File No. 33-53340
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 46
STRATEGIC EQUITY TRUST, SERIES 1
(Exact Name of Trust)
NIKE SECURITIES L.P.
(Exact Name of Depositor)
1001 Warrenville Road
Lisle, Illinois 60532
(Complete address of Depositor's principal executive offices)
NIKE SECURITIES L.P. CHAPMAN AND CUTLER
Attn: James A. Bowen Attn: Eric F. Fess
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(Name and complete address of agents for service)
It is proposed that this filing will become effective (check
appropriate box)
: : immediately upon filing pursuant to paragraph (b)
: x : September 30, 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
July 21, 1994.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
480,439 UNITS
PROSPECTUS
Part One
Dated September 22, 1994
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The Strategic Equity Trust, Series 1 (the "Trust") is a unit investment trust
consisting of a portfolio of zero coupon bonds issued by the State of Illinois
(the "zero coupon bonds") and common stocks issued by companies which, at the
Initial Date of Deposit, provided income or were considered to have the
potential for capital appreciation. At August 16, 1994, each Unit represented
a 1/480,439 undivided interest in the principal and net income of the Trust
(see "The Trust" in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price per 100 Units is equal to the aggregate value of the
Securities in the Portfolio of the Trust, plus or minus cash, if any, in the
Income and Capital Accounts of the Trust divided by the number of Units
outstanding, multiplied by 100, plus a sales charge of 5.8% of the Public
Offering Price (6.157% of the net amount invested) excluding income and
principal cash. At August 16, 1994, the Public Offering Price per 100 Units
was $992.13 (see "Public Offering" in Part Two). The minimum purchase is 100
Units.
Please retain both parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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>
Aggregate Maturity Value of Zero Coupon Bonds in the Trust $4,805,000
Number of Units 480,439
Fractional Undivided Interest in the Trust per Unit 1/480,439
Public Offering Price:
Aggregate Value of Securities in the Portfolio $4,481,815
Aggregate Value of Securities per 100 Units $932.86
Income and Principal cash in the Portfolio $8,778
Income and Principal cash per 100 Units $1.83
Sales Charge 6.157% (5.8% of Public Offering Price,
excluding income and principal cash) $57.44
Public Offering Price per 100 Units $992.13
Redemption Price and Sponsor's Repurchase Price per 100
Units ($57.44 less than the Public Offering Price per
100 Units) $934.69
</TABLE>
Date Trust Established October 28, 1992
Mandatory Termination Date August 1, 2007
Evaluator's Annual Fee: $.30 per 100 Units outstanding. Evaluations for
purposes of sale, purchase or redemption of Units are made as of the close of
trading (4:00 p.m. Eastern time) on the New York Stock Exchange on each day on
which it is open.
Supervisory fee payable to an affiliate Maximum of $.25 per 100
of the Sponsor Units outstanding annually
Trustee's Annual Fee: $.84 per 100 Units outstanding.
Income Distribution Record Date: First day of each July and twentieth day of
each December.
Income Distribution Date: Fifteenth day of each July and thirty-first day of
each December.
Capital Record Date and Distribution Date: Distributions from the Capital
Account will be made monthly payable on the last day of the month to Unit
holders of record on the fifteenth day of such month if the amount available
for distribution equals at least $1.00 per 100 Units. Any remaining balance
in the Capital Account will be distributed in December of each year.
A Unit holder who owns at least 2,500 Units may request an "In-Kind
Distribution" upon termination of the Trust. See "Rights of Unit Holders -
How are Income and Capital Distributed?" in Part Two.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Special Situations Trust, Series 46,
Strategic Equity Trust, Series 1
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust, Series
46, Strategic Equity Trust, Series 1 as of May 31, 1994, and the related
statements of operations and changes in net assets for the year then ended and
for the period from the Initial Date of Deposit, October 28, 1992, to May 31,
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 May 31, 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 46, Strategic Equity Trust, Series 1 at May 31, 1994,
and the results of its operations and changes in its net assets for the year
then ended and for the period from the Initial Date of Deposit, October 28,
1992, to May 31, 1993, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 31, 1994
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Securities, at value (cost, including accretion
on the zero coupon bonds, $4,770,792) (Note 1) $4,643,471
Cash 19,143
Dividends receivable 1,864
__________
4,664,478
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Accrued liabilities 1,894
__________
Net assets, applicable to 504,900 outstanding
units of fractional undivided interest:
Cost of Trust assets, including accretion on
the zero coupon bonds (Note 1) $4,770,792
Net unrealized depreciation (Note 2) (127,321)
Distributable funds 19,113
__________
$4,662,584
==========
Net asset value per 100 units $923.47
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
PORTFOLIO - See notes to portfolio.
May 31, 1994
<TABLE>
<CAPTION>
Maturity Market
value Name of Issuer and Title of Security value
<C> <S> <C>
State of Illinois, General Obligation College
Savings Bonds, Series of October 1992
(Zero Coupon) (AAA Rated) (2)
(AMBAC Insured) (3) maturing:
$1,305,000 August 1, 2004 $728,986
1,305,000 August 1, 2005 680,923
1,310,000 August 1, 2006 637,236
1,310,000 August 1, 2007 593,679
__________ _________
$5,230,000 Total Zero Coupon Bonds 2,640,824
==========
</TABLE>
<TABLE>
<CAPTION>
Number
of Shares Name of Issuer of Equity Securities
<C> <S> <C>
4,837 Abbott Laboratories 144,505
5,453(5) Archer-Daniels-Midland Company 131,554
1,784 Automatic Data Processing, Inc. (ADP) 95,221
2,081 Bandag, Inc. 106,391
2,218 Bristol-Myers Squibb Company 121,158
1,089 Coca-Cola Company 43,832
4,990 ConAgra, Inc. 143,463
2,598(4) General Electric Corporation 129,250
1,936 Heinz (HJ) Company 66,066
2,619 McDonald's Corporation 162,378
2,837 Merck & Company, Inc. 86,529
1,915 Quaker Oats 128,544
3,471 R.R. Donnelley and Sons Company 95,453
3,894 Safety-Kleen Corporation 62,304
1,120 Sara Lee Corporation 24,080
1,828 Student Loan Marketing Association
(Sallie Mae) 72,206
2,818 Walgreen Company 115,186
3,439 Wal-Mart Stores, Inc. 80,817
422 WMX Technologies Inc. (formerly Waste
Management Inc.) 11,552
3,563 Wm. Wrigley Jr. Company 182,158
__________
Total equity securities 2,002,647
__________
Total investments $4,643,471
==========
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
NOTES TO PORTFOLIO
May 31, 1994
(1) The zero coupon bonds have been purchased at a discount from their par
value because there is no stated interest income thereon. Over the life
of the zero coupon bonds the value increases, so that upon maturity the
holders will receive 100% of the principal amount thereof. In the
Sponsor's opinion, it is unclear whether distributions from the Trust
relating to the Zero Coupon Bonds are exempt from Illinois income taxes.
Under current regulations of the State of Illinois, the tuition fee
credit associated with its General Obligation College Savings Bonds,
Series of October 1992, will not be passed through to Unit holders of
the Trust. While the Sponsor is seeking expansion of this
interpretation, it is currently unable to predict whether or to what
extent pass-through treatment of the tuition fee credit may be permitted
to a Unit holder of the Trust.
(2) The rating is by Standard & Poor's Corporation.
(3) Insurance has been obtained by the Sponsor prior to the Date of Deposit.
No premium is payable by the Trust.
(4) The number of shares reflects the effect of a two for one stock split.
(5) The number of shares reflects the effect of a 5% stock dividend.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
the Initial
Date of
Deposit,
Oct. 28,
Year ended 1992, to
May 31, May 31,
1994 1993
<S> <C> <C>
Interest income $169,726 68,378
Dividends 50,767 28,125
____________________
Total investment income 220,493 96,503
Expenses:
Trustee's fees and related expenses (9,337) (2,405)
Evaluator's fees (1,753) (777)
Supervisory fees (1,571) (529)
____________________
Total expenses (12,661) (3,711)
____________________
Investment income - net 207,832 92,792
Net gain (loss) on investments:
Net realized gain (loss) (81,461) 1,896
Change in unrealized appreciation
or depreciation (20,604) (106,717)
____________________
(102,065) (104,821)
____________________
Net increase (decrease) in net assets resulting
from operations $105,767 (12,029)
====================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
the Initial
Date of
Deposit,
Oct. 28,
Year ended 1992, to
May 31, May 31,
1994 1993
<S> <C> <C>
Net increase (decrease) in net assets resulting
from operations:
Investment income - net $207,832 92,792
Net realized gain (loss) on investments (81,461) 1,896
Change in unrealized appreciation or
depreciation on investments (20,604) (106,717)
______________________
105,767 (12,029)
Units issued (610,000 in 1993) - 5,640,809
Units redeemed (138,100 and 17,000 in 1994
and 1993, respectively):
Principal portion (1,323,021) (153,558)
Net interest accrued (2,843) (620)
______________________
(1,325,864) (154,178)
Distributions to unit holders:
Investment income - net (39,746) (717)
Principal from investment transactions - -
______________________
(39,746) (717)
______________________
Total increase (decrease) in net assets (1,259,843) 5,473,885
Net assets:
At the beginning of the period (representing
643,000 and 50,000 units outstanding,
respectively) 5,922,427 448,542
______________________
At the end of the period (including
distributable funds applicable to Trust
units of $19,113 and $23,337 at May 31, 1994
and 1993, respectively) $4,662,584 5,922,427
======================
Trust units outstanding at the end of the period 504,900 643,000
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
The zero coupon bonds are stated at values as determined by Securities
Evaluation Service, Inc. (the Evaluator), certain shareholders of which are
officers of the Sponsor. The values are based on (1) current bid prices for
the securities obtained from dealers or brokers who customarily deal in
securities comparable to those held by the Trust, (2) current bid prices for
comparable securities, (3) appraisal or (4) any combination of the above.
The equity securities are stated at the closing sale prices of listed equity
securities and the bid prices of over-the-counter traded equity securities as
reported by the evaluator.
Investment income -
Dividends on each equity security are recognized on such equity security's ex-
dividend date. Interest income consists of amortization of original issue
discount and market discount or premium on the zero coupon bonds. Such
amortization is included in the cost of the zero coupon bonds and not in
distributable funds because it is not currently available for distribution to
unit holders.
Security cost -
Cost of the Trust's zero coupon bonds is based on the offering price of the
zero coupon bonds on the dates the zero coupon bonds were deposited in the
Trust, plus amortization of original issue discount and amortization of market
discount or premium. Cost of the equity securities is based on the market
value of such securities on the dates the securities were deposited in the
Trust. The cost of securities sold is determined using the average cost
method. Sales of securities are recorded on the trade date.
<PAGE>
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to United States Trust Company of
New York, which is based on $.84 per annum per 100 units outstanding based on
the largest aggregate number of units outstanding during the calendar year.
In addition, the Evaluator will receive an annual fee based on $.30 per 100
units outstanding. The Trust also pays recurring financial reporting costs
and an annual supervisory fee payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized depreciation at May 31, 1994 follows:
<TABLE>
<CAPTION>
Zero coupon Equity
bonds securities Total
<S> <C> <C> <C>
Unrealized depreciation $(20,370) (235,415) (255,785)
Unrealized appreciation - 128,464 128,464
___________________________________
$(20,370) (106,951) (127,321)
===================================
</TABLE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the zero coupon bonds and the aggregate underlying value of
the equity securities 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.
<PAGE>
Distributions to unit holders -
Income distributions to unit holders are made semiannually on July 15 and
December 31 to unit holders of record on July 1 and December 20, respectively.
Principal distributions to unit holders, if any, are made on the last day of
each month to unit holders of record on the fifteenth day of each month if the
amount available for distribution equals at least $1.00 per 100 Units. Any
remaining balance in the principal cash account will be distributed in
December of each year.
Selected data per 100 units of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from
the Initial
Date of
Deposit,
Oct. 28,
Year ended 1992, to
May 31, May 31,
1994 1993
<S> <C> <C>
Investment income - interest and dividends $38.03 22.18
Expenses (2.18) (.85)
__________________
Investment income - net 35.85 21.33
Distributions to unit holders:
Investment income - net (6.37) (.33)
Principal from investment transactions - -
Net gain (loss) on investments (27.07) 2.98
__________________
Total increase (decrease) in net assets 2.41 23.98
Net assets:
Beginning of the period 921.06 897.08
__________________
End of the period $923.47 921.06
==================
</TABLE>
Investment income - interest and dividends, Expenses and Investment income -
net per 100 units have been calculated based on the weighted average number of
units outstanding during each period (579,781 and 435,061 units during the
periods ended May 31, 1994 and 1993, respectively). Distributions to unit
holders of Investment income - net per 100 units reflects the Trust's actual
distributions of approximately $4.03 per 100 units to 643,000 units on
July 15, 1993, $2.34 per 100 units to 591,000 units on December 31, 1993, and
$.33 per 100 units to 220,000 units on December 31, 1992. The net gain (loss)
on investments per 100 units during the period ended May 31, 1993 includes the
effects of changes arising from issuance of 610,000 additional units during
the period at net asset values which differed from the net asset value per 100
units of the original 50,000 units ($897.08 per 100 units) on October 28,
1992.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
PART ONE
Must be Accompanied by Part Two
___________________
P R O S P E C T U S
___________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: United States Trust Company of New York
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
Strategic Equity Series
The First Trust Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated September 26, 1994
The Trust. The First Trust Special Situations Trusts (the "Trusts"
and each a "Trust") are unit investment trusts consisting of portfolios
containing zero coupon bonds issued by the State of Illinois and
common stocks issued by companies which, at the Initial Date of
Deposit, provided income or were considered to have the potential
for capital appreciation. Approximately 50% of the Equity Securities
at the Initial Date of Deposit consisted of common stocks of companies
headquartered or incorporated in the State of Illinois.
The objectives of the Trusts are to protect Unit holders' capital
and provide for income or potential capital appreciation by investing
a portion of their portfolios in zero coupon bonds issued by the
State of Illinois (the "Zero Coupon Bonds"), and the remainder
of the Trusts' portfolios in common stocks issued by companies
which, at the Initial Date of Deposit, provided income or were
considered to have the potential for capital appreciation (the
"Equity Securities"). Collectively the Zero Coupon Bonds and the
Equity Securities are referred to herein as the "Securities."
See "Portfolio" appearing in Part One for each Trust. The Trusts
have a Mandatory Termination Date as set forth under "Summary
of Essential Information" appearing in Part One for each Trust.
The Zero Coupon Bonds evidence the right to receive fixed payments
at future dates from the State of Illinois. The market value of
the Zero Coupon Bonds and the Units of the Trusts will fluctuate
and, prior to maturity, may be worth more or less than a purchaser's
acquisition cost. There is, of course, no guarantee that the objectives
of the Trusts will be achieved.
Each Unit of the Trusts represents an undivided fractional interest
in all the Securities deposited in the Trusts. The Trusts have
been organized so that purchasers of Units should receive, by
the termination of the Trusts, an amount per Unit at least equal
to $10.00 (which is equal to the cumulative per Unit value upon
maturity of the Zero Coupon Bonds), even if the Trusts never paid
a dividend and the value of the Equity Securities were to decrease
to zero, which the Sponsor considers highly unlikely. This feature
of the Trusts provides Unit holders who purchase Units at a price
of $10.00 or less per Unit with total principal protection, including
any sales charges paid, although they might forego any earnings
on the amount invested. To the extent that Units are purchased
at a price less than $10.00 per Unit, this feature may also provide
a potential for capital appreciation. UNIT HOLDERS DISPOSING OF
THEIR UNITS PRIOR TO THE MATURITY OF THE TRUSTS MAY RECEIVE MORE
OR LESS THAN $10.00 PER UNIT, DEPENDING ON MARKET CONDITIONS ON
THE DATE UNITS ARE SOLD OR REDEEMED.
The Zero Coupon Bonds deposited in the Trust will mature on August
1st of 2004, 2005, 2006 and 2007 (the "Zero Coupon Bonds' Maturity
Dates"). The Zero Coupon Bonds in the Trust had an aggregate maturity
value equal to or greater than the aggregate Public Offering Price
(which includes the sales charge) of the Units of the Trust on
the Initial Date of Deposit. The Equity Securities deposited in
the Trusts' portfolio have no fixed maturity date and the value
of these underlying Equity Securities will fluctuate with changes
in the values of stocks in general and with changes in the conditions
and performance of the specific Equity Securities owned by the
Trusts. See "Portfolio" appearing in Part One for each Trust.
Insurance guaranteeing the scheduled payment of all principal
and interest on the Zero Coupon Bonds in the Trusts, was obtained
directly by the Sponsor prior to the Initial Date of Deposit from
AMBAC Indemnity Corporation. Such insurance is effective so long
as the Zero Coupon Bonds are outstanding. The insurance relates
only to the Zero Coupon Bonds in the Trusts and not to the Units
offered hereby. See "How are the Zero Coupon Bonds Insured?" on
page 13. No representation is made as to AMBAC Indemnity Corporation's
ability to meet its commitments.
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
Public Offering Price. The secondary market Public Offering Price
per Unit will be based upon a pro rata share of the bid prices
of the Zero Coupon Bonds and the aggregate underlying value of
the Equity Securities in the Trusts (generally determined by the
closing sale prices of listed Equity Securities and the bid prices
of over-the-counter traded Equity Securities) plus or minus a
pro rata share of cash, if any, in the Capital and Income Accounts
of the Trusts plus a sales charge as indicated in Part One for
each Trust. The minimum purchase is as indicated in Part One for
each Trust. The sales charge is reduced on a graduated scale for
sales involving at least a minimum number of Units. See "How is
the Public Offering Price Determined?"
Dividend and Capital Distributions. Distributions of dividends
and capital, if any, received by the Trusts will be paid in cash
on the Distribution Date to Unit holders of record on the Record
Date as set forth in the "Summary of Essential Information" appearing
in Part One for each Trust. Any distribution of income and/or
capital will be net of the expenses of a Trust. Distributions
of funds in the Capital Account, if any, will be made at least
annually in December of each year. THE ZERO COUPON BONDS DO NOT
PROVIDE FOR THE PAYMENT OF ANY CURRENT INTEREST AND PROVIDE FOR
PAYMENT OF PRINCIPAL AND INTEREST AT MATURITY AT FACE VALUE UNLESS
SOLD SOONER. UNIT HOLDERS MAY BE SUBJECT TO STATE INCOME TAX WITH
RESPECT TO THE AMORTIZATION OF ORIGINAL ISSUE DISCOUNT ON THE
ZERO COUPON BONDS AS IF A DISTRIBUTION OF INCOME HAD OCCURRED.
With certain exceptions applicable to corporate Unit holders,
tax-exempt original issue discount which accrues with respect
to the Zero Coupon Bonds will retain its status as tax-exempt
original issue discount for Federal income tax purposes. See "What
is the Federal Tax Status of Unit Holders?" Additionally, upon
termination of a Trust, the Trustee will distribute, upon surrender
of Units for redemption, to each Unit holder his pro rata share
of a Trust's assets, less expenses, in the manner set forth under
"Rights of Unit Holders-How are Income and Capital Distributed?"
Secondary Market for Units. The Sponsor may maintain a market
for Units of the Trusts and offer to repurchase such Units at
prices which are based on the aggregate bid side evaluation of
the Zero Coupon Bonds and the aggregate underlying value of Equity
Securities in the Trusts (generally determined by the closing
sale prices of listed Equity Securities and the bid prices of
over-the-counter traded Equity Securities) plus or minus cash,
if any, in the Capital and Income Accounts of the Trust. As of
the date of this Prospectus, the Sponsor is maintaining a secondary
market. If a secondary market is not maintained in the future,
a Unit holder may redeem Units through redemption at prices based
upon the aggregate bid price of the Zero Coupon Bonds plus the
aggregate underlying value of the Equity Securities in a Trust
(generally determined by the closing sale prices of listed Equity
Securities and the bid prices of over-the-counter traded Equity
Securities) plus or minus a pro rata share of cash, if any, in
the Capital and Income Accounts of a Trust. See "How May Units
be Redeemed?"
Termination. Commencing on the Final Zero Coupon Bonds' Maturity
Date, Equity Securities will begin to be sold in connection with
the termination of a Trust. The Sponsor will determine the manner,
timing and execution of the sale of the Equity Securities. Written
notice of any termination of a Trust specifying the time or times
at which Unit holders may surrender their certificates for cancellation
shall be given by the Trustee to each Unit holder at his address
appearing on the registration books of the Trust maintained by
the Trustee. At least 60 days prior to the Final Zero Coupon Bonds'
Maturity Date the Trustee will provide written notice thereof
to all Unit holders and will include with such notice a form to
enable Unit holders to elect a distribution of shares of Equity
Securities (reduced by customary transfer and registration charges)
if such Unit holder owns at least the amount specified in "Summary
of Essential Information" appearing in Part One for each Trust,
rather than to receive payment in cash for such Unit holder's
pro rata share of the amounts realized upon the disposition by
the Trustee of Equity Securities. All Unit holders will receive
their pro rata portion of the Zero Coupon Bonds in cash by the
termination of a Trust. To be effective, the election form, together
with surrendered certificates and other documentation required
by the Trustee, must be returned to the Trustee at least five
business days prior to the Final Zero Coupon Bonds' Maturity Date.
Unit holders not electing a distribution of shares of Equity Securities
will receive a cash distribution from the sale of the remaining
Securities within a reasonable time after a Trust is terminated.
See "Rights of Unit Holders-How are Income and Capital Distributed?"
Page 2
Strategic Equity Series
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust is a series of investment
companies created by the Sponsor under the name of The First Trust
Special Situations Trust, all of which are generally similar but
each of which is separate and is designated by a different series
number (the "Trusts" and each a "Trust"). Each Series consists
of an underlying separate unit investment trust consisting of
zero coupon bonds issued by the State of Illinois and common stocks,
created under the laws of the State of New York pursuant to a
Trust Agreement (the "Indenture"), dated the Initial Date of Deposit,
with Nike Securities L.P., as Sponsor, United States Trust Company
of New York, as Trustee, Securities Evaluation Service, Inc.,
as Evaluator, and First Trust Advisors L.P., as Portfolio Supervisor.
The objectives of the Trusts are to protect Unit holders' capital
and provide for income or potential capital appreciation by investing
a portion of its portfolio in zero coupon bonds issued by the
State of Illinois (the "Zero Coupon Bonds"), and the remainder
of the Trusts' portfolios in common stocks issued by companies
which, at the Initial Date of Deposit, provided income or were
considered to have the potential for capital appreciation (the
"Equity Securities"). Collectively, the Zero Coupon Bonds and
the Equity Securities are referred to herein as the "Securities."
See "Portfolio" appearing in Part One for each Trust. Each Trust
has a Mandatory Termination Date as set forth under "Summary of
Essential Information" appearing in Part One for each Trust. The
Zero Coupon Bonds evidence the right to receive fixed payments
at future dates from the State of Illinois. The market value of
the Zero Coupon Bonds and the Units of the Trusts will fluctuate
and, prior to maturity, may be worth more or less than a purchaser's
acquisition cost. The Equity Securities in the Trusts consist
of common stocks of companies which, at the Initial Date of Deposit,
provided income or were considered to have the potential for capital
appreciation. Approximately 50% of the Equity Securities at the
Initial Date of Deposit consisted of common stocks of companies
headquartered or incorporated in the State of Illinois. There
is, of course, no guarantee that the objectives of the Trusts
will be achieved.
Insurance guaranteeing the scheduled payment of all principal
and interest on the Zero Coupon Bonds in the Trust was obtained
directly by the Sponsor prior to the Initial Date of Deposit from
AMBAC Indemnity Corporation. Such insurance is effective so long
as such Zero Coupon Bonds are outstanding. See "How are the Zero
Coupon Bonds Insured?"
What are the Expenses and Charges?
At no cost to the Trusts, the Sponsor has borne all the expenses
of creating and establishing the Trusts, including the cost of
the initial preparation, printing and execution of the Indenture
and the certificates for the Units, legal and accounting expenses,
expenses of the Trustee and other out-of-pocket expenses. The
Sponsor will not receive any fees in connection with its activities
relating to the Trusts. However, First Trust Advisors L.P., an
affiliate of the Sponsor, will receive an annual supervisory fee,
which is not to exceed the amount set forth under "Summary of
Essential Information" appearing in Part One for each Trust, for
providing portfolio supervisory services for each Trust. Such
fee is based on the number of Units outstanding in the Trust on
January 1 of each year except for the year or years in which an
initial offering period occurs in which case the fee for a month
is based on the number of Units outstanding at the end of such
month. The fee may exceed the actual costs of providing such supervisory
services for a Trust, but at no time will the total amount received
for portfolio supervisory services rendered to unit investment
trusts of which Nike Securities L.P. is the Sponsor in any calendar
year exceed the aggregate cost to First Trust Advisors L.P. of
supplying such services in such year.
The Evaluator will receive a fee as indicated in the "Summary
of Essential Information" appearing in Part One for each Trust.
The Trustee pays certain expenses of the Trusts for which it is
reimbursed by each Trust. The Trustee will receive for its ordinary
recurring services to the Trusts an annual fee as indicated in
Part One for
Page 3
each Trust. For a discussion of the services performed by the
Trustee pursuant to its obligations under the Indenture, reference
is made to the material set forth under "Rights of Unit Holders."
The Trustee's and Evaluator's fees are payable from the Income
Account of a Trust to the extent funds are available and then
from the Capital Account of the Trust. Since the Trustee has the
use of the funds being held in the Capital and Income Accounts
for payment of expenses and redemptions and since such Accounts
are noninterest-bearing to Unit holders, the Trustee benefits
thereby. Part of the Trustee's compensation for its services to
a Trust is expected to result from the use of these funds. Both
fees may be increased without approval of the Unit holders by
amounts not exceeding proportionate increases under the category
"All Services Less Rent of Shelter" in the Consumer Price Index
published by the United States Department of Labor.
The following additional charges are or may be incurred by the
Trusts: all legal and annual auditing expenses of the Trustee
incurred by or in connection with its responsibilities under the
Indenture; the expenses and costs of any action undertaken by
the Trustee to protect the Trusts 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 the Trusts; all taxes and
other government charges imposed upon the Securities or any part
of the Trusts (no such taxes or charges are being levied or made
or, to the knowledge of the Sponsor, contemplated). The above
expenses and the Trustee's annual fee, when paid or owing to the
Trustee, are secured by a lien on the Trusts. In addition, the
Trustee is empowered to sell Securities in the Trusts in order
to make funds available to pay all these amounts if funds are
not otherwise available in the Income and Capital Accounts of
the Trusts except that the Trustee shall not sell Zero Coupon
Bonds to pay Trust expenses. Since the Equity Securities are all
common stocks and the income stream produced by dividend payments
is unpredictable, the Sponsor cannot provide any assurance that
dividends will be sufficient to meet any or all expenses of the
Trusts. As described above, if dividends are insufficient to cover
expenses, it is likely that Equity Securities will have to be
sold to meet Trust expenses. These sales may result in the recognition
of market discount, capital gains or losses to Unit holders. See
"What is the Federal Tax Status of Unit Holders?"
The Indenture requires a Trust to be audited on an annual basis
at the expense of such Trust by independent auditors selected
by the Sponsor. So long as the Sponsor is making a secondary market
for the Units, the Sponsor is required to bear the cost of such
annual audits to the extent such cost exceeds $.50 per 100 Units.
Unit holders of a Trust covered by an audit may obtain a copy
of the audited financial statements upon request.
What is the Federal Tax Status of Unit Holders?
The following is a general discussion of certain of the Federal
income tax consequences of the purchase, ownership and disposition
of the Units of the Trusts. The summary is limited to investors
who hold the Units as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986 (the "Code"). Unit holders should consult
their tax advisers in determining the Federal, state, local and
any other tax consequences of the purchase, ownership and disposition
of Units in the Trusts. At the respective times of issuance of
the Zero Coupon Bonds, opinions relating to the validity thereof
and to the exclusion of interest and original issue discount thereon
from Federal gross income were rendered by bond counsel to the
respective issuing authority. Neither the Sponsor nor Chapman
and Cutler has made any special review for the Trusts of the proceedings
relating to the issuance of the Zero Coupon Bonds or of the bases
for such opinions. Gain realized on the sale or redemption of
the Zero Coupon Bonds by the Trustee or of a Unit by a Unit holder
is, however, includable in gross income for Federal income tax
purposes. (It should be noted in this connection that such gain
does not include any amounts received in respect of accrued tax-exempt
interest or accrued tax-exempt original issue discount, if any.)
It should be noted that under provisions of the Revenue Reconciliation
Act of 1993 (the "Tax Act") described below, that subject accretion
of market discount on tax-exempt bonds to taxation
Page 4
as ordinary income, gain realized on the sale or redemption of
Bonds by the Trustee or of Units by a Unit holder that would have
been treated as capital gain under prior law is treated as ordinary
income to the extent it is attributable to accretion of market
discount. Market discount can arise based on the price a Trust
pays for Bonds or the price a Unit holder pays for his Units.
In the opinion of Chapman and Cutler, special counsel for the
Sponsor, under existing law:
1. Each Trust is not an association taxable as a corporation
for Federal income tax purposes; each Unit holder will be treated
as the owner of a pro rata portion of the assets of a Trust under
the Code; and the income of a Trust will be treated as income
of the Unit holders thereof under the Code. Each Unit holder will
be considered to have received his pro rata share of income derived
from each Trust asset when such income is received by a Trust.
In general and as further discussed below, a Unit holder's pro
rata portion of dividends received with respect to the Equity
Securities held by a Trust will be taxable as ordinary income.
Tax-exempt original issue discount which accrues with respect
to the Zero Coupon Bonds held by a Trust will retain its status
as tax-exempt original issue discount, for Federal income tax
purposes, as such discount accrues, when distributed to a Unit
holder and in connection with the determination of a Unit holder's
basis in its interest in such Zero Coupon Bonds except that the
alternative minimum tax and the environmental tax (the "Superfund
Tax") applicable to corporate Unit holders may, in certain circumstances,
include in the amount on which such tax is calculated 75% of the
tax-exempt original issue discount which accrues with respect
to such Zero Coupon Bonds.
2. Each Unit holder will have a taxable event when a Trust disposes
of a Security (whether by sale, exchange, redemption, or payment
at maturity) or upon the sale or redemption of Units by such Unit
holder. The price a Unit holder pays for his Units, including
sales charges, is allocated among his pro rata portion of each
Security held by a Trust (in proportion to the fair market values
thereof on the date the Unit holder purchases his Units) in order
to determine his initial cost for his pro rata portion of each
Security held by a Trust. 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 Units. The amount of a Unit
holder's share of any gain or loss recognized upon the disposition
of Equity Securities or the Zero Coupon Bonds is measured by comparing
the Unit holder's pro rata share of the total proceeds from such
disposition with his basis for his fractional interest in the
asset disposed of. The basis of each Unit and of each Zero Coupon
Bond is increased by the Unit holder's share of the amount of
accrued tax-exempt original issue discount. For Federal income
tax purposes, a Unit holder's pro rata portion of dividends, as
defined by Section 316 of the Code, paid with respect to an Equity
Security held by a Trust, are taxable as ordinary income to the
extent of such corporation's current and accumulated "earnings
and profits." A Unit holder's pro rata portion of dividends paid
on such Equity Security which exceed such current and accumulated
earnings and profits will first reduce a Unit holder's tax basis
in such Equity Security, and to the extent that such dividends
exceed a Unit holder's tax basis in such Equity Security shall
generally be treated as capital gain. In general, any such capital
gain will be short-term unless a Unit holder has held his Units
for more than one year.
3. A Unit holder's portion of gain, if any, upon the sale or
redemption of Units or the disposition of Securities held by a
Trust will generally be considered a capital gain except in the
case of a dealer or a financial institution and, in general, will
be long-term if the Unit holder has held his Units for more than
one year. A Unit holder's portion of loss, if any, upon the sale
or redemption of Units or the disposition of Securities held by
a Trust will generally be considered a capital loss except in
the case of a dealer or a financial institution and, in general,
will be long-term if the Unit holder has held his Units for more
than one year. Unit holders should consult their tax advisers
regarding the recognition of such capital gains and losses for
Federal income tax purposes.
4. Insurance proceeds received by a Trust under any insurance
policies which represent maturing interest on defaulted Zero Coupon
Bonds will be excludable from Federal gross income if, and to
the same extent as, such interest would have been so excludable
if paid by the issuer of the defaulted Zero Coupon Bonds provided
that, at the time such policies are purchased, the amounts
Page 5
paid for such policies are reasonable, customary and consistent
with the reasonable expectation that the issuer of the bonds,
rather than the insurer, will pay debt service on the bonds.
5. The Code provides that "miscellaneous itemized deductions"
are allowable only to the extent that they exceed two percent
of an individual taxpayer's adjusted gross income. Miscellaneous
itemized deductions subject to this limitation under present law
include a Unit holder's pro rata share of expenses paid by a Trust,
including fees of the Trustee and the Evaluator. Because a Trust
will hold Zero Coupon Bonds, Counsel for the Sponsor has also
advised that under Section 265 of the Code, a portion of any interest
on indebtedness incurred or continued to purchase or carry Units
of a Trust is not deductible for Federal income tax purposes.
The Internal Revenue Service has taken the position that indebtedness
need not be directly traceable to the purchase or carrying of
Zero Coupon Bonds or Units (however, these rules generally do
not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would
not be able to deduct any of the interest expense attributable
to ownership of Units. Investors with questions regarding these
issues should consult with their tax advisers.
Dividends Received Deduction. A corporation that owns Units will
generally be entitled to a 70% dividends received deduction with
respect to such Unit holder's pro rata portion of dividends received
by a Trust (to the extent such dividends are taxable as ordinary
income, as discussed above) in the same manner as if such corporation
directly owned the Equity Securities paying such dividends (other
than corporate shareholders, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics
and other than for purposes of special taxes such as the accumulated
earnings tax and the personal holding corporation tax). However,
a corporation owning Units should be aware that Sections 246 and
246A of the Code impose additional limitations on the eligibility
of dividends for the 70% dividends received deduction. These limitations
include a requirement that stock (and therefore Units) must generally
be held at least 46 days (as determined under Section 246(c) of
the Code). Proposed regulations have been issued which address
special rules that must be considered in determining whether the
46-day holding period requirement is met. Moreover, the allowable
percentage of the deduction will be reduced from 70% if a corporate
Unit holder owns certain stock (or Units) the financing of which
is directly attributable to indebtedness incurred by such corporation.
It should be noted that various legislative proposals that would
affect the dividends received deduction have been introduced.
Unit holders should consult with their tax advisers with respect
to the limitations on and possible modifications to the dividends
received deduction.
Computation of Original Issue Discount. Sections 1288 and 1272
of the Code provide a complex set of rules governing the accrual
of original issue discount. These rules provide that original
issue discount accrues either on the basis of a constant compounded
interest rate or ratably over the term of the Zero Coupon Bond,
depending upon the date the Zero Coupon Bond was issued. In addition,
special rules apply if the purchase price of a Zero Coupon Bond
exceeds the original issue price plus the amount of original issue
discount which would have accrued to prior owners. The application
of these rules will also vary depending on the value of the Zero
Coupon Bond on the date a Unit holder acquires his Unit, and the
price the Unit holder pays for his Unit. Because of the complexity
of these rules relating to the accrual of original issue discount,
Unit holders should consult their tax advisers as to how these
rules apply.
Market Discount. The Tax Act subjects tax-exempt bonds to the
market discount rules of the Code effective for bonds purchased
after April 30, 1993. In general, market discount is the amount
(if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued).
Under the Tax Act, accretion of market discount is taxable as
ordinary income; under prior law the accretion had been treated
as capital gain. Market discount that accretes while a Trust holds
a Bond would be recognized as ordinary income by the Unit holders
when principal payments are received on the Bond, upon sale or
at redemption (including early redemption) or upon the sale or
redemption of the Units, unless a Unit holder elects to include
market discount in taxable income as it accrues. The market discount
rules are complex and Unit holders should consult their tax advisers
regarding these rules and their application.
Page 6
Recognition of Taxable Gain or Loss Upon Disposition of Securities
by the Trust or Disposition of Units. As discussed above, a Unit
holder may, to the extent such gains are not treated as market
discount, recognize taxable gain (or loss) when a Security is
disposed of by the Trust or if the Unit holder disposes of a Unit.
For taxpayers other than corporations, net capital gains are subject
to a maximum marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that
affect tax rates and could affect relative differences at which
ordinary income and capital gains are taxed.
The Tax Act raised tax rates on ordinary income while capital
gains remain subject to a 28% maximum stated rate. Because some
or all capital gains are taxed at a comparatively lower rate under
the Tax Act, the Tax Act includes a provision that recharacterized
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.
Special Tax Consequences of In-Kind Distributions Upon Termination
of the Trust. As discussed in "Rights of Unit Holders-How are
Income and Capital Distributed?", under certain circumstances
a Unit holder who owns at least the amount specified in "Summary
of Essential Information" appearing in Part One for each Trust
may request an In-Kind Distribution upon the termination of the
Trust. The Unit holder requesting an In-Kind Distribution will
be liable for expenses related thereto (the "Distribution Expenses")
and the amount of such In-Kind Distribution will be reduced by
the amount of the Distribution Expenses. See "Rights of Unit holders-How
are Income and Capital Distributed?" Zero Coupon Bonds held by
a Trust will not be distributed to a Unit holder as part of an
In-Kind Distribution. The tax consequences relating to the sale
of Zero Coupon Bonds are discussed above. As previously discussed,
prior to the termination of a Trust, a Unit holder is considered
as owning a pro rata portion of each of the Trust assets for Federal
income tax purposes. The receipt of an In-Kind Distribution upon
the termination of a Trust would be deemed an exchange of such
Unit holder's pro rata portion of each of the shares of stock
and other assets held by a Trust in exchange for an undivided
interest in whole shares of stock plus, possibly, cash.
There are generally three different potential tax consequences
which may occur under an In-Kind Distribution with respect to
each Security owned by a Trust. A "Security" for this purpose
is a particular class of stock issued by a particular corporation
(and does not include the Zero Coupon Bonds). If the Unit holder
receives only whole shares of a Security in exchange for his or
her pro rata portion in each share of such security held by a
Trust, there is no taxable gain or loss recognized upon such deemed
exchange pursuant to Section 1036 of the Code. If the Unit holder
receives whole shares of a particular Security plus cash in lieu
of a fractional share of such Security, and if the fair market
value of the Unit holder's pro rata portion of the shares of such
Security exceeds his tax basis in his pro rata portion of such
Security, taxable gain would be recognized in an amount not to
exceed the amount of such cash received, pursuant to Section 1031(b)
of the Code. No taxable loss would be recognized upon such an
exchange pursuant to Section 1031(c) of the Code, whether or not
cash is received in lieu of a fractional share. Under either of
these circumstances, special rules will be applied under Section
1031(d) of the Code to determine the Unit holder's tax basis in
the shares of such particular Security which he receives as part
of the In-Kind Distribution. Finally, if a Unit holder's pro rata
interest in a Security does not equal a whole share, he may receive
entirely cash in exchange for his pro rata portion of a particular
Security. In such case, taxable gain or loss is measured by comparing
the amount of cash received by the Unit holder with his tax basis
in such Security.
Because a Trust will own many Securities, a Unit holder who requests
an In-Kind Distribution will have to analyze the tax consequences
with respect to each Security owned by a Trust. In analyzing the
tax consequences with respect to each Security, such Unit holder
must allocate the Distribution Expenses among the Securities (the
"Allocable Expenses"). The Allocable Expenses will reduce the
amount realized with respect to each Security so that the fair
market value of the shares of such Security received (if any)
and cash received in lieu thereof (as a result of any fractional
shares) by such Unit holder should equal the amount realized for
purposes of determining the applicable tax consequences in connection
with an In-Kind Distribution. A Unit holder's tax basis in shares
of such Security received will be increased by the Allocable Expenses
relating to such Security. The amount of taxable gain (or loss)
recognized upon such exchange will generally equal the sum of
the gain (or loss) recognized under the rules described above
by such
Page 7
Unit holder with respect to each Security owned by the Trust.
Unit holders who request an In-Kind Distribution are advised to
consult their tax advisers in this regard.
Collateral Tax Consequences Relating to the Zero Coupon Bonds.
In general, Section 86 of the Code provides that Social Security
benefits are includible in gross income in an amount equal to
the lesser of (1) 50% of the Social Security benefits received
or (2) 50% of the excess of "modified adjusted gross income" plus
50% of the Social Security benefits received over the appropriate
"base amount." The base amount is $25,000 for unmarried taxpayers,
$32,000 for married taxpayers filing a joint return and zero for
married taxpayers who do not live apart at all times during the
taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard
to certain otherwise allowable deductions and exclusions from
gross income and by including tax-exempt interest and original
issue discount. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest and original issue discount)
does not exceed the base amount need not include any Social Security
benefits in gross income. To the extent that Social Security benefits
are includible in gross income, they will be treated as any other
item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted
gross income" plus 50% of Social Security benefits received exceeds
an "adjusted base amount." The adjusted base amount is $34,000
for unmarried taxpayers, $44,000 for married taxpayers filing
a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate
returns.
Although tax-exempt interest and original issue discount is included
in modified adjusted gross income solely for the purpose of determining
what portion, if any, of Social Security benefits will be included
in gross income, no tax-exempt interest or tax-exempt original
issue discount, including that received from the Trust, will be
subject to tax. A taxpayer whose adjusted gross income already
exceeds the base amount or the adjusted base amount must include
50% or 85%, respectively, of his Social Security benefits in gross
income whether or not he receives any tax-exempt interest or tax-exempt
original issue discount. A taxpayer whose modified adjusted gross
income (after inclusion of tax-exempt interest and original issue
discount) does not exceed the base amount need not include any
Social Security benefits in gross income.
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax for corporations, interest
on certain private activity bonds (which includes most industrial
and housing revenue bonds) issued on or after August 8, 1986 is
included as an item of tax preference. THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
Unit holders are urged to consult their own tax advisers with
respect to the particular tax consequences to them, including
the corporate alternative minimum tax, the Superfund Tax and the
branch profits tax imposed by Section 884 of the Code.
The Zero Coupon Bonds provide that holders may be eligible to
receive grants under a higher education grant program. No opinion
is expressed regarding the Federal or state income tax treatment
associated with the grant payments.
General. Each Unit holder will be requested to provide the Unit
holder's taxpayer identification number to the Trustee and to
certify that the Unit holder has not been notified that payments
to the Unit holder are subject to back-up withholding. If the
proper taxpayer identification number and appropriate certification
are not provided when requested, distributions by a Trust to such
Unit holder (including amounts received upon the redemption of
Units) will be subject to back-up withholding. Distributions by
a Trust will generally be subject to United States income taxation
and withholding in the case of Units held by non-resident alien
individuals, foreign corporations or other non-United States persons
(accrual of tax-exempt original issue discount on the Zero Coupon
Bonds will not generally be subject to taxation or withholding
provided certain requirements are met). Such persons should consult
their tax advisers.
Unit holders will be notified annually of the amount of tax-exempt
original issue discount and the amount of income dividends includable
in the Unit holder's gross income and allocable portion of Trust
expenses which may be claimed as itemized deductions.
Page 8
Dividend income, long-term capital gains and accrual of tax-exempt
original issue discount may be subject to state and local taxes.
Investors should consult their tax advisers for specific information
on the tax consequences of particular types of distributions.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to
the Trust for New York tax matters, under the existing income
tax laws of the State of New York, the Trust is not an association
taxable as a corporation and the income of the Trust will be treated
as the income of the Unit holders thereof.
State Tax Considerations. ALTHOUGH BOND COUNSEL HAS ISSUED ITS
OPINION THAT INTEREST ON THE ZERO COUPON BONDS IS EXEMPT FROM
PRESENT ILLINOIS INCOME TAXES, BASED ON PUBLICATION 101 PUBLISHED
BY THE ILLINOIS DEPARTMENT OF REVENUE IT IS UNCLEAR WHETHER DISTRIBUTIONS
FROM THE TRUST RELATING TO THE ZERO COUPON BONDS WOULD BE SO EXEMPT.
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE
STATE INCOME TAX CONSEQUENCES OF OWNING UNITS.
PORTFOLIO
What are the Zero Coupon Bonds?
By virtue of the insurance obtained by the Sponsor, the Zero Coupon
Bonds included in the Trusts are original issue discount bonds
rated at the date hereof "AAA" by Standard & Poor's Corporation.
See "Description of Bond Ratings" for further information. Specifically,
the Zero Coupon Bonds in the Trusts are general obligation bonds
designated as State of Illinois General Obligation College Savings
Bonds, Series of October 1992. As general obligation bonds issued
by the State of Illinois, the Zero Coupon Bonds are backed by
the taxing power of the State of Illinois and are secured by the
issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. UNDER CURRENT REGULATIONS OF
THE STATE OF ILLINOIS, THE TUITION FEE CREDIT ASSOCIATED WITH
ITS GENERAL OBLIGATION COLLEGE SAVINGS BONDS, SERIES OF OCTOBER
1992, WILL NOT BE PASSED THROUGH TO UNIT HOLDERS OF THE TRUSTS.
WHILE THE SPONSOR IS SEEKING EXPANSION OF THIS INTERPRETATION,
IT IS CURRENTLY UNABLE TO PREDICT WHETHER OR TO WHAT EXTENT PASS-THROUGH
TREATMENT OF THE TUITION FEE CREDIT MAY BE PERMITTED TO A UNIT
HOLDER OF THE TRUSTS.
Special Considerations and Risk Factors. The Zero Coupon Bonds
do not provide for the payment of any current interest and provide
for payment of principal and interest at maturity at face value
unless sooner sold. The Zero Coupon Bonds are not subject to redemption
prior to maturity. The Zero Coupon Bonds may be subject to more
price volatility than conventional bonds. The Zero Coupon Bonds
share the basic features of (1) not paying interest on a semi-annual
basis and (2) providing for the implicit reinvestment of each
bond's semi-annual accretion at such bond's stated yield to maturity.
This implicit reinvestment of accretion at the same rate eliminates
the risk of being unable to reinvest the income on each bond at
a rate as high as the implicit yield, but at the same time also
eliminates the holder's ability to reinvest at higher rates in
the future.
An investment in a Trust should be made with an understanding
of the risks which an investment in Zero Coupon Bonds issued by
the State of Illinois may entail.
In fiscal year 1993, revenues for the State of Illinois (the "State")
totalled $15,050 million, spending was $15,009 million and the
State ended fiscal year 1993 with a general funds balance of $172
million. Revenues included the proceeds of $300 million of General
Obligation Certificates of August 1992, and expenditures included
the repayment of those certificates in June 1993.
Fiscal year 1993 revenues were $27 million higher than projected.
Federal receipts were $53 million higher than projected, while
state sources totaled $26 million less than estimated. Excluding
proceeds from short-term borrowing, fiscal year 1993 revenues
were 5.1 percent higher than fiscal year 1992 revenues.
The ending General Funds balance of $172 million in fiscal year
1993 was $28 million less than projected, but $41 million higher
than the ending balance for fiscal year 1992. A lower than projected
ending balance and higher than projected revenues allowed fiscal
year 1993 expenditures to exceed the previous estimates by $55
million. Excluding repayment of short-term borrowing, fiscal year
1993 expenditures were 5.1 percent higher than fiscal year 1992
expenditures. Lapse period expenditures occurring during the first
three months of fiscal year 1994 are now expected to be $836 million,
$83 million less than projected in March.
Page 9
The fiscal year 1994 budget is based on revenue growth of $660
million or 4.5%. Fiscal year 1994 revenues are estimated to total
$15,410 million with expenditures of $15,382 million. The ending
available balance is expected to increase to $200 million.
The Illinois General Assembly passed, and the Governor signed,
legislation to make the individual and corporate income tax rates
permanent at 3.0 percent and 4.8 percent, respectively for fiscal
year 1994. Both rates had been scheduled to be reduced on July
1, 1993.
The fiscal year 1994 budget includes $660 million in revenue growth.
The major components of the revenue growth are a $395 million
increase in income taxes and a $229 million increase in sales
tax. The increase in income taxes are comprised of a base growth
of $270 million and a reallocation of state income tax surcharge
money from local governments to the state of $125 million.
The fiscal year 1994 budget includes an increase in appropriations
for education totaling $198 million. Included in the $198 million
increase is a $145 million increase for elementary and secondary
education and a $53 million increase for higher education. Also
funded within this budget are increases for the Departments of
Children and Family Services, Mental Health and Developmental
Disabilities, Public Aid and Corrections, and state employees'
health insurance.
The adopted budget for fiscal year 1995 increases spending by
$1.2 billion or 8.6 percent, with most of the increase in public
aid, for Medicaid up 15.2 percent. The budget anticipates an ending
cash balance of $200 million and lapse period spending of $765
million. Revenue growth of $1.0 billion or 6.6 percent, with personal
income tax growth of 4.5 percent, corporate tax growth of 4.9
percent, and sales tax growth of 4.4 percent. Federal aid is budgeted
to grow by 13.1 percent reflecting increased federal matching
aid for increased state source Medicaid spending. Recent months'
revenue receipts for the major taxes have exceeded the rates of
growth adopted for the budget. Budgeted revenue receipts based
upon lower yields provides conservatism in the budget which may
create a revenue cushion for fiscal year 1995 and enable lapse
period spending to be reduced below the targeted amount.
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") have rated the Zero Coupon Bonds "Aa" and
"AA-," respectively. See "Description of Bond Ratings" for further
information. These ratings reflect the views of such organizations,
and an explanation of the significance of such ratings may be
obtained only from the respective rating agency. The ratings on
the Zero Coupon Bonds were applied for by the State, and certain
information and materials, all of which are not contained in this
prospectus, were supplied to Moody's and S&P. The ratings are
not a "market" rating nor a recommendation to buy, sell or hold
the Zero Coupon Bonds and the ratings and the Zero Coupon Bonds
should be evaluated independently. The ratings are subject to
change or withdrawal at any time and any such change or withdrawal
may affect the market price or marketability of the Zero Coupon
Bonds. However, the Sponsor has obtained insurance from AMBAC
Indemnity Corporation on the Zero Coupon Bonds included in the
Trusts. As a result of such insurance the Zero Coupon Bonds are
automatically rated "AAA" by Standard & Poor's Corporation.
S&P has rated the general obligation debt of the State "AA-,"
and Moody's has rated the debt "Aa."
The August 15, 1994 publication of Standard & Poor's Creditweek
describes the reasons for its rating as follows:
"The `AA-' rating reflects the state's relatively broad and stable
economic base, moderate debt burden, and weak financial position.
Illinois' economy is expected to continue its trend of moderate
growth over the short run, with service and trade sector expansion
outpacing sluggish manufacturing employment.
The state's debt burden is moderate at $713 per capita and the
amortization of G.O. debt remains rapid, with approximately 66%
of principal retiring within 10 years. Illinois continues to experience
weak financial operations, which will likely persist over the
next several years in the absence of substantial corrective actions.
Preliminary fiscal 1994 results indicate an ending general fund
cash balance of $230 million (1% of general fund expenditures),
up from $172 million (1%) at the end of fiscal 1993.
Illinois' adopted fiscal 1995 $15.5 billion general fund budget,
based on revenue growth of 8.6%, projects an ending available
balance of $200 million. The budget contains no tax increases
and keeps lapse period spending at slightly above 1994 levels.
Spending priorities continue to be education and human services.
The overhaul of the Medicaid program, to begin in fiscal 1995,
will provide funding of Medicaid liabilities
Page 10
to shorten the payment cycle to below 60 days. While Illinois'
long-term fiscal plan anticipates improvement in the financial
position in each of the next several years, this improvement is
subject to budget deliberations and economic performance. S&P
anticipates that Illinois' financial operations will remain stable,
but with relatively low cash balances and significant lapse period
spending.
The outlook reflects the anticipation that the state's finances
will improve, but remain weak over the intermediate term, given
a stable economic climate."
The August 5, 1994 publication of Moody's Municipal Credit Report
describes the reasons for its rating as follows:
"Recognizing that Illinois' wealth, moderate debt and economic
diversity continue to provide strong backing for the state's debt,
Moody's has confirmed the state's Aa general obligation bond rating.
The recent national recession affected Illinois and the Midwest
less severely than many other areas of the nation, yet the state's
financial condition, as reflected in a large accumulated deficit
and long delays in bill paying, has not yet begun to evidence
substantial improvement. Recent state budget and program actions
seek to address these problems, but much progress remains to be
achieved.
Maintenance of the high grade rating will depend upon the state
making greater progress in addressing these persistent financial
problems.
o A substantial accumulated general fund deficit has lingered
and grown, both in nominal terms and relative to the revenue stream
of the state's budget reflecting ongoing imbalance in the state's
finances. State officials disagree as to whether preliminary year-end
fiscal 1994 results show a reversal in the negative trend, on
a GAAP basis. Although the proposed budget for fiscal 1995 is
projected to make some progress in addressing this deficit, this
will not be sufficient to eliminate the deficit in the near future.
o Cash flow problems have been created by the imbalance between
revenues and expenditures, despite sizable annual short-term borrowings
in the last four fiscal years. The state has resorted to chronically
delaying vendor payments. While public attention has focused on
reimbursements for medical services under the state's Medicaid
program, most areas of state contract spending have been affected.
o Medicaid remains the largest and fastest growing component
of state spending, despite state efforts to control costs. Medicaid
spending has grown 15.4% annually over the last four years and
is budgeted to grow 20.5% in fiscal 1995. Medicaid reform initiatives
for managed care adopted in the fiscal 1995 budget are expected
to reduce Medicaid spending growth, beginning in fiscal 1996.
o Substantial underfunding of the state's annual pension benefit
obligation has resulted in an accumulated unfunded liability that
has grown as large as the state's entire general funds budget,
according to the most recent state audit (fiscal 1993). Underfunding
of the system now exceeds $1 billion annually. The state recently
enacted legislation to amortize the unfunded actuarial liability
over 50 years, an exceptionally long schedule.
o The state's debt burden is growing but still moderate. Debt
policy has shifted from exclusive use of general obligation bonds
to increased dependence on limited obligation special tax debts
such as the Build Illinois sales tax bonds and the Metropolitan
Pier and Exposition Authority bonds."
The foregoing information constitutes only a brief summary of
some of the general factors which may impact the Zero Coupon Bonds
and does not purport to be a complete or exhaustive description
of all adverse conditions to which the Zero Coupon Bonds in the
Trust may be subject. Additionally, many factors including national
economic, social and environmental policies and conditions, which
are not within the control of the State of Illinois, could affect
or could have an adverse impact on the financial condition of
the State of Illinois and various agencies and political subdivisions
located in the State. The Sponsor is unable to predict whether
or to what extent such factors or other factors may affect the
State of Illinois, the market value or marketability of the Zero
Coupon Bonds or the ability of the State of Illinois to pay principal
of and interest on the Zero Coupon Bonds at maturity.
Page 11
How are the Zero Coupon Bonds Insured?
All Zero Coupon Bonds in the portfolio of the Trusts are insured
as to the scheduled payment of principal and interest by a policy
obtained directly by the Sponsor prior to the Initial Date of
Deposit from AMBAC Indemnity Corporation ("AMBAC Indemnity" or
"AMBAC"), a Wisconsin-domiciled stock insurance company. The premium
for such insurance has been paid in advance by the Sponsor and
such policy is noncancellable and will continue in force as long
as the Zero Coupon Bonds so insured are outstanding and AMBAC
Indemnity remains in business.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the
State of Wisconsin and licensed to do business in fifty states,
the District of Columbia and the Commonwealth of Puerto Rico,
with admitted assets of approximately $1,988,000,000 (unaudited)
and statutory capital of approximately $1,148,000,000 (unaudited)
as of March 31, 1994. Statutory capital consists of AMBAC Indemnity's
policyholders' surplus and statutory contingency reserve. AMBAC
Indemnity is a wholly owned subsidiary of AMBAC Inc., a 100% publicly-held
company. Moody's Investors Service, Inc. and Standard & Poor's
Corporation have both assigned a triple-A claims-paying ability
rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York,
New York 10004 and (212) 668-0340.
The information relating to AMBAC Indemnity contained above has
been furnished by AMBAC Indemnity. 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.
Chapman and Cutler, Counsel for the Sponsor, has given an opinion
(if applicable) to the effect that the payment of insurance proceeds
representing maturing interest on defaulted Zero Coupon Bonds
paid by AMBAC Indemnity would be excludable from Federal gross
income if, and to the same extent as, such interest would have
been so excludable if paid by the issuer of the defaulted obligations
provided that, at the time such policies are purchased, the amounts
paid for such policies are reasonable, customary and consistent
with the reasonable expectation that the issuer of the obligations,
rather than the insurer, will pay debt service on the obligations.
See "What is the Federal Tax Status of Unit Holders?"
What are Equity Securities?
Each Trust also consists of different issues of Equity Securities,
issued by companies which, at the Initial Date of Deposit, provided
income or were considered to have potential for capital appreciation
and were listed on a national securities exchange or the NASDAQ
National Market System or were traded in the over-the-counter
market. Approximately 50% of the Equity Securities at the Initial
Date of Deposit consisted of common stocks of companies headquartered
or incorporated in the State of Illinois. The companies which
are included in the portfolio are actively-traded, well-established
corporations and are considered to be generally diversified by
type of industry.
The Trusts consist of such of the Securities listed under "Portfolio"
appearing in Part One for each Trust as may continue to be held
from time to time in each Trust and any additional Securities
acquired and held by a Trust pursuant to the provisions of the
Trust Agreement together with cash held in the Income and Capital
Accounts. Neither the Sponsor nor the Trustee shall be liable
in any way for any failure in any of the Securities.
Because certain of the Equity Securities from time to time may
be sold under certain circumstances described herein, and because
the proceeds from such events will be distributed to Unit holders
and will not be reinvested, no assurance can be given that a Trust
will retain for any length of time its present size and composition.
Although the Portfolios are not managed, the Sponsor may instruct
the Trustee to sell Equity Securities under certain limited circumstances.
Pursuant to the Indenture and with limited exceptions, the Trustee
may sell any securities or other property acquired in exchange
for Equity Securities such as those acquired in connection with
a merger or other transaction. If offered such new or exchanged
securities or property, the Trustee shall reject the offer. However,
in the event such securities or property are nonetheless acquired
Page 12
by a Trust, they may be accepted for deposit in the Trust and
either sold by the Trustee or held in the Trust pursuant to the
direction of the Sponsor (who may rely on the advice of the Portfolio
Supervisor). See "How May Securities be Removed from a Trust?"
Equity Securities, however, will not be sold by a Trust to take
advantage of market fluctuations or changes in anticipated rates
of appreciation or depreciation.
An investment in Units should be made with an understanding of
the risks which an investment in common stocks entails, including
the risk that the financial condition of the issuers of the Equity
Securities or the general condition of the common stock market
may worsen and the value of the Equity Securities and therefore
the value of the Units may decline. Common stocks are especially
susceptible to general stock market movements and to volatile
increases and decreases of value as market confidence in and perceptions
of the issuers change. These perceptions are based on unpredictable
factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, and global or regional political, economic
or banking crises. Shareholders of common stocks have rights to
receive payments from the issuers of those common stocks that
are generally subordinate to those of creditors of, or holders
of debt obligations or preferred stocks of, such issuers. Shareholders
of common stocks of the type held by the Trusts have a right to
receive dividends only when and if, and in the amounts, declared
by the issuer's board of directors and have a right to participate
in amounts available for distribution by the issuer only after
all other claims on the issuer have been paid or provided for.
Common stocks do not represent an obligation of the issuer and,
therefore, do not offer any assurance of income or provide the
same degree of protection of capital as do debt securities. The
issuance of additional debt securities or preferred stock will
create prior claims for payment of principal, interest and dividends
which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the
rights of holders of common stock with respect to assets of the
issuer upon liquidation or bankruptcy. The value of common stocks
is subject to market fluctuations for as long as the common stocks
remain outstanding, and thus the value of the Equity Securities
in the Portfolios may be expected to fluctuate over the life of
the Trusts to values higher or lower than those prevailing on
the Initial Date of Deposit.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners
of the entity, have generally inferior rights to receive payments
from the issuer in comparison with the rights of creditors of,
or holders of debt obligations or preferred stocks issued by,
the issuer. Cumulative preferred stock dividends must be paid
before common stock dividends and any cumulative preferred stock
dividend omitted is added to future dividends payable to the holders
of cumulative preferred stock. Preferred stockholders are also
generally entitled to rights on liquidation which are senior to
those of common stockholders.
Whether or not the Equity Securities are listed on a national
securities exchange, the principal trading market for the Equity
Securities may be in the over-the-counter market. As a result,
the existence of a liquid trading market for the Equity Securities
may depend on whether dealers will make a market in the Equity
Securities. There can be no assurance that a market will be made
for any of the Equity Securities, that any market for the Equity
Securities will be maintained or of the liquidity of the Equity
Securities in any markets made. The recent investigation by the
Securities and Exchange Commission of illegal insider trading
in connection with corporate takeovers, and possible congressional
inquiries and legislation relating to this investigation, may
adversely affect the ability of certain dealers to remain market
makers. In addition, the Trusts may be restricted under the Investment
Company Act of 1940 from selling Equity Securities to the Sponsor.
The price at which the Equity Securities may be sold to meet redemptions,
and the value of the Trusts, will be adversely affected if trading
markets for the Equity Securities are limited or absent.
Unit holders will be unable to dispose of any of the Equity Securities
in the Portfolios, as such, and will not be able to vote the Equity
Securities. As the holder of the Equity Securities, the Trustee
will have the right to vote all of the voting stocks in the Trusts
and will vote such stocks in accordance with the instructions
of the Sponsor.
Page 13
What are Some Additional Considerations for Investors?
Investors should be aware of certain other considerations before
making a decision to invest in a Trust.
The value of the Equity Securities, like the value of the Zero
Coupon Bonds, will fluctuate over the life of a Trust and may
be more or less than the price at which they were deposited in
a Trust. The Equity Securities may appreciate or depreciate in
value (or pay dividends) depending on the full range of economic
and market influences affecting these securities. However, the
Sponsor believes that, even if the Equity Securities deposited
in a Trust are worthless, an event which the Sponsor considers
highly unlikely, the Zero Coupon Bonds will provide sufficient
principal to at least equal $10.00 per Unit by the termination
of a Trust (which is equal to the cumulative per Unit value by
the maturity of the Zero Coupon Bonds). This feature of the Trust
provides Unit holders with principal protection, although they
might forego any earnings on the amount invested. To the extent
that Units are purchased at a price less than $10.00 per Unit,
this feature may also provide a potential for capital appreciation.
Unless a Unit holder purchases Units of a Trust on a date when
the value of the Units is $10.00 or less, total distributions,
including distributions made upon termination of a Trust, may
be less than the amount paid for a Unit.
The Trustee will have no power to vary the investments of a Trust,
i.e., the Trustee will have no managerial power to take advantage
of market variations to improve a Unit holder's investment, but
may dispose of Securities only under limited circumstances. See
"How May Securities be Removed from a Trust?"
To the best of the Sponsor's knowledge, there is no litigation
pending as of the date of this Part Two Prospectus in respect
of any Security which might reasonably be expected to have a material
adverse effect on a Trust. Litigation may be instituted on a variety
of grounds with respect to the Securities. The Sponsor is unable
to predict whether any such litigation will be instituted, or
if instituted, whether such litigation might have a material adverse
effect on a Trust.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. The Public Offering
Price is based on the aggregate bid side evaluation of the Zero
Coupon Bonds and the aggregate underlying value of the Equity
Securities in the Trust, plus or minus cash, if any, in the Income
and Capital Accounts of the Trust, plus the applicable sales charge.
The minimum purchase of the applicable Trust is as indicated in
Part One for each Trust. The applicable sales charge is reduced
by a discount as indicated below for volume purchases:
<TABLE>
<CAPTION>
Percent of Percent of
Offering Net Amount
Number of Units Price Invested
_______________ __________ __________
<S> <C> <C>
10,000 but less than 50,000 0.60% 0.6036%
50,000 but less than 100,000 1.30% 1.3171%
100,000 or more 2.10% 2.1450%
</TABLE>
A dealer will receive from the Sponsor a dealer concession of
65% of the total sales charges for Units sold.
Any such reduced sales charge shall be the responsibility of the
selling underwriter or dealer. The reduced sales charge structure
will apply on all purchases of Units in a Trust by the same person
on any one day from any one underwriter or dealer. Additionally,
Units purchased in the name of the spouse of a purchaser or in
the name of a child of such purchaser under 21 years of age will
be deemed, for the purposes of calculating the applicable sales
charge, to be additional purchases by the purchaser. The reduced
sales charges will also be applicable to a trustee or other fiduciary
purchasing securities for a single trust estate or single fiduciary
account. The purchaser must inform the Underwriters or dealer
of any such combined purchase prior to the sale in order to obtain
the indicated discount. In addition, with respect to the employees,
Page 14
officers and directors (including their immediate family members,
defined as spouses, children, grandchildren, parents, grandparents,
mothers-in-law, fathers-in-law, sons-in-law and daughters-in-law,
and trustees, custodians or fiduciaries for the benefit of such
persons) of the Sponsor and the Underwriters and their subsidiaries,
the sales charge is reduced by 2.0% of the Public Offering Price
for purchases of Units during the secondary public offering period.
With respect to current and retired employees and officers (including
their immediate families and trustees, custodians or a fiduciary
for the benefit of such person) of any of the issuers of the Equity
Securities, the sales charge is reduced by 1% of the Public Offering
Price for purchases of Units during the secondary public offering
period.
The Public Offering Price of Units on the date of this Part Two
Prospectus may vary from the amount stated under "Summary of Essential
Information" in Part One for each Trust in accordance with fluctuations
in the prices of the underlying Securities. The aggregate value
of the Units of the Trust shall be determined (a) on the basis
of the bid prices of the Zero Coupon Bonds and the aggregate underlying
value of the Equity Securities therein plus or minus cash, if
any, in the Income and Capital Accounts of the Trust, (b) if net
bid prices are not available for the Zero Coupon Bonds, on the
basis of bid prices for comparable securities, (c) by determining
the value of the Zero Coupon Bonds on the bid side of the market
by appraisal, or (d) by any combination of the above. The aggregate
underlying value of the Equity Securities will be determined in
the following manner: if the Equity Securities are listed on a
national securities exchange or the NASDAQ National Market System,
this evaluation is generally based on the closing sale prices
on that exchange or that system (unless it is determined that
these prices are inappropriate as a basis for valuation) or, if
there is no closing sale price on that exchange or system, at
the closing bid prices. If the Equity Securities are not so listed
or, if so listed and the principal market therefore is other than
on the exchange, the evaluation shall generally be based on the
current bid price on the over-the-counter market (unless it is
determined that these prices are inappropriate as a basis for
evaluation). If current bid prices are unavailable, the evaluation
is generally determined (a) on the basis of current bid prices
for comparable securities, (b) by appraising the value of the
Equity Securities on the bid side of the market or (c) by any
combination of the above.
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. Certain commercial banks
may be making Units of the Trusts available to their customers
on an agency basis. A portion of the sales charge paid by these
customers is retained by or remitted to the banks. Under the Glass-Steagall
Act, banks are prohibited from underwriting Trust Units; however,
the Glass-Steagall Act does permit certain agency transactions
and the banking regulators have not indicated that these particular
agency transactions are not permitted under such Act. In Texas
and in certain other states, any banks making Units available
must be registered as broker/dealers under state law.
What are the Sponsor's Profits?
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between
the price at which Units are purchased and the price at which
Units are resold (which price includes a sales charge as indicated
in Part One for each Trust) or redeemed. The secondary market
public offering price of Units may be greater or less than the
cost of such Units to the Sponsor.
Page 15
RIGHTS OF UNIT HOLDERS
How is Evidence of Ownership Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the
Trustee. Ownership of Units may be evidenced by registered certificates
executed by the Trustee and the Sponsor. Delivery of certificates
representing Units ordered for purchase is normally made five
business days following such order or shortly thereafter. Certificates
are transferable by presentation and surrender to the Trustee
properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer.
A Unit holder must sign exactly as his name appears on the face
of the certificate with the signature guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guaranty program in addition to, or in
substitution for, STAMP, as may be accepted by the Trustee. In
certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or certificates
of corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable
only on the books of the Trustee in denominations of one Unit
or any multiple thereof, numbered serially for purposes of identification.
Unit holders may elect to hold their Units in uncertificated form.
The Trustee will maintain an account for each such Unit holder
and will credit each such account with the number of Units purchased
by that Unit holder. Within two business days of the issuance
or transfer of Units held in uncertificated form, the Trustee
will send to the registered owner of Units a written initial transaction
statement containing a description of the Trust; the number of
Units issued or transferred; the name, address and taxpayer identification
number, if any, of the new registered owner; a notation of any
liens and restrictions of the issuer and any adverse claims to
which such Units are or may be subject or a statement that there
are no such liens, restrictions or adverse claims; and the date
the transfer was registered. Uncertificated Units are transferable
through the same procedures applicable to Units evidenced by certificates
(described above), except that no certificate need be presented
to the Trustee and no certificate will be issued upon the transfer
unless requested by the Unit holder. A Unit holder may at any
time request the Trustee to issue certificates for Units.
Although no such charge is now made or contemplated, a Unit holder
may be required to pay $2.00 to the Trustee per certificate reissued
or transferred and to pay any governmental charge that may be
imposed in connection with each such transfer or exchange. For
new certificates issued to replace destroyed, stolen or lost certificates,
the Unit holder may be required to furnish indemnity satisfactory
to the Trustee and pay such expenses as the Trustee may incur.
Mutilated certificates must be surrendered to the Trustee for
replacement.
How are Income and Capital Distributed?
The Trustee will distribute any net income (other than accreted
interest) received with respect to any of the Securities in a
Trust on or about the Income Distribution Dates to Unit holders
of record on the preceding Income Record Date. See "Summary of
Essential Information" in Part One for each Trust. Proceeds received
on the sale of any Securities in a Trust, to the extent not used
to meet redemptions of Units or pay expenses, will, however, be
distributed on the last day of each month to Unit holders of record
on the fifteenth day of such month if the amount available for
distribution equals at least $1.00 per 100 Units. The Trustee
is not required to pay interest on funds held in the Capital Account
of a Trust (but may itself earn interest thereon and therefore
benefit from the use of such funds). Notwithstanding, distributions
of funds in the Capital Account, if any, will be made on the last
day of each December to Unit holders of record as of December
15. Income with respect to the original issue discount on the
Zero Coupon Bonds in a Trust will not be distributed currently,
although Unit holders will be subject to Federal income tax as
if a distribution had occurred. See "What is the Federal Tax Status
of Unit Holders?"
Under regulations issued by the Internal Revenue Service, the
Trustee is required to withhold a specified percentage of any
distribution made by the Trust if the Trustee has not been furnished
the Unit holder's tax identification number in the manner required
by such regulations. Any amount so withheld is transmitted to
the Internal Revenue Service and may be recovered by the Unit
holder only when filing a tax return.
Page 16
Under normal circumstances the Trustee obtains the Unit holder's
tax identification number from the selling broker. However, a
Unit holder should examine his or her statements from the Trustee
to make sure that the Trustee has been provided a certified tax
identification number in order to avoid this possible "back-up
withholding." In the event the Trustee has not been previously
provided such number, one should be provided as soon as possible.
Within a reasonable time after a Trust is terminated, each Unit
holder will, upon surrender of his Units for redemption, receive:
(i) the pro rata share of the amounts realized upon the disposition
of Equity Securities, unless he elects an In-Kind Distribution
as described below, (ii) a pro rata share of the amounts realized
upon the disposition of the remaining Zero Coupon Bonds and (iii)
a pro rata share of any other assets of the Trust, less expenses
of the Trust, subject to the limitation that Zero Coupon Bonds
may not be sold to pay for Trust expenses. Not less than 60 days
prior to the Final Zero Coupon Bonds' Maturity Date the Trustee
will provide written notice thereof to all Unit holders and will
include with such notice a form to enable Unit holders to elect
a distribution of shares of Equity Securities (an "In-Kind Distribution"),
if such Unit holder owns at least the amount specified in "Summary
of Essential Information" appearing in Part One for each Trust,
rather than to receive payment in cash for such Unit holder's
pro rata share of the amounts realized upon the disposition by
the Trustee of Equity Securities. An In-Kind Distribution will
be reduced by customary transfer and registration charges. To
be effective, the election form, together with surrendered certificates
and other documentation required by the Trustee, must be returned
to the Trustee at least five business days prior to the Final
Zero Coupon Bonds' Maturity Date. Not less than 60 days prior
to the termination of the Trust, those Unit holders with at least
the amount specified in "Summary of Essential Information" appearing
in Part One for each trust will be offered the option of having
the proceeds from the Equity Securities distributed "In-Kind,"
or they will be paid in cash, as indicated above. A Unit holder
may, of course, at any time after the Equity Securities are distributed,
sell all or a portion of the shares.
The Trustee will credit to the Income Account of a Trust any dividends
received on the Equity Securities therein. All other receipts
(e.g. return of principal, etc.) are credited to the Capital Account
of the Trust.
The Trustee may establish reserves (the "Reserve Account") within
a Trust for state and local taxes, if any, and any governmental
charges payable out of the Trust.
What Reports will Unit Holders Receive?
The Trustee shall furnish Unit holders in connection with each
distribution a statement of the amount of income, if any, and
the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per 100 Units. Within
a reasonable period of time after the end of each calendar year,
the Trustee shall furnish to each person who at any time during
the calendar year was a Unit holder of a Trust the following information
in reasonable detail: (1) a summary of transactions in the Trust
for such year; (2) any Securities sold during the year and the
Securities held at the end of such year by the Trust; (3) the
redemption price per 100 Units based upon a computation thereof
on the 31st day of December of such year (or the last business
day prior thereto); and (4) amounts of income and capital distributed
during such year.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Securities in the Trust furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender
to the Trustee at its corporate trust office in the City of New
York of the certificates representing the Units to be redeemed,
or in the case of uncertificated Units, delivery of a request
for redemption, duly endorsed or accompanied by proper instruments
of transfer with signature guaranteed as explained above (or by
providing satisfactory indemnity, as in connection with lost,
stolen or destroyed certificates), and payment of applicable governmental
charges, if any. No redemption fee will be charged. On the 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 4:00
p.m. Eastern
Page 17
time, the date of tender is the next day on which the New York
Stock Exchange is open for trading and such Units will be deemed
to have been tendered to the Trustee on such day for redemption
at the redemption price computed on that day. Units so redeemed
shall be cancelled.
Under regulations issued by the Internal Revenue Service, the
Trustee is required to withhold a specified percentage of the
principal amount of a Unit redemption if the Trustee has not been
furnished the redeeming Unit holder's tax identification number
in the manner required by such regulations. Any amount so withheld
is transmitted to the Internal Revenue Service and may be recovered
by the Unit holder only when filing a tax return. Under normal
circumstances the Trustee obtains the Unit holder's tax identification
number from the selling broker. However, any time a Unit holder
elects to tender Units for redemption, such Unit holder should
make sure that the Trustee has been provided a certified tax identification
number in order to avoid this possible "back-up withholding."
In the event the Trustee has not been previously provided such
number, one must be provided at the time redemption is requested.
Any amounts paid on redemption representing income shall be withdrawn
from the Income Account of a Trust to the extent that funds are
available for such purpose. All other amounts paid on redemption
shall be withdrawn from the Capital Account of a Trust.
The Trustee is empowered to sell Securities of a Trust in order
to make funds available for redemption. To the extent that Securities
are sold, the size and diversity of a Trust will be reduced. Such
sales may be required at a time when Securities would not otherwise
be sold and might result in lower prices than might otherwise
be realized. Equity Securities will be sold to meet redemptions
of Units before Zero Coupon Bonds, although Zero Coupon Bonds
may be sold if a Trust is assured of retaining a sufficient principal
amount of Zero Coupon Bonds to provide funds by the maturity of
a Trust at least equal to $10.00 per Unit.
The Redemption Price per Unit (as well as the secondary market
Public Offering Price) will be determined on the basis of the
bid price of the Zero Coupon Bonds and the aggregate underlying
value of the Equity Securities in a Trust plus or minus cash,
if any, in the Income and Capital Accounts of the Trust. The Redemption
Price per Unit is the pro rata share of each Unit determined by
the Trustee by adding: (1) the cash on hand in a Trust; (2) the
aggregate value of the Securities held in the Trust, as determined
by the Evaluator on the basis of bid prices of the Zero Coupon
Bonds and the aggregate underlying value of the Equity Securities
in the Trust next computed; and (3) dividends receivable on Equity
Securities trading ex-dividend as of the date of computation;
and deducting therefrom: (1) amounts representing any applicable
taxes or governmental charges payable out of the Trust; (2) any
amounts owing to the Trustee for its advances; (3) an amount representing
estimated accrued expenses of the Trust, including but not limited
to fees and expenses of the Trustee (including legal and auditing
fees), the Evaluator and supervisory fees, if any; (4) cash held
for distribution to Unit holders of record of the Trust as of
the business day prior to the evaluation being made; and (5) other
liabilities incurred by the Trust; and finally dividing the results
of such computation by the number of Units of the Trust outstanding
as of the date thereof.
The aggregate value of the Equity Securities will be determined
in the following manner: if the Equity Securities are listed on
a national securities exchange or the NASDAQ National Market System,
this evaluation is generally based on the closing sale prices
on that exchange or that system (unless it is determined that
these prices are inappropriate as a basis for valuation) or, if
there is no closing sale price on that exchange or system, at
the closing bid prices. If the Equity Securities are not so listed
or, if so listed and the principal market therefore is other than
on the exchange, the evaluation shall generally be based on the
current bid price on the over-the-counter market (unless these
prices are inappropriate as a basis for evaluation). If current
bid prices are unavailable, the evaluation is generally determined
(a) on the basis of current bid prices for comparable securities,
(b) by appraising the value of the Equity Securities on the bid
side of the market or (c) by any combination of the above.
The right of redemption may be suspended and payment postponed
for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings, or during
which the Securities and Exchange Commission determines that trading
on the New York Stock Exchange is restricted or any emergency
exists, as a result of which disposal or evaluation of the Securities
is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. Under
certain extreme circumstances, the Sponsor may apply to the Securities
and Exchange Commission
Page 18
for an order permitting a full or partial suspension of the right
of Unit holders to redeem their Units. The Trustee is not liable
to any person in any way for any loss or damage which may result
from any such suspension or postponement.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, it may purchase
such Units by notifying the Trustee before 4:00 p.m. Eastern time
on the same business day and by making payment therefor to the
Unit holder not later than the day on which the Units would otherwise
have been redeemed by the Trustee. Units held by the Sponsor may
be tendered to the Trustee for redemption as any other Units.
In the event the Sponsor does not purchase Units, the Trustee
may sell Units tendered for redemption in the over-the-counter
market, if any, as long as the amount to be received by the Unit
holder is equal to the amount he would have received on redemption
of the Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
effective prospectus describing such Units. Any profit or loss
resulting from the resale or redemption of such Units will belong
to the Sponsor.
How May Securities be Removed from a Trust?
The Portfolio of each Trust is not "managed" by the Sponsor or
the Trustee; their activities described herein are governed solely
by the provisions of the Indenture. The Indenture provides that
the Sponsor may (but need not) direct the Trustee to dispose of
an Equity Security in the event that an issuer defaults in the
payment of a dividend that has been declared, that any action
or proceeding has been instituted restraining the payment of dividends
or there exists any legal question or impediment affecting such
Equity Security, that the issuer of the Equity Security has breached
a covenant which would affect the payments of dividends, the credit
standing of the issuer or otherwise impair the sound investment
character of the Equity Security, that the issuer has defaulted
on the payment on any other of its outstanding obligations, that
the price of the Equity Security has declined to such an extent
or other such credit factors exist so that in the opinion of the
Sponsor, the retention of such Equity Securities would be detrimental
to a Trust. Zero Coupon Bonds may be sold by the Trustee only
pursuant to the liquidation of a Trust or to meet redemption requests.
Pursuant to the Indenture and with limited exceptions, the Trustee
may sell any securities or other property acquired in exchange
for Equity Securities such as those acquired in connection with
a merger or other transaction. If offered such new or exchanged
securities or property, the Trustee shall reject the offer. However,
in the event such securities or property are nonetheless acquired
by a Trust, they may be accepted for deposit in the Trust and
either sold by the Trustee or held in the Trust pursuant to the
direction of the Sponsor (who may rely on the advice of the Portfolio
Supervisor). Proceeds from the sale of Securities (or any securities
or other property received by a Trust in exchange for Equity Securities)
by the Trustee are credited to the Capital Account of a Trust
for annual distribution to Unit holders or to meet redemptions.
The Trustee may also sell Securities designated by the Sponsor,
or if not so directed, in its own discretion, for the purpose
of redeeming Units of the Trust tendered for redemption and the
payment of expenses; provided, however, that in the case of Securities
sold to meet redemption requests, Zero Coupon Bonds may only be
sold if a Trust is assured of retaining a sufficient principal
amount of Zero Coupon Bonds to provide funds by the maturity of
the Trust at least equal to $10.00 per Unit. Zero Coupon Bonds
may not be sold by the Trustee to meet Trust expenses.
The Sponsor, in designating Equity Securities to be sold by the
Trustee, will generally make selections in order to maintain,
to the extent practicable, the proportionate relationship among
the number of shares of individual issues of Equity Securities.
To the extent this is not practicable, the composition and diversity
of the Equity Securities may be altered. In order to obtain the
best price for a Trust, it may be necessary for the Sponsor to
specify minimum amounts (generally 100 shares) in which blocks
of Equity Securities are to be sold.
Page 19
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $8 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone (708) 241-4141. As of December
31, 1993, the total partners' capital of Nike Securities L.P.
was $12,743,032 (audited). (This paragraph relates only to the
Sponsor and not to the Trust or to any series thereof or to any
other Underwriters. The information is included herein only for
the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations.
More detailed financial information will be made available by
the Sponsor upon request.)
Who is the Trustee?
The Trustee is United States Trust Company of New York with its
principle 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
a Trust 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 is 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 Securities. For information relating to
the responsibilities of the Trustee under the Indenture, reference
is made to the material set forth under "Rights of Unit Holders."
The Trustee and any successor trustee may resign by executing
an instrument in writing and filing the same with the Sponsor
and mailing a copy of a notice of resignation to all Unit holders.
Upon receipt of such notice, the Sponsor is obligated to appoint
a successor trustee promptly. If the Trustee becomes incapable
of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Indenture. If upon resignation
of a trustee no successor has accepted the appointment within
30 days after notification, the retiring trustee may apply to
a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only
when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which a Trustee shall be a party, shall
be the successor Trustee. The Trustee must be a banking corporation
organized 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 Securities.
In the event of the failure
Page 20
of the Sponsor to act under the Indenture, the Trustee may act
thereunder and shall not be liable for any action taken by it
in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the
interest thereon or upon it as Trustee under the Indenture or
upon or in respect of a Trust which the Trustee may be required
to pay under any present or future law of the United States of
America or of any other taxing authority having jurisdiction.
In addition, the Indenture contains other customary provisions
limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or becomes incapable of acting or becomes bankrupt or
its affairs are taken over by public authorities, then the Trustee
may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and not exceeding amounts prescribed
by the Securities and Exchange Commission, or (b) terminate the
Indenture and liquidate the Trust as provided herein, or (c) continue
to act as Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East
Roosevelt Road, Suite 200, Wheaton, Illinois 60187. The Evaluator
may resign or may be removed by the Sponsor and the Trustee, in
which event the Sponsor and the Trustee are to use their best
efforts to appoint a satisfactory successor. Such resignation
or removal shall become effective upon the acceptance of appointment
by the successor Evaluator. If upon resignation of the Evaluator
no successor has accepted appointment within 30 days after notice
of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the
Indenture shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator
shall be under no liability to the Trustee, Sponsor or Unit holders
for errors in judgment. This provision shall not protect the Evaluator
in any case of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee).
The Indenture provides that each Trust shall terminate upon the
maturity, redemption or other disposition of the last of the Zero
Coupon Bonds held in the Trust, but in no event beyond the Mandatory
Termination Date indicated in Part One for each Trust under "Summary
of Essential Information." A Trust may be liquidated at any time
by consent of 100% of the Unit holders of the Trust. In the event
of termination, written notice thereof will be sent by the Trustee
to all Unit holders of a Trust. Within a reasonable period after
termination, the Trustee will follow the procedures set forth
under "How are Income and Capital Distributed?"
Commencing on the Final Zero Coupon Bonds' Maturity Date, Equity
Securities will begin to be sold in connection with the termination
of a Trust. The Sponsor will determine the manner, timing and
execution of the sale of the Equity Securities. Written notice
of any termination of a Trust specifying the time or times at
which Unit holders may surrender their certificates for cancellation
shall be given by the Trustee to each Unit holder at his address
appearing on the registration books of the Trust maintained by
the Trustee. At least 60 days prior to the Final Zero Coupon Bonds'
Maturity Date the Trustee will provide written notice thereof
to all Unit holders and will include with such notice a form to
enable Unit holders to elect a distribution of shares of Equity
Securities (reduced by customary transfer and registration charges),
if such Unit holder owns at least the amount specified in "Summary
of Essential Information" appearing in Part One for each Trust,
rather than
Page 21
to receive payment in cash for such Unit holder's pro rata share
of the amounts realized upon the disposition by the Trustee of
Equity Securities. All Unit holders will receive their pro rata
portion of the Zero Coupon Bonds in cash upon the termination
of a Trust. To be effective, the election form, together with
surrendered certificates and other documentation required by the
Trustee, must be returned to the Trustee at least five business
days prior to the Final Zero Coupon Bonds' Maturity Date. Unit
holders not electing a distribution of shares of Equity Securities
will receive a cash distribution from the sale of the remaining
Securities within a reasonable time after their Trust is terminated.
Regardless of the distribution involved, the Trustee will deduct
from the funds of the Trusts any accrued costs, expenses, advances
or indemnities provided by the Trust Agreement, including estimated
compensation of the Trustee and costs of liquidation and any amounts
required as a reserve to provide for payment of any applicable
taxes or other governmental charges. Any sale of Securities in
the Trusts upon termination may result in a lower amount than
might otherwise be realized if such sale were not required at
such time. The Trustee will then distribute to each Unit holder
his pro rata share of the balance of the Income and Capital Accounts.
Legal Opinions
The legality of the Units offered hereby and certain matters relating
to Federal tax law have been passed upon by Chapman and Cutler,
111 West Monroe Street, Chicago, Illinois 60603, as counsel for
the Sponsor. Carter, Ledyard & Milburn, will act as counsel for
the Trustee and as special New York tax counsel for the Trusts.
Experts
The financial statements of the Trust appearing in Part One of
this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
Description of Bond Ratings*
* As published by the rating companies.
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.**
** Bonds insured by AMBAC Indemnity Corporation are automatically
rated "AAA" by Standard & Poor's Corporation.
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.
Page 22
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of, or the risk of default upon failure of, such completion. The
investor should exercise his/her own judgment with respect to
such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings
of bonds and other fixed income securities. It focuses on events
and trends which place companies and government units under special
surveillance by S&P's 180-member analytical staff. These may include
mergers, voter referendums, actions by regulatory authorities,
or developments gleaned from analytical reviews. Unless otherwise
noted, a rating decision will be made within 90 days. Issues appear
on Credit Watch where an event, situation, or deviation from trends
occurred and needs to be evaluated as to its impact on credit
ratings. A listing, however, does not mean a rating change is
inevitable. Since S&P continuously monitors all of its ratings,
Credit Watch is not intended to include all issues under review.
Thus, rating changes will occur without issues appearing on Credit
Watch.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings
follow:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Their safety
is so absolute that with the occasional exception of oversupply
in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger 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
Page 23
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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<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
The First Trust Special Situations Trust
Strategic Equity Series:
What is The First Trust Special Situations Trust? 3
What are the Expenses and Charges? 3
What is the Federal Tax Status of Unit Holders? 4
Portfolio:
What are the Zero Coupon Bonds? 9
How are the Zero Coupon Bonds Insured? 12
What are Equity Securities? 12
What are Some Additional Considerations for Investors? 14
Public Offering:
How is the Public Offering Price Determined? 14
How are Units Distributed? 15
What are the Sponsor's Profits? 15
Rights of Unit Holders:
How is Evidence of Ownership Issued and Transferred? 16
How are Income and Capital Distributed? 16
What Reports will Unit Holders Receive? 17
How May Units be Redeemed? 17
How May Units be Purchased by the Sponsor? 19
How May Securities be Removed from a Trust? 19
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 20
Who is the Trustee? 20
Limitations on Liabilities of Sponsor and Trustee 20
Who is the Evaluator? 21
Other Information:
How May the Indenture be Amended or Terminated? 21
Legal Opinions 22
Experts 22
Description of Bond Ratings 22
</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 TRUST HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST
(registered trademark)
Strategic Equity Series
The First Trust
Special Situations Trust
Prospectus
Part Two
September 26, 1994
First Trust
(registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
This Part Two Must Be
Accompanied by Part One
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 28
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
46 STRATEGIC EQUITY TRUST, SERIES 1, certifies that it meets all
of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment of its
Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the Village of Lisle and
State of Illinois on September 30, 1994.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
(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, ) September 30, 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 August 31, 1994 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated September 22, 1994.
ERNST & YOUNG LLP
Chicago, Illinois
September 21, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to Form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> STRATEGIC EQUITY TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-01-1993
<PERIOD-END> MAY-31-1994
<INVESTMENTS-AT-COST> 4,770,792
<INVESTMENTS-AT-VALUE> 4,643,371
<RECEIVABLES> 1,864
<ASSETS-OTHER> 19,143
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,664,478
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,894
<TOTAL-LIABILITIES> 1,894
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,770,792
<SHARES-COMMON-STOCK> 504,900
<SHARES-COMMON-PRIOR> 643,000
<ACCUMULATED-NII-CURRENT> 19,113
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (127,321)
<NET-ASSETS> 4,662,584
<DIVIDEND-INCOME> 50,767
<INTEREST-INCOME> 169,726
<OTHER-INCOME> 0
<EXPENSES-NET> 12,661
<NET-INVESTMENT-INCOME> 207,832
<REALIZED-GAINS-CURRENT> (81,461)
<APPREC-INCREASE-CURRENT> (20,604)
<NET-CHANGE-FROM-OPS> 105,767
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 39,746
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 138,100
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,259,843)
<ACCUMULATED-NII-PRIOR> 23,337
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
