File No. 33-48527
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 2
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 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
(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 : July 1, 1994
: : 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
April 26, 1994.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
6,492 UNITS
PROSPECTUS
Part One
Dated June 21, 1994
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The First Trust Insured Corporate Trust, Series 5 (the "Trust") is an insured
and fixed portfolio of interest-bearing corporate debt obligations of domestic
public utility companies and zero coupon U.S. Treasury bonds. At May 16,
1994, each Unit represented a 1/6,492 undivided interest in the principal and
net income of the Trust (see "The Fund" in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price of the Units is equal to the aggregate value of the
Bonds in the Portfolio of the Trust divided by the number of Units
outstanding, plus a sales charge of 5.8% of the Public Offering Price (6.157%
of the amount invested). At May 16, 1994, the Public Offering Price per Unit
was $356.33 plus net interest accrued to date of settlement (five business
days after such date) of $6.51 and $16.45 for the monthly and semi-annual
distribution plans, respectively (see "Market for Units" in Part Two).
Please retain both parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders under the semi-annual distribution
plan was 6.82% per annum on May 16, 1994, and 6.71% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the
semi-annual distribution plan was 6.38% per annum on May 16, 1994, and 6.27%
under the monthly distribution plan. Estimated Current Return is calculated
by dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration and determines and factors in the relative
weightings of the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account the
expenses and sales charge associated with each Unit of the Trust. Since the
market values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the present Estimated Current
Return and Estimated Long-Term Return indicated above will be realized in the
future. Estimated Current Return and Estimated Long-Term Return are expected
to differ because the calculation of the Estimated Long-Term Return reflects
the estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income and Public
Offering Price. The above figures are based on estimated per Unit cash flows.
Estimated cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Bonds. See "What are
Estimated Current Return and Estimated Long-Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
SUMMARY OF ESSENTIAL INFORMATION AS OF MAY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,645,000
Number of Units 6,492
Fractional Undivided Interest in the Trust per Unit 1/6,492
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,179,099
Aggregate Value of Bonds per Unit $335.66
Sales Charge 6.157% (5.8% of Public Offering Price) $20.67
Public Offering Price per Unit $356.33*
Redemption Price and Sponsor's Repurchase Price per Unit
($20.67 less than the Public Offering Price per Unit) $335.66*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,838,000
</TABLE>
Date Trust Established June 18, 1992
Mandatory Termination Date March 31, 2041
Evaluator's Fee: $20 per evaluation. Evaluations for purposes of sale,
purchase or redemption of Units are made as of the close of trading (4:00 p.m.
Eastern time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.25
to the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (five business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
SUMMARY OF ESSENTIAL INFORMATION AS OF MAY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED ON VARIOUS DISTRIBUTION PLANS
Semi-
Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $28.32 $28.32
Less: Estimated Annual Expense
Excluding Insurance $3.66 $3.28
Annual Premium on Portfolio Insurance $.74 $.74
Estimated Net Annual Interest Income $23.92 $24.30
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $23.92 $24.30
Divided by 12 and 2, Respectively $1.99 $12.15
Estimated Daily Rate of Net Interest Accrual $.0665 $.0675
Estimated Current Return Based on Public
Offering Price 6.71% 6.82%
Estimated Long-Term Return Based on Public
Offering Price 6.27% 6.38%
</TABLE>
Trustee's Annual Fee: $.84 and $.51 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: First day of the month as follows: monthly--each month;
semi-annual--January and July.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Special
Situations Trust, Series 35, The First Trust
Insured Corporate Trust, Series 5
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust, Series
35, The First Trust Insured Corporate Trust, Series 5 as of February 28, 1994,
and the related statements of operations and changes in net assets for the
year then ended and for the period from the Date of Deposit, June 18, 1992, to
February 28, 1993. These financial statements are the responsibility of the
Trust's Trustee. 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 February 28, 1994,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, 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 35, The First Trust Insured Corporate Trust, Series 5
at February 28, 1994, and the results of its operations and changes in its net
assets for the year then ended and for the period from the Date of Deposit,
June 18, 1992, to February 28, 1993, in conformity with generally accepted
accounting principles.
ERNST & YOUNG
Chicago, Illinois
May 20, 1994
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Bonds, at value (cost $2,198,714)
(Notes 1 and 3) $2,287,405
Accrued interest 95,230
Receivable from investment transaction 26,503
__________
2,409,138
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Cash overdraft 22,499
Unit redemptions payable 17,871
Distributions payable and accrued to unit holders 15,710
Accrued liabilities 1,574
__________
57,654
__________
Net assets, applicable to 6,696 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $2,198,714
Net unrealized appreciation (Note 2) 88,691
Distributable funds 64,079
__________
$2,351,484
==========
Net asset value per unit $351.18
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
PORTFOLIO - See notes to portfolio.
February 28, 1994
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal
Name of issuer and title of bond(d) rate maturity provisions(a) rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Arkansas Power and Light 10.00% 2/01/2020 1994 @ 108.08 BBB $1,015,000 1,104,076
Carolina Power and Light Company 9.00 4/01/2022 1996 @ 105.89 A 935,000 1,010,276
United States Treasury Strips (c) - 11/15/2017 NR 950,000 173,053
______________________
$2,900,000 2,287,405
======================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
NOTES TO PORTFOLIO
February 28, 1994
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year or, if
currently redeemable, the redemption price at February 28, 1994. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. Both of the Corporate
Bonds in the Trust are subject to call within five years.
(b) The ratings shown are those effective at February 28, 1994 (NR indicates
"No Rating").
(c) The United States Treasury Strips are not covered by the insurance
obtained by the Trust (see Note 3).
(d) The Trust consists of corporate bonds issued by two domestic public
utility companies (representing approximately 67% of the aggregate
principal amount of the Bonds in the Trust) and one United States
Treasury zero coupon Bond issue. All of the Bond issues represent 10%
or more of the aggregate principal amount of Bonds in the Trust. The
largest such issue represents approximately 35%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended June 18, 1992, to
Feb. 28, 1994 Feb. 28, 1993
<S> <C> <C>
Interest income $308,955 522,370
Expenses:
Trustee's fees and related expenses (10,200) (7,289)
Insurance expense (Note 3) (7,521) (11,981)
Evaluators' fees (5,060) (2,740)
Supervisory fee (1,847) (1,635)
__________________________
Investment income - net 284,327 498,725
Net gain (loss) on investments:
Net realized gain (loss) (20,082) (9,180)
Change in unrealized appreciation
or depreciation 3,772 84,919
__________________________
(16,310) 75,739
__________________________
Net increase in net assets resulting
from operations $268,017 574,464
==========================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended June 18, 1992, to
Feb. 28, 1994 Feb. 28, 1993
<S> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $284,327 498,725
Net realized gain (loss) on investments (20,082) (9,180)
Change in unrealized appreciation or
depreciation on investments 3,772 84,919
____________________________
268,017 574,464
Distributions to unit holders:
Investment income - net (333,425) (350,421)
Principal from investment transactions (4,292,579) (174,010)
____________________________
(4,626,004) (524,431)
Unit redemptions (692 and 2,048 in 1994
and 1993, respectively):
Principal portion (305,316) (1,913,766)
Net interest accrued (7,169) (31,337)
____________________________
(312,485) (1,945,103)
____________________________
Total increase (decrease) in net assets (4,670,472) (1,895,070)
Net assets:
At the beginning of the period 7,021,956 8,917,026
____________________________
At the end of the period (including
distributable funds applicable to
Trust units of $64,079 and $116,786
at February 28, 1994 and 1993,
respectively) $2,351,484 7,021,956
============================
Trust units outstanding at the end of
the period 6,696 7,388
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Securities Evaluation Service,
Inc. (the Evaluator), certain shareholders of which are officers of the
Sponsor. The bond values are based on (1) current bid prices for the bonds
obtained from dealers or brokers who customarily deal in bonds comparable to
those held by the Trust, (2) current bid prices for comparable bonds,
(3) appraisal or (4) any combination of the above (see Note 3).
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the Date of Deposit, June 18, 1992. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
In addition to insurance coverage obtained by the Trust (see Note 3), the
Trust pays a fee for Trustee services to United States Trust Company of New
York which is based on $.84 and $.51 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively. Additionally, a fee of $20 per evaluation is payable to
the Evaluator and the Trust pays all related expenses of the Trustee,
recurring financial reporting costs and an annual supervisory fee payable to
an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at February 28, 1994 follows:
<TABLE>
<S> <C>
Unrealized appreciation $88,691
Unrealized depreciation -
_______
$88,691
=======
</TABLE>
<PAGE>
3. Insurance
The Trust has acquired insurance coverage on both of the corporate bonds in
its portfolio. The United States Treasury Strips are direct obligations of
the United States Government and are not covered by the insurance obtained by
the Trust. Insurance coverage acquired by the Trust is effective only while
the bonds are owned by the Trust, and, in the event of disposition of such a
bond by the Trustee, the insurance terminates as to such bond on the date of
disposition. Pursuant to an irrevocable commitment of Financial Security
Assurance Inc., in the event of a sale of the bond from the portfolio which is
covered by the insurance obtained by the Trust, the Trustee has the right to
obtain permanent insurance for such bond upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such bond.
Annual insurance premiums payable by the Trust in future years, assuming no
change in the portfolio, would be $4,907.
The valuation of bonds does not include any amount attributable to the
insurance acquired by the Trust as there has been no default in the payment of
principal or interest on the bonds in the portfolio as of the date of these
financial statements and, in the opinion of the Sponsor, the bonds are being
quoted in the market at a value which does not reflect a significant risk of
such default.
4. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the bonds on the date of an investor's purchase, plus a
sales charge of 5.5% of the public offering price which is equivalent to
approximately 5.820% of the net amount invested.
Distributions of net interest income -
Distributions of net interest income to unit holders are made monthly or semi-
annually. Such income distributions per unit, on an accrual basis, were as
follows:
<TABLE>
<CAPTION>
Period from the
Type of Date of Deposit,
distribution Year ended June 18, 1992, to
plan Feb. 28, 1994 Feb. 28, 1993
<S> <C> <C>
Monthly $47.09 39.02*
Semi-annual 47.44 39.18
</TABLE>
[FN]
*Excludes $1.55 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $114,142, plus net interest
accruing to the first settlement date, June 25, 1992, totaling $14,579, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.66 per unit, was paid on October 1, 1992 to all
unit holders of record on September 15, 1992.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended June 18, 1992, to
Feb. 28, 1994 Feb. 28, 1993
<S> <C> <C>
Interest income $44.03 62.91
Expenses (3.51) (2.85)
_________________________
Investment income - net 40.52 60.06
Distributions to unit holders:
Investment income - net (47.20) (40.62)
Principal from investment
transactions (589.97) (23.52)
Net gain (loss) on investments (2.62) 9.53
_________________________
Total increase (decrease) in
net assets (599.27) 5.45
Net assets:
Beginning of the period 950.45 945.00
_________________________
End of the period $351.18 950.45
=========================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5
PART ONE
Must be Accompanied by Part Two
____________________
P R O S P E C T U S
____________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: United States Trust Company of New York
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
The First Trust Insured Corporate Trust Series
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated August 31, 1993
The First Trust Special Situations Trust, The First Trust Insured
Corporate Trust (the "Trusts" and each a "Trust") are unit investment
trusts consisting of portfolios of interest-bearing corporate
debt obligations of domestic public utility companies (the "Corporate
Bonds"), U.S. Treasury bonds (the "Treasury Obligations") and
in certain Trusts, taxable municipal debt obligations (the "Municipal
Bonds") (collectively, the "Bonds").
The Objectives of the Trust are a high level of current income
and conservation of capital through investment in a portfolio
of corporate debt obligations of domestic public utility companies
and in certain Trusts, taxable municipal debt obligations issued
after July 18, 1984. A portion of a Trust's portfolio may consist
of U.S. Treasury bonds. The payment of interest and the conservation
of capital are, of course, dependent upon the continuing ability
of the issuers, obligors and/or insurers to meet their respective
obligations.
Attention Foreign Investors: Your interest income from the Trusts
may be exempt from federal withholding taxes if you are not a
United States citizen or resident and certain conditions are met.
See "What is the Federal Tax Status of Unit Holders?"
THE SCHEDULED PAYMENTS OF PRINCIPAL AND INTEREST ON ALL CORPORATE
BONDS AND MUNICIPAL BONDS IN THE PORTFOLIOS OF THE TRUSTS ARE
INSURED EITHER UNDER (I) AN INSURANCE POLICY (THE "INSURANCE POLICY")
OBTAINED FROM FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY"),
CAPITAL MARKETS ASSURANCE CORPORATION ("CAPMAC") OR AMBAC INDEMNITY
CORPORATION ("AMBAC") BY THE TRUST OR (II) INSURANCE POLICIES
DIRECTLY OBTAINED BY THE BOND ISSUER, THE UNDERWRITERS, THE SPONSOR
OR OTHERS PRIOR TO THE DATE OF DEPOSIT FROM FINANCIAL SECURITY
OR OTHER INSURERS (THE "PREINSURED BONDS"). THE INSURANCE POLICIES
OBTAINED BY A TRUST AND ISSUED BY EITHER FINANCIAL SECURITY, CAPMAC
OR AMBAC INSURE BONDS COVERED THEREBY ONLY WHILE BONDS ARE RETAINED
IN SUCH TRUST, WHILE INSURANCE ON PREINSURED BONDS IS EFFECTIVE
SO LONG AS SUCH BONDS ARE OUTSTANDING. PURSUANT TO IRREVOCABLE
COMMITMENTS OF FINANCIAL SECURITY, CAPMAC OR AMBAC, IN THE EVENT
OF A SALE OF A BOND INSURED UNDER THE INSURANCE POLICIES OBTAINED
BY A TRUST, THE TRUSTEE HAS THE RIGHT TO OBTAIN PERMANENT INSURANCE
FOR SUCH BOND UPON THE PAYMENT OF A SINGLE PREDETERMINED INSURANCE
PREMIUM FROM THE PROCEEDS OF THE SALE OF SUCH BOND. THE INSURANCE,
IN ANY CASE, RELATES ONLY TO THE CORPORATE BONDS AND MUNICIPAL
BONDS IN A TRUST AND NOT TO THE TREASURY OBLIGATIONS OR THE UNITS
OFFERED HEREBY. AS A RESULT OF SUCH INSURANCE, THE UNITS OF THE
TRUSTS HAVE RECEIVED A RATING OF "AAA" BY STANDARD & POOR'S CORPORATION.
SEE "WHY AND HOW ARE THE TRUSTS INSURED?" NO REPRESENTATION IS
MADE AS TO ANY INSURER'S ABILITY TO MEET ITS COMMITMENTS.
Distributions to Unit holders may be reinvested as described
herein. See "How Can Distributions to Unit Holders be Reinvested?"
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
The Sponsor, although not obligated to do so, intends to maintain
a market for the Units at prices based upon the aggregate bid
price of the Bonds in the portfolios of the Trusts. In the absence
of such a market, a Unit holder will nonetheless be able to dispose
of the Units through redemption at prices based upon the bid prices
of the underlying Bonds. See "How May Units be Redeemed?" Neither
the bid nor offering prices of the underlying Corporate or Municipal
Bonds or of the Units, absent situations in which Bonds are in
default in payment of principal or interest or in significant
risk of such default, include value attributable to the portfolio
insurance obtained by the Trusts. See "Why and How are the Trusts
Insured?"
The Secondary Market Public Offering Price of the Units will be
equal to the aggregate bid price of the Bonds in the portfolio
divided by the number of Units outstanding, plus a maximum sales
charge set forth in Part One for each Trust. For sales charges
in the secondary market, see "Public Offering." The minimum purchase
is 1 unit.
Page 2
The First Trust Special Situations Trust
The First Trust Insured Corporate Trust
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust, The First Trust Insured
Corporate Trust is one of 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 created under the laws of the State of New York pursuant
to a Trust Agreement (the "Indenture"), dated the initial date
of deposit, with Nike Securities L.P., as Sponsor, United States
Trust Company of New York, as Trustee, Securities Evaluation Service,
Inc., as Evaluator and Nike Financial Advisory Services L.P.,
as Portfolio Supervisor.
The objectives of each Trust are a high level of current income
and conservation of capital through investment in a portfolio
of corporate debt obligations of domestic public utility companies
and in certain Trusts, taxable municipal debt obligations, issued
after July 18, 1984. A portion of each Trust's portfolio may consist
of U.S. Treasury bonds. The scheduled payment of all principal
and interest on the Corporate and Municipal Bonds in each Trust
is insured either under (i) an insurance policy (the "Insurance
Policy") obtained by such Trust from Financial Security Assurance
Inc. ("Financial Security"), Capital Markets Assurance Corporation
("CapMAC") or AMBAC Indemnity Corporation ("AMBAC") or (ii) insurance
policies obtained directly by the Bond issuer, the underwriters,
the Sponsor or others prior to the Date of Deposit from Financial
Security or other insurers (the "Preinsured Bonds"). The Insurance
Policies obtained by a Trust and issued by Financial Security,
CapMAC or AMBAC insure Corporate or Municipal Bonds covered thereby
only while the Bonds thus insured are held in a Trust while insurance
on Preinsured Bonds is effective so long as such Bonds are outstanding.
By the terms of the Insurance Policies, Financial Security, CapMAC
or AMBAC unconditionally and irrevocably guarantees to a Trust
the full and complete payment of scheduled payments on the Bonds
listed in their respective Insurance Policy in an amount equal
to the principal of such Bonds, which is payable on the stated
maturity date thereof or on the date such Bonds are called for
mandatory sinking fund redemption, and interest on such Bonds
as the scheduled payments shall become due but are not paid by
the issuer of such Bonds. In the event of any acceleration of
the due date of principal by reason of call for redemption (other
than a mandatory sinking fund redemption), default or otherwise,
the payments guaranteed by Financial Security, CapMAC or AMBAC
will be made in the amounts and at the times as would have been
due had there not been an acceleration by reason of call for redemption
(other than a mandatory sinking fund redemption), default or otherwise
unless Financial Security, CapMAC or AMBAC elects, in their sole
discretion, to pay accelerated principal on the redemption date,
plus interest accrued or accreted, as appropriate, to the date
of acceleration or redemption. Payment of such accelerated amount
or redemption price shall fully discharge the obligations of Financial
Security, CapMAC or AMBAC under their Insurance Policy in respect
of such Bonds. See "Why and How are the Trusts Insured?" THERE
IS, OF COURSE, NO GUARANTEE THAT A TRUST'S OBJECTIVES WILL BE
ACHIEVED. AN INVESTMENT IN A TRUST SHOULD BE MADE WITH AN UNDERSTANDING
OF THE RISKS WHICH AN INVESTMENT IN FIXED RATE LONG-TERM DEBT
OBLIGATIONS MAY ENTAIL, INCLUDING THE RISK THAT THE VALUE OF THE
UNITS WILL DECLINE WITH INCREASES IN INTEREST RATES.
Neither the Public Offering Price of the Units of a Trust nor
any evaluation of such Units for purposes of repurchases or redemptions
reflects any element of value for the insurance obtained by such
Trust unless Bonds are in default in payment of principal or interest
or in significant risk of such default. See "Public Offering-How
is the Public Offering Price Determined?" On the other hand, the
value of insurance obtained by the Bond issuer, the underwriters,
the Sponsor or others is reflected and included in the market
value of such Bonds.
Page 3
Insurance obtained by a Trust or by the Bond issuer, the underwriters,
the Sponsor or others is not a substitute for the basic credit
of an issuer, but supplements the existing credit and provides
additional security therefor. Monthly premiums are paid by each
Trust for the Insurance Policies obtained by such Trust from Financial
Security, CapMAC or AMBAC, respectively. No premiums for insurance
are paid by the Trusts for Preinsured Bonds. Upon the sale of
a Bond insured under an Insurance Policy issued by Financial Security,
CapMAC or AMBAC, respectively, and obtained by the Trusts, the
Trustee has the right to obtain an insurance policy guaranteeing
the scheduled payment of principal and interest to the maturity
of such Bond ("Permanent Insurance") from Financial Security,
CapMAC or AMBAC, respectively, with respect to such Bond upon
the payment of a single predetermined insurance premium. Such
premium will be paid from the proceeds of the sale of such Bond.
Accordingly, any Bond in a Trust covered by the Insurance Policies
is eligible to be sold on an insured basis. Standard & Poor's
Corporation and Moody's Investors Service, Inc. have rated the
claims-paying ability of Financial Security, CapMAC and AMBAC
"AAA" and "Aaa," respectively. See "Why and How are the Trusts
Insured?"
In selecting Corporate or Municipal Bonds, the following facts,
among others, were considered at the Date of Deposit: (i) the
Standard & Poor's Corporation rating of the Bonds was in no case
less than "BBB," or the Moody's Investors Service, Inc. rating
of the Bonds was in no case less than "Baa," including provisional
or conditional ratings, respectively, or, if not rated, the Bonds
had, in the opinion of the Sponsor, credit characteristics sufficiently
similar to the credit characteristics of interest-bearing corporate
or municipal debt obligations, respectively, that were so rated
as to be acceptable for acquisition by the Trusts (see "Description
of Bond Ratings"); (ii) the prices of the Bonds relative to other
bonds of comparable quality and maturity; (iii) the availability
and cost of insurance of the principal and interest on the Bonds;
(iv) the diversification of Bonds as to location of issuer; and
(v) whether the Bonds were issued after July 18, 1984. Subsequent
to the Date of Deposit, a Bond may cease to be rated or its rating
may be reduced below the minimum required as of the Date of Deposit.
Neither event requires elimination of such Bond from the portfolio,
but may be considered in the Sponsor's determination as to whether
or not to direct the Trustee to dispose of the Bond. See "Rights
of Unit Holders-How May Bonds be Removed from the Trusts?"
Certain of the Corporate or Municipal Bonds in the Trusts may
have been acquired at a market discount from par value at maturity.
The coupon interest rates on the discount bonds at the time they
were purchased and deposited in the Trusts were lower than the
current market interest rates for newly issued bonds of comparable
rating and type. If such interest rates for newly issued comparable
bonds increase, the market discount of previously issued bonds
will become greater, and if such interest rates for newly issued
comparable bonds decline, the market discount of previously issued
bonds will be reduced, other things being equal. Investors should
also note that the value of bonds purchased at a market discount
will increase in value faster than bonds purchased at a market
premium if interest rates decrease. Conversely, if interest rates
increase, the value of bonds purchased at a market discount will
decrease faster than bonds purchased at a premium. In addition,
if interest rates rise, the prepayment risk of higher yielding,
premium bonds and the prepayment benefit for lower yielding, discount
bonds will be reduced. A discount bond held to maturity will have
a larger portion of its total return in the form of capital gain
and less in the form of interest income than a comparable bond
newly issued at current market rates. Market discount attributable
to interest changes does not indicate a lack of market confidence
in the issue. Neither the Sponsor nor the Trustee shall be liable
in any way for any default, failure or defect in any of the Bonds.
Certain of the Corporate or Municipal Bonds in the Trusts may
be original issue discount bonds. Under current law, the original
issue discount, which is the difference between the stated redemption
price at maturity and the issue price of the Bonds, is deemed
to accrue on a daily basis and the accrued portion is treated
as interest income for Federal income tax purposes. On sale or
redemption, any gain realized that is in excess of the earned
portion of original issue discount will be taxable as capital
gain. The current value of an
Page 4
original discount bond reflects the present value of its stated
redemption price at maturity. The market value tends to increase
in greater increments as the Bonds approach maturity.
The Treasury Obligations in the Trusts consist of U.S. Treasury
bonds which have been stripped of their unmatured interest coupons.
The Treasury Obligations evidence the right to receive a fixed
payment at a future date from the U.S. Government, and are backed
by the full faith and credit of the U.S. Government. Treasury
Obligations are purchased at a deep discount because the buyer
obtains only the right to a fixed payment at a fixed date in the
future and does not receive any periodic interest payments. The
effect of owning deep discount bonds which do not make current
interest payments (such as the Treasury Obligations) is that a
fixed yield is earned not only on the original investment, but
also, in effect, on all earnings during the life of the discount
obligation. This implicit reinvestment of earnings at the same
rate eliminates the risk of being unable to reinvest the income
on such obligations at a rate as high as the implicit yield on
the discount obligation, but at the same time eliminates the holder's
ability to reinvest at higher rates in the future. For this reason,
the Treasury Obligations are subject to substantially greater
price fluctuations during periods of changing interest rates than
are securities of comparable quality which make regular interest
payments.
Certain of the Corporate or Municipal Bonds in the Trusts may
have been acquired at a market premium from par value at maturity.
The coupon interest rates on the premium bonds at the time they
were purchased and deposited in the Trust were higher than the
current market interest rates for newly issued bonds of comparable
rating and type. If such interest rates for newly issued and otherwise
comparable bonds decrease, the market premium of previously issued
bonds will be increased, and if such interest rates for newly
issued comparable bonds increase, the market premium of previously
issued bonds will be reduced, other things being equal. The current
returns of bonds trading at a market premium are initially higher
than the current returns of comparable bonds of a similar type
issued at currently prevailing interest rates because premium
bonds tend to decrease in market value as they approach maturity
when the face amount becomes payable. Because part of the purchase
price is thus returned not at maturity but through current income
payments, early redemption of a premium bond at par or early prepayments
of principal will result in a reduction in yield. Redemption pursuant
to call provisions generally will, and redemption pursuant to
sinking fund provisions may, occur at times when the redeemed
Bonds have an offering side valuation which represents a premium
over par or for original issue discount Bonds a premium over the
accreted value. To the extent that the Bonds were deposited in
the Trust at a price higher than the price at which they are redeemed,
this will represent a loss of capital when compared to the original
Public Offering Price of the Units. Because premium bonds generally
pay a higher rate of interest than bonds priced at or below par,
the effect of the redemption of premium bonds would be to reduce
Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of
Bonds in the Trust. Although the actual impact of any such redemptions
that may occur will depend upon the specific Bonds that are redeemed,
it can be anticipated that the Estimated Net Annual Unit Income
will be significantly reduced after the dates on which such Bonds
are eligible for redemption. See "Rights of Unit Holders: How
May Bonds be Removed from the Trusts?" and "Other Information:
How May the Indenture be Amended or Terminated?" See "Portfolio"
appearing in Part One for each Trust for the earliest scheduled
call date and the initial redemption price for each Bond.
All of the Corporate Bonds in the Trusts are obligations of public
utility issuers. In view of this an investment in a Trust should
be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. General problems
encountered by such issuers include the difficulty in financing
large construction programs in an inflationary period, the difficulty
of the capital market in absorbing utility debt, the difficulty
in obtaining fuel at reasonable prices and the effect of energy
conservation. All of such issuers have been experiencing certain
of these problems in varying degrees. In addition, Federal, state
and municipal governmental authorities may from time to time review
existing, and impose additional
Page 5
regulations governing the licensing, construction and operation
of nuclear power plants, which may adversely affect the ability
of the issuers of certain of the Bonds in the Trusts to make payments
of principal and /or interest on such Bonds.
Utilities are generally subject to extensive regulation by state
utility commissions which, for example, establish the rates which
may be charged and the appropriate rate of return on an approved
asset base, which must be approved by the state commissions. Certain
utilities have had difficulty from time to time in persuading
regulators, who are subject to political pressures, to grant rate
increases necessary to maintain an adequate return on investment
and voters in many states have the ability to impose limits on
rate adjustments (for example, by initiative or referendum). Any
unexpected limitations could negatively affect the profitability
of utilities whose budgets are planned far in advance. In addition,
gas pipeline and distribution companies have had difficulties
in adjusting to short and surplus energy supplies, enforcing or
being required to comply with long-term contracts and avoiding
litigation from their customers, on the one hand, or suppliers,
on the other.
Certain of the issuers of the Corporate Bonds in the Trusts may
own or operate nuclear generating facilities. Governmental authorities
may from time to time review existing, and impose additional,
requirements governing the licensing, construction and operation
of nuclear power plants. Nuclear generating projects in the electric
utility industry have experienced substantial cost increases,
construction delays and licensing difficulties. These have been
caused by various factors, including inflation, high financing
costs, required design changes and rework, allegedly faulty construction,
objections by groups and governmental officials, limits on the
ability to finance, reduced forecasts of energy requirements and
economic conditions. This experience indicates that the risk of
significant cost increases, delays and licensing difficulties
remains present through the completion and achievement of commercial
operation of any nuclear project. Also, nuclear generating units
in service have experienced unplanned outages or extensions of
scheduled outages due to equipment problems or new regulatory
requirements sometimes followed by a significant delay in obtaining
regulatory approval to return to service. A major accident at
a nuclear plant anywhere, such as the accident at a plant in Chernobyl,
could cause the imposition of limits or prohibitions on the operation,
construction or licensing of nuclear units in the United States.
Other general problems of the gas, water, telephone and electric
utility industry (including state and local joint action power
agencies) include difficulty in obtaining timely and adequate
rate increases, difficulty in financing large construction programs
to provide new or replacement facilities during an inflationary
period, rising costs of rail transportation to transport fossil
fuels, the uncertainty of transmission service costs for both
interstate and intrastate transactions, changes in tax laws which
adversely affect a utility's ability to operate profitably, increased
competition in service costs, recent reductions in estimates of
future demand for electricity and gas in certain areas of the
country, restrictions on operations and increased cost and delays
attributable to environmental considerations, uncertain availability
and increased cost of capital, unavailability of fuel for electric
generation at reasonable prices, including the steady rise in
fuel costs and the costs associated with conversion to alternate
fuel sources such as coal, availability and cost of natural gas
for resale, technical and cost factors and other problems associated
with construction, licensing, regulation and operation of nuclear
facilities for electric generation, including among other considerations
the problems associated with the use of radioactive materials
and the disposal of radioactive wastes, and the effects of energy
conservation. Each of the problems referred to could adversely
affect the ability of the issuers of any utility bonds in the
Trusts to make payments due on these bonds.
In view of the pending investigations and the other uncertainties
discussed above, there can be no assurance that any company's
share of the full cost of nuclear units under construction ultimately
will be recovered in rates or of the extent to which a company
could earn an adequate return on its investment in such units.
The likelihood of a significantly adverse event occurring in any
of the areas of concern described above varies, as does the potential
severity of any adverse impact. It should be recognized, however,
that one
Page 6
or more of such adverse events could occur and individually or
collectively could have a material adverse impact on the financial
condition or the results of operations of a company and on such
company's ability to make interest and principal payments on its
outstanding debt.
Certain of the obligations in certain of the Trusts are taxable
obligations of municipal issuers. In view of this an investment
in such Trusts should be made with an understanding of the characteristics
of such issuers and the risks which such an investment may entail.
Obligations of municipal issuers can be either general obligations
of a government entity that are backed by the taxing power of
such entity or revenue bonds payable from the income of a specific
project or authority and are not supported by the issuer's power
to levy taxes.
General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. However, the taxing power of any governmental entity
may be limited by provisions of state constitutions or laws and
an entity's credit will depend on many factors, including an erosion
of the tax base due to population declines, natural disasters,
declines in the state's industrial base or inability to attract
new industries, economic limits on the ability to tax without
eroding the tax base and the extent to which the entity relies
on Federal or state aid, access to capital markets or other factors
beyond the entity's control.
As a result of the recent recession's adverse impact upon both
their revenues and expenditures, as well as other factors, many
state and local governments are confronting deficits and potential
deficits which are the most severe in recent years. Many issuers
are facing highly difficult choices about significant tax increases
or spending reductions in order to restore budgetary balance.
Failure to implement these actions on a timely basis could force
the issuers to depend upon market access to finance deficits or
cash flow needs.
In addition, certain of the Municipal Obligations in the Trusts
may be obligations of issuers who rely in whole or in part on
ad valorem real property taxes as a source of revenue. Recently,
certain proposals, in the form of state legislative proposals
or voter initiatives, to limit ad valorem real property taxes
have been introduced in various states.
Revenue bonds, on the other hand, are payable only from revenues
derived from a particular facility or class of facilities, or,
in some cases, from the proceeds of a special excise tax or other
special revenue source. The ability of an issuer of revenue bonds
to make payments of principal and/or interest on such bonds is
primarily dependent upon the success or failure of the facility
or class of facilities involved or whether the revenues received
from an excise tax or other special revenue source are sufficient
to meet obligations.
Typically, interest income received from municipal issues is exempt
from Federal income taxation under Section 103 of the Internal
Revenue Code of 1986, as amended (the "Code") and therefore is
not includible in the gross income of the owners thereof. However,
interest income received for taxable municipal obligations is
not exempt from Federal income taxation under Section 103 of the
Code. Thus, owners of taxable municipal obligations generally
must include interest on such obligations in gross income for
Federal income tax purposes and treat such interest as ordinary
income.
Certain of the Municipal Obligations in the Trusts may be obligations
which are payable from and secured by revenues derived from the
ownership and operation of facilities such as airports, bridges,
turnpikes, port authorities, convention centers and arenas. In
view of this an investment in the Trusts should be made with an
understanding of the characteristics of such issuers and the risks
which such an investment may entail. The major portion of an airport's
gross operating income is generally derived from fees received
from signatory airlines pursuant to use agreements which consist
of annual payments for leases, occupancy of certain terminal space
and service fees. Airport operating income may therefore be affected
by the ability of the airlines to meet their obligations under
the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased
competition, excess capacity, increased
Page 7
costs, deregulation, traffic constraints and other factors, and
several airlines are experiencing severe financial difficulties.
The Sponsor cannot predict what effect these industry conditions
may have on airport revenues which are dependent for payment on
the financial condition of the airlines and their usage of the
particular airport facility. Similarly, payment on Bonds related
to other facilities is dependent on revenues from the projects,
such as user fees from ports, tolls on turnpikes and bridges and
rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors as increased cost
of maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss
of rents.
Certain of the Municipal Obligations in the Trusts may be health
care revenue bonds. In view of this an investment in such Trusts
should be made with an understanding of the characteristics of
such issuers and the risks which such an investment may entail.
Ratings of bonds issued for health care facilities are often based
on feasibility studies that contain projections of occupancy levels,
revenues and expenses. A facility's gross receipts and net income
available for debt service may be affected by future events and
conditions including, among other things, demand for services
and the ability of the facility to provide the services required,
physicians' confidence in the facility, management capabilities,
competition with other health care facilities, efforts by insurers
and governmental agencies to limit rates, legislation establishing
state rate-setting agencies, expenses, the cost and possible unavailability
of malpractice insurance, the funding of Medicare, medicaid and
other similar third party payor programs, government regulation
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar
third party payor programs. Pursuant to recent Federal legislation,
Medicare reimbursements are currently calculated on a prospective
basis utilizing a single nationwide schedule of rates. Prior to
such legislation Medicare reimbursements were based on the actual
costs incurred by the health facility. The current legislation
may adversely affect reimbursements to hospitals and other facilities
for services provided under the Medicare program. Such adverse
changes also may adversely affect the ratings of Bonds held in
the portfolio of the Trusts; however, because of the insurance
obtained by the Trust, the "AAA" rating of the Units in the Trust
would not be affected.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance
with their terms and because the proceeds from such events will
be distributed to Unit holders and will not be reinvested, no
assurance can be given that the Trusts will retain for any length
of time their present size and composition. Neither the Sponsor
nor the Trustee shall be liable in any way for any default, failure
or defect in any Bond. Certain of the Bonds contained in the Trusts
may be subject to being called or redeemed in whole or in part
prior to their stated maturities pursuant to optional redemption
provisions, sinking fund provisions or otherwise. See "Portfolio"
appearing in Part One for each Trust. A bond subject to optional
call is one which is subject to redemption or refunding prior
to maturity at the option of the issuer. A refunding is a method
by which a bond issue is redeemed, at or before maturity, by the
proceeds of a new bond issue. A bond subject to sinking fund redemption
is one which is subject to partial call from time to time at par
or from a fund accumulated for the scheduled retirement of a portion
of an issue prior to maturity. The exercise of redemption or call
provisions will (except to the extent the proceeds of the called
Bonds are used to pay for Unit redemptions) result in the distribution
of principal and may result in a reduction in the amount of subsequent
interest distributions; it may also affect the Estimated Long-Term
Return and the Estimated Current Return on Units of the Trusts.
Redemption pursuant to call provisions is more likely to occur,
and redemption pursuant to sinking fund provisions may occur,
when the Bonds have an offering side valuation which represents
a premium over par or, for original issue discount bonds, a premium
over the accreted value. Unit holders may recognize capital gain
or loss upon any redemption or call.
To the best knowledge of the Sponsor, there is no litigation pending
as of the date hereof in respect of any Bonds which might reasonably
be expected to have a material adverse effect upon the Trusts.
At any time after the date hereof, litigation may be initiated
on a variety of grounds with respect to Bonds in the Trusts.
Page 8
Such litigation may affect the validity of such Bonds. In addition,
other factors may arise from time to time which potentially may
impair the ability of issuers to meet obligations undertaken with
respect to the Bonds.
Each Unit initially offered represents the fractional undivided
interest in a Trust as set forth in Part One for each Trust. To
the extent that any Units of a Trust are redeemed by the Trustee,
the fractional undivided interest in such Trust represented by
each unredeemed Unit will increase, although the actual interest
in the Trust represented by such fraction will remain substantially
unchanged. Units will remain outstanding until redeemed upon tender
to the Trustee by any Unit holder, which may include the Sponsor,
or until the termination of the Trust Agreement.
What are Estimated Long-Term Return and Estimated Current Return?
At the date of this Prospectus, the Estimated Current Return (if
applicable) and the Estimated Long-Term Return, under the monthly
and semi-annual distribution plans, are as set forth in Part One
attached hereto for each Trust. Estimated Current Return is computed
by dividing the Estimated Net Annual Interest Income per Unit
by the Public Offering Price. Any change in either the Estimated
Net Annual Interest Income per Unit or the Public Offering Price
will result in a change in the Estimated Current Return. For each
Trust, the Public Offering Price will vary in accordance with
fluctuations in the prices of the underlying Bonds and the Net
Annual Interest Income per Unit will change as Bonds are redeemed,
paid, sold or exchanged in certain refundings or as the expenses
of each Trust change. Therefore, there is no assurance that the
Estimated Current Return (if applicable) indicated in Part One
for each Trust will be realized in the future. Estimated Long-Term
Return is calculated using a formula which (1) takes into consideration
and determines and factors in the relative weightings of the market
values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all
of the Bonds in each Trust; and (2) takes into account the expenses
and sales charge associated with each Unit of each Trust. Since
the market values and estimated retirements of the Bonds and the
expenses of each Trust will change, there is no assurance that
the Estimated Long-Term Return indicated in Part One for each
Trust will be realized in the future. Estimated Current Return
and Estimated Long-Term Return are expected to differ because
the calculation of Estimated Long-Term Return reflects the estimated
date and amount of principal returned while Estimated Current
Return calculations include only Net Annual Interest Income and
Public Offering Price. Neither rate reflects the true return to
Unit holders, which is lower, because neither includes the effect
of the delay in the first payment to Unit holders.
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with
the Distribution Dates being the first day of the month following
each Record Date. It is anticipated that an amount equal to approximately
one-half of the amount of net annual interest income per Unit
will be distributed on or shortly after each Distribution Date
to Unit holders of record on the preceding Record Date. See Part
One for each Trust.
Record Dates for monthly distributions are the fifteenth day of
each month. The Distribution Dates for distributions of interest
under the monthly distribution plan is the first day of the month
following that in which the related Record Date occurs. All Unit
holders will receive such distributions, if any, from the Principal
Account as are made as of the Record Dates for monthly distributions.
See Part One for each Trust.
How is Accrued Interest Treated?
Accrued interest is the accumulation of unpaid interest on a bond
from the last day on which interest thereon was paid. Interest
on Bonds in the Trust generally is paid semi-annually to the Trust.
However, interest on the Bonds in the Trust is accounted for daily
on an accrual basis. Because of this, the Trust always has an
amount of interest earned but not yet collected by the Trustee
because of non-collected coupons. For this reason, the Public
Offering Price of Units will have added to it the proportionate
share of accrued and undistributed interest to the date of settlement.
Page 9
Except through an advancement of its own funds, the Trustee has
no cash for distribution to Unit holders until it receives interest
payments on the Bonds in a Trust. The Trustee will recover its
advancements without interest or other costs to such Trust from
interest received on the Bonds in the Trust. When these advancements
have been recovered, regular distributions of interest to Unit
holders will commence. See "Rights of Unit Holders-How are Interest
and Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount
of interest actually received by a Trust and distributed to Unit
holders. Therefore, there will always remain an item of accrued
interest that is added to the value of the Units. If a Unit holder
sells or redeems all or a portion of his Units, he will be entitled
to receive his proportionate share of the accrued interest from
the purchaser of his Units. Since the Trustee has the use of the
interest held in the Interest Account for distributions to Unit
holders and since such Account is non-interest-bearing to Unit
holders, the Trustee benefits thereby.
Why and How are the Trusts Insured?
All Corporate and Municipal Bonds in the portfolios of the Trusts
are insured as to the scheduled payment of interest and principal
by an insurance policy (individually, each an "Insurance Policy"
and collectively, the "Insurance Policies") obtained by each Trust
from Financial Security Assurance Inc. ("Financial Security"),
Capital Markets Assurance Corporation ("CapMAC") or AMBAC Indemnity
Corporation ("AMBAC") or by insurance policies obtained by the
Bond issuer, the underwriters, the Sponsor or others prior to
the Date of Deposit directly from Financial Security or other
insurers (the "Preinsured Bonds"). The Insurance Policies are
noncancellable and will continue in force for the Trusts so long
as the Trusts are in existence and the Bonds described in the
Insurance Policies continue to be held by such Trusts. Nonpayment
of premiums on an Insurance Policy will not result in the cancellation
of insurance, but will permit Financial Security, CapMAC or AMBAC,
respectively, to take action against the respective Trust to recover
premium payments due it. Premium rates for each issue of Bonds
protected by an Insurance Policy are fixed for the life of each
Trust. The premium for any Preinsured Bonds has been paid in advance
by the Bond issuer, the underwriters, the Sponsor or others and
any such policy or policies are noncancellable and will continue
in force so long as the Bonds so insured are outstanding and the
insurer and/or insurers thereof remain in business. Financial
Security, CapMAC or AMBAC have no obligation to insure any Preinsured
Bonds. Therefore, if the provider of an original issuance insurance
policy insuring Preinsured Bonds is unable to meet its obligations
under such policy, or if the rating assigned to the claims-paying
ability of such insurer deteriorates, Financial Security, CapMAC
or AMBAC have no obligation to insure any issue adversely affected
by either of the above described events. Monthly premiums are
paid by the Trusts for the Insurance Policies, which are payable
from the interest income and principal received by each Trust.
In the case of Preinsured Bonds, no premiums for insurance are
paid by the Trusts.
By the terms of the Insurance Policies, Financial Security, CapMAC
or AMBAC unconditionally and irrevocably guarantees to the Trusts
the full and complete payment of scheduled payments on the Bonds
listed in their respective Insurance Policies in an amount equal
to the principal of such Bonds which is payable on the stated
maturity date thereof or on the date such Bonds are called for
mandatory sinking fund redemption and interest on such Bonds as
the scheduled payments shall become due but are not paid by the
issuers of such Bonds. In the event of any acceleration of the
due date of principal by reason of call for redemption (other
than a mandatory sinking fund redemption), default or otherwise,
the payments guaranteed by Financial Security, CapMAC or AMBAC
will be made in the amounts and at the times as would have been
due had there not been an acceleration by reason of call for redemption
(other than a mandatory sinking fund redemption), default or otherwise
unless Financial Security, CapMAC or AMBAC elects, in their sole
discretion, to pay accelerated principal on the redemption price,
plus interest accrued or accreted, as appropriate, to the date
of acceleration or redemption. Payment of such accelerated amount
or redemption price
Page 10
shall fully discharge the obligations of Financial Security, CapMAC
or AMBAC, respectively under their respective Insurance Policy
in respect of such Bonds. Financial Security, CapMAC or AMBAC
will be responsible for scheduled payments less any amounts received
by the Trusts from any trustee for the bond issuers or from any
other source. In the event the due date of the principal of any
Bond covered by an Insurance Policy is accelerated, the payments
required by the acceleration are received by the Trusts, and the
Bond is canceled, the respective Insurance Policy will terminate
with respect to that Bond. An Insurance Policy does not guarantee
payment on an accelerated basis, the payment of any redemption
premium or the value of the Units. An Insurance Policy also does
not insure against nonpayment of principal of or interest on the
Bonds covered by the respective Insurance Policy resulting from
the insolvency, negligence or any other act or omission of the
trustee or other paying agent for the Bonds.
Each Insurance Policy is non-cancellable and will continue in
force so long as the respective Trust is in existence and the
Bonds listed in the respective Insurance Policy continue to be
held in and owned by such Trust. Each Insurance Policy shall terminate
as to any Bond which has been redeemed from a Trust or sold by
the Trustee on the date of the redemption or on the settlement
date of the sale, and Financial Security, CapMAC or AMBAC, respectively,
shall not have any liability under their Insurance Policy as to
that Bond thereafter. If the date of the redemption or the settlement
date of the sale occurs between a record date and a date of payment
of any Bond, the Insurance Policy will terminate as to that Bond
on the business day next succeeding the date of payment. The termination
of an Insurance Policy as to any Bond shall not affect Financial
Security's, CapMAC's or AMBAC's obligations, respectively, regarding
any other Bond in a Trust covered by such Insurance Policy or
any other fund which has obtained an insurance policy from Financial
Security, CapMAC or AMBAC, respectively. Each Insurance Policy
will terminate as to all Bonds on the date on which the last of
the Bonds matures, is redeemed or is sold by a Trust. As Bonds
covered by an Insurance Policy are redeemed by their respective
issuers or are sold by the Trustee, the amount of the premium
payable for an Insurance Policy will be correspondingly reduced.
Nonpayment of premiums on an Insurance Policy will not result
in the cancellation of insurance but will permit Financial Security,
CapMAC or AMBAC, respectively, to take action against the Trustee
to recover premium payments due them. The Trustee in turn will
be entitled to recover the payments from the affected Trust.
Upon the sale of a Bond covered by an Insurance Policy from a
Trust, the Trustee has the right to obtain insurance to maturity
("Permanent Insurance") on the Bond upon the payment of a single
predetermined insurance premium. Accordingly, any Corporate or
Municipal Bond in a Trust is eligible to be sold on an insured
basis. It is expected that the Trustee will exercise the right
to obtain Permanent Insurance upon instructions from the Sponsor
only if such Trust would receive net proceeds from the sale of
the Bond (less sale and rating agency fees) in excess of the sale
proceeds that would be received if the Bond were sold on an uninsured
basis. The predetermined Permanent Insurance premium with respect
to each Bond covered by the Insurance Policy is based upon the
insurability of each Bond as of the Date of Deposit and will not
be increased for any change in the creditworthiness of such Bond.
Although all Corporate and Municipal Bonds are individually insured,
neither the Treasury Obligations, the Trust, the Units nor the
Portfolio is insured directly or indirectly by Financial Security,
CapMAC or AMBAC.
Financial Security Assurance Inc. Financial Security is a monoline
insurance company incorporated in New York in 1984. Financial
Security is approximately 91.6% owned by U S WEST, Inc. and 8.4%
owned by The Tokio Marine and Fire Insurance Co. Ltd. ("Tokio
Marine"). Neither U S West, Inc. nor Tokio Marine is obligated
to pay any debt of or claim against Financial Security or to make
any additional contribution to the capital of Financial Security.
Financial Security and its two wholly owned subsidiaries are licensed
to engage in the financial guaranty insurance business in 49 states,
the District of Columbia and Puerto Rico. Financial Security and
its subsidiaries have the highest claims-paying ability rating
by four major rating agencies, including Standard & Poor's and
Moody's, and are engaged exclusively in the business of writing
financial
Page 11
guaranty insurance, principally in respect of securities offered
in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled
payments of an issuer's securities-thereby enhancing the credit
rating of those securities-in consideration for the payment of
a premium to the insurer. Financial Security and its subsidiaries
principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by
residential or commercial mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or
market value. Collateralized securities include public utility
first mortgage bonds and sale/leaseback obligation bonds. Municipal
securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local
governments. Financial Security insures both newly issued securities
sold in the primary market and outstanding securities sold in
the secondary market that satisfy Financial Security's underwriting
criteria. Pursuant to an intercompany agreement, liabilities on
financial guaranty insurance policies issued by Financial Security
or either of its subsidiaries are reinsured among such companies
on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable
statutory risk limitations. As of March 31, 1993, the total policyholders'
surplus and contingency reserves and the total unearned premium
reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with statutory accounting principles,
approximately $479,110,000 (unaudited) and $222,078,000 (unaudited)
and the total shareholders' equity and the total unearned premium
reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with generally accepted accounting
principles, approximately $628,119,000 (unaudited) and $202,493,000
(unaudited). Copies of quarterly and annual financial statements
prepared in accordance with generally accepted accounting principles
are available upon written request to Financial Security Assurance
Inc., at its principal executive office, 350 Park Avenue, New
York, New York 10022, Attn: Communications. Copies of the statutory
quarterly and annual statements filed with the State of New York
Insurance Department by Financial Security are available upon
request to the State of New York Insurance Department. THE INSURANCE
POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance
company which engages only in the business of financial guarantee
and surety insurance. CapMAC is licensed in 49 states in addition
to the District of Columbia, the Commonwealth of Puerto Rico and
the territory of Guam. CapMAC insures structured asset-backed,
corporate and other financial obligations in the domestic and
foreign capital markets. CapMAC may also provide financial guarantee
reinsurance for structured asset-backed, corporate and municipal
obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation
("Standard & Poor's"), and "AAA" by Duff & Phelps, Inc. ("Duff
& Phelps"). Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time
by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings, Inc. ("Holdings"),
a company that is owned by a group of institutional and other
investors, including CapMAC's management and employees. CapMAC
commenced operations on December 24, 1987 as an indirect, wholly-owned
subsidiary of Citibank (New York State), a wholly-owned subsidiary
of Citicorp. On June 25, 1992, Citibank (New York State) sold
CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay
any claims under any surety bond issued by CapMAC or any debts
of CapMAC or to make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the
State of New York. In addition, CapMAC is subject to regulation
by the insurance departments of the other jurisdictions in which
it is licensed. CapMAC is subject to periodic regulatory examinations
by the same regulatory authorities.
Page 12
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes
in control, transactions with affiliates and consolidations and
acquisitions. The amount of exposure per risk that CapMAC may
retain, after giving effect to reinsurance, collateral or other
security, is also regulated. Statutory and regulatory accounting
practices may prescribe appropriate rates at which premiums are
earned and the levels of reserves required. In addition, various
insurance laws restrict the incurrence of debt, regulate permissible
investments of reserves, capital and surplus, and govern the form
of surety bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured.
Such reinsurance does not relieve CapMAC of any of its obligations
under the Surety Bond(s).
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE
LAW.
In connection with the Sale, Holdings and CapMAC entered into
an Ownership Policy Agreement (the "Ownership Policy Agreement"),
which sets forth Holdings' intent with respect to its ownership
and control of CapMAC and provides for certain policies and agreements
with respect to Holdings' exercise of its control of CapMAC. In
the Ownership Policy Agreement, Holdings has agreed that, during
the term of the Ownership Policy Agreement, it will not and will
not permit any stockholder of Holdings to enter into any transaction
the result of which would be a change of control (as defined in
the Ownership Policy Agreement) of CapMAC, unless the long term
debt obligations or claims-paying ability of the person which
would control CapMAC after such transaction or its direct or indirect
parent are rated in a high investment grade category, unless Holdings
or CapMAC has confirmed that CapMAC's claims-paying ability rating
by Moody's (the "Rating") in effect immediately prior to any such
change of control will not be downgraded by Moody's upon such
change of control or unless such change of control occurs as a
result of a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements
(i) not to change the "zero-loss" underwriting standards or policies
and procedures of CapMAC in a manner that would materially and
adversely affect the risk profile of CapMAC's book of business,
(ii) that CapMAC will adhere to the aggregate leverage limitations
and maintain capitalization levels considered by Moody's from
time to time as consistent with maintaining CapMAC's Rating and
(iii) that until CapMAC's statutory capital surplus and contingency
reserve ("qualified statutory capital") equal $250 million, CapMAC
will maintain a specified amount of qualified statutory capital
in excess of the amount of qualified statutory capital that CapMAC
is required at such time to maintain under the aggregate leverage
limitations set forth in Article 69 of the New York Insurance
Law.
The Ownership Policy Agreement will terminate on the earlier of
the date on which a change of control of CapMAC occurs and the
date on which CapMAC and Holdings agree in writing to terminate
the Ownership Policy Agreement; provided that, CapMAC or Holdings
has confirmed that CapMAC's Rating in effect immediately prior
to any such termination will not be downgraded upon such termination.
As of December 31, 1992 and 1991, CapMAC had statutory capital
and surplus of approximately $148 million and $232 million, respectively,
and had not incurred any debt obligations. On June 26, 1992, CapMAC
made a special distribution (the "Distribution") to Holdings in
connection with the Sale in an aggregate amount that caused the
total of CapMAC's statutory capital and surplus to decline to
approximately $150 million. Holdings applied substantially all
of the proceeds of the Distribution to repay debt owed to Citicorp
that was incurred in connection with the capitalization of CapMAC.
As of June 30, 1992, CapMAC had statutory capital and surplus
of approximately $150 million and had not incurred any debt obligations.
In addition, at December 31, 1992 CapMAC had a statutory contingency
reserve of approximately $15 million, which is also available
to cover claims under surety bonds issued by CapMAC. Article 69
of the New York State Insurance Law requires that CapMAC establishes
and maintains the contingency reserve.
Page 13
In addition to its capital (including contingency reserve) and
other reinsurance available to pay claims under its surety bonds,
on June 25, 1992, CapMAC entered into a Stop Loss Reinsurance
Agreement (the "Stop Loss Agreement") with Winterthur Swiss Insurance
Company (the "Reinsurer"), which is rated AAA by Standard & Poor's
and Aaa by Moody's, pursuant to which the Reinsurer will be required
to pay any losses incurred by CapMAC during the term of the Stop
Loss Agreement on the surety bonds covered under the Stop Loss
Agreement in excess of a specified amount of losses incurred by
CapMAC under such surety bonds (such specified amount initially
$100 million and increasing annually by an amount equal to 662/3%
of the increase in CapMAC's statutory capital and surplus) up
to an aggregate limit payable under the Stop Loss Agreement of
$50 million. The Stop Loss Agreement has an initial term of seven
years, is extendable for one-year periods and is subject to early
termination upon the occurrence of certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity
facility (the "Liquidity Facility") provided by a syndicate of
banks rated A1+/P1 by Standard & Poor's and Moody's, respectively,
having a term of 360 days. Under the Liquidity Facility CapMAC
will be able, subject to satisfying certain conditions, to borrow
funds from time to time in order to enable it to fund any claim
payments or payments made in settlement or mitigation of claim
payments under its surety bonds, including the Surety Bond(s).
Copies of CapMAC's financial statements prepared in accordance
with statutory accounting standards, which differ from generally
accepted accounting principles, and filed with the Insurance Department
of the State of New York are available upon request. CapMAC is
located at 885 Third Avenue, New York, New York 10022, and its
telephone number is (212) 755-1155.
AMBAC Indemnity Corporation ("AMBAC Indemnity"). AMBAC Indemnity
is a Wisconsin-domiciled stock insurance corporation regulated
by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in fifty states, the District
of Columbia and the Commonwealth of Puerto Rico, with admitted
assets of approximately $1,725,000,000 (unaudited) and statutory
capital of approximately $963,000,000 (unaudited) as of March
31, 1993. Statutory capital consists of AMBAC Indemnity's policyholders'
surplus and statutory contingency reserve. AMBAC Indemnity is
a wholly owned subsidiary of AMBAC Inc., a 100% publicly-held
company. Moody's Investors Service, Inc. and Standard & Poor's
Corporation have both assigned a triple-A claims-paying ability
rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York,
New York 10004 and (212) 668-0340.
AMBAC Indemnity makes no representation regarding the Bonds or
the advisability of investing in the Bonds and makes no representation
regarding, nor has it participated in the preparation of, this
Prospectus.
The information relating to Financial Security, CapMAC and AMBAC
contained in the above paragraphs have been furnished by Financial
Security, CapMAC and AMBAC, respectively. No representation is
made herein as to the accuracy or adequacy of such information,
or as to the existence of any adverse changes in such information,
subsequent to the date hereof.
In determining whether to insure bonds, Financial Security, CapMAC
and AMBAC have applied their own standards which are not necessarily
the same as the criteria used in regard to the selection of bonds
by the Sponsor. This decision is made prior to the Date of Deposit,
as bonds not covered by the Insurance Policy are not deposited
in a Trust unless such bonds are Preinsured Bonds. The Insurance
Policy covers Bonds listed in the Insurance Policy deposited in
such Trust and physically delivered to the Trustee in the case
of bearer bonds or registered in the name of the Trustee or its
nominee or delivered along with an assignment in the case of registered
bonds or registered in the name of the Trustee or its nominee
in the case of Bonds held in book-entry form.
Page 14
Insurance obtained by a Trust or by the Bond issuer, the underwriters,
the Sponsor or others does not guarantee the market value of the
Bonds or the value of the Units of such Trust. Each Insurance
Policy is effective only as to Bonds listed in the respective
Insurance Policy owned by and held in such Trust. In the event
of a sale of any Bond listed in an Insurance Policy by the Trustee,
an Insurance Policy terminates as to such Bond on the date of
sale. Except as indicated below, insurance obtained by a Trust
has no effect on the price or redemption value of Units. It is
the present intention of the Evaluator to attribute a value to
such insurance obtained by a Trust (including the right to obtain
Permanent Insurance) for the purpose of computing the price or
redemption value of Units only if the Bonds covered by such insurance
are in default in payment of principal or interest or, in the
Sponsor's opinion, in significant risk of such default. The value
of the insurance will be equal to the difference between (i) the
market value of a Bond which is in default in payment of principal
or interest or in significant risk of such default assuming the
exercise of the right to obtain Permanent Insurance (less the
insurance premium attributable to the purchase of Permanent Insurance)
and (ii) the market value of such Bonds not covered by Permanent
Insurance. See "Public Offering-How is the Public Offering Price
Determined?" herein for a more complete description of the Evaluator's
method of valuing defaulted Bonds and Bonds which have a significant
risk of default. Insurance on a Preinsured Bond is effective as
long as such Bond is outstanding. Therefore, any such insurance
may be considered to represent an element of market value in regard
to the Bonds thus insured, but the exact effect, if any, of this
insurance on such market value cannot be predicted.
The Insurance Policies and the negotiations in respect thereof
represent the only relationship between Financial Security, CapMAC,
AMBAC and the Trusts. Otherwise neither Financial Security, CapMAC,
AMBAC nor any affiliate thereof has any significant relationship,
direct or indirect, with the Trusts or the Sponsor, except that
the Sponsor has in the past and may from time to time in the future,
in the normal course of its business, participate as sole underwriter
or as manager or as a member of underwriting syndicates in the
distribution of new issues of municipal bonds in which the investors
or the affiliates of Financial Security, CapMAC or AMBAC have
or will be participants or for which a policy of insurance guaranteeing
the scheduled payment of interest and principal has been obtained
from Financial Security, CapMAC or AMBAC. Neither the Trusts nor
the Units of the Trusts nor the portfolio of any Trust is insured
directly or indirectly by Financial Security, CapMAC or AMBAC.
Because the Corporate and Municipal Bonds in each Trust are insured
as to the scheduled payment of principal and interest and on the
basis of the financial condition of the insurance companies referred
to above, Standard & Poor's Corporation has assigned to units
of the Trusts its "AAA" investment rating. This is the highest
rating assigned to securities by Standard & Poor's Corporation.
See "Description of Bond Ratings." The obtaining of this rating
by the Trusts should not be construed as an approval of the offering
of the Units by Standard & Poor's Corporation or as a guarantee
of the market value of the Trusts or the Units of the Trusts.
Standard & Poor's has indicated that this rating is not a recommendation
to buy, hold or sell Units nor does it take into account the extent
to which expenses of the Trusts or sales by the Trusts of Bonds
for less than the purchase price paid by the Trusts will reduce
payment to Unit holders of the interest and principal required
to be paid on such Bonds. There is no guarantee that the "AAA"
investment rating with respect to the Units of the respective
Trusts will be maintained.
An objective of portfolio insurance obtained by the Trusts is
to obtain a higher yield on the Bonds in the portfolios of the
Trusts than would be available if all the Bonds in such portfolio
had the Standard & Poor's Corporation "AAA" and/or Moody's Investors
Service, Inc. "Aaa" rating(s) and at the same time to have the
protection of insurance of scheduled payment of interest and principal
on the Bonds. There is, of course, no certainty that this result
will be achieved. Bonds in the Trusts may or may not have a higher
yield than uninsured bonds rated "AAA" by Standard & Poor's Corporation
or "Aaa" by Moody's Investors Service, Inc. In selecting Bonds
for the portfolios of the Trusts, the Sponsor has applied the
criteria herein before described.
Page 15
What is the Federal Tax Status of Unit Holders?
In the opinion of Chapman and Cutler, Counsel for the Sponsor,
under existing law:
The Trusts are not associations taxable as corporations for Federal
income tax purposes.
Each Unit holder of a Trust is considered to be the owner of a
pro rata portion of such Trust under subpart E, subchapter J of
chapter 1 of the Internal Revenue Code of 1986 (hereinafter the
"Code"). Each Unit holder will be considered to have received
his pro rata share of interest derived from each Trust asset when
such interest is received by such Trust. Each Unit holder will
also be required to include in taxable income for Federal income
tax purposes, original issue discount with respect to his interest
in any Bonds held by a Trust at the same time and in the same
manner as though the Unit holder were the direct owner of such
interest.
Each Unit holder will have a taxable event when his Trust disposes
of a Bond, or when the Unit holder redeems or sells his Units.
Unit holders must reduce the tax basis of their Units for their
share of accrued interest received, if any, on Bonds delivered
after the date the Unit holders pay for their Units and, consequently,
such Unit holders may have an increase in taxable gain or reduction
in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing
the proceeds of such sale or redemption with the adjusted basis
of the Units. If the Trustee disposes of Bonds (whether by sale,
exchange, payment on maturity, redemption or otherwise), gain
or loss is recognized to the Unit holder. The amount of any such
gain or loss is measured by comparing the Unit holder's pro rata
share of the total proceeds from such disposition with his basis
for his fractional interest in the asset disposed of. In the case
of a Unit holder who purchases his Units, such basis is determined
by apportioning the tax basis for the Units among each of the
Trust assets ratably according to value as of the date of acquisition
of the Units. The basis of each Unit and of each Bond which was
issued with original issue discount including the Treasury Obligations
must be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased
by the Trusts at a premium must be reduced by the annual amortization
of Bond premium which the Unit holder has properly elected to
amortize under Section 171 of the Code. The tax cost reduction
requirements of the Code relating to amortization of bond premium
may, under some circumstances, result in the Unit holder realizing
a taxable gain when his Units are sold or redeemed for an amount
equal to or less than his original cost. The Treasury Obligations
held by the Trusts are treated as bonds that were originally issued
at an original issue discount provided, pursuant to a Treasury
Regulation (the "Regulation") issued on December 28, 1992, that
the amount of original issue discount determined under Section
1286 of the Code is not less than a "de minimis" amount as determined
thereunder as discussed below. Because the Treasury Obligations
represent interests in "stripped" U.S. Treasury bonds, a Unit
holder's initial cost for his pro rata portion of each Treasury
Obligation held by the Trust (determined at the time he acquires
his Units, in the manner described above) shall be treated as
its "purchase price" by the Unit holder. Original issue discount
is effectively treated as interest for Federal income tax purposes
and the amount of original issue discount in this case is generally
the difference between the bond's purchase price and its stated
redemption price at maturity. A Unit holder will be required to
include in gross income for each taxable year the sum of his daily
portions of original issue discount attributable to the Treasury
Obligations held by the Trust as such original issue discount
accrues and will in general be subject to Federal income tax with
respect to the total amount of such original issue discount that
accrues for such year even though the income is not distributed
to the Unit holders during such year to the extent it is not less
than a "de minimis" amount as determined under the Regulation.
In general, original issue discount accrues daily under a constant
interest rate method which takes into account the semi-annual
compounding of accrued interest. In the case of the Treasury Obligations,
this method will generally result in an increasing amount of income
to the Unit holders each year. Unit holders should consult their
tax advisers regarding the Federal income tax consequences and
accretion of original issue discount.
Each Unit holder's pro rata share of each expense paid by his
respective Trust is deductible by the Unit holder to the same
extent as though the expense had been paid directly by him, subject
to the following limitation.
Page 16
It should be noted that as a result of the Tax Reform Act of 1986,
certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses
will be deductible by an individual only to the extent they exceed
2% of such individual's adjusted gross income. Temporary regulations
have been issued which require Unit holders to treat certain expenses
of the Trusts as miscellaneous itemized deductions subject to
this limitation.
If a Unit holder's tax basis of his pro rata portion in any Bonds
held by a Trust exceeds the amount payable by the issuer of the
Bonds with respect to such pro rata interest upon maturity of
the Bond, such excess would be considered "acquisition premium"
which may be amortized by the Unit holder at the Unit holder's
election as provided in Section 171 of the Code. Unit holders
should consult their tax advisors regarding whether such election
should be made and the manner of amortizing acquisition premium.
Certain of the Bonds in the Trusts may have been acquired with
"original issue discount." In the case of any Bonds in the Trusts
acquired with "original issue discount" that exceeds a "de minimis"
amount as specified in the Code or in the case of the Treasury
Obligations as specified in the Regulation, such discount is includable
in taxable income of the Unit holders on an accrual basis computed
daily, without regard to when payments of interest on such Bonds
are received. The Code provides a complex set of rules regarding
the accrual of original issue discount. These rules provide that
original issue discount generally accrues on the basis of a constant
compound interest rate over the term of the Bonds. Unit holders
should consult their tax advisers as to the amount of original
issue discount which accrues.
Special original issue discount rules apply if the purchase price
of the Bond by a Trust exceeds its original issue price plus the
amount of original issue discount which would have previously
accrued based upon its issue price (its "adjusted issue price").
Unit holders should also consult their tax advisers regarding
these special rules. Similarly these special rules would apply
to a Unit holder if the tax basis of his pro rata portion of a
Bond issued with original issue discount exceeds his pro rata
portion of its adjusted issue price.
If a Unit holder's tax basis in his pro rata portion of Bonds
is less than the allocable portion of such Bond's stated redemption
price at maturity (or, if issued with original issue discount,
the allocable portion of its "revised issue price"), such difference
will constitute market discount unless the amount of market discount
is "de minimis" as specified in the Code. Market discount accrues
daily computed on a straight line basis, unless the Unit holder
elects to calculate accrued market discount under a constant yield
method. The market discount rules do not apply to Treasury Obligations
because they are stripped debt instruments subject to special
original issue discount rules as discussed above. Unit holders
should consult their tax advisers as to the amount of market discount
which accrues.
Accrued market discount is generally includable in taxable income
to the Unit holders as ordinary income for Federal tax purposes
upon the receipt of serial principal payments on the Bonds, on
the sale, maturity or disposition of such Bonds by a Trust, and
on the sale by a Unit holder of Units, unless a Unit holder elects
to include the accrued market discount in taxable income as such
discount accrues. If a Unit holder does not elect to annually
include accrued market discount in taxable income as it accrues,
deductions for any interest expenses incurred by the Unit holder
which are incurred to purchase or carry his Units will be reduced
by such accrued market discount. In general, the portion of any
interest expense which was not currently deductible would ultimately
be deductible when the accrued market discount is included in
income. Unit holders should consult their tax advisers regarding
whether an election should be made to include market discount
in income as it accrues and as to the amount of interest expense
which may not be currently deductible.
The tax basis of a Unit holder with respect to his interest in
a Bond is increased by the amount of original issue discount (and
market discount, if the Unit holder elects to include market discount,
if any, on the Bonds held by a Trust in income as it accrues)
thereon properly included in the Unit holder's gross income as
determined for Federal income tax purposes and reduced by the
amount of any amortized acquisition premium
Page 17
which the Unit holder has properly elected to amortize under Section
171 of the Code. A Unit holder's tax basis in his Units will equal
his tax basis in his pro rata portion of all of the assets of
such Trust.
A Unit holder will recognize taxable capital gain (or loss) when
all or part of his pro rata interest in a Bond is disposed of
in a taxable transaction for an amount greater (or less) than
his tax basis therefor. Any gain recognized on a sale or exchange
and not constituting a realization of accrued "market discount,"
and any loss will, under current law, generally be capital gain
or loss. As previously discussed, gain realized on the disposition
of the interest of a Unit holder in any Bond deemed to have been
acquired with market discount will be treated as ordinary income
to the extent the gain does not exceed the amount of accrued market
discount not previously taken into income. Any capital gain or
loss arising from the disposition of a Bond by a Trust or the
disposition of Units by a Unit holder will be short-term capital
gain or loss unless the Unit holder has held his Units for more
than one year in which case such capital gain or loss will be
long-term. For taxpayers other than corporations, net capital
gains are presently subject to a maximum stated marginal tax rate
of 28 percent.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") was recently
enacted. The Tax act raises tax rates on ordinary income while
capital gains remain subject to a 28% maximum stated rate. Because
some or all capital gains are taxed at a comparatively lower rate
under the Tax Act, the Tax Act includes a provision that recharacterizes
capital gains as ordinary income in the case of certain financial
transactions that are "conversion transactions" effective for
transactions entered into after April 30, 1993. Unit holders and
prospective investors should consult with their tax advisers regarding
the potential effect of this provision on their investment in
Units.
If the Unit holder disposes of a Unit, he is deemed thereby to
have disposed of his entire pro rata interest in all Trust assets
including his pro rata portion of all of the Bonds represented
by the Unit. This may result in a portion of the gain, if any,
on such sale being taxable as ordinary income under the market
discount rules (assuming no election was made by the Unit holder
to include market discount in income as it accrues) as previously
discussed.
A Unit holder who is a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States Federal
income taxes, including withholding taxes, on interest income
(including any original issue discount) on, or any gain from the
sale or other disposition of, his pro rata interest in any Bond
or the sale of his Units provided that all of the following conditions
are met: (i) the interest income or gain is not effectively connected
with the conduct by the foreign investor of a trade or business
within the United States (ii) if the interest is United States
source income (which is the case for each Bond held by the Trust),
then the foreign investor does not own, directly or indirectly,
10% or more of the total combined voting power of all classes
of voting stock of the issuer of the Bond and the foreign investor
is not a controlled foreign corporation related (within the meaning
of Section 864(d)(4) of the Code) to the issuer of the Bond, (iii)
with respect to any gain, the foreign investor (if an individual)
is not present in the United States for 183 days or more during
his or her taxable year and (iv) the foreign investor provides
all certification which may be required of his status (foreign
investors may contact the Sponsor to obtain a Form W-8 which must
be filed with the Trustee and refiled every three calendar years
thereafter). Foreign investors should consult their tax advisers
with respect to United States tax consequences of ownership of
Units.
It should be noted that the Tax Act includes a provision which
would eliminate the exemption from United States taxation, including
withholding taxes, for certain "contingent interest." The provision
applies to interest received after December 31, 1993. No opinion
is expressed herein regarding the potential applicability of this
provision and whether United States taxation or withholding taxes
could be imposed with respect to income derived from the Units
as a result thereof. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect
of this provision on their investment in Units.
Page 18
Each Unit holder (other than a foreign investor who has properly
provided the certifications described in the preceding paragraph)
will be requested to provide the Unit holder's taxpayer identification
number to the trustee and to certify that the Unit holder has
not been notified that payments to the Unit holder are subject
to back-up withholding. If the proper taxpayer identification
number and appropriate certification are not provided when requested,
distributions by a Trust to such Unit holder will be subject to
back-up withholding.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to
the Trusts for New York tax matters, the Trusts are not associations
taxable as corporations and the income of the Trusts will be treated
as the income of the Unit holders under the existing income tax
laws of the State and City of New York.
The foregoing discussion relates only to United States Federal
and New York State and City income taxes; Unit holders may be
subject to state and local taxation in other jurisdictions (including
a foreign investor's country of residence). Unit holders should
consult their tax advisers regarding potential state, local, or
foreign taxation with respect to the Units.
What are the Expenses and Charges?
At no cost to the Trusts, the Sponsor has borne all the expenses
of creating and establishing the Trusts, including the cost of
the initial preparation, printing and execution of the Indenture
and the certificates for the Units, legal and accounting expenses,
expenses of the Trustee and other out-of-pocket expenses. The
Sponsor will not receive any fees in connection with its activities
relating to the Trusts. However, Nike Financial Advisory Services
L.P., an affiliate of the Sponsor, will receive an annual supervisory
fee, which is not to exceed the amount set forth under "Summary
of Essential Information," appearing in Part One for each Trust
for providing portfolio supervisory services for the Trusts.
Such fee is based on the number of Units of a Trust outstanding
on January 1 of each year except for Trusts which were established
subsequent to the last January 1, in which case the fee will be
based on the number of Units of such Trust outstanding as of the
respective Dates of Deposit. The fee may exceed the actual costs
of providing such supervisory services for a Trust, but at no
time will the total amount received for portfolio supervisory
services rendered to unit investment trusts of which Nike Securities
L.P. is the Sponsor in any calendar year exceed the aggregate
cost to Nike Financial Advisory Services L.P. of supplying such
services in such year.
For each valuation of the Bonds in the Trusts, the Evaluator will
receive a fee as indicated in Part One for each Trust. The Trustee
pays certain expenses of the Trust for which it is reimbursed
by the Trust. The Trustee will receive for its ordinary recurring
services to a Trust an annual fee computed at $.84 and $.51 per
annum per $1,000 principal amount of underlying Bonds in the Trust
for those portions of the Trust representing monthly and semi-annual
distribution plans, respectively. For a discussion of the services
performed by the Trustee pursuant to its obligations under the
Indenture, reference is made to the material set forth under "Rights
of Unit Holders." The Trustee's and Evaluator's fees are payable
monthly on or before each Distribution Date from the Interest
Account of each Trust to the extent funds are available and then
from the Principal Account of such Trust. Since the Trustee has
the use of the funds being held in the Principal and Interest
Accounts for future distributions, payment of expenses and redemptions
and since such Accounts are non-interest-bearing to Unit holders,
the Trustee benefits thereby. Part of the Trustee's compensation
for its services to the Trusts is expected to result from the
use of these funds. Both fees may be increased without approval
of the Unit holders by amounts not exceeding proportionate increases
under the category "All Services Less Rent of Shelter" in the
Consumer Price Index published by the United States Department
of Labor.
The annualized cost of the portfolio insurance obtained by each
Trust is indicated in Part One for each Trust in a series of the
Fund. The portfolio insurance continues so long as such Trust
retains the Bonds thus insured. Premiums are payable monthly in
advance by the Trustee on behalf of such Trust. As Bonds in the
portfolio are redeemed by their respective issuers or are sold
by the Trustee, the amount of premium will be reduced in respect
of those Bonds no longer owned by and held in the Trusts which
were insured by insurance
Page 19
obtained by such Trust. Preinsured Bonds in the Trusts and Treasury
Obligations are not insured by the Trusts. The premium payable
for Permanent Insurance will be paid solely from the proceeds
of the sale of such Bond in the event the Trustee exercises the
right to obtain Permanent Insurance on a Bond. The premiums for
such Permanent Insurance with respect to each Bond will decline
over the life of the Bond.
The following additional charges are or may be incurred by a Trust:
all expenses (including legal and annual auditing expenses) of
the Trustee incurred by or in connection with its responsibilities
under the Indenture, except in the event of negligence, bad faith
or willful misconduct on its part; the expenses and costs of any
action undertaken by the Trustee to protect a Trust and the rights
and interests of the Unit holders; fees of the Trustee for any
extraordinary services performed under the Indenture; indemnification
of the Trustee for any loss, liability or expense incurred by
it without negligence, bad faith or willful misconduct on its
part, arising out of or in connection with its acceptance or administration
of a Trust; indemnification of the Sponsor for any loss, liability
or expense incurred without gross negligence, bad faith or willful
misconduct in acting as Depositor of a Trust; all taxes and other
government charges imposed upon the Bonds or any part of a Trust
(no such taxes or charges are being levied or made or, to the
knowledge of the Sponsor, contemplated); and expenditures incurred
in contacting Unit holders upon termination of a Trust. The above
expenses and the Trustee's annual fee, when paid or owing to the
Trustee, are secured by a lien on the Trusts. In addition, the
Trustee is empowered to sell Bonds of a Trust in order to make
funds available to pay all these amounts if funds are not otherwise
available in the Interest and Principal Accounts of the Trust.
Unless the Sponsor determines that such an audit is not required,
the Indenture requires the accounts of each Trust shall be audited
on an annual basis at the expense of the Trust by independent
auditors selected by the Sponsor. So long as the Sponsor is making
a secondary market for Units, the Sponsor shall bear the cost
of such annual audits to the extent such cost exceeds $.50 per
Unit. Unit holders of a Trust covered by an audit may obtain a
copy of the audited financial statements from the Trustee upon
request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Although it is not obligated to do so, the Sponsor intends to
maintain a market for the Units and continuously to offer to purchase
Units at prices, subject to change at any time, based upon the
aggregate bid price of the Bonds in the portfolio of each Trust
plus interest accrued to the date of settlement. All expenses
incurred in maintaining a market, other than the fees of the Evaluator,
the other expenses of the Trust and the costs of the Trustee in
transferring and recording the ownership of Units, will be borne
by the Sponsor. If the supply of Units exceeds demand, or for
some other business reason, the Sponsor may discontinue purchases
of Units at such prices. If a Unit holder wishes to dispose of
his Units, he should inquire of the Sponsor as to current market
prices prior to making a tender for redemption to the Trustee.
Prospectuses relating to certain other bond funds indicate an
intention, subject to change, on the part of the respective sponsors
of such funds to repurchase units of those funds on the basis
of a price higher than the bid prices of the securities in the
funds. Consequently, depending upon the prices actually paid,
the repurchase price of other sponsors for units of their funds
may be computed on a somewhat more favorable basis than the repurchase
price offered by the Sponsor for Units of a Trust in secondary
market transactions. The purchase price per unit of such bond
funds will depend primarily on the value of the securities in
the portfolio of the fund.
Units are offered at the Public Offering Price. The Public Offering
Price is determined by adding to the Evaluator's determination
of the aggregate bid price of the Bonds in the Trust the appropriate
sales charge determined in accordance with the schedule set forth
below, based upon the number of years remaining to the maturity
of each Bond in the portfolio of a Trust, adjusting the total
to reflect the amount of any cash held in or advanced to the principal
account of a Trust and dividing the result by the number of Units
of such Trust then outstanding. The minimum sales charge on Units
will be 3.0% of the Public Offering Price (equivalent to 3.093%
of the net amount invested). For purposes of computation, Bonds
will be deemed to mature on their expressed
Page 20
maturity dates unless the Bonds have been called for redemption
or funds or securities have been placed in escrow to redeem them
on an earlier call date, in which case such call date will be
deemed to be the date upon which they mature.
The effect of this method of sales charge computation will be
that different sales charge rates will be applied to each of the
various Bonds in the Trust based upon the maturities of such bonds,
in accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
________________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_______________ _________ __________
<S> <C> <C>
Less than 1 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 but less than 9 5.00 5.263
9 but less than 10 5.50 5.820
10 or more 5.80 6.157
</TABLE>
An investor may aggregate purchases of Units of two consecutive
series of The First Trust Insured Corporate Trust for purposes
of calculating the discount for volume purchases listed above.
Additionally, with respect to the employees, officers and directors
(including their immediate families and trustees, custodians or
a fiduciary for the benefit of such person) of Nike Securities
L.P. and its subsidiaries the sales charge is reduced by 2% of
the Public Offering Price for purchases of Units during the secondary
offering period.
The applicable sales charge is reduced by a discount as indicated
below for volume purchases:
<TABLE>
<CAPTION>
Dollar Amount of
Transaction at Discount
Public Offering Price per Unit
_______________________ ___________
<S> <C>
$500,000 to $999,999 $ 7.50
$1,000,000 or more $15.00
</TABLE>
Any such reduced sales charge shall be the responsibility of the
selling Underwriter or dealer. This reduced sales charge structure
will apply on all purchases of Units in a Trust by the same person
on any one day from any one Underwriter or dealer. Additionally,
Units purchased in the name of the spouse of a purchaser or in
the name of a child of such purchaser under 21 years of age will
be deemed for the purposes of calculating the applicable sales
charge to be additional purchases by the purchaser. The reduced
sales charges will also be applicable to a trustee or other fiduciary
purchasing securities for a single trust or single fiduciary account.
Underwriters, dealers, and others who, in a single month, purchase
from the Sponsor Units of any Series of The First Trust GNMA,
The First Trust of Insured Municipal Bonds, The First Trust Combined
Series, The First Trust Special Situations Trust or any other
unit investment trust of which Nike Securities L.P. is the Sponsor
(the "UIT Units"), which sales of UIT Units are in the following
aggregate dollar amounts, will receive additional concessions
as indicated in the following table:
Page 21
<TABLE>
<CAPTION>
Aggregate Monthly
Dollar Amount of
UIT Units Sold at Additional Concession
Public Offering Price (per $1,000 sold)
______________________ ___________________
<S> <C>
$1,000,000 - $2,499,999 $ .50
$2,500,000 - $4,999,999 $1.00
$5,000,000 - $7,499,999 $1.50
$7,500,000 - $9,999,999 $2.00
$10,000,000 - or more $2.50
</TABLE>
Aggregate Monthly Dollar Amount of UIT Units Sold at Public Offering
Price is based on settled trades for a month (including sales
of Units to the Sponsor in the secondary market which are resold),
net of redemptions.
From time to time the Sponsor may implement programs under which
Underwriters and dealers of the Trusts may receive nominal awards
from the Sponsor for each of their registered representatives
who have sold a minimum number of UIT Units during a specified
time period. In addition, at various times the Sponsor may implement
other programs under which the sales force of an Underwriter or
dealer may be eligible to win other nominal awards for certain
sales efforts, or under which the Sponsor will reallow to any
such Underwriter or dealer that sponsors sales contests or recognition
programs conforming to criteria established by the Sponsor, or
participates in sales programs sponsored by Sponsor, an amount
not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to
time pursuant to objective criteria established by the Sponsor
pay fees to qualifying Underwriters or dealers for certain services
or activities which are primarily intended to result in sales
of Units of the Trusts. Such payments are made by the Sponsor
out of its own assets, and not out of the assets of the Trusts.
These programs will not change the price Unit holders pay for
their Units or the amount that the Trusts will receive from the
Units sold.
A comparison of estimated current returns and estimated long-term
returns with the returns on various investments is one element
to consider in making an investment decision. The Sponsor may
from time to time in its advertising and sales materials compare
the then current estimated returns on the Trusts and returns over
specified periods on other similar Trusts sponsored by Nike Securities
L.P. with returns on investments such as corporate or U.S. Government
bonds, bank CDs and money market accounts or money market funds,
each of which has investment characteristics that may differ from
those of the Trusts. U.S. Government bonds, for example, are backed
by the full faith and credit of the U.S. Government and bank CDs
and money market accounts are insured by an agency of the federal
government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with
the condition of the short-term debt market. The investment characteristics
of the Trusts are described more fully elsewhere in this Prospectus.
The Public Offering Price of Units on the date of this Part Two
Prospectus may vary from the amount stated under "Summary of Essential
Information" appearing in Part One for each Trust in accordance
with fluctuations in the prices of the underlying Securities.
The aggregate price of the Bonds in each Trust is determined
by whomever from time to time is acting as evaluator (the "Evaluator"),
on the basis of bid prices as is appropriate, (1) on the basis
of current market prices for the Bonds obtained from dealers or
brokers who customarily deal in bonds comparable to those held
by the Trusts; (2) if such prices are not available for any of
the Bonds, on the basis of current market prices for comparable
bonds; (3) by determining the value of the Bonds by appraisal;
or (4) by any combination of the above. Unless Bonds are in default
in payment of principal or interest or, in the Sponsor's opinion,
in significant risk of such default, the Evaluator will not attribute
any value to the insurance obtained by the Trusts. On the other
hand, the value of insurance obtained by the issuer of Bonds in
a Trust is reflected and included in the market value of such
Bonds.
Page 22
The Evaluator will consider in its evaluation of Corporate or
Municipal Bonds which are in default in payment of principal or
interest or, in the Sponsor's opinion, in significant risk of
such default (the "Defaulted Bonds") and which are covered by
insurance obtained by each Trust, the value of the insurance guaranteeing
interest and principal payments. The value of the insurance will
be equal to the difference between (i) the market value of Defaulted
Bonds assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Defaulted Bonds not
covered by Permanent Insurance. In addition, the Evaluator will
consider the ability of Financial Security, CapMAC and/or AMBAC
to meet its commitments under a Trust's insurance policy, including
the commitments to issue Permanent Insurance. It is the position
of the Sponsor that this is a fair method of valuing the Bonds
and the insurance obtained by each Trust and reflects a proper
valuation method in accordance with the provisions of the Investment
Company Act of 1940. For a description of the circumstances under
which a full or partial suspension of the right of Unit holders
to redeem their Units may occur, see "Rights of Unit Holders -
How May Units be Redeemed?"
The Evaluator may be attributing value to insurance for the purpose
of computing the price or redemption value of Units of the Trust.
The Evaluator is attributing value to insurance for the purpose
of computing the price or redemption value of Units for certain
series of The First Trust of Insured Municipal Bonds, an investment
company sponsored by Nike Securities L.P. See Part One for each
Trust for further information with respect to whether value is
being attributed to insurance in determining the value of Units
for that series of the Trust.
The Evaluator will be requested to make a determination of the
aggregate price of the Bonds in each Trust, on a bid price basis,
as of the close of trading on the New York Stock Exchange on each
day on which it is open, effective for all sales, purchases or
redemptions made subsequent to the last preceding determination.
The secondary market Public Offering Price of the Units will be
equal to the bid price per Unit of the Bonds in the Trust, plus
(less) any balance (overdraft) in the principal cash account of
such Trust, plus the applicable sales charge.
Although payment is normally made five business days following
the order for purchase, payment may be made prior thereto. Cash,
if any, made available to the Sponsor prior to the date of settlement
for the purchase of Units may be used in the Sponsor's business
and may be deemed to be a benefit to the Sponsor, subject to the
limitations of the Securities Exchange Act of 1934. Delivery of
Certificates representing Units so ordered will be made five business
days following such order or shortly thereafter. See "Rights of
Unit Holders-How May Units Be Redeemed?" for information regarding
the ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market may be offered by this
Part Two Prospectus at the secondary market public offering price
determined in the manner described above.
The Sponsor reserves the right to change the amount of the concession
or agency commission from time to time.
Resales of Units of each Trust by dealers and others to the public
will be made at the Public Offering Price described in Part One
of this Prospectus. Certain commercial banks are making Units
of the Trust available to their customers on an agency basis.
A portion of the sales charge paid by these customers is retained
by or remitted to the banks in the amounts indicated in the second
preceding sentence. Under the Glass-Steagall Act, banks are prohibited
from underwriting Trust Units; however, the Glass-Steagall Act
does permit certain agency transactions and the banking regulators
have not indicated that these particular agency transactions are
not permitted under such Act. In Texas and in certain other states,
any banks making Units available must be registered as broker/dealers
under state law.
Page 23
What are the Sponsor's Profits?
The Underwriters of the Trust, including the Sponsor, will receive
a maximum gross sales commission equal to that amount of the Public
Offering Price of the Units of the Trust as specified in Part
One, less any reduced sales charge for quantity purchases as described
under "Public Offering-How is the Public Offering Price Determined?"
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between
the price at which Units are purchased (based on the bid prices
of the Bonds in the Trust) and the price at which Units are resold
(which price is also based on the bid prices of the Bonds in the
Trust and includes a maximum sales charge of 5.8%) or redeemed.
The secondary market public offering price of Units may be greater
or less than the cost of such Units to the Sponsor.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the
Trustee. Ownership of Units is evidenced by registered certificates
executed by the Trustee and the Sponsor. Delivery of certificates
representing Units ordered for purchase is normally made five
business days following such order or shortly thereafter. Certificates
are transferable by presentation and surrender to the Trustee
properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer.
A Unit holder must sign exactly as his name appears on the face
of the certificate with the signature guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guaranty program in addition to, or in
substitution for, STAMP as may be accepted by the Trustee. In
certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or certificates
of corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable
only on the books of the Trustee in denominations of one Unit
or any multiple thereof, numbered serially for purposes of identification.
Certificates for Units will bear an appropriate notation on their
face indicating which plan of distribution has been selected in
respect thereof. When a change is made, the existing certificate
must be surrendered to the Trustee and a new certificate issued
to reflect the then currently effective plan of distribution.
There is no charge for this service.
Although no such charge is now made or contemplated, a Unit holder
may be required to pay $2.00 to the Trustee per certificate reissued
or transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Unit holder
may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from each Trust will be distributed on or shortly after
the first day of each month on a pro rata basis to Unit holders
of record as of the preceding Record Date who are entitled to
distributions at that time under the plan of distribution chosen.
All distributions for a Trust will be net of applicable expenses
for such Trust.
The pro rata share of cash in the Principal Account of each Trust
will be computed as of the fifteenth day of each month, and distributions
to the Unit holders of such Trust as of such Record Date will
be made on or shortly after the first day of the following month.
Proceeds from the disposition of any of the Bonds of such Trust
(less any premiums due with respect to Bonds for which the Trustee
has exercised the right to obtain Permanent Insurance) received
after such Record Date and prior to the following Distribution
Date will be held in the Principal Account of such Trust and not
distributed until the next Distribution Date. The Trustee is not
Page 24
required to pay interest on funds held in the Principal or Interest
Account of a Trust (but may itself earn interest thereon and therefore
benefit from the use of such funds) nor to make a distribution
from the Principal Account of a Trust unless the amount available
for distribution shall equal at least $1.00 per Unit.
The Trustee will credit to the Interest Account of each Trust
all interest received by such Trust, including that part of the
proceeds (including insurance proceeds if any, paid to a Trust)
of any disposition of Bonds which represents accrued interest.
Other receipts will be credited to the Principal Account of such
Trust. The distribution to the Unit holders of a Trust as of each
Record Date will be made on the following Distribution Date or
shortly thereafter and shall consist of an amount substantially
equal to such portion of the holder's pro rata share of the estimated
annual income of such Trust after deducting estimated expenses
as is consistent with the distribution plan chosen. Because interest
payments are not received by a Trust at a constant rate throughout
the year, such interest distribution may be more or less than
the amount credited to the Interest Account of such Trust as of
the Record Date. For the purpose of minimizing fluctuations in
the distributions from the Interest Account of a Trust, the Trustee
is authorized to advance such amounts as may be necessary to provide
interest distributions of approximately equal amounts. The Trustee
shall be reimbursed, without interest, for any such advances from
funds in the Interest Account of such Trust on the ensuing Record
Date. Persons who purchase Units between a Record Date and a Distribution
Date will receive their first distribution on the second Distribution
Date after the purchase, under the applicable plan of distribution.
The Trustee is not required to pay interest on funds held in the
Principal or Interest Account of a Trust (but may itself earn
interest thereon and therefore benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct
from the Interest Account of each Trust and, to the extent funds
are not sufficient therein, from the Principal Account of each
Trust, amounts necessary to pay the expenses of such Trust. The
Trustee also may withdraw from said accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental
charges payable out of such Trust. Amounts so withdrawn shall
not be considered a part of such Trust's assets until such time
as the Trustee shall return all or any part of such amounts to
the appropriate account. In addition, the Trustee may withdraw
from the Interest Account and the Principal Account of a Trust
such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
Record Dates for monthly distributions will be the fifteenth
day of each month and Record Dates for semi-annual distributions
will be the fifteenth day of June and December. Distributions
will be made on the first day of the month subsequent to the respective
Record Dates.
The plan of distribution selected by a Unit holder will remain
in effect until changed. Unit holders purchasing Units in the
secondary market will initially receive distributions in accordance
with the election of the prior owner. Each year, approximately
six weeks prior to the end of May, the Trustee will furnish each
Unit holder a card to be returned to the Trustee not more than
thirty nor less than ten days before the end of such month. Unit
holders desiring to change the plan of distribution in which they
are participating may so indicate on the card and return same,
together with their certificate, to the Trustee. If the card and
certificate are returned to the Trustee, the change will become
effective as of June 16 of that year. If the card and certificate
are not returned to the Trustee, the Unit holder will be deemed
to have elected to continue with the same plan for the following
twelve months.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation
in a Universal Distribution Option which permits a Unit holder
to direct the Trustee to distribute principal and interest payments
to any other investment vehicle of which the Unit holder has an
existing account. For example, at a Unit holder's direction, the
Trustee would distribute automatically on the applicable distribution
date interest income, capital gains or principal on the participant's
Units to, among other investment vehicles, a Unit holder's checking,
bank savings, money market, insurance, reinvestment or any other
account. All such distributions, of course, are subject to the
minimum investment and sales charges, if any, of the particular
investment vehicle
Page 25
to which distributions are directed. The Trustee will notify the
participant of each distribution pursuant to the Universal Distribution
Option. The Trustee will distribute directly to the Unit holder
any distributions which are not accepted by the specified investment
vehicle. A participant may at any time, by so notifying the Trustee
in writing, elect to terminate his participation in the Universal
Distribution Option and receive directly future distributions
on his Units.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of each Trust in connection
with each distribution a statement of the amount of interest,
if any, and the amount of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit.
Within a reasonable time after the end of each calendar year,
the Trustee will furnish to each person who at any time during
the calendar year was a Unit holder of a Trust of record, a statement
as to (1) the Interest Account: interest received by such Trust
(including amounts representing interest received upon any disposition
of Bonds of such Trust), the amount of such interest representing
insurance proceeds (if applicable), deductions for payment of
applicable taxes and for fees and expenses of such Trust, redemption
of Units and the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding
on the last business day of such calendar year; (2) the Principal
Account: the dates of disposition of any Bonds of such Trust and
the net proceeds received therefrom (excluding any portion representing
interest and the premium attributable to the exercise of the right,
if applicable, to obtain Permanent Insurance), deduction for payment
of applicable taxes and for fees and expenses of the Trust, redemptions
of Units, and the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding
on the last business day of such calendar year; (3) the Bonds
held and the number of Units of such Trust outstanding on the
last business day of such calendar year; (4) the Redemption Price
per Unit based upon the last computation thereof made during such
calendar year; and (5) the amounts actually distributed during
such calendar year from the Interest Account and from the Principal
Account of such Trust, separately stated, expressed both as total
dollar amounts and as dollar amounts representing the pro rata
share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds in their Trust furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information
in respect of each plan of distribution so that Unit holders may
be informed regarding the results of the other plan or plans of
distribution.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender
to the Trustee at its corporate trust office in the City of New
York of the certificates representing the Units to be redeemed,
duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed as explained above (or by providing
satisfactory indemnity, as in connection with lost, stolen or
destroyed certificates), and payment of applicable governmental
charges, if any. No redemption fee will be charged. On the seventh
calendar day following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount
for each Unit equal to the Redemption Price per Unit next computed
after receipt by the Trustee of such tender of Units. The "date
of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the
close of trading (4:00 p.m. Eastern time) on the New York Stock
Exchange, the date of tender is the next day on which such Exchange
is open for trading and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the redemption
price computed on that day. Units so redeemed shall be cancelled.
Page 26
Accrued interest to the settlement date paid on redemption shall
be withdrawn from the Interest Account of the Trust or, if the
balance therein is insufficient, from the Principal Account of
the Trust. All other amounts paid on redemption shall be withdrawn
from the Principal Account of the Trust.
The Redemption Price per Unit (and the Secondary Market Public
Offering Price per Unit) will be determined on the basis of the
bid price of the Bonds in a Trust, as of the close of trading
on the New York Stock Exchange on the date any such determination
is made. The Redemption Price per Unit is the pro rata share of
each Unit determined by the Trustee on the basis of (1) the cash
on hand in the Trust or moneys in the process of being collected,
(2) the value of the Bonds in such Trust based on the bid prices
of the Bonds, except for those cases in which the value of the
insurance, if applicable, has been added, and (3) interest accrued
thereon, less (a) amounts representing taxes or other governmental
charges payable out of such Trust, (b) the accrued expenses of
such Trust and (c) cash held for distribution to Unit holders
of record as of a date prior to the evaluation then being made.
The Evaluator may determine the value of the Bonds in such Trust
(1) on the basis of current bid prices of the Bonds obtained from
dealers or brokers who customarily deal in bonds comparable to
those held by such Trust, (2) on the basis of bid prices for bonds
comparable to any Bonds for which bid prices are not available,
(3) by determining the value of the Bonds by appraisal, or (4)
by any combination of the above. In determining the Redemption
Price per Unit for a Trust, no value will be attributed to the
portfolio insurance covering the Bonds in such Trust unless such
Bonds are in default in payment of principal or interest or in
significant risk of such default. On the other hand, Bonds insured
under a policy obtained by the Bond issuer, the underwriters,
the Sponsor or others are entitled to the benefits of such insurance
at all times and such benefits are reflected and included in the
market value of such Bonds. See "Why and How are the Trusts Insured?"
For a description of the situations in which the evaluator may
value the insurance obtained by the Trust, see "Public Offering-How
is the Public Offering Price Determined?"
The Trustee is empowered to sell underlying Bonds in a Trust in
order to make funds available for redemption. To the extent that
Bonds are sold, the size and diversity of such Trust will be reduced.
Such sales may be required at a time when Bonds would not otherwise
be sold and might result in lower prices than might otherwise
be realized. The Trustee may obtain Permanent Insurance on the
Bonds in a Trust covered by the Insurance Policy. Accordingly,
any Bonds insured under the Insurance Policy may be sold on an
insured basis (as will Preinsured Bonds).
The right of redemption may be suspended and payment postponed
for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings, or during
which the Securities and Exchange Commission determines that trading
on that Exchange is restricted or an emergency exists, as a result
of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit. Under certain extreme circumstances,
the Sponsor may apply to the Securities and Exchange Commission
for an order permitting a full or partial suspension of the right
of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, it may purchase
such Units by notifying the Trustee before 12:00 p.m. Eastern
time on the next succeeding business day and by making payment
therefor to the Unit holder not later than the day on which the
Units would otherwise have been redeemed by the Trustee. Units
held by the Sponsor may be tendered to the Trustee for redemption
as any other Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
Page 27
How May Bonds be Removed from the Trusts?
The Trustee is empowered to sell, for the purpose of redeeming
Units tendered by any Unit holder and for the payment of expenses
for which funds may not be available, such of the Bonds in each
Trust on a list furnished by the Sponsor as the Trustee in its
sole discretion may deem necessary. As described in the following
paragraph and in certain other unusual circumstances for which
it is determined by the Depositor to be in the best interests
of the Unit holders or if there is no alternative, the Trustee
is empowered to sell Bonds in a Trust which are in default in
payment of principal or interest or in significant risk of such
default and for which value has been attributed to the insurance,
if any, obtained by the Trusts. See "How May Units be Redeemed?"
The Sponsor is empowered, but not obligated, to direct the Trustee
to dispose of Bonds in a Trust in the event of advanced refunding.
The Sponsor may from time to time act as agent for a Trust with
respect to selling Bonds out of a Trust. From time to time, the
Trustee may retain and pay compensation to the Sponsor subject
to the restrictions under the Investment Company Act of 1940,
as amended.
If any default in the payment of principal or interest on any
Bond occurs and no provision for payment is made therefor, either
pursuant to the portfolio insurance, if any, or otherwise, within
thirty days, the Trustee is required to notify the Sponsor thereof.
If the Sponsor fails to instruct the Trustee to sell or to hold
such Bond within thirty days after notification by the Trustee
to the Sponsor of such default, the Trustee may, in its discretion,
sell the defaulted Bond and not be liable for any depreciation
or loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made
by an issuer of any of the Bonds to issue new obligations in exchange
and substitution for any Bonds pursuant to a refunding or refinancing
plan, except that the Sponsor may instruct the Trustee to accept
such an offer or to take any other action with respect thereto
as the Sponsor may deem proper if the issuer is in default with
respect to such Bonds or in the written opinion of the Sponsor
the issuer will probably default in respect to such Bonds in the
foreseeable future. Any obligations so received in exchange or
substitution will be held by the Trustee subject to the terms
and conditions in the Indenture to the same extent as Bonds originally
deposited thereunder. Within five days after the deposit of obligations
in exchange or substitution for underlying Bonds, the Trustee
is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph, the
acquisition by the Trust of any securities other than the Bonds
initially deposited is prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust,
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $7 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 March 31, 1993, the total partners' capital of Nike Securities
L.P. was $12,887,960 (unaudited). (This paragraph relates only
to the Sponsor and not to the Trust or to any series thereof or
to any other Underwriters. The information is included herein
only for the purpose of informing investors as to the financial
responsibility of the Sponsor and its ability to carry out its
contractual obligations. More detailed financial information will
be made available by the Sponsor upon request.)
Page 28
Who is the Trustee?
The Trustee is United States Trust Company of New York, with its
principal place of business at 45 Wall Street, New York, New York
10005 and its unit investment trust offices at 770 Broadway, New
York, New York 10003. Unit holders who have questions regarding
the Trusts may call the Customer Service Help Line at 1-800-682-7520.
The Trustee is a member of the New York Clearing House Association
and subject to supervision and examination by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the portfolio or the Insurance Policy. For
information relating to the responsibilities of the Trustee under
the Indenture, reference is made to the material set forth under
"Rights of Unit Holders."
The Trustee and any successor trustee may resign by executing
an instrument in writing and filing the same with the Sponsor
and mailing a copy of a notice of resignation to all Unit holders.
Upon receipt of such notice, the Sponsor is obligated to appoint
a successor trustee promptly. If the Trustee becomes incapable
of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Indenture. If upon resignation
of a trustee no successor has accepted the appointment within
thirty days after notification, the retiring trustee may apply
to a court of competent jurisdiction for the appointment of a
successor. The resignation or removal of a trustee becomes effective
only when the successor trustee accepts its appointment as such
or when a court of competent jurisdiction appoints a successor
trustee.
Any corporation into which the Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Trustee shall be a party,
shall be the successor Trustee. The Trustee must be a banking
corporation organized under the laws of the United States or any
State and having at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit
holders for taking any action or for refraining from taking any
action in good faith pursuant to the Indenture, or for errors
in judgment, but shall be liable only for their own willful misfeasance,
bad faith, gross negligence (ordinary negligence in the case of
the Trustee) or reckless disregard of their obligations and duties.
The Trustee shall not be liable for depreciation or loss incurred
by reason of the sale by the Trustee of any of the Bonds. In the
event of the failure of the Sponsor to act under the Indenture,
the Trustee may act thereunder and shall not be liable for any
action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in
respect of the Trust which the Trustee may be required to pay
under any present or future law of the United States of America
or of any other taxing authority having jurisdiction. In addition,
the Indenture contains other customary provisions limiting the
liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or
its affairs are taken over by public authorities, then the Trustee
may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and not exceeding amounts prescribed
by the Securities and Exchange Commission, or (b) terminate the
Indenture and liquidate the Trust as provided herein, or (c) continue
to act as Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East
Roosevelt Road, Suite 200, Wheaton, Illinois 60187. The Evaluator
may resign or may be removed by the Sponsor and the Trustee, in
which event the Sponsor and the Trustee are to use their best
efforts to appoint a satisfactory successor. Such resignation
or removal shall become effective upon the acceptance of appointment
by the successor Evaluator. If upon
Page 29
resignation of the Evaluator no successor has accepted appointment
within thirty days after notice of resignation, the Evaluator
may apply to a court of competent jurisdiction for the appointment
of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the
Indenture shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator
shall be under no liability to the Trustee, Sponsor or Unit holders
for errors in judgment. This provision shall not protect the Evaluator
in any case of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee),
provided that the Indenture is not amended to increase the number
of Units of any Trust issuable thereunder or to permit the deposit
or acquisition of securities either in addition to or in substitution
for any of the Bonds of any Trust initially deposited in a Trust,
except for the substitution of certain refunding securities for
Bonds. In the event of any amendment, the Trustee is obligated
to notify promptly all Unit holders of the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of
the Unit holders of such Trust or by the Trustee when the value
of such Trust, as shown by any evaluation, is less than 20% of
the aggregate principal amount of the Bonds initially deposited
in the Trust. The Indenture will terminate upon the redemption,
sale or other disposition of the last Bond held thereunder, but
in no event shall it continue beyond the mandatory termination
date specified in Part One of this Prospectus. In the event of
termination, written notice thereof will be sent by the Trustee
to all Unit holders of such Trust. Within a reasonable period
after termination, the Trustee will sell any Bonds remaining in
such Trust and, after paying all expenses and charges incurred
by such Trust, will distribute to each Unit holder of such Trust
(including the Sponsor if it then holds any Units), upon surrender
for cancellation of his Certificate for Units, his pro rata share
of the balances remaining in the Interest and Principal Accounts
of such Trust, all as provided in the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating
to Federal tax law have been passed upon by Chapman and Cutler,
111 West Monroe Street, Chicago, Illinois 60603, as counsel for
the Sponsor. Carter, Ledyard & Milburn, 2 Wall Street, New York,
New York 10005, will act as counsel for the Trustee and as special
counsel for the Trusts for New York tax matters.
Experts
The statements of net assets, including the portfolios of each
Trust, contained in Part One for each Prospectus and Registration
Statement have been audited by Ernst & Young, independent auditors,
as set forth in their reports thereon appearing elsewhere therein
and in the Registration Statement, and are included in reliance
upon such reports given upon the authority of such firm as experts
in accounting and auditing.
Page 30
DESCRIPTION OF BOND RATINGS*
Standard & Poor's Corporation. A brief description of the applicable
Standard & Poor's Corporation rating symbols and their meanings
follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect
to a specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold
a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
l. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangements
under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
AA - Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of, or the risk of default upon failure of, such completion. The
investor should exercise his/her own judgment with respect to
such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings
of bonds and other fixed income securities. It focuses on events
and trends which place companies and government units under special
surveillance by S&P's 180-member analytical staff. These may include
mergers, voter referendums, actions by regulatory authorities,
or developments gleaned from analytical reviews. Unless otherwise
noted, a rating decision will be made within 90 days. Issues appear
on Credit Watch where an event, situation, or deviation
* As published by the rating companies.
** Bonds insured by Financial Security Assurance, Inc., Capital
Markets Assurance Corporation or AMBAC Indemnity Corporation are
automatically rated "AAA" by Standard & Poor's Corporation.
Page 31
from trends occurred and needs to be evaluated as to its impact
on credit ratings. A listing, however, does not mean a rating
change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing
on Credit Watch.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings
follow:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Their safety
is so absolute that with the occasional exception of oversupply
in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat large than in Aaa
securities. Their market value is virtually immune to all but
money market influences, with the occasional exception of oversupply
in a few specific instances.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. The market value of A-rated
bonds may be influenced to some degree by economic performance
during a sustained period of depressed business conditions, but,
during periods of normalcy, A-rated bonds frequently move in parallel
with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A 1 and Baa 1 - Bonds which are rated A 1 and Baa 1 offer the
maximum in security within their quality group, can be bought
for possible upgrading in quality, and additionally, afford the
investor an opportunity to gauge more precisely the relative attractiveness
of offerings in the market place.
Baa - Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length
of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well. The market
value of Baa-rated bonds is more sensitive to changes in economic
circumstances, and aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations will move in
parallel with Aaa, Aa, and A obligations during periods of economic
normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of
a generic rating classification. The modifier 1 indicates that
the bond ranks at the high end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Con.(---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of construction
or elimination of basis of condition.
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Page 35
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
The First Trust Special Situations Trust
The First Trust Insured Corporate Trust Series:
What is The First Trust Special Situations Trust? 3
What are Estimated Long-Term Return and
Estimated Current Return? 9
How is Accrued Interest Treated? 9
Why and How are the Trusts Insured? 10
What is the Federal Tax Status of Unit Holders? 16
What are the Expenses and Charges? 19
Public Offering:
How is the Public Offering Price Determined? 20
How are Units Distributed? 23
What are the Sponsor's Profits? 24
Rights of Unit Holders:
How are Certificates Issued and Transferred? 24
How are Interest and Principal Distributed? 24
How Can Distributions to Unit Holders be
Reinvested? 25
What Reports Will Unit Holders Receive? 26
How May Units be Redeemed? 26
How May Units be Purchased by the Sponsor? 27
How May Bonds be Removed from the Trusts? 28
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 28
Who is the Trustee? 29
Limitations on Liabilities of Sponsor and Trustee 29
Who is the Evaluator? 29
Other Information:
How May the Indenture be Amended or
Terminated? 30
Legal Opinions 30
Experts 30
Description of Bond Ratings 31
</TABLE>
______________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH
IN THE REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO,
WHICH THE FUND HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST
The First Trust
Insured Corporate
Trust
Prospectus
Part Two
August 31, 1993
First Trust
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 36
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
35 THE FIRST TRUST INSURED CORPORATE TRUST, SERIES 5, 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 July 1, 1994.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 35
THE FIRST TRUST INSURED CORPORATE TRUST,
SERIES 5
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Carlos E. Nardo
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) July 1, 1994
the General Partner )
of Nike Securities L.P. )
)
) Carlos E. Nardo
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Special Situations Trust, Series 18 (File No. 33-42683) and
the same is hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated May 20, 1994 in this
Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated June 21, 1994.
ERNST & YOUNG
Chicago, Illinois
June 20, 1994
