Investors should be aware of certain other considerations before making
a decision to invest in a Trust.
The value of the Adjustable Preferred Securities will fluctuate over the
life of a Trust and may be more or less than the price at which they
were deposited in such Trust. The Adjustable Preferred Securities may
appreciate or depreciate in value (or pay dividends) depending on the
full range of economic and market influences affecting these securities.
The Trustee will have no power to vary the investments of a Trust, i.e.,
the Trustee will have no managerial power to take advantage of market
variations to improve a Unit holder's investment, but may dispose of
Adjustable Preferred Securities only under limited circumstances. See
"How May Adjustable Preferred Securities be Removed from a Trust?"
To the best of the Sponsor's knowledge, there is no litigation pending
as of the date of this Part Two Prospectus in respect of any Adjustable
Preferred Security which might reasonably be expected to have a material
adverse effect on a Trust. Litigation may be instituted on a variety of
grounds with respect to the Adjustable Preferred Securities. The Sponsor
is unable to predict whether any such litigation will be instituted, or
if instituted, whether such litigation might have a material adverse
effect on a Trust.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. The Public Offering
Price is based on the aggregate underlying value of the Adjustable
Preferred Securities in a Trust, plus or minus cash, if any, in the
Income and Capital Accounts of such Trust, plus the applicable sales
charge divided by the amount of Units of the Trust outstanding.
The minimum purchase of each Trust is as indicated in Part One for each
Trust. The applicable sales charge is reduced by a discount as indicated
below for volume purchases:
Discount
Dollar Amount per 100
of Transaction Units
_____________________ __________
$100,000 to $249,999 0.50%
$250,000 to $499,999 1.00%
$500,000 or more 2.00%
Any such reduced sales charge shall be the responsibility of the selling
underwriter or dealer. The reduced sales charge structure will apply on
all purchases of Units in a Trust by the same person on any one day from
any one underwriter or 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
Page 12
the applicable sales charge, to be additional purchases by the
purchaser. The reduced sales charges will also be applicable to a
trustee or other fiduciary purchasing securities for a single trust
estate or single fiduciary account. The purchaser must inform the
Underwriter or dealer of any such combined purchase prior to the sale in
order to obtain the indicated discount. In addition, with respect to the
employees, officers and directors (including their immediate family
members, defined as spouses, children, grandchildren, parents,
grandparents, mothers-in-law, fathers-in-law, sons-in-law and daughters-
in-law, and trustees, custodians or fiduciaries for the benefit of such
persons) of the Sponsor and the Underwriter and their subsidiaries, the
sales charge is reduced by 2.0% of the Public Offering Price for
purchases of Units during the secondary public offering period.
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" in Part One for each Trust in accordance with fluctuations
in the prices of the underlying Adjustable Preferred Securities. The
aggregate underlying value of the Adjustable Preferred Securities will
be determined in the following manner: if the Adjustable Preferred
Securities are listed on a national securities exchange or the NASDAQ
National Market System, this evaluation is generally based on the
closing sale prices on that exchange or that system (unless it is
determined that these prices are inappropriate as a basis for valuation)
or, if there is no closing sale price on that exchange or system, at the
closing bid prices. If the Adjustable Preferred Securities are not so
listed or, if so listed and the principal market therefore is other than
on the exchange, the evaluation shall generally be based on the current
bid price on the over-the-counter market (unless it is determined that
these prices are inappropriate as a basis for evaluation). If current
bid prices are unavailable, the evaluation is generally determined (a)
on the basis of current bid prices for comparable securities, (b) by
appraising the value of the Adjustable Preferred Securities on the bid
side of the market or (c) by any combination of the above.
Although payment is normally made three business days following the
order for purchase, payment may be made prior thereto. A person will
become owner of Units on the date of settlement provided payment has
been received. Cash, if any, made available to the Sponsor prior to the
date of settlement for the purchase of Units may be used in the
Sponsor's business and may be deemed to be a benefit to the Sponsor,
subject to the limitations of the Securities Exchange Act of 1934.
Delivery of Certificates representing Units so ordered will be made five
business days following such order or shortly thereafter. See "Rights of
Unit Holders-How may Units be Redeemed?" for information regarding the
ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market may be offered by this Part
Two Prospectus at the secondary market public offering price determined
in the manner described above.
The Sponsor reserves the right to change the amount of the concession or
agency commission from time to time. Certain commercial banks may be
making Units of the Trusts available to their customers on an agency
basis. A portion of the sales charge paid by these customers is retained
by or remitted to the banks. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall
Act does permit certain agency transactions and the banking regulators
have not indicated that these particular agency transactions are not
permitted under such Act. In Texas and in certain other states, any
banks making Units available must be registered as broker/dealers under
state law.
What are the Sponsor's Profits?
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the
price at which Units are purchased and the price at which Units are
resold (which price includes a sales charge as indicated in Part One for
each Trust) or redeemed. The secondary market public offering price of
Units may be greater or less than the cost of such Units to the Sponsor.
Page 13
RIGHTS OF UNIT HOLDERS
How is Evidence of Ownership Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units may be evidenced by registered certificates executed
by the Trustee and the Sponsor. Delivery of certificates representing
Units ordered for purchase is normally made 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.
Unit holders may elect to hold their Units in uncertificated form. The
Trustee will maintain an account for each such Unit holder and will
credit each such account with the number of Units purchased by that Unit
holder. Within two business days of the issuance or transfer of Units
held in uncertificated form, the Trustee will send to the registered
owner of Units a written initial transaction statement containing a
description of a Trust; the number of Units issued or transferred; the
name, address and taxpayer identification number, if any, of the new
registered owner; a notation of any liens and restrictions of the issuer
and any adverse claims to which such Units are or may be subject or a
statement that there are no such liens, restrictions or adverse claims;
and the date the transfer was registered. Uncertificated Units are
transferable through the same procedures applicable to Units evidenced
by certificates (described above), except that no certificate need be
presented to the Trustee and no certificate will be issued upon the
transfer unless requested by the Unit holder. A Unit holder may at any
time request the Trustee to issue certificates for Units.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or exchange. For new certificates
issued to replace destroyed, stolen or lost certificates, the Unit
holder may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How are Income and Capital Distributed?
The Trustee will distribute any net income received with respect to any
of the securities in a Trust on or about the Income Distribution Dates
to Unit holders of record on the preceding Income Record Date. See
"Summary of Essential Information" in Part One for each Trust. Because
dividends are not received by a Trust at a constant rate throughout the
year, and because the dividend rate of each Adjustable Preferred
Security is subject to periodic adjustments, such distributions to Unit
holders may be more or less than the amount credited to the Income
Account as of the Record Date. Notification to the Trustee of the
transfer of Units is the responsibility of the purchaser, but in the
normal course of business such notice is provided by the selling broker-
dealer. The pro rata share of cash in the Capital Account of a Trust
will be computed as of the fifteenth day of each month. Proceeds
received on the sale of any Securities in a Trust, to the extent not
used to meet redemptions of Units or pay expenses, will, however, be
distributed at least annually on the last day of each month to Unit
holders of record on the fifteenth day of such month if the amount
available for distribution equals at least $1.00 per 100 Units. The
Trustee is not required to pay interest on funds held in the Capital
Account of a Trust (but may itself earn interest thereon and therefore
benefit from the use of such funds). Notwithstanding, distributions of
funds in the Capital Account, if any, will be made on the last day of
each December to Unit holders of record as of December 15 for each
Trust. See "What is the Federal Tax Status of Unit Holders?"
Page 14
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a specified percentage of any distribution made by
a Trust if the Trustee has not been furnished the Unit holder's tax
identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and
may be recovered by the Unit holder only when filing a tax return. Under
normal circumstances the Trustee obtains the Unit holder's tax
identification number from the selling broker. However, a Unit holder
should examine his or her statements from the Trustee to make sure that
the Trustee has been provided a certified tax identification number in
order to avoid this possible "back-up withholding." In the event the
Trustee has not been previously provided such number, one should be
provided as soon as possible.
Within a reasonable time after a Trust is terminated, each Unit holder
will, upon surrender of his Units for redemption, receive (i) the pro
rata share of the amounts realized upon the disposition of the
Adjustable Preferred Securities, unless he elects an In-Kind
Distribution as described below and (ii) a pro rata share of any other
assets of such Trust, less expenses of the Trust. Not less than 60 days
prior to the Mandatory Termination Date of a Trust the Trustee will
provide written notice thereof to all Unit holders and will include with
such notice a form to enable Unit holders to elect a distribution of
shares of the Adjustable Preferred Securities (an "In-Kind
Distribution"), if such Unit holder owns at least the amount specified
in "Summary of Essential Information" appearing in Part One for each
Trust, rather than to receive payment in cash for such Unit holder's pro
rata share of the amounts realized upon the disposition by the Trustee
of the Adjustable Preferred Securities. An In-Kind Distribution will be
reduced by customary transfer and registration charges. To be effective,
the election form, together with surrendered certificates and other
documentation required by the Trustee, must be returned to the Trustee
at least five business days prior to the Mandatory Termination Date of a
Trust. A Unit holder my, of course, at any time after the Adjustable
Preferred Securities are distributed, sell all or a portion of the shares.
The Trustee will credit to the Income Account of a Trust any dividends
received on the Adjustable Preferred Securities therein. All other
receipts (e.g. return of principal, etc.) are credited to the Capital
Account of the Trust.
The Trustee may establish reserves (the "Reserve Account") within a
Trust for state and local taxes, if any, and any governmental charges
payable out of the Trust.
What Reports will Unit Holders Receive?
The Trustee shall furnish Unit holders in connection with each
distribution a statement of the amount of income, if any, and the amount
of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per 100 Units. Within a reasonable period
of time after the end of each calendar year, the Trustee shall furnish
to each person who at any time during the calendar year was a Unit
holder of a Trust the following information in reasonable detail: (1) a
summary of transactions in such Trust for such year; (2) any Adjustable
Preferred Securities sold during the year and the Adjustable Preferred
Securities held at the end of such year by the Trust; (3) the redemption
price per 100 Units based upon a computation thereof on the 31st day of
December of such year (or the last business day prior thereto); and (4)
amounts of income and capital distributed during such year.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Adjustable Preferred Securities in a Trust furnished to it by the
Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its corporate trust office in the City of New York of the
certificates representing the Units to be redeemed, or in the case of
uncertificated Units, delivery of a request for redemption, duly
endorsed or accompanied by proper instruments of transfer with signature
guaranteed as explained above (or by providing satisfactory indemnity,
as in connection with lost, stolen or destroyed certificates), and
payment of applicable governmental charges, if any. No redemption fee
will be charged. On the third business day following such tender, the
Unit holder will be entitled to receive in cash an amount for each Unit
equal to the Redemption Price per Unit next computed after receipt by
the Trustee of such tender of Units. The "date of tender" is deemed to
Page 15
be the date on which Units are received by the Trustee, except that as
regards Units received after 4:00 p.m. Eastern time, the date of tender
is the next day on which the New York Stock Exchange is open for trading
and such Units will be deemed to have been tendered to the Trustee on
such day for redemption at the redemption price computed on that day.
Units so redeemed shall be cancelled.
For certain Trusts, any Unit holder tendering at least the amount
specified in "Summary of Essential Information" appearing in Part One
for each Trust for redemption by request by written notice submitted at
the time of tender from the Trustee in lieu of a cash redemption a
distribution of shares of Adjustable Preferred Securities in an amount
and value of Adjustable Preferred Securities per Unit equal to the
Redemption Price Per Unit as determined as of the evaluation next
following tender. To the extent possible, in-kind distributions ("In-
Kind Distributions") shall be made by the Trustee through the
distribution of each of the Adjustable Preferred Securities in book-
entry form to the account of the Unit holder's bank or broker-dealer at
the Depository Trust Company. An In-Kind Distribution will be reduced by
customary transfer and registration charges. The tendering Unit holder
will receive his pro rata number of whole shares of each of the
Adjustable Preferred Securities comprising the portfolio and cash from
the Capital Account equal to the fractional shares to which the
tendering Unit holder's In-Kind Distribution to facilitate the
distribution of whole shares, such adjustment to be made on the basis of
the value of Adjustable Preferred Securities on the date of tender. If
funds in the Capital Account are insufficient to cover the required cash
distribution to the tendering Unit holder, the Trustee may sell
Adjustable Preferred Securities in the manner described above.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a specified percentage of the principal amount of a
Unit redemption if the Trustee has not been furnished the redeeming Unit
holder's tax identification number in the manner required by such
regulations. Any amount so withheld is transmitted to the Internal
Revenue Service and may be recovered by the Unit holder only when filing
a tax return. Under normal circumstances the Trustee obtains the Unit
holder's tax identification number from the selling broker. However, any
time a Unit holder elects to tender Units for redemption, such Unit
holder should make sure that the Trustee has been provided a certified
tax identification number in order to avoid this possible "back-up
withholding." In the event the Trustee has not been previously provided
such number, one must be provided at the time redemption is requested.
Any amounts paid on redemption representing income shall be withdrawn
from the Income Account of a Trust to the extent that funds are
available for such purpose. All other amounts paid on redemption shall
be withdrawn from the Capital Account of a Trust.
The Trustee is empowered to sell Adjustable Preferred Securities of a
Trust in order to make funds available for redemption. To the extent
that Adjustable Preferred Securities are sold, the size and diversity of
a Trust will be reduced. Such sales may be required at a time when
Adjustable Preferred Securities would not otherwise be sold and might
result in lower prices than might otherwise be realized.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the aggregate
underlying value of the Adjustable Preferred Securities in a Trust plus
or minus cash, if any, in the Income and Capital Accounts of the Trust.
The Redemption Price per Unit is the pro rata share of each Unit
determined by the Trustee by adding: (1) the cash on hand in the Trust;
(2) the aggregate value of the Adjustable Preferred Securities held in
the Trust, as determined by the Evaluator on the basis of the aggregate
underlying value of the Adjustable Preferred Securities in the Trust
next computed; and (3) dividends receivable on the Adjustable Preferred
Securities trading ex-dividend as of the date of computation; and
deducting therefrom: (1) amounts representing any applicable taxes or
governmental charges payable out of the Trust; (2) any amounts owing to
the Trustee for its advances; (3) an amount representing estimated
accrued expenses of the Trust, including but not limited to fees and
expenses of the Trustee (including legal and auditing fees), the
Evaluator and supervisory fees, if any; (4) cash held for distribution
to Unit holders of record of the Trust as of the business day prior to
the evaluation being made; and (5) other liabilities incurred by the
Trust; and finally dividing the results of such computation by the
number of Units of the Trust outstanding as of the date thereof.
The aggregate value of the Adjustable Preferred Securities will be
determined in the following manner: if the Adjustable Preferred
Securities are listed on a national securities exchange or the NASDAQ
National Market System, this evaluation is generally based on the
Page 16
closing sale prices on that exchange or that system (unless it is
determined that these prices are inappropriate as a basis for valuation)
or, if there is no closing sale price on that exchange or system, at the
closing bid prices. If the Adjustable Preferred Securities are not so
listed or, if so listed and the principal market therefore is other than
on the exchange, the evaluation shall generally be based on the current
bid price on the over-the-counter market (unless these prices are
inappropriate as a basis for evaluation). If current bid prices are
unavailable, the evaluation is generally determined (a) on the basis of
current bid prices for comparable securities, (b) by appraising the
value of the Adjustable Preferred Securities on the bid side of the
market or (c) by any combination of the above.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on the New
York Stock Exchange is restricted or any emergency exists, as a result
of which disposal or evaluation of the Securities is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit. Under certain extreme circumstances, the
Sponsor may apply to the Securities and Exchange Commission for an order
permitting a full or partial suspension of the right of Unit holders to
redeem their Units. The Trustee is not liable to any person in any way
for any loss or damage which may result from any such suspension or
postponement.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before 4:00 p.m. Eastern time on the same
business day and by making payment therefor to the Unit holder not later
than the day on which the Units would otherwise have been redeemed by
the Trustee. Units held by the Sponsor may be tendered to the Trustee
for redemption as any other Units. In the event the Sponsor does not
purchase Units, the Trustee may sell Units tendered for redemption in
the over-the-counter market, if any, as long as the amount to be
received by the Unit holder is equal to the amount he would have
received on redemption of the Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then effective
prospectus describing such Units. Any profit or loss resulting from the
resale or redemption of such Units will belong to the Sponsor.
How May Adjustable Preferred Securities be Removed from a Trust?
The Portfolio of each Trust is not "managed" by the Sponsor or the
Trustee; their activities described herein are governed solely by the
provisions of the Indenture. The Indenture provides that the Sponsor may
(but need not) direct the Trustee to dispose of an Adjustable Preferred
Security in the event that an issuer defaults in the payment of a
dividend that has been declared, that any action or proceeding has been
instituted restraining the payment of dividends or there exists any
legal question or impediment affecting such Adjustable Preferred
Security, that the issuer of the Adjustable Preferred Security has
breached a covenant which would affect the payments of dividends, the
credit standing of the issuer or otherwise impair the sound investment
character of the Adjustable Preferred Security, that the issuer has
defaulted on the payment on any other of its outstanding obligations,
that the price of the Adjustable Preferred Security has declined to such
an extent or other such credit factors exist so that in the opinion of
the Sponsor, the retention of such Adjustable Preferred Securities would
be detrimental to a Trust. The acquisition by a Trust of any securities
or other property other than the Adjustable Preferred Securities is
prohibited. Pursuant to the Indenture and with limited exceptions, the
Trustee may sell any securities or other property acquired in exchange
for Adjustable Preferred Securities such as those acquired in connection
with a merger or other transaction. If offered such new or exchanged
securities or property, the Trustee shall reject the offer. However, in
the event such securities or property are nonetheless acquired by a
Trust, they may be accepted for deposit in the Trust and either sold by
the Trustee or held in the Trust pursuant to the direction of the
Sponsor (who may rely on the advice of the Portfolio Supervisor).
Proceeds from the sale of Adjustable Preferred Securities (or any
securities or other property received by a Trust in exchange for
Adjustable Preferred Securities) by the Trustee are credited to the
Capital Account of a Trust for distribution to Unit holders or to meet
redemptions.
Page 17
The Trustee may also sell Adjustable Preferred Securities designated by
the Sponsor, or if not so directed, in its own discretion, for the
purpose of redeeming Units of a Trust tendered for redemption and the
payment of expenses.
The Sponsor, in designating Adjustable Preferred Securities to be sold
by the Trustee, will generally make selections in order to maintain, to
the extent practicable, the proportionate relationship among the number
of shares of individual issues of Adjustable Preferred Securities. To
the extent this is not practicable, the composition and diversity of the
Adjustable Preferred Securities may be altered. In order to obtain the
best price for a Trust, it may be necessary for the Sponsor to specify
minimum amounts (generally 100 shares) in which blocks of Adjustable
Preferred Securities are to be sold.
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 and Templeton
Foreign Fund & U.S. Treasury Securities Trust. First Trust introduced
the first insured unit investment trust in 1974 and to date more than $9
billion in First Trust unit investment trusts have been deposited. The
Sponsor's employees include a team of professionals with many years of
experience in the unit investment trust industry. The Sponsor is a
member of the National Association of Securities Dealers, Inc. and
Securities Investor Protection Corporation and has its principal offices
at 1001 Warrenville Road, Lisle, Illinois 60532; telephone number (708)
241-4141. As of December 31, 1995, the total partners' capital of Nike
Securities L.P. was $9,033,760 (audited). (This paragraph relates only
to the Sponsor and not to the Trust or to any series thereof or to any
other Underwriter. The information is included herein only for the
purpose of informing investors as to the financial responsibility of the
Sponsor and its ability to carry out its contractual obligations. More
detailed financial information will be made available by the Sponsor
upon request.)
Who is the Trustee?
The Trustee is The Chase Manhattan Bank (National Association), a
national banking association with its principal executive office located
at 1 Chase Manhattan Plaza, New York, New York 10081 and its unit
investment trust office at 770 Broadway, New York, New York 10003. Unit
holders who have questions regarding the Trusts may call the Customer
Service Help Line at 1-800-682-7520. The Trustee is subject to
supervision by the Comptroller of the Currency, the Federal Deposit
Insurance Corporation and the Board of Governors of the Federal Reserve
System.
The Trustee, whose duties are ministerial in nature, has not
participated in the selection of the Securities. For information
relating to the responsibilities of the Trustee under the Indenture,
reference is made to the material set forth under "Rights of Unit
Holders."
The Trustee and any successor trustee may resign by executing an
instrument in writing and filing the same with the Sponsor and mailing a
copy of a notice of resignation to all Unit holders. Upon receipt of
such notice, the Sponsor is obligated to appoint a successor trustee
promptly. If the Trustee becomes incapable of acting or becomes bankrupt
or its affairs are taken over by public authorities, the Sponsor may
remove the Trustee and appoint a successor as provided in the Indenture.
If upon resignation of a trustee no successor has accepted the
appointment within 30 days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a
successor. The resignation or removal of a trustee becomes effective
only when the successor trustee accepts its appointment as such or when
a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
Page 18
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 Adjustable Preferred Securities. In the event of
the failure of the Sponsor to act under the Indenture, the Trustee may
act thereunder and shall not be liable for any action taken by it in
good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the
interest thereon or upon it as Trustee under the Indenture or upon or in
respect of a Trust which the Trustee may be required to pay under any
present or future law of the United States of America or of any other
taxing authority having jurisdiction. In addition, the Indenture
contains other customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate such 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 or the Trustee, in which event the Sponsor
and the Trustee are to use their best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor Evaluator. If upon
resignation of the Evaluator no successor has accepted appointment
within 30 days after notice of resignation, the Evaluator may apply to a
court of competent jurisdiction for the appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
determined in good faith by the Sponsor and the Trustee).
The Indenture provides that each Trust shall terminate upon the
Mandatory Termination Date indicated in Part One for each Trust under
"Summary of Essential Information" or when the value of the Adjustable
Preferred Securities is less than the lower of $2,000,000 or 20% of the
total value of Adjustable Preferred Securities deposited in a Trust
during the primary offering period. Each Trust also may be liquidated at
any time by consent of 100% of the Unit holders of such Trust. In the
event of termination, written notice thereof will be sent by the Trustee
to all Unit holders of a Trust. Within a reasonable period after
termination, the Trustee will follow the procedures set forth under "How
are Income and Capital Distributed?"
Page 19
Commencing on the Mandatory Termination Date, Adjustable Preferred
Securities will begin to be sold in connection with the termination of a
Trust. The Sponsor will determine the manner, timing and execution of
the sale of the Adjustable Preferred Securities. Written notice of any
termination of a Trust specifying the time or times at which Unit
holders may surrender their certificates for cancellation shall be given
by the Trustee to each Unit holder at his address appearing on the
registration books of the Trust maintained by the Trustee. At least 60
days prior to the Mandatory Termination Date of a Trust the Trustee will
provide written notice thereof to all Unit holders and will include with
such notice a form to enable Unit holders to elect a distribution of
shares of Adjustable Preferred Securities (reduced by customary transfer
and registration charges), if such Unit holder owns at least the amount
specified in "Summary of Essential Information" appearing in Part One
for each Trust, rather than to receive payment in cash for such Unit
holder's pro rata share of the amounts realized upon the disposition by
the Trustee of Adjustable Preferred Securities. To be effective, the
election form, together with surrendered certificates and other
documentation required by the Trustee, must be returned to the Trustee
at least five business days prior to the Mandatory Termination Date of
such Trust. Unit holders not electing a distribution of shares of
Adjustable Preferred Securities will receive a cash distribution from
the sale of the remaining Adjustable Preferred Securities within a
reasonable time after their Trust is terminated. Regardless of the
distribution involved, the Trustee will deduct from the funds of each
Trust any accrued costs, expenses, advances or indemnities provided by
the Trust Agreement, including estimated compensation of the Trustee and
costs of liquidation and any amounts required as a reserve to provide
for payment of any applicable taxes or other governmental charges. Any
sale of Adjustable Preferred Securities in a Trust upon termination may
result in a lower amount than might otherwise be realized if such sale
were not required at such time. The Trustee will then distribute to each
Unit holder his pro rata share of the balance of the Income and Capital
Accounts.
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Carter, Ledyard & Milburn, acts as counsel for the Trustee and as
special New York tax counsel for the Trusts.
Experts
The financial statements of the Trust appearing in Part One of this
Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
DESCRIPTION OF PREFERRED STOCK RATINGS*
Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc.
("Standard & Poor's"). A Standard & Poor's preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred
stock dividends and any applicable sinking fund obligations. A preferred
stock rating differs from a bond rating inasmuch as it is assigned to an
equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference,
the preferred stock rating symbol will normally not be higher than the
bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment-capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
_____________________
* As published by Standard & Poor's and Moody's Investors Service,
Inc., respectively.
Page 20
"AAA" This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
"AA" A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
"A" An issued rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions.
"BBB" An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the A
category.
"BB," "B," "CCC" Preferred stock issues rated BB, B and CCC are
regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest degree of speculation.
While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Moody's Investors Service, Inc. Moody's Rating Policy Review Board
extended its rating services to include quality designations on
preferred stock on October 1, 1973. The decision to rate preferred
stock, which Moody's had done prior to 1935, was prompted by evidence of
investor interest. Moody's believes that its rating of preferred stock
is especially appropriate in view of the ever-increasing amount of these
securities outstanding, and the fact that continuing inflation and its
ramifications have resulted generally in the dilution of some of the
protection afforded them as well as other fixed-income securities.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating 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.
Preferred stock rating symbols and their definitions are as follows:
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well-maintained in
the foreseeable future.
"a" An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater
than in the "aaa" and "aa" classification, earnings and asset protection
are, nevertheless, expected to be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
"ba" An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks
in this class.
"b" An issue which is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of
eventual payments.
"c" This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Page 21
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Page 22
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Page 23
CONTENTS:
The First Trust Special Situations Trust-Preferred
Adjustable Rate Series:
What is The First Trust Special Situations Trust? 3
What are the Expenses and Charges? 3
What is the Federal Tax Status of Unit Holders? 4
Why are Investments in the Trusts Suitable for
Retirement Plans? 7
Portfolio:
What are Adjustable Preferred Securities? 7
What are Some Additional Considerations
for Investors? 12
Public Offering:
How is the Public Offering Price Determined? 12
How are Units Distributed? 13
What are the Sponsor's Profits? 13
Rights of Unit Holders:
How is Evidence of Ownership Issued and
Transferred? 14
How are Income and Capital Distributed? 14
What Reports will Unit Holders Receive? 15
How May Units be Redeemed? 15
How May Units be Purchased by the Sponsor? 17
How May Adjustable Preferred
Securities be Removed from a Trust? 17
Information as to Sponsor, Trustee And Evaluator:
Who is the Sponsor? 18
Who is the Trustee? 18
Limitations on Liabilities of Sponsor and Trustee 19
Who is the Evaluator? 19
Other Information:
How May the Indenture be Amended or
Terminated? 19
Legal Opinions 20
Experts 20
Description of Preferred Stock Ratings 20
__________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (REGISTERED TRADEMARK)
PREFERRED ADJUSTABLE RATE SERIES
The First Trust
Special Situations Trust
Prospectus
Part Two
May 30, 1996
First Trust (registered trademark)
1001 Warrenville Road
Lisle, Illinois 60532
708-241-4141
Trustee:
The Chase Manhattan Bank
(National Association)
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
Page 24
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
26 FIRST TRUST PREFERRED ADJUSTABLE RATE TRUST, SERIES 1,
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 May 31, 1996.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 26
FIRST TRUST PREFERRED ADJUSTABLE RATE
TRUST, SERIES 1
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
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, ) May 31, 1996
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
) 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
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated April 26, 1996 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated May 24, 1996.
ERNST & YOUNG LLP
Chicago, Illinois
May 23, 1996
<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> 001
<NAME> PREF ADJUSTABLE RATE TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 1,403,443
<INVESTMENTS-AT-VALUE> 1,666,710
<RECEIVABLES> 15,487
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,682,197
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,165
<TOTAL-LIABILITIES> 7,165
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,403,443
<SHARES-COMMON-STOCK> 395,333
<SHARES-COMMON-PRIOR> 465,764
<ACCUMULATED-NII-CURRENT> 8,322
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 263,267
<NET-ASSETS> 1,675,032
<DIVIDEND-INCOME> 133,880
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 10,502
<NET-INVESTMENT-INCOME> 123,378
<REALIZED-GAINS-CURRENT> 58,946
<APPREC-INCREASE-CURRENT> 144,429
<NET-CHANGE-FROM-OPS> 326,753
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 286,741
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 70,431
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (246,373)
<ACCUMULATED-NII-PRIOR> 13,565
<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>
