File No. 33-53340
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 5
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, 1998
: : 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
August 19, 1998.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
210,644 UNITS
PROSPECTUS
Part One
Dated September 25, 1998
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 17, 1998, each Unit represented
a 1/210,644 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 17, 1998, the Public Offering Price per 100 Units
was $1,850.39 (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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 17, 1998
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Aggregate Maturity Value of Zero Coupon Bonds in the Trust $2,160,000
Number of Units 210,644
Fractional Undivided Interest in the Trust per Unit 1/210,644
Public Offering Price:
Aggregate Value of Securities in the Portfolio $3,676,573
Aggregate Value of Securities per 100 Units $1,745.40
Income and Principal cash (overdraft) in the Portfolio $(5,223)
Income and Principal cash (overdraft) per 100 Units $(2.48)
Sales Charge 6.157% (5.8% of Public Offering Price,
excluding income and principal cash) $107.47
Public Offering Price per 100 Units $1,850.39
Redemption Price and Sponsor's Repurchase Price per 100
Units ($107.47 less than the Public Offering Price per
100 Units) $1,742.92
</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, 1998, and the related
statements of operations and changes in net assets for each of the three years
in the period then ended. These financial statements are the responsibility
of the Trust's Sponsor. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of May 31, 1998, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our 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, 1998,
and the results of its operations and changes in its net assets for each of
the three years in the period then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 31, 1998
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Securities, at market value (cost, including accretion
on the zero coupon bonds, $2,270,758) (Note 1) $3,649,710
Dividends receivable 1,767
Cash 7,157
__________
3,658,634
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Accrued liabilities 822
__________
Net assets, applicable to 214,194 outstanding
units of fractional undivided interest:
Cost of Trust assets, including accretion on
the zero coupon bonds (Note 1) $2,270,758
Net unrealized appreciation (Note 2) 1,378,952
Distributable funds 8,102
__________
$3,657,812
==========
Net asset value per 100 units $1,707.71
==========
</TABLE>
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, 1998
<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) (1) (AAA Rated) (2)
(AMBAC Insured) (3) maturing:
$540,000 August 1, 2004 $412,738
540,000 August 1, 2005 392,364
540,000 August 1, 2006 373,750
540,000 August 1, 2007 355,677
__________ __________
$2,160,000 Total Zero Coupon Bonds 1,534,529
==========
</TABLE>
<TABLE>
<CAPTION>
Number
of Shares Name of Issuer of Equity Securities
<C> <S> <C>
1,760 Abbott Laboratories 130,571
3,732 (4) Archer-Daniels-Midland Company 70,677
2,108 Automatic Data Processing, Inc. (ADP) 134,121
688 Bandag, Inc. 31,820
1,516 Bristol-Myers Squibb Company 163,160
2,178 Coca-Cola Company 170,701
3,185 (5) ConAgra, Inc. 93,161
2,588 General Electric Corporation 215,774
1,871 Heinz (HJ) Company 99,281
2,242 McDonald's Corporation 147,131
1,122 Merck & Company, Inc. 131,345
1,425 Quaker Oats 82,205
1,533 R.R. Donnelley and Sons Company 68,985
1,120 Sara Lee Corporation 65,940
2,340 (6) SLM Holding Corporation (formerly
(Student Loan Marketing Association) 93,455
5,064 (5) Walgreen Company 178,192
1,521 Wal-Mart Stores, Inc. 83,941
422 Waste Management, Inc. 13,715
1,465 Wm. Wrigley Jr. Company 141,006
__________
Total equity securities 2,115,181
__________
Total investments $3,649,710
==========
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
NOTES TO PORTFOLIO
May 31, 1998
(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. The Sponsor 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 5% stock dividend.
(5) The number of shares reflects the effect of a two for one stock split.
(6) The number of shares reflects the effect of a seven for two stock split.
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>
Year ended May 31,
1998 1997 1996
<S> <C> <C> <C>
Interest income $84,123 90,990 108,698
Dividends 29,532 30,062 35,907
________________________________
Total investment income 113,655 121,052 144,605
Expenses:
Trustee's fees and related expenses (3,952) (4,894) (6,251)
Evaluator's fees (694) (796) (1,035)
Supervisory fees (579) (663) (841)
________________________________
Total expenses (5,225) (6,353) (8,127)
________________________________
Investment income - net 108,430 114,699 136,478
Net gain (loss) on investments:
Net realized gain (loss) 170,113 84,965 106,585
Change in net unrealized appreciation
or depreciation 407,087 431,514 227,005
________________________________
577,200 516,479 333,590
________________________________
Net increase (decrease) in net assets
resulting from operations $685,630 631,178 470,068
================================
</TABLE>
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>
Year ended May 31,
1998 1997 1996
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $108,430 114,699 136,478
Net realized gain (loss) on investments 170,113 84,965 106,585
Change in net unrealized appreciation
or depreciation on investments 407,087 431,514 227,005
__________________________________
685,630 631,178 470,068
Units redeemed (35,171, 34,528 and
99,967 in 1998, 1997 and 1996,
respectively) (553,473) (442,387) (1,137,394)
Distributions to unit holders:
Investment income - net (22,754) (22,343) (27,985)
Principal from investment transactions - - -
__________________________________
(22,754) (22,343) (27,985)
__________________________________
Total increase (decrease) in net assets 109,403 166,448 (695,311)
Net assets:
At the beginning of the year 3,548,409 3,381,961 4,077,272
__________________________________
At the end of the year (including
distributable funds (deficit)
applicable to Trust units of
$8,102, $(1,508) and $13,558
at May 31, 1998, 1997 and 1996
respectively) $3,657,812 3,548,409 3,381,961
==================================
Trust units outstanding at the end
of the year 214,194 249,365 283,893
</TABLE>
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.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services which is based on $.84 per annum per
100 units outstanding based on the largest aggregate number of units
outstanding during the calendar year. Prior to September 1, 1995, the Trustee
was United States Trust Company of New York; effective September 1, 1995, The
Chase Manhattan Bank succeeded United States Trust Company of New York as
Trustee. In addition, the Evaluator will receive an annual fee based on $.30
per 100 units outstanding. The Trust also pays recurring financial reporting
costs and an annual supervisory fee payable to an affiliate of the Sponsor.
<PAGE>
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at May 31, 1998 follows:
<TABLE>
<CAPTION>
Zero coupon Equity
bonds securities Total
<S> <C> <C> <C>
Unrealized appreciation $148,479 1,241,940 1,390,419
Unrealized depreciation - (11,467) (11,467)
___________________________________
$148,479 1,230,473 1,378,952
===================================
</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.
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 year -
<TABLE>
<CAPTION>
Year ended May 31,
1998 1997 1996
<S> <C> <C> <C>
Investment income - interest and dividends $49.11 45.63 42.98
Expenses (2.26) (2.39) (2.42)
________________________________
Investment income - net 46.85 43.24 40.56
Distributions to unit holders:
Investment income - net (9.56) (8.20) (7.96)
Principal from investment transactions - - -
Net gain (loss) on investments 247.44 196.66 96.50
________________________________
Total increase (decrease) in net assets 284.73 231.70 129.10
Net assets:
Beginning of the year 1,422.98 1,191.28 1,062.18
________________________________
End of the year $1,707.71 1,422.98 1,191.28
================================
</TABLE>
<PAGE>
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 year (231,442, 265,283 and 336,486 units during
the years ended May 31, 1998, 1997 and 1996, respectively). Distributions to
unit holders of Investment income - net per 100 units reflects the Trust's
actual distributions of approximately $5.41 per 100 units to 245,475 units on
July 15, 1997, approximately $4.15 per 100 units to 228,570 units on December
31, 1997, approximately $4.60 per 100 units to 279,290 units on July 15, 1996,
approximately $3.60 per 100 units to 263,847 units on December 31, 1996,
approximately $3.78 per 100 units to 382,000 units on July 15, 1995 and
approximately $4.18 per 100 units to 324,576 units on December 29, 1995.
<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: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
STRATEGIC EQUITY TRUST
The First Trust(registered trademark) Special Situations Trust
PROSPECTUS
Part Two NOTE: THIS PART TWO PROSPECTUS MAY
Dated September 30, 1998 ONLY BE USED WITH PART ONE
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 a Trust 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 Assurance
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 Assurance 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 NOR HAS THE 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 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 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 a Trust 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 ACCRUAL 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 or her 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 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 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 or her 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, The
Chase Manhattan Bank, 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 a Trust's
portfolio 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 a Trust 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 Assurance
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?
With the exception of brokerage fees discussed above and bookkeeping and
other administrative services provided to the Trust, for which the
Sponsor will be reimbursed in amounts as set forth under "Summary of
Essential Information," the Sponsor will not receive any fees in
connection with its activities relating to the Trust.
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," for providing portfolio
supervisory services for a Trust. Such fee is based on the number of
Units outstanding in such 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. In providing such supervisory services, the portfolio
Supervisor may purchase research services from a variety of sources
which may include dealers of a Trust.
Subsequent to the initial offering period, First Trust Advisors L.P., in
its capacity as Evaluator for the Trusts, will receive a fee as
indicated in the "Summary of Essential Information."
The Trustee pays certain expenses of the Trusts for which it is
reimbursed by such Trust. The Trustee will receive for its ordinary
recurring services to the Trusts an annual fee as set forth in the
"Summary of Essential Information." Such fee is based upon the largest
aggregate number of Units of such Trust outstanding during the calendar
year, except during the initial offering period, in which case the fee
is calculated based on the largest number of Units outstanding during
the period for which compensation is paid. For a discussion of the
Page 3
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 the above described fees are payable from the Income
Account of a Trust to the extent funds are available and then from the
Capital Account of such 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.
Each of the above mentioned fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases under
the category "All Services Less Rent of Shelter" in the Consumer Price
Index published by the United States Department of Labor. In addition,
with respect to the fees payable to the Sponsor or an affiliate of the
Sponsor for providing bookkeeping and other administrative services,
supervisory services and evaluation services, such individual fees may
exceed the actual costs of providing such services for the Trusts, but
at no time will the total amount received for such services rendered to
all unit investment trusts of which Nike Securities L.P. is the Sponsor
in any calendar year exceed the actual cost to the Sponsor or its
affiliate of supplying such services in such year.
The following additional charges are or may be incurred by a Trust: all
legal 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 each Trust and the rights
and interests of the Unit holders; fees of the Trustee for any
extraordinary services performed under the Indenture; indemnification of
the Trustee for any loss, liability or expense incurred by it without
negligence, bad faith or willful misconduct on its part, arising out of
or in connection with its acceptance or administration of a Trust;
indemnification of the Sponsor for any loss, liability or expense
incurred without gross negligence, bad faith or willful misconduct in
acting as Depositor of a Trust; all taxes and other government charges
imposed upon the Securities or any part of the Trust (no such taxes or
charges are being levied or made or, to the knowledge of the Sponsor,
contemplated). The above expenses and the Trustee's annual fee, when
paid or owing to the Trustee, are secured by a lien on each Trust. In
addition, the Trustee is empowered to sell Equity 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
a Trust 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, if any, is
unpredictable, the Sponsor cannot provide any assurance that dividends
will be sufficient to meet any or all expenses of a Trust. 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 capital gains or losses to Unit holders and
may tend to reduce gains or increase the losses which are ultimately
received by the Unit holders from investing in the Trusts. See "What is
the Federal Tax Status of Unit Holders?"
The Indenture requires the 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 $.0050 per Unit. 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 advisors 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
Page 4
bases for such opinions. If the interest or original issue discount on a
Zero Coupon Bond should be determined to be taxable, the Zero Coupon
Bond would generally be sold at a substantial discount. In addition,
investors could be required to pay income tax on interest received or
original issue discount accrued prior to the date on which interest is
determined to be taxable. 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 interest or accrued original
issue discount, if any.) If a Zero Coupon Bond is acquired with accrued
interest, that portion of the price paid for the accrued interest is
added to the tax basis of the Bond. When this accrued interest is
received, it is treated as a return of capital and reduces the tax basis
of the Zero Coupon Bond. If a Zero Coupon Bond is purchased for a
premium, the amount of the premium is added to the tax basis of the Zero
Coupon Bond. Zero Coupon Bond premium is amortized over the remaining
term of the Zero Coupon Bond, and the tax basis of the Zero Coupon Bond
is reduced each tax year by the amount of the premium amortized in that
tax year.
For purposes of the following discussion and opinions, it is assumed
that each Equity Security is equity for Federal income tax purposes and
that each Zero Coupon Bond is debt the interest on which is excluded for
Federal income tax purposes. In the opinion of Chapman and Cutler,
special counsel for the Sponsor, under existing law:
1. Each Trust is not an association taxable as a corporation for
Federal income tax purposes; each Unit holder will be treated as the
owner of a pro rata portion of each of the assets of a Trust under the
Code; and the income of a Trust will be treated as income of the Unit
holders thereof under the Code. Each Unit holder will be considered to
have received his or her pro rata share of income derived from each
Trust asset when such income is considered to be received by a Trust.
For Federal income tax purposes interest and accrued original issue
discount on Zero Coupon Bonds which is excludable from gross income
under the Code will retain its status when received by the Trust and
when distributed to a Unit holder; however, such interest may be taken
into account in computing the alternative minimum tax and an additional
tax on branches of foreign corporations as noted below.
2. Each Unit holder will have a taxable event when a Trust disposes of
a Security (whether by sale, exchange, liquidation, redemption, or
otherwise) or upon the sale or redemption of Units by such Unit holder
(except to the extent an In-Kind Distribution of stock is received by
such Unit holder as described below). If a Unit holder disposes of a
Unit, he or she is deemed thereby to have disposed of his or her entire
pro rata portion of all the securities represented by the Unit. The
price a Unit holder pays for his or her Units is allocated among his or
her pro rata portion of each asset held by a Trust (in proportion to the
fair market values thereof on the valuation date nearest the date the
Unit holder purchases his or her Units) in order to determine his or her
initial tax basis for his or her pro rata portion of each asset held by
a Trust. 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 or her basis for his or
her fractional interest in the asset disposed of. The tax basis
reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unit holder
realizing a taxable gain when his or her Units are sold or redeemed for
an amount equal to or less than his or her original cost. 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 (and
market discount, if the Unit holder elects to include market discount in
income as it accrues).
3. For Federal income tax purposes, a Unit holder's pro rata portion
of dividends, as defined by Section 316 of the Code, paid by a
corporation with respect to an 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, the holding period for such
capital gain will be determined by the period of time a Unit holder has
held his or her Units.
Page 5
4. 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). 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). Unit
holders should consult their tax advisors regarding the recognition of
such capital gains and losses for Federal income tax purposes.
5. Insurance proceeds received by a Trust under any insurance policies
which represent maturing interest on defaulted Zero Coupon Bonds held by
the Trustee will be excludable from Federal gross income if, and to the
same extent as, such interest would have been so excludable if paid in
the normal course by the issuer of the defaulted Zero Coupon Bonds
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 Zero Coupon Bonds, rather
than the insurer, will pay debt service on the Zero Coupon Bonds.
Indebtedness Incurred or Continued to Purchase or Carry Units. 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.
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, and are attributable to domestic corporations) in the
same manner as if such corporation directly owned the Equity Securities
paying such dividends (other than corporate Unit holders, 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). Final 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. To the extent (if any)
dividends received by the Trust are attributable to foreign
corporations, a corporation that owns Units will not be entitled to the
dividends received deduction with respect to its pro rata portion of
such dividends, because the dividends received deduction is generally
available only with respect to dividends paid by domestic corporations.
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 advisors 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 compound 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 previously accrued
based on its issue price (its "adjusted issue price") 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 or her Unit,
and the price the Unit holder pays for his or her Unit. Because of the
complexity of these rules relating to the accrual of original issue
discount, Unit holders should consult their tax advisors as to how these
rules apply.
Market Discount. The Revenue Reconciliation Act of 1993 (the "1993 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
Page 6
such difference, if any, is attributable to original issue discount not
yet accrued) subject to statutory "de minimis" rule. Market discount can
arise based on the price a Trust pays for Zero Coupon Bonds or the price
a Unit holder pays for his or her Units. Under the 1993 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 Zero Coupon Bond would be recognized as
ordinary income by the Unit holders when principal payments are received
on the Zero Coupon 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 advisors regarding these rules and their application.
Limitations on Deductibility of Trust Expenses by Unit Holders. Each
Unit holder's pro rata share of each expense paid by the Trust is
deductible by the Unit holder to the same extent as though the expense
had been paid directly by him. It should be noted that as a result of
the Tax Reform Act of 1986, certain miscellaneous itemized deductions,
such as investment expenses, tax return preparation fees and employee
business expenses will be deductible by an individual only to the extent
they exceed 2% of such individual's adjusted gross income. Unit holders
may be required to treat some or all of the expenses of the Trust as
miscellaneous itemized deductions subject to this limitation.
Recognition of Taxable Gain or Loss Upon Disposition of Securities by
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. In the case of
corporations, the alternative tax rate applicable to long-term capital
gains is 35%, effective for long-term capital gains realized in taxable
years beginning on or after January 1, 1993. The Internal Revenue
Service Restructuring and Reform Act of 1998 (the "1998 Tax Act")
provides that for taxpayers other than corporations, net capital gain
(which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10%
in the case of certain taxpayers in the lowest tax bracket). Capital
gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is
one year or less. The date on which a Unit is acquired (i.e., the "trade
date") is excluded for purposes of determining the holding period of the
Unit. The legislation is generally effective retroactively for amounts
properly taken into account on or after January 1, 1998. Capital gains
realized from assets held for one year or less are taxed at the same
rates as ordinary income. The date on which a Unit is acquired (i.e.,
the "trade date") is excluded for purposes of determining the holding
period of the Unit. Generally, capital gain or loss is long-term if the
holding period for the asset is more than one year and is short-term if
the holding period for the asset is one year or less. Net short-term
capital gain is taxed at the same rates as ordinary income. The Taxpayer
Relief Act of 1997 (the "1997 Act") provides that the application of
these rules in the case of pass-through entities such as the Trust will
be prescribed in future U.S. Treasury Regulations. Accordingly, Unit
holders should consult their own tax advisors as to the tax rate
applicable to capital gain dividends. 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.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisors regarding the potential effect of this
provision on their investment in Units.
If the Unit holder disposes of a Unit, he or she is deemed thereby to
have disposed of his or her entire pro rata interest in all assets of
the Trust including his or her pro rata portion of all the Equity
Securities represented by the Unit. The 1997 Act includes provisions
that treat certain transactions designed to reduce or eliminate risk of
loss and opportunities for gain (e.g., short sales, off-setting notional
principal contracts, futures or forward contracts, or similar
transactions) as constructive sales for purposes of recognition of gain
(but not loss) and for purposes of determining the holding period. Unit
holders should consult their own tax advisors with regard to any such
constructive sale rules. Under the Code, taxpayers must disclose to the
Internal Revenue Service the amount of tax-exempt interest earned during
the year.
Page 7
Computation of the Unit Holder's Tax Basis. Initially, a Unit holder's
tax basis in his or her Units will generally equal the price paid by
such Unit holder for his or her Units. The cost of the Units is
allocated among the Securities held in the Trust in accordance with the
proportion of the fair market value of such Securities on the valuation
date nearest the date the Units are purchased in order to determine such
Unit holder's tax basis for his or her pro rata portion of each
Security. A Unit holder's tax basis in his or her Units and his or her
pro rata portion of an Equity Security held by the Trust will be reduced
to the extent dividends paid with respect to such Equity Security are
received by the Trust which are not taxable as ordinary income as
described above.
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 redemption of Units or the termination of a Trust, a Unit holder is
considered as owning a pro rata portion of each of the Trust assets for
Federal income tax purposes. The receipt of an In-Kind Distribution will
result in a Unit holder's receiving an undivided interest in whole
shares of stock plus, possibly, cash.
The potential tax consequences that may occur under an In Kind
Distribution with respect to each Equity Security held by the Trust will
depend on whether or not a Unit holder receives cash in addition to
Equity Securities. An "Equity Security" for this purpose is a particular
class of stock issued by a particular corporation. A Unit holder will
not recognize gain or loss if a Unit holder only receives Equity
Securities in exchange for his or her pro rata portion in the Equity
Security held by the Trust. However, if a Unit holder also receives cash
in exchange for a fractional share of an Equity Security held by the
Trust, such Unit holder will generally recognize gain or loss based upon
the difference between the amount of cash received by the Unit holder
and his or her tax basis in such fractional share of an Equity Security
held by the Trust.
Because a Trust will own many Equity Securities, a Unit holder who
requests an In-Kind Distribution will have to analyze the tax
consequences with respect to each Equity Security owned by a Trust. The
amount of taxable gain (or loss) recognized upon such exchange will
generally equal the sum of the gain (or loss) recognized under the rules
described above by such Unit holder with respect to each Equity Security
owned by the Trust. Unit holders who request an In-Kind Distribution are
advised to consult their tax advisors in this regard.
Collateral Tax Consequences Relating to the Zero Coupon Bonds. In
general, Section 86 of the Code provides that 50% of the Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "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. 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 1993 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
Page 8
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 or her Social Security benefits in gross income
whether or not he or she 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.
In the case of certain of the Zero Coupon Bonds in a Trust, the opinions
of bond counsel indicate that interest on such Zero Coupon Bonds
received by a "substantial user" of the facilities being financed with
the proceeds of these Zero Coupon Bonds, or persons related thereto, for
periods while such Zero Coupon Bonds are held by such a user or a
related person, will not be excludable from Federal gross income,
although interest on such Zero Coupon Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should consult their tax advisor.
For purposes of computing the alternative minimum tax for individuals
and 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.
Certain Tax Matters Applicable to Corporate Unit Holders. In the case of
certain corporations, the alternative minimum tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI of a corporation (other than an S Corporation,
Regulated Investment Company, Real Estate Investment Trust, or REMIC) is
an amount equal to 75% of the excess of such corporation's "adjusted
current earnings" over an amount equal to its AMTI (before such
adjustment item and the alternative tax net operating loss deduction).
"Adjusted current earnings" includes all tax-exempt interest, including
interest on all Zero Coupon Bonds in the Trusts. Under the provisions of
Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Zero Coupon Bonds in the Trust.
Unit holders should consult their tax advisors with respect to the
particular tax consequences to them, including the corporate alternative
minimum tax and the branch profits tax imposed by Section 884 of the
Code. Ownership of the Units may result in collateral Federal income tax
consequences to certain taxpayers, including, without limitation,
corporations subject to the branch profits tax, financial institutions,
certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness
to purchase or carry tax-exempt obligations. Prospective investors
should consult their tax advisors as to the applicability of any
collateral consequences.
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 by the Internal Revenue Service 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 (other than
those that are not treated as United States source income, if any) 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 advisors. In general, income
that is not effectively connected to the conduct of a trade or business
within the United States that is earned by non-U.S. Unit holders and
Page 9
derived from dividends of foreign corporations will not be subject to
U.S. withholding tax provided that less than 25 percent of the gross
income of the foreign corporation for a three-year period ending with
the close of its taxable year preceding payment was not effectively
connected to the conduct of a trade or business within the United
States. In addition, such earnings may be exempt from U.S. withholding
pursuant to a specific treaty between the United States and a foreign
country. Non-U.S. Unit holders should consult their own tax advisors
regarding the imposition of U.S. withholding on distributions from the
Trust.
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.
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 advisors 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 REGULATIONS ISSUED 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 a Trust are original issue discount bonds rated at the
date hereof "AAA" by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. ("Standard & Poor's"). See "Description
of Bond Ratings" for further information. Specifically, the Zero Coupon
Bonds in a Trust 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. THE
SPONSOR 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.
According to most indicators, fiscal 1997 was a banner year for the
Illinois economy. Illinois' fundamentals remain strong going into fiscal
1998, but a weakening international outlook, particularly in Asia, could
have a negative impact on both the U.S. and Illinois economies. During
fiscal 1997, Illinois payroll jobs increased 1.4% over fiscal 1996, and
the state achieved its lowest level of unemployment (5.0%) since fiscal
Page 10
1974. The state's growing economy produced a total number of jobs (5.173
million) in fiscal 1997, a 1.4% increase over the previous year.
Strong revenue growth in fiscal 1997 (up 5.1%) allowed for continuing
improvement in the state's fiscal health. Fiscal 1997 was the fifth
straight year of improvement in Illinois' budgetary balance, rising from
a $292 million deficit in 1996 to a $45 million surplus in 1997 and
marking the first positive balance since 1989. This improvement was due
in part to a third consecutive year of decline in Medicaid liabilities
carried over from the prior year. During fiscal 1997, the state did not
have to utilize short-term borrowing for cash flow purposes for the
first time in six years. Overdue payables from the General Funds were
reduced steadily through the year. By April 1997, payment delays were
eliminated.
In order to ensure increased funding for public education, the Illinois
General Assembly passed extensive reform measures in December 1997.
Funding increases guaranteed under this plan are expected to be financed
by the $918 million growth in the state's base General Funds revenue and
from several revenue measures enacted at the same time, including
increased cigarette, telecommunications and riverboat gambling taxes as
well as higher penalties for late or unfiled tax returns.
Fiscal 1997 was the second year under a new state law that required
Illinois to fund its employee pension system obligations on an
actuarially sound basis. The state's pension contribution increased by
$139 million in fiscal 1997, raising the annual funding for the five
state systems to $752 million, which met the statutory funding
requirement. By fiscal 2001, these contributions are expected to grow by
75.6% to $1.3 billion.
Total personal income in the state rose 5.7% in 1997 compared to the
U.S. growth rate of 4.8%, allowing Illinois to improve to a seventh
place ranking among the states. Merchandise exports attributed to
Illinois, including both manufactured goods and agricultural
commodities, have soared in recent years. The state's success in
domestic and international trade results from well-developed
transportation, merchandising and financial infrastructures, a highly
skilled labor force, and being home to a large group of academic and
industrial research centers. In addition, Illinois ranked third in the
value of its farm exports during 1996. Any policies or legislation
affecting the export industry may have an adverse effect on the revenue
produced by export products in Illinois.
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's have
rated the Zero Coupon Bonds "A1" 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 Standard &
Poor's. 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 Assurance
Corporation on the Zero Coupon Bonds included in the Trust. As a result
of such insurance the Zero Coupon Bonds are automatically rated "AAA" by
Standard & Poor's.
Standard & Poor's has rated the general obligation debt of the State
"AA," and Moody's has rated the debt "Aa2."
The July 28, 1997 publication of Standard & Poor's Creditweek described
the reasons for its rating as follows:
"The rating upgrade on Illinois and its related entities' debt reflects
the state's strong financial improvement. The state's current 'AA' G.O.
debt rating is based on a solid and diversified economy, an improved
financial condition, and moderate debt levels. The ratings on the debt
of related entities reflects the state's credit characteristics, as well
as the risks associated with appropriation and moral obligation debt.
Exhibiting robust economic performance for the past five years and
marked by strong private investment and export expansion, Illinois' real
state product growth of 2.6% in 1996 matched national patterns.
Employment growth continues to exceed national rates, and unemployment
rates approximate the national mark. The combination of sustained
economic growth and more conservative budget practices have underpinned
the state's financial improvement.
Following five successive years of budgetary surpluses, the state
eliminated a $1 billion backlog of unpaid Medicaid bills; reduced lapse
period spending; and achieved a closer match between spending and
Page 11
revenue growth (particularly individual and corporate income tax
receipts) and spending restraint in fiscal 1997 have helped boost cash
balances to $806 million at fiscal year-end 1997, the highest in state
history. The GAAP deficit, which stood at $951 million at fiscal year-
end 1996, is expected to improve on the strength of solid fiscal 1997
operations. The 1998 budget, which once again is based on modest revenue
assumptions, calls for a moderate 4.6% increase in general fund
spending. The bulk of the increased funding is for elementary, secondary
and higher education, followed by human service, Medicaid, and public
safety.
Normal cyclical economic pressures will challenge the state to continue
the improvement in its GAAP-based financial position. Furthermore, the
state will face financial challenges and risks associated with
implementing Medicaid reform (MediPlan Plus), addressing school finance
issues, and improving pension system funding. Debt levels remain
moderate, and amortization is aggressive with nearly two-thirds of
outstanding debt due to be retired over the next 10 years.
The outlook reflects the state's stronger financial management and
progress toward restoring financial health. Standard & Poor's
anticipates that the state will continue to employ conservative
budgetary practices and to improve its GAAP balances."
The July 17, 1997 publication of Moody's Municipal Credit Report
described the reasons for its rating as follows:
"Moody's has assigned an Aa3 rating to the general obligation bonds of
the State of Illinois and revised the outlook to positive. Recent trends
of financial improvement should enable the state to re-establish long-
term budget balance. The state's financial condition has improved during
the current economic recovery as spending restraint, principally in the
area of Medicaid, has combined with economic growth to reverse a trend
of deteriorating finances. The state expects to sell $100 million of
general obligation bonds on July 22. In February 1997, Moody's upgraded
the State of Illinois' general obligation bond rating to Aa3 from A1 in
February 1997.
The Aa3 rating is based upon the state's broad-based economy, its
moderate level of debt, and improving finances. The once large and
growing accumulated GAAP deficit has now shrunk and balance operations
have been reestablished. Large unfunded pension liabilities remain a
serious fiscal weakness.
Steady Economic Growth Tracks the Nation. As the national economic
expansion continues, the State of Illinois has grown along with the
nation. Unemployment rates have been below the national average for
several years, and Illinois' economy has been boosted by a strong export
sales sector, among the largest of the states.
Improved Financial Results. State finances have improved since fiscal
1995. Aggressive efforts to bring a backlog of unpaid bills current and
control runaway costs of social service programs have produced balanced
budgets. Fiscal 1997 ended with a budget basis ending balance of $806
million (4.4% of expenditures), the highest amount on record for the
state.
Medicaid Spending Controlled. Spending for Medicaid, the largest social
service spending program, grew at an average annual rate of 17.5% from
fiscal 1990 to 1995 but has now been reduced for both fiscal 1996 and
1997. Overdue Medicaid bills, which exceeded $1 billion for fiscal 1995,
have now been virtually eliminated.
Trend of Declining GAAP Deficits Expected to Continue. The state's
sizable GAAP deficit was reduced in fiscal 1995, and declined again in
fiscal 1996. The GAAP deficit, which exceeded $2 billion (13.5% of
revenues) in fiscal 1993, declined to $1.1 billion (6.2% of revenues) in
fiscal 1996 and is expected to decline to $600 million when the fiscal
1997 audit results are completed.
Cash Balances Improved. Spending restraint and steady revenue growth
have enabled the state to reduce lapse period spending and improved
ending cash balances which have improved from $100 million in 1991 to
$806 million in fiscal 1997. The state still lacks a formal budget
reserve fund. Improved cash management has enabled the state to bring
its backlog of unpaid bills current and to eliminate its short term
borrowing for fiscal 1998, which was as large as $900 million in 1994.
Audited financial results for fiscal 1996 confirm this trend which is
expected to continue through fiscal 1997. Sustaining this trend of
positive financial results and building reserves will be key to future
rating evaluations.
Moderate Debt Ratios. State debt issuance has remained moderate given
this large industrial state's broad infrastructure needs. Composed
primarily of general obligations, the state's other major debt program,
Build Illinois, is nearing the end of its authorization. Recently, the
state has increased its reliance on Certificates of Participation,
Page 12
especially for prison construction, but the total amount of COPs
outstanding remains small.
Outlook. The outlook for the State of Illinois' general obligations is
positive. Recent trends of financial improvement as reflected in budget
basis year-end results, should continue and enable the state to re-
establish long-term budget balance. Conservative revenue assumptions for
fiscal 1998 and tight fiscal management of expenditures should result in
further improvement in financial results. Aggressive attention to
Medicaid cost control, long the state's most rapidly growing expenditure
area, have yielded savings and lowered the growth projected, which have
enabled state to re-establish long term budget balance.
The state economy has tracked the now long-running national economic
recovery and is expected to continue to perform well.
A remaining weakness is the funding of the state employees pension
system. Long-standing underfunding was compounded during the early 1990s
recession to provide reduced or eliminated state contributions as a
source of state budget relief. Legislation has been enacted requiring
annual funding to prevent further deterioration. Although the schedule
ultimately will bring the system to 90% of full funding, the funding
track to achieve this is 50 years and for the foreseeable future the
system will only maintain existing funded levels. However, there is no
short term threat to the ability of the system to meet payments to
retirees and the funding burden on the state's general fund is modest.
A rating outlook is not a prediction of a rating change, but an
indication of prevailing trends and fiscal practices which, if
continued, increase the likelihood of a rating change with next three
years."
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.
How are the Zero Coupon Bonds Insured?
All Zero Coupon Bonds in the portfolio of a Trust 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
Assurance Corporation ("AMBAC Assurance" or "AMBAC"), a Wisconsin-
domiciled stock insurance company. Effective July 14, 1997, AMBAC
Indemnity Corporation changed its name to AMBAC Assurance Corporation.
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 Assurance
remains in business.
AMBAC Assurance 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
$2,967,246,831 (unaudited) and statutory capital of $715,481,691
(unaudited) as of March 31, 1998. Statutory capital consists of AMBAC
Assurance's policyholders' surplus and statutory contingency reserve.
AMBAC Assurance is a wholly-owned subsidiary of AMBAC Financial Group,
Inc., a 100% publicly-held company. Moody's and Standard & Poor's have
both assigned a triple-A claims-paying ability rating to AMBAC Assurance.
Copies of AMBAC Assurance's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Assurance.
The address of AMBAC Assurance'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 Assurance contained above has been
furnished by AMBAC Assurance. 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 Assurance would be excludable from Federal gross income if, and to
the same extent as, such interest would have been so excludable if paid
Page 13
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 Stock Market
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.
Each Trust consists of such of the Securities listed under "Portfolio"
appearing in Part One for the Trust as may continue to be held from time
to time in each Trust and any additional Securities acquired and held by
the 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 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 a Trust 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 a Portfolio may be expected to fluctuate over the life of a Trust to
Page 14
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. 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.
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?"
Like other investment companies, financial and business organizations
and individuals around the world, the Trust could be adversely affected
if the computer systems used by the Sponsor, Evaluator, Portfolio
Supervisor or Trustee or other service providers to the Trust do not
properly process and calculate date-related information and data
involving dates of January 1, 2000 and thereafter. This is commonly
known as the "Year 2000 Problem." The Sponsor, Evaluator, Portfolio
Supervisor and Trustee are taking steps that they believe are reasonably
designed to address the Year 2000 Problem with respect to computer
systems that they use and to obtain reasonable assurances that
comparable steps are being taken by the Trust's other service providers.
At this time, however, there can be no assurance that these steps will
be sufficient to avoid any adverse impact to the Trust.
The Year 2000 Problem is expected to impact corporations, which may
include issuers of the Equity Securities contained in the Trust, to
varying degrees based upon various factors, including, but not limited
to, their industry sector and degree of technological sophistication.
The Sponsor is unable to predict what impact, if any, the Year 2000
Page 15
Problem will have on issuers of the Equity Securities contained in the
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:
Percent of Percent of
Offering Net Amount
Number of Units Price Invested
_____________________________ ___________ __________
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%
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
broker/dealer, bank or other selling agent. 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 broker/dealer, bank or other selling
agent. 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 broker/dealer, bank or other
selling agent of any such combined purchase prior to the sale in order
to obtain the indicated discount. In addition, with respect to the
employees, officers and directors (including their immediate family
members, defined as spouses, children, grandchildren, parents,
grandparents, mothers-in-law, fathers-in-law, sons-in-law and daughters-
in-law, and trustees, custodians or fiduciaries for the benefit of such
persons) of the Sponsor and the brokers/dealers, banks or other selling
agents 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
Stock Market, 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
Page 16
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.
The Evaluator on each business day will appraise or cause to be
appraised the value of the underlying Equity Securities in the Trust as
of the Evaluation Time and will adjust the Public Offering Price of the
Units commensurate with such valuation. Such Public Offering Price will
be effective for all orders received prior to the Evaluation Time on
each such day. Orders received by the Trustee or Sponsor for purchases,
sales or redemptions after that time, or on a day which is not a
business day, will be held until the next determination of price. The
term "business day," as used herein and under "Rights of Unit Holders-
How May Units be Redeemed?", shall exclude Saturdays, Sundays and the
following holidays as observed by the New York Stock Exchange, Inc.: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas Day.
Although payment is normally made three business days following the
order for purchase (the date of settlement), payment may be made prior
thereto. A person will become owner of Units on the date of settlement
provided payment has been received. Cash, if any, made available to the
Sponsor prior to the date of settlement for the purchase of Units may be
used in the Sponsor's business and may be deemed to be a benefit to the
Sponsor, subject to the limitations of the Securities Exchange Act of
1934. Delivery of Certificates representing Units so ordered will be
made three business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market may be offered by this Part
Two Prospectus at the 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.
The Sponsor may from time to time in its advertising and sales materials
compare the then current estimated returns on the Trust and returns over
specified periods on other similar Trusts sponsored by Nike Securities
L.P. with returns on taxable investments such as corporate or U.S.
Government bonds, bank CDs and money market accounts or money market
funds, each of which has investment characteristics that may differ from
those of the Trust. U.S. Government bonds, for example, are backed by
the full faith and credit of the U.S. Government and bank CDs and money
market accounts are insured by an agency of the federal government.
Money market accounts and money market funds provide stability of
principal, but pay interest at rates that vary with the condition of the
short-term debt market. The investment characteristics of the Trust are
described more fully elsewhere in this Prospectus.
From time to time the Sponsor may implement programs under which
broker/dealers, banks or other selling agents of the Fund may receive
nominal awards from the Sponsor for each of their registered
representatives who have sold a minimum number of UIT Units during a
specified time period. In addition, at various times the Sponsor may
implement other programs under which the sales force of a broker/dealer,
bank or other selling agent may be eligible to win other nominal awards
for certain sales efforts, or under which the Sponsor will reallow to
any such broker/dealer, banks or other selling agents that sponsors
sales contests or recognition programs conforming to criteria
established by the Sponsor, or participates in sales programs sponsored
by the Sponsor, an amount not exceeding the total applicable sales
charges on the sales generated by such person at the public offering
price during such programs. Also, the Sponsor in its discretion may from
Page 17
time to time pursuant to objective criteria established by the Sponsor
pay fees to qualifying broker/dealers, banks or other selling agents for
certain services or activities which are primarily intended to result in
sales of Units of the Trusts. Such payments are made by the Sponsor out
of its own assets, and not out of the assets of the Trusts. These
programs will not change the price Unit holders pay for their Units or
the amount that the Trusts will receive from the Units sold.
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.
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 three business days
following such order or shortly thereafter. Certificates are
transferable by presentation and surrender to the Trustee properly
endorsed or accompanied by a written instrument or instruments of
transfer. 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 or her 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
Page 18
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. 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 or her Units for redemption, receive: (i)
the pro rata share of the amounts realized upon the disposition of
Equity Securities, unless he or she 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.
Page 19
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 or her Units by tender
to the Trustee at its corporate trust office in the City of New York of
the certificates representing the Units to be redeemed, or in the case
of uncertificated Units, delivery of a request for redemption, duly
endorsed or accompanied by proper instruments of transfer with signature
guaranteed as explained above (or by providing satisfactory indemnity,
as in connection with lost, stolen or destroyed certificates), and
payment of applicable governmental charges, if any. No redemption fee
will be charged. On the third business day following such tender, the
Unit holder will be entitled to receive in cash an amount for each Unit
equal to the Redemption Price per Unit next computed after receipt by
the Trustee of such tender of Units. The "date of tender" is deemed to
be the date on which Units are received by the Trustee (if such day is a
day in which the New York Stock Exchange is open for trading), except
that as regards Units received after 4:00 p.m. Eastern time (or as of
any earlier closing time on a day on which the New York Stock Exchange
is scheduled in advance to close at such earlier time), the date of
tender is the next day on which 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 Stock Market, 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
Page 20
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 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 1:00 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 or she 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
Page 21
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.
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 $20 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 (630) 241-4141. As of December
31, 1997, the total partners' capital of Nike Securities L.P. was
$11,724,071 (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 The Chase Manhattan Bank, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, 6th floor, New York, New
York 10004-2413. Unit holders who have questions regarding the Trusts
may call the Customer Service Help Line at 1-800-682-7520. The Trustee
is subject to supervision by the Superintendent of Banks of the State of
New York, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
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
Page 22
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 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
Page 23
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 or her 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 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 a Trust any accrued costs, expenses, advances
or indemnities provided by the Trust Agreement, including estimated
compensation of the Trustee and costs of liquidation and any amounts
required as a reserve to provide for payment of any applicable taxes or
other governmental charges. Any sale of Securities in a Trust upon
termination may result in a lower amount than might otherwise be
realized if such sale were not required at such time. The Trustee will
then distribute to each Unit holder his or her 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.
Page 24
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
l. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his or
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.
________________
* As published by the rating companies.
** Bonds insured by AMBAC Assurance Corporation are automatically rated
"AAA" by Standard & Poor's.
Page 25
Moody's. A brief description of the applicable Moody's 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 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.
Page 26
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Page 27
CONTENTS:
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? 10
How are the Zero Coupon Bonds Insured? 13
What are Equity Securities? 14
What are Some Additional Considerations
for Investors? 15
Public Offering:
How is the Public Offering Price Determined? 16
How are Units Distributed? 17
What are the Sponsor's Profits? 18
Rights of Unit Holders:
How is Evidence of Ownership Issued
and Transferred? 18
How are Income and Capital Distributed? 18
What Reports will Unit Holders Receive? 19
How May Units be Redeemed? 20
How May Units be Purchased by the Sponsor? 21
How May Securities be Removed from a Trust? 21
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 22
Who is the Trustee? 22
Limitations on Liabilities of Sponsor and Trustee 23
Who is the Evaluator? 23
Other Information:
How May the Indenture be Amended
or Terminated? 23
Legal Opinions 24
Experts 24
Description of Bond Ratings 25
___________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE FUND
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
First Trust (registered trademark)
STRATEGIC EQUITY SERIES
The First Trust
Special Situations Trust
Prospectus
Part Two
September 30, 1998
First Trust (registered trademark)
001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 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
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
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, 1998.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 46
STRATEGIC EQUITY TRUST, SERIES 1
(Registrant)
ByNIKE SECURITIES L.P.
(Depositor)
ByRobert M. Porcellino
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Director of )
Nike Securities )
Corporation, ) September 30, 1998
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
David J. Allen Director of Nike ) Attorney-in-Fact**
Securities Corporation,
the Genral Partner of
Nike Securities L.P.
* The title of the person named herein represents his capacity
in and relationship to Nike Securities L.P., Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated August 31, 1998 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated September 25, 1998.
ERNST & YOUNG LLP
Chicago, Illinois
September 24, 1998
<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> Strategy Equity Trust
Series
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 2,270,758
<INVESTMENTS-AT-VALUE> 3,649,710
<RECEIVABLES> 1,767
<ASSETS-OTHER> 7,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,658,634
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 822
<TOTAL-LIABILITIES> 822
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,270,758
<SHARES-COMMON-STOCK> 214,194
<SHARES-COMMON-PRIOR> 249,365
<ACCUMULATED-NII-CURRENT> 8,102
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,378,952
<NET-ASSETS> 3,657,812
<DIVIDEND-INCOME> 29,532
<INTEREST-INCOME> 84,123
<OTHER-INCOME> 0
<EXPENSES-NET> 5,225
<NET-INVESTMENT-INCOME> 108,430
<REALIZED-GAINS-CURRENT> 170,113
<APPREC-INCREASE-CURRENT> 407,087
<NET-CHANGE-FROM-OPS> 685,630
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,754
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 35,171
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 109,403
<ACCUMULATED-NII-PRIOR> (1,508)
<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>
